Best Bank
Expanding to Global
Stable Portfolio
Trusted GroupHANA FINANCIAL GROUP ANNUAL REPORT 2014

Contents
Highlights
Key Highlights
Financial Highlights
Stock Information2014 News Highlights
Group Overview
12

Letter to Shareholders and Customers

16

Interviews with the Management

24

Vision26

At a Glance

28

Risk Management

30

Corporate Governance

32

Board of Directors

34

Global Network

Review of Operations
36

Retail Banking

41

Corporate Banking

46

Global Operations

48

IB & Asset Management

51

Credit Card

53

Trust & Pension

56

Corporate Social Responsibility

Financials
61

Management’s Discussion and Analysis

97

Independent Auditors’ Report

98

Consolidated Financial Statements

104 Notes to the Consolidated Financial Statements
226 Corporate Information
227 Forward Looking Statements

The Trusted
Premier Global
Financial Group
Last year Hana Financial Group drew up the new
vision, 'The Trusted Premier Global Financial Group',
together with its executives and employees, andtook many steps in line with the vision. All of us
at Hana Financial Group did our best to improvecustomer satisfaction and to enhance shareholders
value in the face of challenging economic
environments at home and abroad.
In 2015, Hana Financial Group will continue moving
forward toward its vision, creating synergy andimproving upon its competencies in banking,securities, credit card, insurance, retail financing
and overseas business. We also will do our share inbuilding a better tomorrow for all, through pursuit of"Happy Finance".

KEY HIGHLIGHTS
In 2014, Hana Financial Group took many long-ranged steps toward realizing its vision, recording
interim results indicative of the soundness of the strategy being employed; both low-cost deposits
and low-risk loans grew markedly; operating income increased while general and administrative
expenses decreased, all contributing to enhance profitability.

Total Assets (Consolidated)390

KRW Loans163

KRW in trillion

KRW in trillion

163

390
158

368
151

349

2012

2013

2014

2012

2013

2014

Sum of Hana Bank's and KEB's KRW loans

Total Deposits (Ending Balance)

190

Global Awards in 2014

"Best Bank in Korea"
Hana BankKRW in trillion

The Banker
190
177"Best Foreign Exchange
Provider in Korea 2014"
Korea Exchange Bank
Global Finance170"Best Private Bank in Korea"
Hana Bank
Euromoney

2012

2013

2014

Sum of Hana Bank's and KEB's KRW deposits

WWW
Hana Financial Group
http://www.hanafn.com/eng/main.do

Global Network
As of April 2015

The Industry's Largest Global Network

136
24

Points of Operation
Countries

Asia & Pacific 100 • Europe & Middle East 10 • America 26

The Banker"Top 1000 World Banks 2014"

Future Finance Mobile
Banking Users

As of July 2014

As of Dec. 201484thHana Bank ranked 532nd (1993)

4,668,823

Employees
As of Dec. 2014

21,684

FINANCIAL HIGHLIGHTS
Hana Financial Group is strengthening its growth engines as a way to realize the vision. To rise above
the challenge of the low interest rate environment and to grow into a premier global financial group, we
will further strengthen our competitive advantages in the non-banking sector and overseas business,both of which still possess relatively high growth potential.
(KRW in billion)

Financial Summary

2014

2013

General Operating Income

6,331.6

6,239.7

Operating Income

1,243.4

1,165.0

Consolidated Net Income

937.7

933.9

ROA

0.32%

0.34%

ROE

4.55%

5.16%

EPS (KRW)

3,177

3,399

62.17%

61.64%

Total Assets

390,486.7

368,486.4

Total Sales

267,121.2

252,143.2(Total Deposits)

237,683.3

225,119.8(Sales of Beneficiary Certificates)

29,437.9

27,023.4

1.35%

1.48%

123.30%120.66%

0.62%

0.58%

BIS CAR12.63%

12.28%

Tier 1 Ratio

9.67%

9.24%

Common Equity Tier 1 Ratio

9.18%

8.63%

71,84868,754

Profitability

Cost to Income Ratio
Business Volume

Asset Soundness
Substandard & Below (NPL) Ratio
Substandard & Below (NPL) Coverage Ratio
Delinquency Ratio
Capital Adequacy*

BPS (KRW)*Based on Basel III standards

WWW
Financial Information
http://www.hanafn.com/eng/ir/financial/summary/importantDetail.do

Net Interest Income (Consolidated)

4,671◦NIM ■ Int. Income

937.7

KRW in billion

2.13%

Net Income (Consolidated)

KRW in billion

1,621.5

1.94% 1.91%
4,671

4,599

4,485

2012

2013

2014

2012

1.35%

2014

0.53%

0.51%

2013

2014

0.71%
1.35%

2013

2013

0.51%

1.48%

2012

937.7

Credit Cost (Cumulative)

NPL Ratio

1.34%

933.9

2014

2012

Major Indices (Cumulative, %)Cost to 51.0%
Income Ratio
ROE
ROA

62.2%

61.6%

10.56%
5.16%
0.60%
0.34%

2012

2013

2014

4.55%
0.32%

STOCK INFORMATION
Despite the inert stock market, which negatively affected the Group's market capitalization,
we maintained our unbroken dividend payout legacy, paying more in 2014 than in the two
previous years. Going forward, we will continue our business strategy of depending less oninterest incomes but relying more on low-cost core deposits, lending more to healthy SMEs
and optimizing asset/liability portfolio management.
Market Capitalization

9.28

Consistent Dividend History

600

KRW in trillion◦ Dividend Payout Ratio■ Dividend per share (KRW)KRW per share

16.0%

7.8%

14.5%

19.1%

12.73

8.64

2011

450

8.43

2012

600

600

9.28

2013

2014

2011

2012

400

2013

2014

Share Ownership
As of Dec. 201468.79%

31.21%DOMESTICFOREIGN

Share Price Movements(KRW, Point)

2014

2013

2012

2011

2010

High

43,85043,90044,90049,70044,000Low

31,45031,85030,35029,00028,700Year-end

32,00043,90034,70035,55043,3001,915.59

2,011.34

1,997.05

1,825.74

2,051.00

KOSPI index (year-end)

WWW
Stock Information
http://www.hanafn.com/eng/ir/irStockInfo01.do

Outstanding Credit Ratings
As of May 2015

Moody's

S&P

A1
A

Hana Bank

Hana Bank

A1
A

BANK

Korea Exchange Bank

BANK

BANK

Korea Exchange Bank

Stock Performance–– Hana Financial Group –– KRX Bank –– KOSPI

300%

250%

200%

150%

100%

50%

2012. 01
The FSC approved the Korea Exchange Bank acquisition

2009
Successfully weathered a financial crisis

2013. 01
BoD approved plan to turn Korea Exchange Bank into a 100%
subsidiary through a share swap

2010. 02
Hana SK Card inked JV pact with SK Telecom
2010. 11Signed to acquire Korea Exchange Bank

2009

2010

2011

2014. 01
New Vision 'The Trusted Premier Global
Financial Group' promulgated2014. 03
PT Bank KEB Hana, the integrated
Indonesian subsidiary, launched2013. 04
Korea Exchange Bank delisted, new shares of Hana Financial
Group listed

2014. 12
Newly integrated KEB Hana Card launched
Newly integrated subsidiary, Hana Bank
(China) Ltd. launched

2012

2014

2013

2015

2014
2014 NEWS HIGHLIGHTS

New vision, 'The Trusted Premiere Global
Financial Group', promulgated

KEB Hana Card Launched

On Jan. 11, 2014, Hana Financial Group held a 'Start
2014' event. Attended by 12,000 executives andemployees, the event served as an occasion to
promulgate the Group's new vision, 'The Trusted
Premiere Global Financial Group', and to make thepledge to grow Hana Financial Group into a top-tierglobal financial group trusted by its shareholders andcustomers.

announcing the outcome of the

On Dec. 1, KEB Hana Card held alaunching ceremony at its HQ office,integration of Hana SK Card and KEB
Card. As a result of the complete integration of the two card companies,
KEB Hana Card has emerged a midsized card company with 4.7 million inmembership, KRW 6 trillion in assets,
KRW 55.2 trillion in annual sales, andover 8% in market share. By 2025 itaims to grow annual sales to KRW
140 trillion, net income to KRW 500
billion, and market share to 15%.

Hana Bank Named"Best Global Private Bank"At the 6th Global Private Banking
Awards on Oct. 30, 2014, Hana Bankwon the 'Global Best Digital Com-

Hana Bank (China) Launched
In Dec. 2014, Hana Bank (China) was
emerged through the consolidationof the two local subsidiaries of Hana
Bank and Korea Exchange Bank. With
about CNY 45 billion in assets and
CNY 5.2 billion in equity, the newly
integrated Chinese subsidiary aims

munication Private Bank' award.
Jointly organized by 'The Banker'
and 'PMW', the annual event held at
Geneva, Switzerland, identifies andhonors global financial institutions
with private banking performances
outstanding not only by their national
but also by global standards.

Integrated Indonesian
Subsidiary Launched
On Mar. 10, 2014, Hana Financial
Group launched PT Bank KEB Hana,
a new Indonesian subsidiary into
which the two local subsidiaries of
Korea Exchange Bank and Hana Bank
have integrated. The emergence ofthe new Indonesian subsidiary is theto become a top five foreign bank infirst case of integrating the businessassets by 2025 through expansion ofoperations of Hana Bank and Korea

the branch network and the customer

Exchange Bank, and is significant inbase.

that the subsidiary is in a position tobetter serve not only local customers
but local corporate clients as well.

GROUP OVERVIEW

012

REVIEW OF OPERATIONSFINANCIALS

Hana Financial Group Annual Report 2014

LETTER TO SHAREHOLDERS
AND CUSTOMERS
Dear valued shareholders and customers,
In 2014, Hana Financial Group focused allof its resources and energies on enhancing
shareholders value in the face of challenging
economic environments at home and abroad.
I am delighted to share with our shareholders
and customers that we have strengthened
the foundation for future growth through the
integration of card operations and overseas
subsidiaries.

2014 marked first steps
toward the new vision
Last year we formulated a new vision
based on the aspirations of Hana Financial
Group employees, pronounced 'The
Trusted Premier Global Financial Group',and geared our business activities towardrealizing the vision. In the process,we significantly grew loans by taking
full advantage of government policies
promoting the growth of SMEs and madevisible improvements in core incomes.
Interest income increased by 4.1% fromthe year before despite base rate cuts. The
increase of this core income is a natural
outcome of our concerted efforts aimed
at attracting stable deposits and extending
new lending to select SMEs.

013

Fee income, another component of thecore incomes, performed even better,recording a 5.2% increase. Our strategy ofsteering private banking customers toward
equity-linked trust products proved fruitful,while membership drives and other efforts
to spur the new card operation paid off.
While expanding the scale of many of ouroperations, we managed to cap the growthof general & administrative expenses at
2.3%. This modest increase of the key
expense component was possible becauseof the pains we all endured in streamlining
the manpower and the branch operations
and other efficiency-focused efforts wemade in the past couple of years.
We improved the quality as well as size of
our assets. The year-end NPL ratio stood at
1.35%, which represents the most stability
since the 1st quarter of 2013.
To minimize NPLs, we stepped up themonitoring of corporate borrowers on thewatch list and stepped in with preemptive
measures whenever deemed necessary.
We also made concrete achievements
toward a full integration of Korea ExchangeBank into our operations, which has
become all the more crucial to our futurecompetitiveness; the two Indonesiansubsidiaries of Hana Bank and Korea
Exchange Bank have been consolidated,
resulting in more synergy benefits than
anticipated. This encouraging example

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

WWW
Vision & Mission
http://www.hanafn.com/eng/info/
aboutus/vision.doof integration was followed by anothermerger between the two banks' Chinese
subsidiaries, with similar effects. Closer tohome, KEB Hana Card has newly emerged
through the merger of Hana SK Card and
KEB Card.
In 2015, we will continue our pursuit ofhigher efficiency in the business operationsof Hana Financial Group.
A complete integration of Korea ExchangeBank will be pursued with a renewed
resolve toward creating a sustainable “OneBank” base and will be consummated to
the full satisfaction of all stakeholders.
Collaboration and convergence will be twomain principles which we will follow inrealizing a seamless integration.
Moreover, we will also continue to growinto a foremost financial group true inevery aspect; the customer base will befurther expanded and synergy multipliedamong Hana Financial Group subsidiaries
through innovation of sales; and our market
leadership in smart banking and other new
business will be maintained at all costs.

0142015 to see Hana Financial
Group leap forward
This year, the economic environment andfinancial market conditions are expected
to be as daunting as before; the endingof the US quantitative easing, a fallingJapanese yen, a slowing Chinese economy
and other global risks continue to stir
uncertainties surrounding the market; theprojected domestic economic growth rateof 3% will have little impact on the ongoing
low-growth environment. Nor will we be
deterred by these unnerving developments
and uninspiring projections from taking on
new challenges as we have done before.
Firstly, we will leverage the integrationsof last year into synergy creation. Spurredby the results of the initial steps taken in2014, we are working hard to realize a full
integration of the two banks in the nearest
future. All of our Group members will
collaborate with one another and converge
our resources and energies into change
and innovation. Individual passions andinstitutional characters will be harnessed
toward the expansion of the synergy
creation base. IT systems and businesschannels will be redirected towardbusiness efficiency enhancement. The
rationalization of IT, channels, organizations,and other business operations will be thecore components of the full integration wewill pursue in the coming years.

Hana Financial Group Annual Report 2014

Secondly, we will expand the customer
base and enhance channel productivity. We
will take all possible measures that will help
attract new customers. Development of
new products and services will be geared
toward accommodating a wider range of
SOHO and SME needs. The diversificationof on/off-line channels will be undertakenwith a focus on improving customer
convenience; the capacity and efficiency ofchannels will also be expanded, all to makeit easier for customers to bank with us.
Thirdly, we will continue to develop future
growth models. To grow into a financialgroup competitive in all of its operations,
we will bolster our competencies in theoverseas business and non-banking areas
which still have high growth potential.
By leveraging our strengths in global
operations, we will further expand our
unrivaled overseas network and continue
to generate stories of clients making
successful overseas expansions. New
business models will be explored based on
fin-tech and other advanced IT.

of "Creative Economy" and the financial
independence of low-income classes.
Embodying our business philosophy of'Growing together and sharing happinessthrough finance', we will stay faithful toour role as a responsible corporate citizen
doing all we can to grow together with ourcommunities.
Hana Financial Group has led the domestic
financial industry with many industry
firsts: Korea Exchange Bank and Hana
Bank introduced Korea's first credit cardbusiness and Private Banking (PB) and
Relationship Manager (RM) systems,
respectively; the branch-in-branchsystem, mobile banking and other digitalfinancial services also are componentsof our innovative legacy. By drawing onsuch a spirit of innovation, we will focus
the creative energies of all of our groupmembers on making another great leap
forward in 2015.

Thank you,

Lastly, we will play a bigger role increating a society that cares more for theless fortunate. While continuing to honor
financial consumer rights, we will stepup efforts supporting the development

Kim Jung-tai
Chairman & CEO of Hana Financial Group015

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSINTERVIEWS WITH
THE MANAGEMENT
In 2014, Hana Financial Group made noteworthy achievements in integrating its banking
operations and strengthening the business structure. In this section, the top managementof Hana Financial Group share some of the details about more memorable steps taken in2014 and lay out their business plans for 2015.

016

Kim Byoung-ho

Kim Han-jo

President & CEO of Hana Bank

President & CEO of Korea Exchange Bank

Chang Seung-chulJeong Hae-boong

President & CEO of Hana Daetoo Securities

President & CEO of KEB Hana Card

Hana Financial Group Annual Report 2014

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IR Web Casting
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Faced with low interest rates, canHana Financial Group make any
meaningful progress in 2015?
_ Kim Jung-tai : "Considering the

we should be able to reach the 2015 ROE
objective."incomes won't be easy. Nevertheless,

What are the steps the Groupplans to take to improve its noninterest income and non-banking
operations?

in 2015, Hana Financial Group aims for a_ Kim Jung-tai : "Last year we

significant improvement in ROE.

executed with vigor the integration of

To reach this goal, we will first seek to

Hana SK Card and KEB Card, which should

current state of interest rates, competitionfueling market developments, andtightening regulations, growing core

increase net interest incomes by growinginterest-earning assets and maintaining our
pricing strategy regarding loan products.
In the area of fee income, we will
increase card fees based on expandedsynergies following the integration of
the card operations and enlarge FX fees

contribute to increase non-banking related
incomes and to diversify the businessportfolio. The integration itself will further

finance.

card marketing more cost-effective, andcontribute to the growth of sales andrelated incomes for many years to come.

Net Income(KRW in billion)

As for managing general and administrative
expenses, we will continue the group-wide
938

expense rationalization campaign launchedin 2013, and explore various measures toimprove profitability.

934

As for credit loss provision, we expect it to
be no more than KRW 1.1 trillion in 2015,
which represents a credit cost objectiveof 0.45%, 0.06%p lower than in 2014; thecredit cost objective is lower because wemade significant improvements in risk
management last year. Once the above
steps have been implemented as planned,

017

Chairman & CEO of Hana Financial Group

enlarge the card customer base, renderby leveraging Korea Exchange Bank's
unrivalled dominance in FX and trade

Kim Jung-tai

2013

2014

"We will continue the group-wide
expense rationalization campaign
launched in 2013 and explore
various measures to improve
profitability."GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSWWW
IR Data Book
http://www.hanafn.com/eng/ir/financial/databookDetail.do

For overseas operations, the integrated
Indonesian subsidiary has already started
showing benefits of synergies createdthrough the integration, while Hana Bank
(China) is expected to spring forward on
the back of its December 2014 merge.
Meanwhile, Hana Daetoo Securities, which
went through an extensive restructuring
in 2014 to improve structural efficiencies,
plans to spur organic cooperation with
Hana Financial Group affiliates towardputting together joint IB deals, whichshould contribute substantially to enhance
profitability."

It is understood that Hana Bankand Korea Exchange Bank bothare to maintain their SME-focused
lending strategy in 2015. Could Hana
Financial Group continue to increase
SME loans without sacrificing its
stellar asset quality?

Moreover, it makes more sense to lend

_ Kim Byoung-ho &traditionally been associated with a higher

Kim Han-jo : "Increasing SME loans

NPL ratio, and that the speed at which

does not necessarily entail asset quality

SME loans increase can have a direct

deterioration. In fact, we believe we can

impact on the NPL ratio. But in 2014, we

improve asset quality by increasing SME

substantially increased SME and SOHO

loans in proportion to total loans. In theloans in proportion to total loans without

past, the domestic financial services

causing the NPL ratio to go up, and we

industry focused on lending to large

were able to do so by lending to healthy

corporations rather than to SMEs or

SOHO and SMEs which have been shown

SOHOs; as a result, loan concentration

to be less likely to default than large

grew at the expense of asset quality,

corporations. And as we plan to continue

especially as large-amount loans andour SME/SOHO lending strategy, we

lending to business cycle-sensitive

believe the danger of deteriorating asset

industries rose in proportion. The resultant

quality will be minimal at the most."

to SMEs as average interest rates applied
to SME and SOHO loans are higher thanthose of large corporate loans.
So to address your specific concern about
asset quality, it is true that SME loans,compared to large corporate loans, haveimbalance in loan portfolios has lowered
the profitability of the overall lending
operation of the financial industry.
To correct this discrepancy and to improve
the profitability of its loan portfolio,
Kim Byoung-ho
President & CEO of Hana Bank

"Increasing SME loans does
not necessarily entail asset
quality deterioration. In fact,
we believe we can improveasset quality by increasing SME
loans in proportion to totalloans"

Hana Financial Group adopted in 2014
'Establishing a well-proportioned portfolio'
as the mid/long-term core objective andstarted taking appropriate steps, mainly
increasing loans to healthy SMEs andexpanding the SME customer base.

Hana Financial Group's annualized
loan growth rate in 2014 was lower
than the market average. Are there
any particular reasons for the lower
rate?
_Kim Byoung-ho : "In contrast to
the average loan growth rate of 7.4% for
the market, that of Hana Bank and Korea
Exchange Bank was 3.5%, which can bemainly attributed to concerted efforts on
the part of both banks to reduce large
corporate loans as one of the steps taken in
preparation for a full integration of the twobanks. In fact, both banks reduced theirrespective large corporate loan portfolios by018

Hana Financial Group Annual Report 2014

5.2% or KRW 1.4 trillion, of which KRW 1.1
trillion was cut by Hana Bank and KRW 0.3
trillion by Korea Exchange Bank.
Another reason for the low rate lies in theslowing growth of household loans; Hana
Bank increased its household loan portfolio
by KRW 3 trillion or 5.5%, while Korea
Exchange Bank decreased its by KRW 0.6
trillion or 2.7%; by satisfying a regulation
requiring banks to increase their fixed
rate mortgage loans in proportion to totalloans, earlier than its competitors, Korea
Exchange Bank was able to free itself froman unprofitable rate competition.
In 2015, as mortgage loans are to be
securitized and transferred to Korea
Housing Financing Corporation as partof the government effort to improve thehousehold debt structure, we will offset
the decrease of household loans by making
new mortgage loans and increasing
unsecured personal loans."_ Kim Han-jo : "In 2014, we identified
high-risk corporate borrowers by theirgroup affiliation and made concerted efforts
to reduce our overall exposures to therelevant groups.

risk, we, through use of our own credit
evaluation model, evaluate the financial
and non-financial aspects of all businessgroups with a balance of loans more than
KRW 100 billion, with a focus on estimating
the likelihood of them having a liquidity
problem and the ability to handle such a

As of Dec. 2014, our exposures to the
30 groups on the watch list are about(KRW in billion)

KRW 9 trillion. To these groups, we have

■ Other■ SME■ Large Corp.

administered various exposure reduction
84.4

81.2

2.2

51.6

56.5

27.2

25.7

2013

2014

2.4

Kim Han-jo
President & CEO of Korea Exchange Bank

To identify those deemed a default

problem.

KRW Corporate Loans019

It is understood that the Groupis reducing credit lines on large
corporations and expanding thewatch list to better manage highrisk borrowers. Can you state theselection criteria and total exposureof the watch list and the exposure
reduction plan for 2015?

measures of varying intensity, adjusting
the intensity of measures to their rate of
exposure. In 2015, we plan to reduce theexposures by KRW 0.8 trillion.""In 2014, we adopted'establishing a well-proportioned
portfolio' as the mid/long-termcore objective to improve theincome structure, and began toimplement action plans"

GROUP OVERVIEWThe Group's CET 1 Ratio of 9%appears inadequate for absorbing
the usual bumps of an economic
slide or responding to government
calls for more capital. Won't thecurrent BIS ratio hinder lending
growth?
_ Kim Jung-tai : "Though financial
authorities have not made public guidelines

REVIEW OF OPERATIONS

household loans as a result of its efforts
to keep the ratio of fixed-rate loans tototal at a government-required level
and to maintain NIM at a level deemedsustainable. Though the capital ratio issomewhat below that of the competitors,
Hana Bank's CET 1 ratio, which cameto 11.22% at the end of 2014, is not soinadequate as to limit asset growth.

FINANCIALSWill there be any change in thedividend policy in the near future?
_ Kim Jung-tai : "Regarding the 2014
dividend policy of the financial industry, thepayout rate has increased across the board,and Hana Financial Group plans to maintainits dividend policy in step with the industry
trend.
The dividend paid out at the end of 2014or an application roadmap with respect toKorea Exchange Bank also lagged behind

was calculated not only in line with thecapital buffers, but in view of a maximum

the competition in loan growth in 2014;

market trend but also based on many

regulatory capital ratio of 10.5% astotal KRW loans amounted to KRW 52.5

factors, including Hana Financial Group's

speculated by industry analysts, I agreebillion, which represents a 4.1% increase

capital situation, investor expectations andthat the current CET 1 ratio of 9.18% isfrom the year before; of the amount, SME

stock performances.

somewhat below the level we expect to beloans represent a 14.8% increase YoY

enforced in 2019. But, as market concerns

while both large corporate and household

about our capital adequacy are based onloans embody a 2.7% decrease. The

the highest BIS capital requirement which

decrease of the latter reflects the Bank's

won't be implemented until 2019, we

firm policy of not lending below a certain

believe, given our current rate of profit

margin rate and the Bank's lending focus

growth, the Group will be adequately

on SOHOs. Korea Exchange Bank also

capitalized by then.

plans to rebalance its loan asset portfolio by

Hana Financial Group will take all necessary

proportionally increasing lending to healthy

steps to better manage risk-weighted

SOHO and SME customers and decreasing

assets, to improve profitability, and thus

large corporate loans. Korea Exchange

to maintain a stable capital ratio to market

Bank's CET 1 ratio of 11.44%, as of Dec.

expectations.

2014, is deemed adequate enough to

To answer the question regarding the
BIS ratio and loan growth, Hana Bank
intentionally reduced its large corporateloan balance as part of its plan to integratewith Korea Exchange Bank; the growthrate of SME loans, on the other hand, wassimilar to a market average. Moreover,
Hana Bank recorded a low growth rate in

020

support loan growth."

Dividend Payout Ratio
(%)

19.1
14.5

2013

2014

Hana Financial Group Annual Report 2014

We paid a dividend of KRW 600 per share,

the effect of turning the branch networks

which, compared with the previous year,of Hana Bank and Korea Exchange Bank

represents a 19.1% increase. Moreover,

into a unified constellation of well-equippedin contrast to other financial groups,

channels through which KEB Hana Card

we paid an interim dividend despite

can boost its card membership by 1 million

unfavorable market conditions as a way

each year for the next several years. The

to improve shareholders' cash flows.

integration is also expected to eliminate

Once a full integration of Hana Bank andoverlaps and thus to slash costs and to

Korea Exchange Bank starts to generate

boost sales by encompassing KEB Card's

cost-saving synergies boosting operating

merchant network.

incomes, we should be able to gradually
increase dividends as we have always
wanted to."In the near future, KEB Hana Card is
expected to generate synergy effects
that can be harnessed and turned intoa marketing platform strategy ideal

Having newly emerged out of amomentous integration, what are
KEB Hana Card's current status andfuture plans?
_ Jeong Hae-boong: "KEB Hana Card
newly emerged on December 1, 2014,
through the integration of Hana SK Cardfor developing such new businessPresident & CEO of KEB Hana Card

opportunities as developing overseas
markets and getting a head-start in the
IT-based payment settlement market, inpartnership between the customer-based
retail operations of the Company and otherbusinesses.

and KEB Card; now it is a mid-size cardcompany with a market share of over 8%

Fee Income_Credit Cardand economies of scale strong enough to(KRW in billion)build a viable foundation for competing withbigger players head to head.
783.9

Most of all, the integration has also had
740.1

2013

021

Jeong Hae-boong

2014"KEB Hana Card has
newly emerged a mid-size
company with a credit card
membership of 4.7 million,
assets of KRW 6 trillion, annual
sales of KRW 55.2 trillion, and amarket share of over 8%."GROUP OVERVIEWFor example, an increase in membershipwill contribute to enhance the Company's
power to bargain with its merchants, which
can result in an increase in sales. Even
before the integration, both Hana SK Cardand KEB Card were close to turning in a
profit for 2014, as their years-long all-out
efforts to strengthen their profit structuresbegan to bear fruit. As such, once thesynergy effects described above start totake intended effects, it is possible for
the Company to report a sizable increase
in revenue in 2015, even with a large
integration-related expense booked in the
beginning of the year.

REVIEW OF OPERATIONSFINANCIALS

How does Hana Daetoo Securities
plan to strengthen its asset
management operation?
_ Chang Seung-chul : "In 2015,
Hana Daetoo Securities plans to focus
on expanding income sources throughdiversification of products and asset
management strategies and on establishinga comprehensive asset management
service structure with customer profit
being at the center.
In response to sliding interest rates anddiminishing investment opportunities athome, we will diversify underlying assets
and enlarge the selection of overseas

By 2019 the synergy effects will haveinvestment products. In addition to

been more than likely fully developed

increasing the selection of investment

into, among many things, a substantial

products of China, the U.S. and otherboost to the growth of non-interest

advanced markets, we will identify andincome. Moreover, the growth of theselect investment products ideal for asset

card operation will accompany a sizable

management.

increase in payment settlement accounts,
which will contribute to increase low-cost
deposits and to strengthen the overall
competitiveness of the entire groupFee Income_Asset Mgmt
(KRW in billion)

operations."
472.5
447.7

2013

022

2014

Jang Seung-chulPresident & CEO of Hana Daetoo Securities"Hana Daetoo Securities will
focus on expanding income
sources through diversificationof product and the asset
management methodologies
and realigning the asset
management services structure
to customer returns."

Hana Financial Group Annual Report 2014

To establish a comprehensive

has since grown 40% in profit. The

and customer profit-focused asset

Chinese subsidiary has made decisive

management service structure, wemoves to cultivate synergies createdwill more reflect the role of returns onby the integration; CNY-based services,

customer assets in employee performance

which were offered only by the previous

evaluations; thus put the goals ofsubsidiary of Hana Bank, are now available

customers, employees and the Company

at all 30 branches of the newly integrated

on the same plane; and expand thesubsidiary, which will substantially expand

number of well-trained private bankers

local sales; marketing opportunity will

and the team sales system. To carry out

increase targeting large corporates, thanks

these, we have increased and reorganized

to the increase of the capital; and sales

the portfolio solution teams comprisingcompetency is expected to strengthen.

specialists not only in fund, equity, fixed

Based on these expectations, the Chinese

Kim Jung-tai

income, derivatives and other investment

subsidiary aims to reach KRW 200 billion in

Chairman & CEO of Hana Financial Group

tools, but also in tax, pension, bequest andprofit in the next three years and to enter

inheritance."

the top 5 list among foreign banks in China.

Regarding the 'Hana Financial
Group 2025' vision adopted in2014, what are the areas on which
Hana Financial Group is focusing toachieve the vision?
_ Kim Jung-tai : "As we clearlystated at the time of promulgating thevision, we aim to increase global revenue
to 40% and non-banking income to 30%
in proportion to total revenue by 2025. We
will make strategic moves in earnest toachieve the overseas goal starting in 2015.
In 2014, we made some tangible resultsin our overseas operations. By integrating
the Indonesian subsidiaries in March andthe Chinese subsidiaries in December,
we launched overseas-based sales.
The integrated Indonesian subsidiary023

We also have expanded the global networkby adding branches and subsidiaries inIndonesia, Russia and other nations.
In 2015, we will continue efforts toreorganize and expand the global network.
The Chinese subsidiary is in the process of
expanding into non-banking areas as well
as of stepping up localization. By opening
branches in Vietnam and India, we will
expand our overall banking operations. In
addition, we plan to expand into the Central
American market by opening an office in
Mexico City and linking it with the Panama
branch, and to expand our presence inIndonesia, China, and Canada.""In 2015, we will continue
efforts to reorganize andexpand the global network."

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSVISION
Hana Financial Group, approaching an era of new standards and uncertainty,
felt an increasing need to make a proper response to new and emerging market challenges; and withthe addition of Korea Exchange Bank diversifying the composition of the Group, the need was elevatedinto an obligation to define new management direction and to set business objectives which all
employees can accept.
Accordingly, in 2014, the Group gathered employee views and aspirations for its and their future, andbased on general consensus, adopted and promulgated 'The Trusted Premier Global Financial Group' as
a new 10-year vision. The core strategy of the vision has been defined and dubbed 'BEST 2025' asfollows:• Best Bank (becoming Korea's No. 1 bank);• Expanding to Global (growing global revenue to 40% of total revenue);• Stable Portfolio (raising non-banking income to 30% of total); and• Trust Group (improving the brand loyalty of Hana Financial Group)Jan. 2014
New vision 'The Trusted Premier
Global Financial Group'
promulgated

Mid/long-term tasks taken toward realization of the vision

Mar. 2014
PT Bank KEB Hana launched, theintegrated Indonesiansubsidiary of Hana Bank andKorea Exchange Bank

In 2014, to grow into Korea's 'Best Bank', we devised and executed diverse strategies. First, we madenoteworthy achievements in our efforts to expand globally. By integrating the subsidiaries of Hana Bank andKorea Exchange Bank in Indonesia and China and establishing a micro finance company in Myanmar, we
solidified the foundation for raising the global business to 40% of total in revenue (Expanding to Global).

Dec. 2014
KEB Hana Card launched fully
integrated
Hana Bank (China) Ltd., theintegrated Chinese subsidiary,
launched

To expand the non-banking sector to 30% of total revenue (Stable Portfolio), we launched KEB Hana Cardthrough the integration of Hana SK Card and KEB Card, armed with an over 8% market share. To enhancebrand loyalty (Trusted Group), we proactively carried out community services promoting financial consumer
rights and supporting the economic activity of low income people.

024

Hana Financial Group conducted diverse mid/long-term tasks in 2014 to implement 'BEST 2025'.

Hana Financial Group Annual Report 2014

The Trusted Premier
Global Financial Group
Strategic Target: BEST 2025

Best Bank1

Expanding to
Global2

StablePortfolio3

Trusted Group•	Retail: Long-tail Customer
Value-	Households: Mass/
Mass Affluent-	Corporate: SME/SOHO•	Optimal Omni-channel
Network- Future Finance Activation• Leading Globalization-	China/Indonesia as Pilot
Countries• Global Payment System		 -Opportunities inTransaction Banking
Increase Utilizing Global
Network•	Promote Convergence
Business•	Leader in Mobile Banking•	Insurance : Scale
Enlargement•	Competitive Consumer
Finance•	Include Trust, a Core Toolof Differentiation, in theStrategic Objectives•	Enhance Hana Financial
Group's Brand Image•	Strengthen Financial
Consumer Protection

AgilityBusiness Model
Innovation

Customer
Centricity

Digitalization

1. 1st in Net Income
2. Global Income to Domestic Income = 40% : 60%
3. Non-banking Income to Banking Income = 30% : 70%.

025

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSAT A GLANCE
Hana Financial Group
Founded in 2005, Hana Financial Group is expanding its global presence through its combinedoverseas network, the largest in Korea. The Group provides management strategy and funding
supports to its 11 subsidiaries.

Total Assets_Consolidated (KRW in billion)

Net Income_Consolidated (KRW in billion)

390,487 937.7
21,894Equity_Consolidated (KRW in billion)(KRW in billion)

HFG Ownership

Total Assets

Net Income

EquityHana Financial Group Inc. (Consolidated)-

390,487

937.7

21,894

Hana Bank

100%

185,555842.8

12,024

Korea Exchange Bank

100%

136,023

390.8

8,814

Hana Daetoo Securities

100%

22,454

82.0

1,640

KEB Hana Card

74.58%

7,221(11.1)

1,327

Hana Capital

50.1%

3,871

50.4

312

Hana Life

100%

3,377

2.9

252

Hana Savings Bank

100%

1,067

11.2

159

Hana Asset Trust100%

18,52010.1

95Hana Bancorp. Inc. (Consolidated)

71.37%

298(14.5)

31

Hana I&S

89.98%

132

2.3

106

100%

4

0.1

3

Hana Institute of Finance* The figures represent the rate of share ownership by Hana Financial Group Inc., as of Dec. 2014
* Based on separate financial statements* Hana Financial Group's consolidated data include trust assets.

026

Hana Financial Group Annual Report 2014

Hana Bank

Hana Savings Bank

Established in 1991, Hana Bank is the best bank in Korea according toHana Savings Bank joined Hana Financial Group in 2012, bringing inEuromoney, Finance Asia , and other leading industry journals. Playing

quality banking services dedicated to middle income and lower classes

the role as Hana Financial Group's main distribution channel, the Bankand expanding the selection of financial products and services foroffers comprehensive financial services.

Hana Financial Group customers with competitive savings products.

Korea Exchange Bank

Hana Asset Trust

Launched in 1967, Korea Exchange Bank joined Hana Financial Group

Founded in 2006, as Korea's first to specialize in real estate asset

in 2012 as a major subsidiary of the Group. Korea Exchange Bank

management, Hana Asset Management joined Hana Financial Groupboasts top quality services in FX, corporate banking, and overseas

in 2010 with the goal of becoming Korea's top alternative investment

business. Korea Exchange Bank is fast expanding its market share inmanagement company.

Private Banking (PB) and Wealth Management (WM) by leveraging
Hana Financial Group's business network.

Hana Bancorp. Inc.
Hana Bancorp, Inc. joined Hana Financial Group in 2013. The latest

Hana Daetoo Securities

subsidiary of Hana Financial Group was the first bank set up by

Hana Daetoo Securities plays a central role in Hana Financial Group's

Korean-Americans in the eastern U.S. under the name of BNB. The US

asset management operation. The first to introduce funds to Korea, thesubsidiary is to be the stepping stone leading Hana Financial Group

company has maintained the No.1 position in brand power in theinto the North American market.

security trust sector and aims to grow into the best IB institution in Asia.
Hana I&S
KEB Hana Card

Established in 1990, Hana I&S is the IT arm of Hana Financial Group,

KEB Hana Card emerged in Dec. 2014 out of the integration of KEB Card,

specializing in information and data management systems related towhich pioneered the credit business in Korea, and Hana SK Card, a joint

securities, investment, trust, credit card, brokerage, global finance,

venture between Hana Bank and SK Telecom. The newly integrated KEB

and other services operations.

Hana Card aims to grow into a top tier card business by 2025.
Hana Institute of FinanceHana Capital

Established in 1987, Hana Institute of Finance is Hana Financial

Hana Capital joined Hana Financial Group in 2005 as a consumer

Group's think-tank, supporting Hana Financial Group in formulating

finance company specializing in lease, financing, loan, and othermanagement strategies. The R&D center aims to lead change andconsumer-focused services. The company is fast developing innovative

innovation in the nation's financial services industry throughproducts to meet rapidly evolving customer needs.

establishment of knowledge-based management systems.

Hana Life
Having introduced the first bancassurance products in Korea inFebruary 2003, Hana Life is strengthening its asset managementcompetencies, expanding the product lineup, and upgrading the
manpower, setting its sight on the title of Korea's top-tier insurancecompany.

WWW
Hana Network
http://www.hanafn.com/eng/network/
hanaNetwork/networkIndex.do

027

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSRISK MANAGEMENT
Risk management being the essence of financial business, Hana Financial Group
spares no effort to preemptively deal with business issues of any shape or form.
Through operation of the Risk Management Committee, the Group establishes and puts
into practice risk management policy guidelines and oversees
all risk management activities of its subsidiaries.

Risk Governance & Organization
Hana Financial Group's risk managementrelated operations and functions are
executed through the Corporate Center tokeep track of all risks facing the Group andits subsidiaries and make preemptive
responses whenever necessary.
Risk Management Committee
The Risk Management Committee, Hana
Financial Group's top risk management
decision-making body, devises, approves,and monitors basic plans and policies
related to diverse risks inherent in business
operations. Through the Risk Management
Executive Committee, the committee
maintains an organic governance systemthrough which it discusses risk issues andways to control them in close consultation
with the Group's key subsidiaries, Hana
Bank and Korea Exchange Bank, and othersubsidiaries.
Credit Capital management
Credit risk is defined as expected andunexpected losses that could result from acounterparty's default or credit rating
deterioration. Credit risk is intrinsic totraditional financial products such as loans
and credit card debt as well as complex
products like derivatives.
Hana Financial Group operates credit ratings
evaluation and early warning systems as well
as a team of credit risk specialists, all topreemptively respond to businessfluctuations at the earliest sign.

028

Market Capital management
Hana Financial Group stands ready topreemptively manage market risk by
regularly measuring risks and setting andmonitoring exposures by product, VaR, loss
limits, and other various market risk limits.
To maintain the stability of its interestearning assets and interest-bearing
liabilities, Hana Financial Group calculates
the gap ratio and the interest rate VaR on amonthly basis and maintains interest raterisk within a pre-defined range. Hana Bankand Korea Exchange Bank each measuresand manages interest rate risk by using
advanced risk calculation methods
including the Maturity GAP Analysis, the NI
Simulation, and net interest EaR.
Liquidity Capital management
Hana Financial Group operates a liquidity
risk early warning system and analyzes
relevant statistical data and runs liquidity
simulations under various stress scenarios
not only to manage its exposure to liquidity
risk but also to identify at the earliest
possible time a liquidity crisis related toimbalance in the world financial markets aswell as to comply with the financial
authorities' revised guidelines. To adopt
itself in a seamless manner to Basel III, theGroup has set up a detailed execution planfor complying with the new standards phaseby phase as required as well as for spot
checking the execution progress.

Operational Capital management
Hana Financial Group manages and controls
within a pre-determined range its
operational risk level fluctuating to change inthe business environment or in the level ofinternal controls by regularly measuring andmonitoring the risk level and setting
appropriate exposure limits. Each subsidiarycalculates its operational risk level according
to the methodology pursuant to theguidelines set by its respective authorities
and reports the results to the Risk
Management Committee and the Risk
Management Execution Committee on amonthly and quarterly basis. Partnercompanies in sectors with no supervisingauthorities are required to monitor theiroperational risk level and report the results
including any IT accidents to Hana Financial
Group on a regular basis.

Hana Financial Group Annual Report 2014

In 2015, Hana Financial Groupwill continue to pursue theindustry's highest asset quality.
To prepare itself against thepossibility of the current
economic recession andsurrounding uncertainties
morphing into a long-term crisis,
the Group will strengthen its
systemic and structural capacity
to withstand such a development
while keeping close tabs on its
areas of vulnerability.
Meanwhile, by establishing agroup risk management system
based on Basel III standards, theGroup will respond to regulatorychanges in a preemptive manner.

029

2015 Major Tasks•Preemptive risk management: Improve and keep up to date the early warning system andstrengthen risk management with regard to industries and corporate clients exposed to
growing risks.
•Stable portfolios: improve portfolio proportions by customer, rebalance the credit portfoliowith quality assets, and prevent the concentration of large loans in any particular groups.
•Advanced risk management: establish and get government approval on a Basel III standardsbased group risk management system, and implement a system managing internal capital
limits reflective of crisis situations.
•Risk management support for overseas subsidiaries: provide risk management support for
inroads in new-growth overseas markets and develop credit evaluation systems to thecustomer characteristics of each market.

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSCORPORATE GOVERNANCE
Hana Financial Group strives to realize its mission, 'growing together and sharing happiness' by
establishing a healthy corporate governance structure and creating new values for customers,
shareholders, and employees, based on a board of directors independent from and free ofconflict of interest with the Group's business operations. Aspiring to grow into a trusted andpremiered global financial group, Hana Financial Group contributes to the development of thefinancial industry by formulating sound management and growth strategies for its subsidiaries.

Composition and Operationof the Board of Directors
Composition
The Board of Directors (BoD) is composed ofnine directors, of whom eight are outside
directors comprising one legal scholar, threefinancial experts, one CPA, one professional
manager, one economics specialist and one
journalist. By having outside directors makeup the majority of its membership, the Board
pursues objectivity and transparency in its
decision making process.
Independence
Hana Financial Group operates an Outside
Director Nomination Committee for selectionof candidates for non-standing directorship,
and to select better qualified non-standing
director candidates, maintains a candidate
pool by pre-screening at least twice a year
people of integrity with required backgrounds.
The Group also receives recommendations
from its shareholders and third-party entities
on possible candidates. In screening
candidates in terms of independence,expertise, fairness in conduct, ethics,
responsibility, and job dedication, the Groupabides by the regulations stipulated in its
corporate charter and other industry
guidelines set by financial authorities. The
qualifications of candidates thus pre-screened
are further reviewed and vetted by the Outside
Director Nomination Committee which then030

presents its nominees of candidates toshareholders at the general shareholders
meeting for final approval. Through theprocess of selecting outside directors thathave no conflict of interest with Hana Financial
Group, the Board maintains independence inthe execution of its responsibilities.
Operation
Hana Financial Group Inc. holds Board
meetings on a regular base, with special
sessions convened if warranted. In 2014, theBoard was convened nine times to receive
quarterly performance reports, to approve thesettlement of financial statements, todeliberate on forming Hana Capital'sIndonesian subsidiary, integrating Hana Bankand Korea Exchange Bank operations, andintegrating Hana SK Card and KEB Card, andother major management issues. The
attendance of the Board directors averaged
99%.
Performance Evaluation
At the beginning of each year, the nonstanding directors of Hana Financial Group
conduct BoD evaluations with respect to theprevious year composition and efficiency andfunctions of the BoD; and the BoD reflects
resultant recommendations in its operation. In
addition, the Group has its overall corporate
governance structure evaluated by Korea
Corporate Governance Service on a regularbasis. The Group also has established a top
management succession plan, an advanced
performance evaluation structure, and an
efficient communication channel with its
shareholders, for which the Group has beenhigh acclaimed by many industry watchers.

Operation of
BoD Committees
In pursuit of higher-level managementtransparency and more stable corporate
governance, Hana Financial Group operates
within its Board of Directors the Steeringcommittee, Audit Committee, Outside
Director Nomination Committee, Risk
Management Committee and Management
Development and Compensation Committee.
Through these committees, Hana Financial
Group seeks improvement in its corporate
governance, evaluates its executive officers'
performances, keeps track of various risk
management issues affecting its business
operations, and publishes the contents ofmajor management activities at the financial
authorities' sites as well as on its website.
Hana Financial Group has quickly adopted
the "Criteria for Model Financial Company
Governance Structures" introduced byfinancial authorities last December, andexpanded the role of the CEO Candidates
Nomination Committee and created theGroup Director Candidates Nomination
Committee. The former is responsible fordevising a management succession plan
every year and nominating candidates for theGroup's CEO upon resignation, retirement, or
death of the CEO. The BoD is kept informedby the committee of the status of CEO
candidates in the pool and verifies theeffectiveness of the management succession
plan in force.

Hana Financial Group Annual Report 2014

EVALUATION RATINGS OF CORPORATE GOVERNANCE

Rating

2011

2012

2013

2014

A+

A+

A+

A+

※ESG evaluation ratings by Korea Corporate Governance Service

COMMITTEES IN OPERATION

Committees

Composition

Goals and Responsibilities

Steering Committee

1 standing,
4 outside directors

Deliberates on issues related to rational corporate governance and efficient operation of BoD and its
committees;
Deliberates and makes decision on issues delegated by BoDManagement Development
and Compensation
Committee

3 outside directors

Formulates ways of improving business performance;
Makes decision with respect to evaluation and rewarding of Hana Financial Group and subsidiary executive
officers

Risk Management
Committee

5 outside directors

Sets up, approves, and oversees policies and basic management plans regarding various types of risks
inherent in Hana Financial Group's business operations

Audit Committee

5 outside directors

Sets up and executes plans for accounting and business audit and related internal controls plans;Outside Director
Nomination Committee

1 standing,
4 outside directors

Searches for, evaluates and recommends outside directorial candidates qualified for the execution of Hana
Financial Group's strategic objectives

Audit Director Nomination
Committee

8 outside directors

Nominates candidates for the Audit Committee to the general shareholders meeting

031

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSBOARD OF DIRECTORS

Kim In-bae

Hong Eun-Ju

Kim Jung-tai

Yang Won-keun

Lee Jin-kook

Professor of Economics inEwha Womans University

Professor of Economics & Financein Hanyang Cyber University

Chairman & CEO,
Hana Financial Group

Visiting Fellow,
The Korea Institute of Finance

Former Vice President of
Shinhan Investment Corp.

•Senior Researcher,
The Korea Institute forInternational Economic Policy•Associate professor of
Economics & International
Commerce, Soong-Sil University•CEO, iMBC•Head of Financial Editor, MBC•President & CEO, Hana Bank
•President & CEO, Hana
Daetoo Securities Co., Ltd.

•Deputy President of
KB Financial Group•Standing Audit Committee Member,
Woori Bank•Vice President of Goodmorning
Shinhan Securities Co.

032

Hana Financial Group Annual Report 2014

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

Yoon Sung-bock

Yoon Jong-nam

Park Moon-kyu

Song Ki-jin

Former CEO,KPMG Samjong Accounting Corp.

(Chairman of BoD)

Chairman & CEO, AJ Co., Ltd.

Representative Attorney,
Law Office Chung-Pyung• President & CEO, AJ Co., Ltd.
•President & CEO, PMK Inc.

Non-executive Advisor,
DR & AJU Law Firm

•Head of Audit,
KPMG Samjong Accounting Corp.

033•Director, Seoul Southern District
Prosecutor's Office•Director, Suwon District
Prosecutor's Office•CEO, Kwangju Bank
•Deputy President, Woori BankGROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSGLOBAL NETWORKA global network linking 136 points of financial business in 24 nations (as of April 2015)15 local subsidiaries (with a total 91 branches), 23 branches and branch offices,and 7 field offices

11Netherlands
UnitedKingdom

1

France1

11Czech Republic

12

RussiaCanadaGermany511BahrainTurkey

2

U.A.E

Japan

33

11

U.S.A

China

1

India

2

1

5

Myanmar4

Vietnam2

MexicoHong Kong

Singapore

2

Philippines

145

PanamaIndonesia

1

Brazil1

Australia

Asia & Pacific: 100
Europe & the Middle East: 10
America: 26
2014 Results of the Global Strategy
Hana Financial Group pursues a continuous expansion of its global
network and formation of strategic partnerships with overseas
financial institutions.

Mar. 10, 2014: Indonesian subsidiaries consolidated

As the first step of its global strategy, in March 2014, Hana Financial
Group launched PT Bank KEB Hana in Indonesia by integrating thetwo local subsidiaries of Hana Bank and Korea Exchange Bank. The
launch of the subsidiary also marked the first case of integration
since Korea Exchange Bank joined Hana Financial Group. Anotherintegration took place, this time involving the Chinese subsidiariesof the two banks, and Hana Bank (China) Ltd., emerged In December
2014.

Overseas places of business expanded- Feb. 6, 2014: Indonesian Kemang-Lippomal branch opened- Mar. 10, 2014: Korea Exchange Bank Sidney branch opened- Mar. 26, 2014: Hana Bank Xian branch opened-July 7, 2014: Korea Exchange Bank Russian subsidiaryestablished- Aug. 7, 2014: Hana Micro Finance subsidiary established- Aug. 18, 2014: Korea Exchange Bank of Canada (KEBOC)
Richmond branch opened- Dec. 26, 2014: Indonesian subsidiary's Purwakarta branch
office opened

With these integrations, Hana Financial Group has an overseas
network linking 136 places of financial business in 24 countries, themost extensive in Korea, and has taken a big step toward its goal of
expanding the proportion of global incomes to 40% by 2025.

034

Dec. 15, 2014: Chinese subsidiaries consolidated

Review ofOperations• Retail Banking• Corporate Banking• Global Operations• IB & Asset Management• Credit Card
• Trust & Pension
055

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Retail Banking
Last year, Hana Financial Group, in pursuit of its new vision 'The Trusted Premier
Global Financial Group', took measured steps in line with the vision in the area of
retail banking and recorded meaningful results; KRW loans increased substantially,following the easing of real estate regulations, and core incomes improved visibly.

KRW HOUSEHOLD LOANS(KRW in billion)

79,012KRW DEPOSITS(KRW in billion)

170,154
MOBILE BANKING USERS(users)4,668,823
PRIVATE BANKING
No. of Customers (customers)

139,853
PRIVATE BANKING
Total Sales (KRW in billion)

52,705036

Hana Financial Group Annual Report 2014

Household loans grew with Hana
Bank playing the leading role
In 2014, the real estate market showedsigns of a long-anticipated recovery, as
housing prices stopped falling and sales
started rising in response to a series ofmarket-friendly measures unleashed by
the government. Accordingly, Hana Bank's
mortgage loans increased 9.1% over thecourse of the year to KRW 35.9 trillion, while
total household loans rose 5.5% to KRW
57.7 trillion. In 2015, the market is expected
to continue to grow, albeit at a less-thanhoped-for rate: Though LTV, DTI and otherimportant market controlling measuresare expected to be further loosened up, anillusive recovery of the economy is morethan likely to keep household consumption
at a level that will have no significant impact
on the growth of the real estate market.
The Bank will continue its effort to growmortgage loans, but in view of the sluggish
recovery of the real estate market and theintroduction of a Housing Loan Conversion
Program in March 2015, which will shiftexisting loans to the balance sheet of staterun mortgage companies, no substantial
growth is expected in loan assets.

deals, thereby ending the year with a slightincrease from 2013. The delinquency ratio,
however, was a little lower than that of theprevious year.
In 2015, Korea Exchange Bank will continue
to closely monitor the real estate andhousehold loan markets for any sign of anundue development and to take all steps
necessary to keep the delinquency ratio
from deteriorating. To fulfill its corporate
responsibility, the Bank will also continue
to offer financial services designed to help
low-income people.
Meanwhile, the growth of householdloans on the group level is expected to be
somewhat similar to that of the market, with
Korea Exchange Bank likely to surpass Hana
Bank in growth rate.

KRW Household Loans(KRW in trillion)

Hana Bank and Korea ExchangeBank both grew core deposits
In 2014, Hana Bank recorded a KRW 6
trillion, or 18.7%, increase in low-cost
deposits. Of the figure, core deposits
accounted for KRW 2.7 trillion, which
represents a 15.8% rise from the year
before, a result of the Bank's concerted
efforts to attract low interest-bearing
deposits.
Korea Exchange Bank also focused its
resources and energies on attracting
low-cost deposits. As a result, its low
interest-bearing deposits, consisting ofcore deposits and MMDA, grew KRW 2.3
trillion (12.7%), of which core deposits
accounted for KRW 1.3 trillion, representing
a 10.6% increase from 2013. In 2015, Korea
Exchange Bank will continue to attract lowcost deposits in an effort to improve NIMs
and enhance profitability.
Low Cost Funding(KRW in trillion)

79.0■ MMDA ■ Core Deposits◦Ratio of Low Cost Funding Weight (%)

28.3%

76.6

29.4
Meanwhile, Korea Exchange Bank grew its
mortgage loans, particularly in the second
half, which offset a dip in the first half, bypushing a program that lends to homeowners who need to close their housing

037

2013

2014

30.7%
33.3

20.7

25.0

2013

2014

REVIEW OF OPERATIONSGROUP OVERVIEW

Foreign Currency Deposits(KRW in trillion)

20.1
17.7

2013

2014

As a sweeping "Current Account Switch
Service" system, scheduled to take effectin 2015, is expected to present a whole
new type of challenge, Hana Bank andKorea Exchange Bank will spare no effort
to maintain customer loyalty and to expand
the deposit base by taking full advantage ofgroup synergies.

Bancassurance bouncing backSince the Feb. 2013 revision of tax benefits
related to tax-exempt, savings-typeinsurance products, the performance ofbancassurance dwindled throughout theindustry; the 2014 total bancassurance
sales of the banking industry dropped
27%from the previous year. Hana
Financial Group also suffered a similarfate, recording a 29.7% decrease.
Meanwhile, following the revision of the038

tax benefits, the bancassurance market
shifted its attention from VIPs purchasinglarge-amount policies to middle-classcustomers who are relatively less sensitive
to the effect of the revised regulations.
Accordingly, Hana Bank developed
and conducted employee educationand training programs highlighting the
intricacies of retirement, old-age pension,guarantee-type, and other installmentbased insurance policies that would better
appeal to middle-class customers, as aresult, reaping large increases in the salesof old-age and guarantee-type insurance
products that carry small premiums. In theareas of guarantee-type and savings-typeinstallment-based insurance, the numberof policies sold increased dramatically inproportion.
In 2015, bancassurance sales are expected
to turn gradually upward. Along with thebase effect, product competitivenessand a relatively strong customer baseare expected to boost the growth of
bancassurance sales. Meanwhile, as for
product strategy, both banks will focus
on installment-type insurance, particularly
pension and savings-type insurance, as

FINANCIALS

middle-class customers will continue toremain at the center of the bancassurance
market in response to a growing interest
among baby boomers in their postretirement lives. In addition to increasing
the number of certified bancassurance sales
personnel and expanding sales training
programs, both banks will focus marketing
resources on pension, old-age, guaranteetype and other installment-based insurance
and securing a long-term fee income base.

Mid-risk/return funds, new darlings
In 2014, financial market volatility began toexpand. The recovery of the US economy
accelerated the rise of the dollar, especially,against the Japanese yen of Abenomics.
While the stock markets of advanced
nations showed signs of a sustainable
recovery, those of emerging markets
remained weak in general. However, theChinese stock market, which had long beensluggish, started to turn sharply on the backof the gradual opening of capital markets.
Even with a US rate hike looming large,
the bond rates of advanced economies
continued to fall amid fears of deflation.
Korea cut its base rate to a historic low.
In the 2014 domestic fund market, overseas
equity-type funds experienced a net cash
outflow, while dividend equity funds, publicoffered fixed income-type funds, and private
equity funds enjoyed a net cash inflow;

Hana Financial Group Annual Report 2014

YouTubeHana Bank
https://www.youtube.com/user/HanabankNewBiz
WWW
Hana Bank Homepage
http://www.hanabank.com/contents/eng/
index.jsp?cid=THUB_Util&oid=UTLGo_h

PB Awards Hana Bank
Received in 2014
'Outstanding WM Service for the Affluent 2014' by PBI'Best Private Bank in Korea 2014' by The Asset'Overall Best Private Bank in Korea 2014' by Asiamoney (3rd year in a row)'Best Private Bank in Korea 2014' by Asian Private Banker (2nd year in a row)while the equity type recorded a net outflow,
for third year in a row, the cash inflows of
the fixed income type and MMFs grew
substantially, reflecting the relative merit of
the funds following market rate cuts. Needs
for mid-risk/return products rose amid an
historic-low interest rate environment; andhybrid-type funds and structured products,
which offer returns based on the prices ofunderlying assets within a predeterminedframework, became popular.
Hana Bank expanded its customer base andstabilized the fee income base through theuse of long-term installment-type funds ingeneral and 'Income Tax Deduction Longterm Fund' in particular, an installment-type
fund introduced in March 2014. Korea
Exchange Bank took advantage of anappreciating US dollar and substantially
increased the balance of foreign currencybased offshore funds.
In 2015, advanced nations are expected tocontinue to lead the growth of the world
economy amid a prolonging low-growthenvironment; most economies seem too
weak to generate a sustainable recovery
except for the U.S., while volatility could
further expand in response to a US rate
hike, growing deflation concerns, andcontinuing geopolitical fears; which requires
risk management through maintainingof a balanced portfolio when it comes039

to investing in funds. Accordingly, Hana
Financial Group will develop income funds
that offer higher return rates than savings
rates, such as public placement ELFs,
and other mid-risk/return products. As
retirement planning is gaining popularity ina fast-ageing society, the Group as a wholewill focus on growing and managing theretirement assets of customers throughpension savings accounts (fund), which
are relatively easy in asset allocation andrebalancing to market situations.

High-net worth (HNW) customers
increased and "Best PB House"stature regained
In 2014, despite the rollout of the Foreign
Account Tax Compliance Act, the loweringof the amount exempted from 'Aggregated
Taxation on Financing Income', and otherregulatory changes, Hana Bank increased
the number of HNW customers by 9% andrelated incomes by 11%.
These increases can be ascribed to thecompletion of a system that allows PB
sales personnel to effortlessly interact
and share business knowhow with one
another. The use of tablet PCs, as well as
the launching of 'N PB', a smartphone app
developed for customers, also contributed
to the increases . The Bank proactively
responded to the fast-paced evolution of the

PB Customers(household)139,853
121,745

2013

2014

financial market and enhanced customer
satisfaction. In the recognition of these, 'The
Banker' and 'PMW' which jointly honored
the Bank with 'Global Best Private Bank for
Digital Communication 2014' and of otherrespected industry watchers who praised
the Bank as the best PB bank in Korea.

Balancing customer asset portfolios
In 2015, Hana Bank will continue to finetune the risk/return profile of PB customers
through use of the 'Hana portfolio Early
Analysis and Diagnosis (HEAD)' system.
PB customers will be promptly informed in
the event of an undue risk development andadvised of the best possible action to take tominimize the impact of the potential threat
on their assets.

GROUP OVERVIEW

Moreover, the Bank plans to expand the
PIB business, a combination of PB and IB,
to enhance customer convenience. Alsoplanned is development of IB deals ideal for
UHNW (Ultra-High Net Worth) customers
in particular, and of one-stop solutions,in cooperation with other Hana Financial
Group affiliates, suitable for PB customers,in general.

Strengthening the PB business
As for Korea Exchange Bank's PB
business performance in 2014, the year
was marked by a steep rise in the numberof customers seeking advice on PB in
response to the growing popularity of tax
and investment products. As of Dec. 2014,
Korea Exchange Bank had nine PB centersand 85 PB branches. In January 2014, theBank increased the number of PB-exclusive
branches to 32. Total PB sales rose fromKRW 8.3 trillion in 2013 to KRW 8.8 trillion in2014, a 6.0% increase; the number of HNWcustomers increased from 15,000 in 2013
to 16,000 in 2014, up 6.6%.

REVIEW OF OPERATIONSFINANCIALS

domestic market by continually expanding
the scope and improving the quality of its
PB products; by developing products andservices to the investment needs of PB
customers; and by holding asset seminars
and holding cultural events corresponding to
the investment preferences and lifestyles of
HNW customers. In addition, by blending its
strengths in FX and in overseas operations,
the Bank will upgrade the quality of asset
management services targeting Koreansliving abroad.
Moreover, to further strengthen groupsynergies in the PB operation, Korea
Exchange Bank will continue to expand thefrequency and scope of its interaction with
Hana Bank in search of ways of sharing eachother's PB strengths, to create products andservices synergetic to those of Hana Bankand other affiliates, and to conduct IB sales
training.

Korea Exchange Bank aims to become
the best in an increasingly competitive

Kim Byoung-ho
President & CEO of Hana Bank

040

Hana Financial Group Annual Report 2014

Corporate Banking
In SME banking, Hana Financial Group created units dedicated tocorporate sales and made other efforts to steer its channels toward
corporate banking, while directing group-wide attention to thegrowing role of technology finance. As a result, Hana Financial Groupranked No.1 in growth rate of SME loans among the four majorbanking institutions.

KRW SOHO LOANS(KRW in billion)

22,595KRW SME LOANS(KRW in billion)

56,485
KRW LARGE CORPORATE LOANS(KRW in billion)

25,753
NO. OF SME LOAN CLIENTS

50,083041

REVIEW OF OPERATIONSGROUP OVERVIEWFINANCIALS

YouTubeKorea Exchange Bank
https://www.youtube.com/user/smartbankkeb
WWW
Korea Exchange Bank Homepage
http://www.keb.co.kr/IBS/multi_lang/
ncompany/eng/index.jsp

Growing SME loans as a leader intechnology financeIn 2014, SME banking was marked by thecontinued growth of technology finance,
which centers on financial support for
SMEs with a cutting technical edge;
as the Financial Services Commission
implemented a new system of evaluatingthe "innovativeness" of commercial
banks based on their technology financeperformances and started to use the results
in its allocation of incentives to the banks,
technology finance has become a major
topic of the industry. In response to such aclear government stance, commercial banks
comparatively developed related products
and support measures. Many banks also
engaged in an interest rate race to increase
lending to SMEs. To rise up in such acompetitive environment, in September,
Hana Bank formed a 'Creative FinanceSupport Center' dedicated to technology
finance, developed relevant products andstrengthened support for branch operations,
all in an effort to maintain its stature as anindustry leader in technology finance.
In 2014 alone, Hana Bank allocated agreat deal of resources and energies totechnology finance, directing many of its
channels toward expanding SME sales. As

042

a result, SME lending increased a laudable
6.6% compared with 2013.

KRW SME Loans(KRW in trillion)'Loan Design Team', a sales support unit
recently created to guide households and
SOHO through the intricacies of advanced
loan products, contributed to the growth of
new loans amounting to KRW 300 billion;'Global Consulting Center' played a majorrole in the development of new clients andmarkets overseas through the provisionof business support to Foreign Direct
Investment (FDI) companies.

Attracting long-term customers
through hybrid products
In 2015, to vitalize technology finance andto enhance its stature as an industry leader
in an SME sector crucial to the promotion ofCreative Economy, the Bank will continue
to develop innovative products and diverse
support measures.
As interest rate competition intensifies
among commercial banks at the expenseof the profitability of lending operations,multiple products comprising deposittaking, FX, account settlement and otherbanking services play an increasing role inattracting long-term customers; as such,the Bank will develop more diverse multiple
products.

56.5
51.6

2013

2014

Hana Financial Group Annual Report 2014

Growing SOHO loans and planningdouble-digit growth

KRW SOHO Loans(KRW in trillion)

18.3

2013

22.6

2014

Also planned is a continued support of
SMEs through issuance of credit guarantees
in link with the Korea Credit Guarantee Fundand other institutions with similar functions;as well as conduct of "dummy marketing"in link with corporations and related
associations as a way to create business
opportunity and attract new customers.
Besides these, the Bank will continue to cut
expenses through active use of real estatecollateral trust services and to strive toconstruct a profit-focused sales structure by
expanding FX and IB fee incomes.

043

In the SOHO area, Hana Bank sought toexpand the customer and profit bases
through the expansion of the lending
operation and the strengthening of support
for SOHO owners. Also, through the
expansion of cross-sales centered on
settlement-type accounts, the Bank strove
to improve profitability.
As a result of the introduction of businesstype-specific products and the conduct ofcustomer segment-specific marketing,
SOHO loans increased by KRW 2.4 trillion,
sustaining the growth trend of the last two
years.
The customer and business bases werealso expanded: financing support programs
were marketed in partnership with large
corporations, franchise head offices andrelated associations; and start-up seminars
were held for aspiring SOHO owners.

In 2015, competition among financial
institutions going after SOHO is certain
to intensify, while calls are expected to
become louder for banks to do more forfledgling entrepreneurs as part of theirsocial responsibility. In response to these,
the Bank will develop more products andservices specific to customer segments
and business types and improve the loan
portfolios, with an eye toward fortifying themarket position and securing a stable profit
base. Also, as part of its corporate social
responsibility, the Bank also will continue
to roll out start-up- and SOHO-specificproducts, hold customer support events,
and promote industry support for individual
entrepreneurs. Through these, the Bank will
repeat its two-digit growth performance of2014 in SOHO banking.

Noteworthy growth in SME banking
In 2014, as before, Korea Exchange Bank
performed admirably in corporate banking;lending to SMEs rose, the client base
expanded, and other performances, as
described below, improved.

GROUP OVERVIEW

As of Dec. 2014, KRW corporate loans
amounted to KRW 31.2 trillion, which
represents a KRW 2.7 trillion or 9.3%
increase from a year ago; KRW SME loans
stood at KRW 19.8 trillion, a KRW 2.6
trillion or 14.8% increase, the highest rate
among its peers. The quality of loan assets
has improved along with the quantity,
despite rating reductions of some corporate
borrowers following the application of arevised credit evaluation model in the 1st
half of 2014: the proportion of corporateloans deemed sound increased 2.0% over
the year to 66.9%, while that of current
SMEs loans rose 2.1% to 51.9%.
As part of its strategy to improve customer
relationships and identify sound businesses,
many SME customers were paid a visit by
Bank executives and some SME owners
were invited to talks with the Bank CEO andexchanged opinions on ways of developing
better support measures.

044

REVIEW OF OPERATIONSSOHO was another area of noteworthy
improvement: lending soared 53.8%, or
KRW 1.9 trillion, to KRW 5.5 trillion, on theback of products developed to the uniquecharacteristics of SOHOs. Despite the hefty
growth of loans, however, the delinquency
ratio improved, recording 0.47%, 0.03%p
below that of 2013.

FINANCIALS

the competitiveness of its non-face-to-facechannels, a weakness compared with thoseof its peers, the Bank actively pushed an
account settlement service, and as a result,the number of corporate customers using
the service jumped to 44,700, 185% or
29,000 more than in 2013.

SME lending plans centering on SOHOs
The Bank further solidified its stature as
Korea's unrivaled leader in import/export
trade and FX; by developing various funding
and administrative programs reflective of
its strengths in FX, the Bank supported theexport finance of SMEs; and by providing FX
consulting services through the 'SME Global
Consulting Center', Korea Exchange Bank
contributed to the overseas expansion andglobalization of export-driven SMEs.
The SME customer base was also
expanded, following the execution of thestrategy of improving customer portfolios;
the total number of SMEs increased 6.3%,
or 13,000, to 212,000; of which those,
who are categorized as active based on thefrequency of their transactions, rose 8.4%,
or 3,800, to 48,200, continuing the growthtrend of the last few years. To strengthen

In 2015, Korea Exchange Bank will givea top priority to expansion of the SME
customer base, especially of internallyaudited businesses. To attract mid-risk yet
promising SMEs, the Bank will concentrateon developing such mid/long-term loan
products as state-guaranteed policy andfacility loan programs, in an effort to expand
SOHO loans and to formulate various
support measures. Moreover, by expanding
cooperation with other group affiliates,

Hana Financial Group Annual Report 2014

Korea Exchange Bank will not only maintainits competitive advantage in corporatebanking but also take a step further toward
securing best-in-class competitiveness.
In 2015, Korea Exchange Bank aims to growits SME and SOHO banking operations by adouble digit, which are together expected tolead the growth of loans on the group level.

Focusing on value growth in large
corporate banking
At the end of 2014, Hana Bank's and Korea
Exchange Bank's KRW large corporateloans amounted to KRW 15.4 trillion and
KRW 10.3 trillion, respectively, representing
6.8% and 2.7% decreases from a year ago.
The decreases can be ascribed to preemptive reductions it made in credit line to conglomerates and in the number of corporate

borrowers on the watch list; the reductions
were made in anticipation of an increase ofcredit risk following the slowdown of theeconomy. In view of the uncertainty of themarket environment, the Bank turned 2014
into a recess so as to evaluate the potential
risk and to re-chart the direction, of its large
corporate lending operation, and to explore
better ways to improve the quality of loan
portfolios. Having taken these actions during a much-needed breather in the large
corporation lending business, the Bank
hopes that it has done its best it could tostrengthen the basis for growing corporateloans both in quality and quantity.
In 2015, Korea Exchange Bank, in pursuitof the qualitative growth of loan portfolios,
plans to implement a comprehensive
marketing strategy aiming at enhancing
capital efficiency through conduct of precise
customer analysis. By improving theeffectiveness of the information network
through which its extensive lending units

Kim Han-jo
President & CEO of Korea Exchange Bank

045

share with one another information
on customers—both existing andprospective—and industries, the Bank will
strengthen competencies in responding
to risk developments. By recalibrating its
measurement of the capital efficiency of
existing lines of credit, Korea ExchangeBank will conduct a loan policy of inducing
selective sales and improve the RoRWA(return on risk-weighted assets) of thelarge corporate portfolio.

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Global Operations
Hana Financial Group pursues a continuous expansion of its global network andformation of strategic partnerships with overseas financial institutions. As of
February 2015, Hana Financial Group has a global network linking 136 places offinancial business in 24 countries, industry's most extensive in Korea

PT BANK KEB HANA INDONESIA,THE INTEGRATED INDONESIANSUBSIDIARY, LAUNCHED

February
2014

HANA MICRO FINANCEA MYANMAR SUBSIDIARY,LAUNCHED

August2014

HANA BANK (CHINA)THE INTEGRATED CHINESE SUBSIDIARY,LAUNCHED

December
2014046

Hana Financial Group Annual Report 2014

Korea's largest global network, with
136 points of operation in 24 countries(As of April 2015)

EUROPE & MIDDLE EAST

10Subsidiaries of Hana Bank andKorea Exchange Bank consolidated
In 2014, Hana Bank and Korea ExchangeBank consolidated some of theiroverlapping overseas operations andconfirmed the possibility of expanding
the global network through the launch of
new operations. In February 2014, thetwo banks integrated their Indonesiansubsidiaries and launched PT Bank KEB
Hana Indonesia, thereby taking the firststep toward a full integration of the twoscheduled in the near future. Leveraging
the combined synergies of the two
subsidiaries, the parent banks, plus othergroup affiliates, the newly launched has
substantially grown assets and improved its
income performances.
In August 2014, Hana Bank founded Hana
Micro Finance Limited in Myanmar. The
microfinance subsidiary marks the Bank's
first non-banking foray into the Southeast
Asian market and represents the Korean
financial industry's first business presencein the resource-rich country. Engaged
in the business of microfinance, whichcenters on the lending of unsecured smallamount loans, the Myanmar subsidiary isan embodiment of Hana Financial Group's
commitment to the development of local
communities wherever it has a business

047

ASIA & PACIFIC

100

presence. Staffed with all local talent, thesubsidiary is practicing the Group's global
strategy focusing on localization.
On December 12, 2014, Hana Financial
Group received final approval from
Chinese authorities for its second overseas
merger, involving the two Beijing-based
subsidiaries of the two banks; three days
afterward, the two Chinese subsidiaries
were officially consolidated. Anothergreen light was received from Vietnam
authorities for an arduous effort Hana
Financial Group had undertaken to convert
its Ho Chi Minh representative office into afull-blown branch; and the office has since
been busy preparing itself to restart as abona fide branch of Hana Bank. As of Dec.
2014, Hana Bank (China) had 30 branches,the most among Korean banks in theworld's most populous nation. Having
successfully integrated some of theiroverlapping operations, starting overseas
first, in 2014, Hana Bank and Korea
Exchange Bank together projected a stable
image of two institutions in the process of
becoming one.

AMERICA

26

Expanding abroad to overcome
growth limits at home
As of December 2014, Hana Bank's Hochi-min representative office was busy
putting finishing touches on a new branch
office and getting other works done for
an April 2015 opening. As for its newly
merged Chinese subsidiary, the Bank plans
to support a post merger integration of thesubsidiary to ensure the creation of positivesynergies and the stable operations ofHana Bank (China).
In addition, in 2014, a subsidiary in Russia
was formed, a branch in India and an officein Mexico opened in the early 2015.
Besides rationalizing the existing networkand supporting the organic growth ofoverseas subsidiaries, Hana Financial
Group is exploring diverse overseas
expansion options, including non-banking
opportunities, as a way to deal with thedwindling profitability of a domestic market
nearing its growth potential. In addition to
the traditional method of opening branches
and forming subsidiaries, the Group islooking into minority stake acquisition, joint
venture, and other expansion options.

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

IB & Asset Management
In 2014, Hana Financial Group strived to diversify income sources through thedevelopment of promising growth engines and the arrangement of both domestic
and cross-border M&A deals encompassing the U.S., Canada, China and otherregions.

M&A FINANCING ARRANGED
19%, No.1 in Market Share(KRW in billion)

1,210
SECURITIES SALESETF, ELW included (KRW in billion)

104,954
BROKERAGE COMMISSIONS
Including Stock, Securities, Derivatives;
Including Overseas Stocks/Futures/OTC
Bonds/Interest Rate Futures(KRW in billion)

123
BENEFICIARY CERTIFICATES AUM(KRW in billion)

15,899048

Hana Financial Group Annual Report 2014

YouTubeHana Daetoo Securities
https://www.youtube.com/channel/UCGwUKUfdHfIgunIV2vlMa5Q
WWW
Hana Daetoo Securities Homepage
https://www.hanaw.com

Ranking No.1 in M&A financeIn 2014, Hana Daetoo Securities ranked
No.1 in M&A finance by arranging a total of
KRW 1.2 trillion for seven deals, equivalent
to 19% of the market. Some of the more
noteworthy deals include a KRW 800 billion
refinancing for MBK Partners' acquisition of
Coway and a KRW 300 billion financing for
Orix Consortium's acquisition of Hyundai
Logistics. In addition to domestic M&A 'Big
Deals', the Company conducted a numberof cross-border M&A deals, including
a KRW 100 billion acquisition financeadvisory/arrangement involving a Canadianoil claim, a KRW 200 billion acquisition
finance advisory/arrangement for share in a
U.S. gas power plant, and a KRW 100 billion
lead-management of China's Lancy Group's
acquisition of Korea's Agabang & Company.
One noteworthy deal involved the acquisitionof three power plant businesses of SK E&S
through a PEF which Hana Daetoo Securities
set up; totaling about KRW 1.2 trillion, thisSOC financing deal has helped fortify themarket competitiveness and is expected
to boost the profit performance, of theCompany with a steady flow of income forthe next 14 years.
Besides the deals mentioned above,
Hana Daetoo Securities, as of this reportwriting, has in the work several advisory/
arrangement deals involving alternative049

investment restructuring in the areasof natural resources development, port
construction, highway service station
development, and aircraft-finance. In 2015,
the Company will continue to expand its
dominance in the domestic M&A market byleveraging, the 'Senior Loan Fund' it set up
in 2014.

Maximizing IB competency
Faced with aggressive new challengers
and other economy-related difficulties,
Korea Exchange Bank fared well in M&A
financing in particular and in the structured,infrastructure, and international financing
operations in general; the Bank also
recorded laudable results and achieved
meaningful feats by expanding into
overseas resources development, ship
finance and overseas real estate finance.
The 2014 IB achievements of Korea
Exchange Bank include the financing of the
ADT Caps acquisition, which was namedby Asiamoney and IFR Asia 'Deal of theYear', and the arrangement of a KRW 84
billion syndicated loan for the acquisition ofa leading landmark office building in London,
UK. Also included are a joint arrangementwith Korea Exim Bank and Korea Trade
Insurance Corporation of a large-scale
resources development project and anotherjoint arrangement with Hana Daetoo
Securities of KRW 100 billion for a fuel cell
generation business.

Pursuing growth throughdevelopment of promising sectors
To secure the foundation for mid/longterm growth, Korea Exchange Bank
seeks to implement a number of suchstrategies aimed at strengthening its corecompetencies and developing areas withgreat growth potential, as follows:First, identify more opportunities to arrange
financing and improve related fee incomesthrough marketing based on synergies
between IB and sales operations. As M&A
markets at home and abroad are expected
to pick up steam, cross-selling will be
pursued with vigor through coordination ofvarious sales channels.
Second, offshore deals will be expanded
through use of Korea Exchange Bank
Asia Finance (KAF), an overseas IB
subsidiary of the Bank, as a way to develop
overseas IB markets, which are relatively
high in growth potential.
Third, power generation, new & renewableenergy and other promising growthindustries will be explored in cooperation
with export finance institutions at home andabroad.
Fourth, multiplex financial products will be
developed and fine-tuned to the IB needsof customers. New business models will
be developed that pack securities, equity

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Securities Sales, including ETF, ELW(KRW in trillion)

105.0
101.8

2013

management, mezzanine as well as lending
functions and reflect Hana Financial Group's
extensive financial operations and ability toaccommodate a wide range of the financial
needs of customers.
Fifth, mid-sized corporates with a soundbusiness structure and a stable cash
flow will be identified and nurtured with afinancial restructuring service as a way todevelop new income sources.

Strengthening overseas products
and improving infrastructure
Hana Daetoo Securities will focus on
strengthening the competitiveness ofdomestic and overseas investment
products and portfolio products, withan eye toward solidifying the stature as
an asset management power house.
Also, by expanding the operation ofmultiplex channels, the Hana Daetoo

Securities will contribute to strengthen thecompetitiveness of Hana Financial Group's
sales channels. By strengthening employee
job competencies through IB training, theHana Daetoo Securities will offer more
distinctive financing arrangement services;and through construction of 'Big Data'systems and next-generation IT systems,
infrastructure improvements will be sought.

expand the supply of PIB product in 2015.
For better customer satisfaction, consulting
services will be upgraded throughportfolio rebalancing and customer profitoriented asset management. By linking
the performance of customer investment
portfolios more closely to the evaluation of
employee performances and taking up othermeasures, the Hana Daetoo Securities willseek to enhance customer satisfaction.

The Hana Daetoo Securities has taken anumber of proactive steps in responseto the tedious stock market movements,
including the steady decrease of tradevolume, of the past few years, and otherchanges in the financial environment.
As mobile trading customers soar andoutdoor sales (ODS) are to be authorized
this year, more refined online and off-line
channels are in the works and employee
training process and programs are being
developed with respect to strengthening
mobile branch and ODS operations. As
for the Private Investment Banking (PIB)
sales offices, created in 2014 as a way toenhance productivity and thereby enhancea healthy growth basis, the Company will

Chang Seung-chulPresident & CEO of Hana Daetoo Securities

050

2014

Hana Financial Group Annual Report 2014

Credit Card
To strengthen the market competitiveness of its credit card operation,
KEB Hana Card newly emerged on December 1, 2014, through the
integration of Hana SK Card and KEB Card, a mid-size card company
with a credit card membership of 4.7 million, assets of KRW 6 trillion,
annual sales of KRW 55.2 trillion, and a market share of over 8%.

TOTAL CREDIT CARD MEMBERSHIP(thousand)

4,697
MERCHANTS(customers in thousands)

2,300
TOTAL SALES(KRW in trillion)

55.2'SyncCard' MEMBERSHIP,
INTRODUCED IN 2014
As of March 2015 (members)

300,000

051

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

YouTubeKEB Hana Card
https://www.youtube.com/channel/UCsnlgvmpylLeDhxPQvUcMCA
WWW
KEB Hana Card Homepage
http://www.hanacard.co.kr

Total Card Sales(KRW in trillion)

55.2
51.5

2013

2014

*KEB Hana Card Launched on Dec. 1, 2014
(Hana SK Card and KEB Card Consolidated)

Seeking economies of scale throughintegration

Hana Card's funding cost lower than theindustry average.

As of Dec. 2014, total credit card
membership numbered 4.7 million
accounts, which reflects the expansion ofcard membership drives conducted throughvarious channels, including marketing. The
increase of card membership had a direct
impact on card sales, which amounted to
KRW 55.2 trillion, 7.2% more than 2013.
The total sales represent 8.1% in market
share, about 0.3%p more than 2013.

Sustaining growth through maximization of merger synergies'2XCard' and 'ClubSKCard', two leadingcard products, both reached the industry
milestone of 1 million accounts. 'SyncCard',
introduced by the integrated KEB Hana
Card, became an instant hit, attracting
300,000 accounts in two months from its
debut. In the mobile card market, a fastrising sector, 'Mobi' was introduced torepresent the integrated card operation of
KEB Hana Card, contributing a great deal to
the KRW 300 billion the Company recordedin mobile card sales in 2014, a whopping
48% increase from the previous year.
The credit card delinquency ratio, however,
did not deteriorate despite the hefty
increase of card assets. As of Dec. 2014,
the rate stood at 1.68%, remaining in astable 1% range for the past two years.
The funding structure is stable as well;borrowings are generally well matched inmaturity, and debentures carry relatively low
interest rates, which have rendered KEB

052

The domestic card market is faced with anumber of policy-related issues that havea direct impact on profitability: merchantfee reduction, revolving restrictions on
cash advance service, increased scrutiny
on consumer information management,
to name but a few. In response to these,card companies are slashing card allianceservices, expanding into new businessareas, and exploring other options to
supplement their dwindling incomes; andmany are resorting to the expansion ofcheck card operations.

set up ambitious business objectives
consisting of KRW 57.4 trillion in sales, 4%more than the year before, and of 2 millionof new card accounts. To achieve these,
the Company will focus on five key tasks—
completion of post merger integration (PMI),
expansion of new business, enhancementof product/service competitiveness,
expansion of the customer base, andstrengthening of risk management.
Maximization of merger synergies will
also be pursued. New membership drive
will be carried out through Hana Bank and
KEB branches, the merchant network of
the merged KEB Card utilized to their full
extent, and supplementary operations
strengthened.

Even with stiffening industry regulations,private consumption could very wellrise along with card sales, once diverse
economic stimulus programs andexpansionary monetary policies that havebeen implemented take their intended
effects. With a well-coordinated marketing
campaign timed to the manifestationof such desired effects, sales can soar
and profitability recovers. As card sales
are expected to grow on the back of arecovering economy, KEB Hana Card has

Jeong Hae-boong
President & CEO of KEB Hana Card

Hana Financial Group Annual Report 2014

Trust & Pension
As part of its overall effort to supply diverse and competitive
products at the right time, Hana Financial Group develops quality
assets and offers them through diverse channels. In the retirement
pension business, the Group targets public institutions throughdirect marketing, mid/large-size corporations through branch-linked
marketing, and pursues market share expansion.

TRUST AUM(KRW in billion)

74,900TOTAL TRUST INCOME(KRW in billion)

147.5
CUMULATIVE PENSIONCONTRIBUTIONS(KRW in trillion)

7.7-Hana Bank: 4.5 KRW in trillion-Korea Exchange Bank: 2.9 KRW in trillion-Hana Daetoo Securities: 0.3 KRW in trillion

053

GROUP OVERVIEWDiversifying customer asset portfolios
with mid-risk/return products
In 2014, Hana Bank's trust operation
developed and marketed innovative
products through sales channels with theaim of supplying competitive products
tuned to customer needs at the right time;and diversified customer asset portfolios byactively promoting 'Special Money Intrust
Chance-up ELT', a product pursuing mid
risk/return in sync with the growing market
trend. Year-end total trust sales amounted to
KRW 21.7 trillion (KRW 12.9 trillion in money
trust and KRW 8.8 trillion in asset trust),
recording a total profit of KRW 84.8 billion.
In addition, non-profit trust products were
employed to promote the public awarenessof the socially and financially marginalized.
The top priority of the trust operation wasdevelopment of diverse quality assets inorder to supply products that satisfy bothmarket trends and customer needs. To
strengthen financial consumer protection,
employee training was reinforced;
through the use of SNS and other means,customers were kept informed of products
approaching their maturities and early
retirement options on investment products;
and through the adoption of a system ofconfirming complete sales via customer
contacts. An outstanding trust performance
was made possible through a successful
re-sale of Chance-up ELTs early retired ,054

REVIEW OF OPERATIONS

an expansion of branch sales, and a timely
supply of products and services that meetcustomer needs and market changes.

Maintaining high growth in retirement
pension by targeting DC market
In 2014, contributions in the retirement
pension market totaled KRW 106.5 trillion,
KRW 23.1 trillion or 27.6% more thanthe previous year; contributions at Hana
Financial Group comprised KRW 4.5 trillion(up 23.6%) collected by Hana Bank, KRW
2.9 trillion (up 24.6%) by Korea Exchange
Bank, and KRW 300 billion (up 52.0%) by
Hana Daetoo Securities.
Since 2013, Hana Bank has maintained its
retirement pension business focus on thedefined contribution (DC) market catering
to SMEs, rather than on the defined benefit(DB) market serving large corporations. As aresult, the year-end balance of contributionsin DC plans amounted to KRW 900 billion,
representing a 54.5% jump from 2013,
while the number of new corporate
customers stood at 2,400 and the netincrease of DC plan holders was 24,500, up
26.6% from the year before. The individual
retirement pension business, which had
adopted an expansionary strategy in 2013
to enlarge pension assets and to attract
dedicated customers, achieved a netincrease of 66,000 accounts.

FINANCIALS

Hana Bank shifted its focus to the DC
market because it was popular among
SMEs and SOHOs and still had room togrow; and because its DC plan business had
been relatively weak.
Another reason was that government-run
institutions, in pursuit of a healthier balance
sheet, generally prefer retirement pension
plans over the traditional and increasingly
burdensome employee severance system,and those with DB plans would, if given
opportunity, readily switch to the more
affordable DC plan. Accordingly, the Bank
has actively targeted public institutions,and by the end of 2014, 39 institutions havesigned up for DC plans with the Bank, andcumulative contributions stood at about KRW
167 billion, 95.7% more than a year ago.
Meanwhile, Korea Exchange Bank focusedon expanding the range of products andvalue-added services to offer more choices
to customers enduring low interest rates,
ending the year with KRW 3.2 trillion in
pension plan sales, up 22% from the year
before.

Hana Financial Group Annual Report 2014

Retirement Pension Contribution
Balance (KRW in trillion)■ Hana Daetoo Securities■ Korea Exchange Bank
■ Hana Bank

6.1
0.2

7.7
0.3
2.9

2.3

3.6
2013

4.5

2014

Targeting institutions in need of
new plans
In 2015, considering government
policies promoting "privatization" of theseverance system of public institutions,the retirement pension market is expected
to grow to about KRW 123 trillion in termsof contributions. As tax deductions on
individual contributions to their retirement
pension plans are set to increase in 2015,
marketing will be expanded highlighting theincreased benefit of individual retirement
pension (IRP) plans.

055

As the "Salary Peak" system is to go into
effect in 2015, and a sharp increase is
expected in the number of high-paid civil
employees interested in DC plans, themembership recruitment strategy of2014 will be continued, for it has proveneffective so far. As corporates with over 300
employees are required to adopt retirement
pension plans by the end of 2015, andsubsequently mid/large-size corporations
and public institutions are expected to sign
up for pension plans in large numbers,
public institutions will be catered to anddeveloped through direct marketing
while mid/large-size corporations will beapproached through marketing in linked
with branches.
Hana Bank, in response to customer
demands for high-yield products, plans
to expand high-performing beneficiary
certificate products of other financial
institutions and to actively explore
other options of securing productcompetitiveness.

Meanwhile, Korea Exchange Bank will focus
on highlighting the benefits of IRP and otherproducts and services related to retirement
finance.
The retirement pension business is
expected to establish itself as an important
non-banking operation contributing a great
deal to expand the retail banking basis,
while playing the role of a reliable partner inthe post-retirement lives of customers.

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Corporate Social
Responsibility
Social Contribution Through FinanceHana Bank Opens a Financial Consumer Protection System

Protecting Financial Consumers
Hana Financial Group and its subsidiaries
have made various system and structuralrevisions, in an effort to better protect
financial consumer rights, including
the formation of a financial consumer
protection council, in 2013. In the August of
the year, the Group devised and announced056

a consumer protection charter for the
purpose of heightening the employee
awareness of the importance of financial
consumer protection. In October 2014, theGroup developed a "Financial Consumer
Protection System", a first of its kind in theindustry, to consolidate various consumer
protection-related functions and processes,

including voice-of-customer systems,
dispersed at different subsidiaries, and to
manage product development, monitor
product sales, conduct employ education,and evaluate employee performances,with regards to consumer protection, in a
one-stop manner. The quality of consumer
service has also been improved: The
new system enables customers to filecomplaints with ease, keep track and stay
informed via text messages of the progressof the complaints they have registered.
Meanwhile, 'Healthy Finance Check-up
Day', a monthly event of Hana Daetoo
Securities, has been adopted and expandedgroup-wide, engaging each subsidiary to
educate its employees on consumer rights
and ensure its compliance with relatedindustry regulations.
Hana Bank plans to evaluate the relevancyof all of its consumer rights-related
regulations and take other measuresconducive to the enhancement ofconsumer rights, including expansion

Hana Financial Group Annual Report 2014

Socially Responsible Finance

KRW 492.0 billion
No. of Branches with the Hope Finance Plaza
Service (Hana Bank + Korea Exchange Bank)

24 nationwideof 'Hana Solomon', the industry's first
consumer protection advisory panel
program, launched in 2013.
Over the years, the Bank has establishedhardware for protecting consumer
rights, including 'Financial Consumer
Protection Division', another industry first,
launched in April 2013. During the entire
May of 2014, the Bank held an event
highlighting how to identify and eliminate
the sources of customer complaints andawarded select employees who madeoutstanding suggestions; of a total of
108 ideas suggested by 89 employees,
eight were selected by the 'Consumer
Protection Consultative Group' of theBank, based on how thoroughly the ideas,
if adopted, would eliminate the sources
and how much they would contribute to
the improvement of customer service. In
particular, the selection was made withrespect to the relevancy of complaints
addressed and innovativeness in terms

057

of strengthening the consumers rightto know, eliminating the sources ofcomplaints, and preventing other potential
sources of complaints.
Korea Exchange Bank has also madediverse efforts to improve financial
consumer protection, and as a result,ranked by the Financial Supervisory
Services "Satisfactory" in its 2013 evaluationof the customer complaints registeredwith financial institutions. With theestablishment of a financial consumer
protection system, in November 2014,
the Bank has further strengthened its
consumer protection and customer
complaint management operations.
In addition, by defining the standard
guidelines on product description incooperation with Hana Financial Group,
Korea Exchange Bank has sought to help
customers better understand and purchasewith more confidence the products of theirchoice, and continues to improve productdescriptions by listening to customer
opinions through 'Korea Exchange Bank
Sol Together', a customer communication
channel. The Bank continues to develop
such customer services that not only
protect consumer rights but also offer
practical benefits as provide information on
dormant accounts upon a phone request
and allow customers to use a unified form
to conduct either Won or foreign currencydenominated account transactions.
KEB Hana Card is in the process ofcompleting the details of internal guidelines
on eliminating business practices thatconflict with consumer rights. Throughthe operation of a consumer protection
department, the Company also operates
diverse programs aimed at preempting
complaints and protecting customer rights.
Also in operation is 'Silver Green Zone', a
consultative channel for the elderly.

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

WWW
Sustainability Report
http://www.hanafn.com/eng/csr/sustainability/sustainabilityReport.do

No. of Employees Involved inCommunity Service(Hana Financial Group)

11,294(53% participation rate)

Hana Financial Group actively promotes "Creative
Economy".

Financial Products and Services
Promoting Public Interests
Hana Financial Group conducts business
operations that promote customer trust,care for the less fortunate, and respect theinterest of society.
Through Hana Smile Microcredit Bank
launched in September 2008, Hana
Financial Group helps the sociallymarginalized become financiallyindependent, the financially troubled
build up their credit, and the bankrupted
rebuild their lives. In particular, Hana Smile
Microcredit Bank is the financial industry's
only microcredit institution to use its own
funding source to provide credit-damaged058

people with loans. In May 2013, Hana
Financial Group boosted its commitment
to the economic independence of thefinancially marginalized by investing KRW
10 billion in Hana Smile Microcredit Bankand Smile Microcredit Bank each. Anotherleading financial product promoting public
interest is the "Babonanum" account,developed in July 2011 in cooperation
with the non-profit foundation of the same
name. Within six months of its introduction,
the savings product attracted over 200,000
accounts.
'Win-Win Package Loan', developed in
Oct. 2010, lends credit to SMEs, fromthe moment they win business contracts
from large corporations to the delivery ofcontracted products, based on the credit of
the corporations. As of Dec. 2014, a totalof KRW 1.5 trillion has been lent to SME
suppliers to large corporations.
Moreover, the Bank's performance inon-lending, which involves borrowing
low-interest funds from state-run financial
institutions and funneling them into
promising SMEs, has improved over theyears, recording KRW 0.5 trillion in 2011,
KRW 1.1 trillion, in 2012, KRW 1.2 trillion in2013, and KRW 1.8 trillion in 2014.
Another loan product with similar purposes
was created in 2013, to provide high-techstart-ups with financial support, and tooffer lower interest rate funds, the Bank
explores partnership opportunities withpublic institutions and local governments.

Korea Exchange Bank launches "KITA ePay"
ServiceHana Financial Group Annual Report 20142014 Social Contribution Expenses(Hana Financial Group)

KRW 70.8 billion

Financial Products and Services
Promoting Public Interests
Hana Financial Group's social contribution
is conducted through the organic
cooperation among the holding company
and its subsidiaries, and for the purpose of
making its group-wide contributions better
coordinated and thus more efficient, theGroup operates the Committee for Sharing
Happiness.
Moreover, Hana Foundation, Hana Smile
Microcredit Bank, Hana Academy, Korea
Exchange Bank Foundation, and Hana
Volunteer Group each carries out a variety
of projects all directed towards building abetter society for all.

Hana Financial Group launches "2014 Everyone
Hana Day" campaign

059

Specifically, Hana Financial Group strives tohelp solve or ease diverse social problems
by organizing various community activities,
supporting employee-run voluntary
programs, and regularly making financial
contributions.
To help solve social issues related tomulti-cultural families, North Korean exiles
living in Korea, and socially-marginalized
youths, the Group focuses its resources on
education programs designed to help suchpeople develop a healthy perspective oflife. For some 1.7 million foreigners living in
Korea, the Group runs 'Hana Kids of Asia','Darin', and other programs promoting
a matured society that respects cultural
diversity. For some 27,000 North Korean
exiles living in Korea, Hana Financial Group
operates programs helping adapt themto the economic and social practices ofSouth Korea. In response to a fast-growing
population of the elderly, the Group runs
the Hana Care Center, a financial industry
first of its kind dedicated to the care ofpoor seniors, and supporting various childcare centers. To support seniors living
alone, children of a single spouse, andother socially marginalized people in amore consistent manner, the Group has
developed "Happy Box", a program ofdelivering by branch employees boxes

filled with daily necessities to the needy intheir neighborhoods on major holidays andseasonal occasions.

Hana Financial Group expands 'Darin'

Moreover, diverse employee-run voluntary
activities are organized and conducted
through 'Hana Volunteer Group', a 2007
consolidation of some 100 volunteer clubs
each independently operating at different
subsidiaries. The consolidated voluntarygroup was further boosted in 2013 withthe addition of a group of voluntary units
consisting of employees and their family
members in different regions. As of Dec.
2014, there are some 500 spouses of Hana
Financial Group employees serving theircommunities with their homemaking skills
through 24 teams in 16 regions.

Financials• Management’s Discussion and Analysis• Independent Auditors’ Report• Consolidated Financial Statements• Notes to the Consolidated Financial Statements

Hana Financial Group Annual Report 2014

Management’s Discussion and Analysis
Hana Financial GroupⅠ Overview
In 2014, the domestic economy struggled despite improving exports, due mainly to such structural problems asa fast ageing population and mounting household debts compounded by a sharp drop in consumption following adisastrous ferry accident that gripped the entire nation for many months. The financial market in particular was moreor less shaped by such developments of high volatility as the end of the U.S. monetary easing policy, the reductions
by the Bank of Korea of its base rate, and a protracted descent of global oil prices.
In 2014, with a new vision, “The Trusted Premier Global Financial Group”, promulgated at the beginning of the year,
Hana Financial Group endeavored to maximize group synergies through the integration of some of its subsidiaries,
and made proactive efforts in response to the dwindling profitability of the financial market.
As financial authorities maintained their low-interest rate policies, Hana Financial Group’s NIM inched down 0.03%p
to 1.91%, but consolidated net profit surpassed the previous year’s to KRW 937.7. Meanwhile, ROE, ROA, andother profitability indexes were less than satisfactory, and the cost to income ratio also deteriorated, to 62.17%, up
0.53%p from the year before. Throughout the year, the growth of total assets remained upward, ending the year at
6.9% more than a year earlier. As total deposits and beneficiary certificates sales rose 5.6% and 8.9%, respectively,
the Group’s total sales rose by 6%.
Hana Financial Group’s overall asset quality improved over the year. The NPL ratio decreased 0.13%p to 1.35%, while
the NPL coverage ratio increased 2.6%p to 123.3%. Though the delinquency ratio inched up 0.04%p from 0.58% in2013 to 0.62%, the year-end ratio still represented sound asset quality.
As of Dec. 2014, by Basel III standards, the BIS ratio was 12.63% and the Tier 1 ratio was 9.67%, attesting thatthe capital adequacy ratios of Hana Financial Group and its subsidiaries were well above government requirements.
Going forward, robust synergy development is expected in many areas as Hana Bank and Korea Exchange Bank
continue their efforts to bring the ongoing process of full integration to a successful end. In addition, the Group’s
competitive advantage in smart banking is expected to translate into a commanding position in the fin-tech market,
which could very well shaped the landscape of the financial industry beyond recognition.
Table 1. Summarized Financial Information(KRW in billion)

2014

2013

YoY

%

Total Assets(KRW in trillion)

Profitability
General Operating Income

6,331.6

6,239.7

91.9

1.47%

Operating Income

1,243.4

1,165.0

78.4

6.73%

Consolidated Net Income

937.7

933.9

3.8

0.41%

ROA 			

0.32%

0.34%

-0.02%p-

ROE 			

4.55%

5.16%

-0.62%p-

EPS (KRW)

3,177

3,399

-221

-6.51%

62.17%

61.64%

0.53%p-Total Assets*

315,548.2

295,188.6

20,359.6

6.90%

Total Sales

267,121.3

252,143.2

14,978.1

5.94%(Total Deposits) 		

237,683.2

225,119.8

12,563.4

5.58%(Sale of Beneficiary Certificates)

29,437.9

27,023.4

2,414.5

8.93%

Cost to Income Ratio

315.5

295.2

Business Volume

Asset Soundness
Substandard & Below (NPL) Ratio
Substandard & Below (NPL) Coverage Ratio
Delinquency Ratio
BPS (KRW)*Total assets exclusive of trust assets

061

1.35%

1.48%

-0.13%p-

123.30%120.66%

2.64%p

-

0.62%

0.58%

0.04%p-71,84868,754

3,093

4.50%

(Continued on next page)

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana Financial Group

2014

2013

YoY

%

BIS CAR(%)

Capital Adequacy*
12.63%

12.28%

0.35%p-Tier 1 Ratio - Group

9.67%

9.24%

0.43%p-Common Equity Tier 1 Ratio - Group

9.18%

8.63%

0.55%p-BIS CAR - Group

14.72%

13.91%

0.81%p-Tier 1 Ratio - Hana Bank

11.38%

10.54%

0.84%p-Common Equity Tier 1 Ratio - Hana Bank

11.22%

10.53%

0.69%p-BIS CAR - Hana Bank

14.40%

13.83%

0.57%p-Tier 1 Ratio - KEB

11.72%

11.66%

0.06%p-Common Equity Tier 1 Ratio - KEB

11.44%

11.12%

0.32%p-422.56%418.04%

4.52%p-BIS CAR - KEB

Net Capital Ratio - Hana Daetoo
Adjusted Equity Capital Ratio - KEB Hana Card

21.78%

20.70%

1.08%p-

Solvency Margin Ratio - Hana Life

211.20%211.52%-0.32%p

-

9.29%

9.46%

-0.17%p-

Adjusted Equity Capital Ratio - Hana Capital

12.6

12.3

2013

2014

*Based on Basel III standards

Ⅱ Summary of Business Performance
Hana Financial Group’s consolidated net income amounted to KRW 937.7 billion at the end of 2014, up 0.41% froma year ago. The increase is directly related to robust interest and fee income operations in the face of narrowing net
interest margins.
Table 2-1. Comprehensive Income Statement(KRW in billion)

2014

2013

YoY

%

General Operating Income

6,331.6

6,239.7

91.9

1.47%

Net Interest Income

4,670.6

4,485.0

185.6

4.14%

Net Fee and Commission Income

1,762.5

1,675.6

86.9

5.19%
12.49%Net Income Attributable
to Controlling Interests(KRW in billion)

Gains on Disposition & Valuation

459.4

408.4

51.0

Other Operating Income-561.0-329.3-231.7-

General & Administrative Expenses

3,936.2

3,846.3

89.9

2.34%

Pre-Provisioning Operating Profit (PPOP)2,395.4

2,393.4

2.0

0.08%

Credit Loss Provision

1,151.9

1,228.4-76.5-6.22%

Operating Income

1,243.4

1,165.0

78.4

6.73%

9.1

105.3

-96.2

-91.34%

Non-Operating Income

1,252.6

1,270.3-17.7-1.39%

Income Tax Expense

272.8

277.3

-4.5

-1.63%Net Income

979.8

993.0

-13.2

-1.33%

Attributable to Non-Controlling Interests

42.1

59.1

-17.0

-28.78%Net Income Attributable to Controlling Interests

937.7

933.9

3.8

0.41%

Net Income before Income Tax

General operating income rose to KRW 6,331.6 billion. The increase can be attributed to the growth of interest earning assets which boosted interest incomes and the rise of fee incomes, despite falling NIMs mired in a low-interest
rate environment. In particular, the overall performance of fee and commission income improved over the year on theback of increasing trust fees from high-yielding ELT sales and rising credit card fees led by growing sales.

062

937.7

933.9

2013

2014

Hana Financial Group Annual Report 2014

Fee and commission income, gains on disposition & valuation, and other operating income will be reported in detailin Table 3. Non-Interest Income.
Other operating income suffered a setback compared with the previous year which had benefited from the negative
goodwill effect related to the acquisition of Hana Life shares and the gains from the debt to equity swap involving
STX Engine.
General & administrative expenses amounted to KRW 3,936.2 billion, 2.3% more than the year before, due mainly togroup-wide cost-saving efforts maintained throughout the year.
As of Dec. 2014, credit loss provision amounted to KRW 1,151.9 billion, which represents a reduction less than
expected, due mainly to a loan fraud engineered by Moneual.
For such increases in core incomes and an efficient management of expenses and provisions as briefly describedabove, Hana Financial Group recorded an operating income of KRW 1,243.4 billion in 2014, up about 7% from theprevious year.
Table 2-2. Comprehensive Income Statement by Subsidiaries(KRW in billion)
Overseas Affiliates

Hana
Korea
Hana
Bank Exchange
DaetooBank Securities

KEB
Hana
Card*

Hana
Capital

Hana
Hana
Asset
Asset
Trust Management

Hana
Life

Hana
Savings
Bank

Hana
Bank
(China)**PT Bank
KEB Hana
Indonesia**

General Operating Income

2,900.5

2,307.9

404.8

410.4

171.5

26.6

6.0

32.2

49.1

309.6

155.4

61.7

Net Interest Income

2,531.6

1,660.7

152.2-119.6

159.3

1.4

0.2

68.6

47.2

253.5

146.2

51.2

Net Fee and Commission Income

411.4

568.1

206.8

510.4

4.7

24.8

5.7

18.5

1.0

30.8

9.4

6.4

Gains on Disposition & Valuation

234.3

273.7

23.8

6.8

-0.2

0.6

-

23.5

2.6

17.5

6.6

5.8

Other Operating Income-276.7-194.6

22.1

12.7

7.7

-0.2

0.1

-78.4

-1.7

7.8

-6.7

-1.6

General & Administrative Expenses

1,562.5

1,358.0

308.7

244.7

42.8

14.2

4.4

29.4

25.0

171.0

90.4

27.1

Pre-Provisioning Operating Profit (PPOP)

1,338.0

949.9

96.1

165.7

128.7

12.4

1.6

2.8

24.1

138.6

65.0

34.6

Credit Loss Provision

419.4

451.9

3.2

159.3

65.0

-

-

0.7

10.0

43.8

38.0

-1.7

Operating Income

918.6

498.0

93.0

6.4

63.7

12.4

1.6

2.1

14.0

94.8

27.1

36.4

Non-Operating Income
Net Income before Income Tax

150.0

-62.8

12.6

1.2

1.8

0.4

-

2.6

0.2

-7.2

-2.0

0.3

1,068.7

435.2

105.6

7.6

65.5

12.8

1.5

4.7

14.2

87.6

25.1

36.6

Income Tax Expense

225.9

44.4

23.6

2.5

15.2

2.8

0.3

1.8

3.1

37.8

10.9

9.9

Net Income

842.8

390.8

82.0

5.1

50.4

10.1

1.2

2.9

11.2

49.8

14.2

26.7

*Simple addition of the incomes generated by Hana SK Card (Jan.~Nov.), KEB Card (Sept.~Nov.), KEB Hana Card (Dec.)** Simple addition of the incomes of the Chinese and Indonesian subsidiaries of Hana Bank and Korea Exchange BankTo review income performance by subsidiary, Hana Bank’s net income was KRW 842.8 billion, up KRW 187.6 billion
from the previous year, while Korea Exchange Bank’s was KRW 390.8 billion, up KRW 30.3 billion. General operating income came to KRW 2,900.5 billion for the former and KRW 2,307.9 billion for the latter, both owing to a hefty
increase in interest income resulted by the healthy growth of interest earning assets, to a surge in trust fee income
derived from the robust growth of high-yielding ELT sales, and to a FX translation loss caused by the appreciation of
Korean Won. Compared with Hana Bank, Korea Exchange Bank incurred a bigger drop in general operating income
in 2014, as the figure reflects the spin-off of its credit card operations effective September 2014. In addition, Korea
Exchange Bank’s general operating income further suffered a KRW 110 billion drop as a result of lower gains on
disposition and valuation, compared with the previous year. The lower gains was attributed to a KRW 105.0 billion
impairment losses on investment securities, including its holdings of shares in Taihan Electric Wire, the People's
Happiness Fund, and STX affiliates, as well as to FX translation losses, off-setting KRW 104.7 billion gained from thesale of SK Hynix holdings.

063

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana Financial Group

General & administrative expenses rose for Hana Bank, as retirement benefits increased retroactively due solely toa sweeping change in the way employee base salaries are calculated; the expense item for Korea Exchange Bank
decreased due mainly to the base effect of a special bonus discontinued in 2014. Credit loss provision amounted to
KRW 419.4 billion and KRW 451.9 billion, respectively, for Hana Bank and Korea Exchange Bank. With the credit cardbusiness spinoff taken into account, Korea Exchange Bank’s credit loss provision would be around KRW 380.0 billion.
Hana Daetoo Securities’ net profit shows a 20% increase from the year before, at KRW 82.0 billion. The increase canbe attributed to sizeable trading gains and a hefty increase in security sales, even though general & administrative
expenses were boosted higher by an early retirement program (ERP) offered in 2014 and the base effect of Woongjin
related write-back happened in 2013.
2014 became the first year for the integrated KEB Hana Card. Based on a simple addition of the two entities' P&L,
the Group’s card operations recorded a net income of KRW 5.1 billion, attracted 1.33 million new members, andsecured a transaction volume of KRW 55.2 trillion, including mobile card transactions. The integrated KEB Hana Card,launched in December 2014, has become a major independent card company with KRW 6 trillion in credit card assets. Due to one-off expenses related to the integration and the upgrade of IC devices, the newly integrated entity
ended up recording a net loss of KRW 11.2 billion in a fiscal year which lasted only four months.
Hana Capital grew its financial assets by 19% over the course of 2014. As a result of increases in core incomes, general operating income rose to KRW 171.5 billion. Increased sales, however, accompanied a relatively small increasein general & administrative expenses, boosting net income to KRW 50.4 billion.

Fee & Commissions
Income Break-down(KRW in billion)

Hana Life performed well in generating operating income considering a hefty rise in reserves in response to cuts inmarket rates. Hana Savings also turned into a profit, a clear sign of stabilizing operations. Hana Asset Trust, despite
a depressed real estate market, managed to cut the cost to income ratio through cost rationalization efforts, andimproved ROE and other profit indicators.

Table 3. Non-Interest Income(KRW in billion)

2014

2013

YoY

%

1,762.5

1,675.6

86.9

Credit Card

783.9

740.1

43.8

5.92%

Loans and FX-related

453.0

456.5

-3.5

-0.77%

Asset Management

Net Fee and Commission Income

472.5

447.7

24.8

5.54%

126.2

134.5

-8.3

-6.16%

Brokerage

106.7

101.6

5.1

5.03%

Trust Fees

147.5

89.1

58.4

65.61%

Bancassurance

65.6

93.4

-27.8

-29.74%

M&A Advisory

34.1

39.0

-4.9

-12.43%

Other

19.1

-7.7

26.8

-347.86%

Gains on Disposition & Valuation

459.4

408.4

51.0

12.49%

Other Operating Income-561.0-329.3-231.7

-

49.1

42.8

6.3

14.61%

Contribution to the Credit Guaranteed Fund-345.3-309.9-35.5-

Deposit Insurance Fee-287.7-269.8

-17.9

-

23.8

207.6

-183.8-88.5%

1,661.0

1,754.7-93.7-5.34%

Others
Total

783.9

● Loans and FX-related

453.0● Asset Management

472.5● M&A Advisory

34.1● Others

19.1

5.19%

Beneficiary Certificates

Dividend Income● Credit Card

Net Fee andCommission Income(KRW in billion)

1,762.5

1,675.6

2013

064

2014

Hana Financial Group Annual Report 2014

To review non-interest income of Table 3., trust fee income increased the most on the back of robust ELT sales, followed by credit card fee. Bancassurance fees fell over the year following the discontinuation of related tax benefits;
and beneficiary certificate and securities underwriting fees shrank, reflecting the sluggish state of a stock market thatprevailed throughout the year; and FX-related fees, despite an increase in FX sales, inched down, due to narrowing
margins fueled by rising market competition.
To review Hana Financial Group’s major operations in terms of market share, Hana Financial Group’s market share
increased from 7% to 8% in credit card sales; inched down to 44% in FX sales; up to 3.2% in securities sales despitedaunting market conditions; down to 7.7% in beneficiary certificates sales; and slipped a tiny bit to 9.8% in relatively
high-yielding equity-type (hybrid) products.
Gains on disposition and valuation increased KRW 51 billion to KRW 459.4 billion, mainly due to a KRW 260.0 billion
increase in gains related to marketable securities, ending the year at KRW 205.0 billion. Gains on FX trading also
increased, by KRW 25.0 billion to KRW 270.0 billion. Gains on derivatives trading, however, fell KRW 250.0 billion toa negative KRW 19.0 billion.
Other operating income consists of contributions to the Credit Guaranteed Fund, deposit insurance fee, and dividend
income. The first two, which increase in proportion to relevant loan balance and deposits, inched up over the year to
KRW 345.3 billion and KRW 287.7 billion, respectively.

Cost to Income Ratio(%)

Table 4. General and Administrative Expenses(KRW in billion)

2014

2013

YoY

%

General & Administrative Expenses

3,936.2

3,846.3

89.9

2.34%

Salaries and Employment Benefits

1,812.5

1,792.4

20.1

1.12%

274.3

200.5

73.8

36.80%

1,247.4

1,238.9

8.5

0.69%

Depreciation and Amortization

466.3

491.0

-24.7

-5.03%

Taxes and Dues

135.7

123.4

12.3

9.99%

Cost to Income Ratio

62.17%

61.64%

0.53%p-Severance and Retirement Benefits
Administrative Expenses

General and administrative expense rose 2.34% over the course of 2014 to KRW 3,936.2 billion due mainly to groupwide cost-cutting efforts maintained throughout the year.
However, as the increase of general operating income was offset by that of general and administrative expenses, thecost to income ratio ended up increasing 0.53%p to 62.17%.

065

62.17

61.64

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana Financial GroupⅢ Summarized Group Financial Position
Table 5. Condensed Balance Sheets(KRW in billion)

2014

2013

YoY

%

Shareholder`s Equity(KRW in billion)

272,674.9

256,068.6

16,606.3

Due from Banks

11,212.5

10,981.4

231.1

2.10%

Fixed Income Securities

47,499.2

41,489.4

6,009.8

14.49%

Loans

213,963.1

203,597.8

10,365.3

5.09%

5,973.0

5,147.5

825.5

16.04%

Interest Earning Assets

Other Revenue Earning Assets

6.49%

Non-Revenue Earning Assets

36,900.4

33,972.5

2,927.8

8.62%

Total Assets

315,548.2

295,188.6

20,359.6

6.90%

Interest Bearing Liabilities

259,620.1

244,597.4

15,022.7

6.14%

Deposits

201,897.0

187,225.7

14,671.3

7.84%

Borrowings

23,264.0

21,833.6

1,430.3

6.55%

Debentures

29,557.2

30,419.6-862.4-2.84%

Policy Reserve

2,019.2

1,716.6

302.6

17.63%

Borrowings from Trust Accounts

2,882.8

3,401.9-519.1-15.26%

Non-Interest Bearing Liabilities

34,034.5

29,701.7

4,332.8

14.59%

Total Liabilities

293,654.6

274,299.0

19,355.6

7.06%

Shareholders' Equity

21,893.6

20,889.6

1,004.0

4.81%

Total Liabilities & Shareholders' Equity

315,548.2

295,188.6

20,359.6

6.90%

In 2014, Hana Financial Group’s assets grew 6.9% over the year to KRW 315.5 trillion, as its major subsidiaries
continued their asset growth. To grow assets both in quality and in quantity, Hana Financial Group strengthened risk
management and continued to optimize the asset portfolio. As a result, delinquency remained at a level similar tothat of the previous year and the NPL ratio improved 0.13%p to 1.35%, while other asset quality indexes improved
over the year.
To review assets by subsidiary, Hana Bank grew its KRW loans, which take up the biggest part of the interest-earning
assets, by 3.3% to KRW 110.9 trillion, while Korea Exchange Bank increased KRW loans 4.1% to KRW 52.5 trillion.
Shareholders’ equity rose 4.81% over the year to KRW 21.9 trillion as retained earnings increased on the back of theconsolidated net profit of KRW 937.7 billion and gains on valuation of available-for-sale securities.
Table 6. Total Sales

Total Deposits 		
Deposits
Core Deposits(KRW in billion)

2014

2013

YoY

%

237,683.3

225,119.8

12,563.5

5.58%

178,589.2

166,519.5

12,069.7

7.25%

36,188.8

31,792.4

4,396.4

13.83%
19.96%

MMDA

25,041.3

20,874.7

4,166.6

Time Deposits

103,770.7

103,458.7

312.0

0.30%

Installment Deposits

13,588.4

10,393.7

3,194.7

30.74%(Continued on next page)066

21,893.6

20,889.6

2013

2014

Hana Financial Group Annual Report 2014

2014

2013

YoY

%

925.5

797.3

128.2

16.08%

Total Sales(KRW in billion)

Certificate of Deposits
Bonds Sold under Repurchase Agreements

16.6

87.2

-70.6

-80.93%

Bills Sold

294.9

181.4

113.5

62.54%

57,857.1

57,534.4

322.7

0.56%

Trust Account 		

29,437.9

27,023.4

2,414.5

8.93%(Mixed) Equity Type8,796.1

9,377.5-581.4-6.20%(Mixed) Fixed Income Type5,413.9

4,848.6

565.3

11.66%

MMF

8,667.5

6,722.2

1,945.3

28.94%

Others6,560.3

6,075.1

485.3

7.99%

267,121.3

252,143.2

14,978.1

5.94%

Sale of Beneficiary Certificates 		

Total Sales 		

267,121.3

252,143.2

2013

2014

Hana Financial Group’s total sales, a sum of total deposits and beneficiary certificates sales as of year-end, rose
5.94% to KRW 267.1 trillion. The rise can be attributed to flight-to-quality, and stepped-up sales effort.
In beneficiary certificates sales, equity-type (hybrid) sales inched down amid an overall sluggish stock market. However, beneficiary certificates increased 8.9% to KRW 29.4 trillion due to customer preferences for fixed income and
MMF, which offset the decrease of equity-type (hybrid) sales.
To review total sales by subsidiary, Hana Bank recorded KRW 137.6 trillion in total deposits, up about 7% from theyear before, and KRW 8.2 trillion in beneficiary certificates sales, up 1.6%, despite a 12.5% decrease in equity-type(hybrid) sales. Korea Exchange Bank posted KRW 83.4 trillion in total deposits, up about 2%, and KRW 3.9 trillion in
beneficiary certificates sales, about 1% down, owing to an 11% decrease in equity-type (hybrid) sales. Hana Daetoo
Securities recorded KRW 15.9 trillion in beneficiary certificates sales, up 14%, owing to about a 3% increase inequity-type (hybrid) sales.

Ⅳ Asset Quality
Table 7. Asset Quality and Loan Loss Provision(KRW in billion)

2014

2013

YoY

%

Total Credit

230,818.7

222,030.0

8,788.7

3.96%

Normal

225,147.2

215,392.3

9,755.0

4.53%

Precautionary

2,552.9

3,346.4-793.5-23.71%Substandard

2,005.5

1,952.0

53.5

2.74%

Doubtful

574.8

654.9

-80.1

-12.23%

Estimated Loss

538.3

684.4

-146.1-21.35%

Amount

5,671.4

6,637.7-966.3-14.56%

Ratio

2.46%

2.99%

-0.53%p-

Amount3,118.5

3,291.3-172.8-5.25%

Ratio

1.35%

1.48%

-0.13%p-

Substandard & Below(NPL) Coverage Ratio
(%)

123.3

Precautionary & Below
120.7

Substandard & Below (NPL)(Continued on next page)

067

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONS

2014

2013

YoY

%

Loan Loss Allowance

3,845.2

3,971.4-126.3-3.18%

Loan Loss Reserve

2,134.4

2,308.4-174.0-7.54%

Credit Loss Reserve

1,710.7

1,663.0

47.7

2.87%

123.3%

120.7%

2.6%p-

Substandard & Below (NPL) Coverage Ratio

As of Dec. 2014, Hana Financial Group’s total credit amounted to KRW 230.8 trillion, up 4% from the year before,of which NPLs totaled KRW 3.1 trillion. While Precautionary & Below inched down to 2.46% in proportion to total
credits, NPLs also decreased, to 1.35%, representing an overall asset quality improvement. The NPL coverage ratio
increased 2.6%p to 123.3% due to the NPLs reduction despite the growth of assets, representing a sufficient provisioning level.

Ⅴ Capital Adequacy
Table 8. BIS Capital and Ratio

Common Equity Tier 1 Capital
Additional Tier 1 Capital(KRW in billion, %)

2014

2013

YoY

17,302.0

15,933.9

1,368.1

8.59%

906.0

1,135.0-229.0-20.17%%

Tier 2 Capital

5,578.7

5,605.6-26.9-0.48%

Total BIS Capital

23,786.7

22,674.5

1,112.2

4.90%

Risk Weighted Assets

188,380.7

184,685.6

3,695.1

2.00%

12.63%

12.28%

0.35%p-Tier 1 Ratio

9.67%

9.24%

0.42%p-Common Equity Tier 1 Ratio

9.18%

8.63%

0.55%p-BIS Capital Adequacy Ratio **Based on Basel III standards

Hana Financial Group’s total BIS capital increased KRW 1.1 trillion, or 4.9%, over the course of 2014 to KRW 23.8 trillion, while risk-weighted assets rose KRW 3.7 trillion, or 2.0%, to KRW 188.4 trillion, together contributing to increase
the BIS capital adequacy ratio by 0.35%p to 12.63%.
The increase of total BIS capital can be ascribed mainly to a KRW 1,368.1 billion increase in common equity Tier 1
capital which stemmed from increases in net income and cumulative other comprehensive income. Additional Tier 1
capital showed a slight decrease from the year before as a result of an amortization effect on the hybrid bonds issued
prior to the enforcement of Basel III standards, while Tier 2 capital was strengthened through the issuance by Hana
Bank and Korea Exchange Bank of a USD 300 million subordinated bond each, totaling USD 600 million, carried out
in full compliance with Basel III standards.
The 2% growth of risk-weighted assets, in contrast to a 6% asset growth can be ascribed to the stringent risk management practices and capital adequacy improvement efforts maintained group-wide.

068

Hana Financial Group Annual Report 2014

Management’s Discussion and Analysis
Hana Bank

Ⅰ Summary of Business Performance
Table 1. Comprehensive Income Statement(KRW in billion)

2014

2013

YoY

%

General Operating Income

2,866.9

2,707.7

159.2

5.88%

Net Interest Income

2,531.6

2,489.3

42.3

1.70%

Net Fee and Commission Income

411.4

385.6

25.8

6.69%

Gains on Disposition & Valuation

254.1

166.9

87.2

52.25%-330.2-334.1

3.9-1.17%

General & Administrative Expenses

1,562.5

1,470.7

91.8

6.24%

Pre-Provisioning Operating Profit (PPOP)

1,304.4

1,237.0

67.4

5.45%

Credit Loss Provision

385.7

443.4

-57.7

-13.01%

Operating Income

918.6

793.6

125.0

15.75%

Non-Operating Income

150.0

5.4

144.6

2,677.78%

Other Operating Income

1,068.7

799.0

269.7

33.75%

Income Tax Expense

225.9

143.8

82.1

57.09%Net Income

842.8

655.2

187.6

28.63%

ROA

0.53%

0.38%

0.15%p

-

ROE

8.18%

5.94%

2.24%p-EPS (KRW)

3,834

2,981

853

28.61%Net Income before Income Tax

BPS (KRW)

54,70651,016

3,690

7.23%

Cost to Income Ratio

54.50%

54.32%

0.18%p-Net Income(KRW in billion)

842.8
655.2

In 2014, Hana Bank earned KRW 842.8 billion in net income, KRW 187.6 billion more than the year before, byconducting stellar performances in the core income and disposition and valuation areas by improving asset quality

2013

which led to a reduction in provisions. General operating income rose KRW 159.2 billion to KRW 2,866.9 billion, while2014

operating income increased KRW 125.0 billion as general & administrative expenses rose moderately and credit loss
provision decreased over the course of 2014.
Net interest income inched up 1.7% to KRW 2,531.6 billion. NIM inched down 5bps as market rates continued to fall

EPS

following two base rate cuts. Net interest income, however, increased on the expansion of interest earning assets,(KRW)

while the increase of core deposits led to lower funding costs in 2014.
Fee and commission income rose 6.69% YoY to KRW 411.4 billion; trust fee income rose KRW 41.2 billion following
the increased sale of equity-linked trust (ELT) products, while lending-related fees represented an increase of KRW
10.7 billion from 2013, a result of the expansion of cross sales in linked with the Group's IB divisions. On the other

3,834
2,981

hand, fees related to mortgage securitization decreased KRW 11.5 billion as the securitization of mortgage loans decreased. Bancassurance commission reduced KRW 11.3 billion, following the discontinuation of relevant tax benefits.
Gains on disposition & valuation soared 52.25% to KRW 254.1 billion; while the market value of the Bank’s holdingsof equity investments decreased, resulting in the increase in impairment loss; gains on securities disposition andvaluation rose KRW 82.2 billion thanks to increased gains on investment securities sold; and gains on FX derivatives
disposition and valuation increased KRW 5.1 billion.
General & administrative expenses increased KRW 91.8 billion; though retirement benefits rose due to the revisionof base salary calculations, the growth of administrative expenses was kept below that of price increases through theconduct of expense rationalization efforts.

069

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana Bank

Credit loss provision stood at KRW 385.7 billion, down KRW 57.7 billion from the year before. Of the amount, KRW
391.9 was reserved for loan losses, down KRW 59.5 billion compared with the year before, a result of rigorous risk
management, NPL sales and other asset quality-focused efforts made during the year.
Non-operating income increased KRW 144.6 billion over the year: dividend income rose from Hana-invested affiliates
and gains went up on the sale of the Bank’s holdings of shares in its Indonesian subsidiary to Korea Exchange Bank.
Net income before income tax rose by 33.75% to KRW 1,068.7 billion, and net income came to KRW 842.8 billion.
Table 2. Non-Interest Income

Fee & Commissions Income(KRW in billion)

2014

2013

YoY

%

411.4

385.6

25.8

6.69%
-0.14%

210.7

211.0

-0.3

Fees in Acceptances and Guarantees

24.2

25.5

-1.3

-5.10%

Fees Related to Loans

57.9

47.2

10.7

22.67%

Fees in Foreign Currencies

42.1

45.7

-3.6

-7.88%

Others

86.5

92.6

-6.1

-6.59%

200.7

174.6

26.1

14.90%

Sales of Beneficiary Certificate

58.4

62.2

-3.8

-6.11%

Bancassurance

58.3

69.6

-11.3

-16.24%

Trust Fees

84.0

42.8

41.2

96.26%
52.25%

Loan & FX-related

Asset Management

Gains on Disposition & Valuation

254.1

166.9

87.2

Other Operating Income-330.2-334.1

3.9

-

24.5

27.1

-2.6

-9.59%

Deposit Insurance Fee-156.8-166.1

9.3-

Contribution to the Credit Guarantee Fund

-208.1-204.3

-3.8

-

10.2

9.2

1.0

10.87%

Dividend Income

OthersFee & Commissions
Income Break-down(KRW in billion)● Loan & FX-related

210.7● Asset Management

200.7

Hana Bank's 2014 non-interest income came to KRW 335.3 billion, KRW 116.9 billion more than the year before; fee& commission income rose 6.69% to KRW 411.4 billion; gains on disposition and valuation rose KRW 87.2 billion to
KRW 254.1 billion; and other operating loss inched down KRW 3.9 billion to minus KRW 330.2 billion.
To review loan & FX-related fee, loan-related fees rose by KRW 10.7 billion on the increase of fees for handling regularand “preferential” loans following the expansion of IB-linked sales; remittance fee by KRW 4.7 billion; ATM fee by
KRW 3.0 billion; while mortgage loan fee decreased by KRW 11.5 billion, pinched by the reduction of mortgage loans
supplied; FX fee by KRW 3.6 billion; and ABS fee by KRW 2.6 billion.

Gains on Disposition& Valuation(KRW in billion)

254.1

Asset management fee increased by KRW 26.1 billion to KRW 200.7 billion; Bancassurance fees, mirroring the negative effect of the tax benefits revision, decreased KRW 11.3 billion; and beneficiary certificates fee went down KRW

166.9

3.8 billion on the slowing sales of the certificates amid an inert stock market.

2013

070

2014

Hana Financial Group Annual Report 2014

Table 3. General and Administrative Expenses(KRW in billion)

2014

2013

YoY

%

General & Administrative Expenses

1,562.5

1,470.7

91.8

6.24%

Salaries and Employee Benefits

731.4

675.2

56.2

8.32%

Severance and Retirement Benefits

143.3

91.2

52.1

57.13%

Administrative Expenses

511.7

503.1

8.6

1.71%

Depreciation and Amortization

112.5

146.4

-33.9

-23.16%

Taxes and Dues

63.7

54.7

9.0

16.45%

54.50%

54.32%

0.18%p-Cost to Income Ratio

General &Administrative
Expenses(KRW in billion)

1,562.5

1,470.7

General & administrative expenses rose 6.24% to KRW 1,562.5 billion; salaries & employee benefits went up KRW
56.2 billion mainly owing to a retirement benefit increase of KRW 52.1 billion following the base salary-related revision

2013

2014

and an increase in the number of senior employees who accepted the early retirement offer.

Ⅱ Summarized Financial Position
Table 4. Condensed Balance Sheets

Interest Earning Assets
Due from Banks(KRW in billion)

2014

2013

YoY

143,152.7

138,570.1

4,582.6

3.31%

2,261.1

3,978.5-1,717.4-43.17%

20,950.2

19,270.9

1,679.3

8.71%

Loans

119,941.4

115,320.7

4,620.7

4.01%

6,368.2

6,361.0

7.2

0.11%

3,648.0

3,990.0-342.0-8.57%

Stocks and Others
Domestic Import Usance

2,720.2

2,371.0

349.2

14.73%

Non-Revenue Earning Assets

15,103.9

12,670.8

2,433.1

19.20%

Total Assets

164,624.7

157,601.9

7,022.8

4.46%

Interest Bearing Liabilities

3.78%

143,351.8

138,131.0

5,220.8

Deposits

120,519.6

111,356.7

9,162.9

8.23%

Borrowings

8,727.5

9,788.9-1,061.4-10.84%

Debentures

12,356.7

14,355.7-1,999.0-13.93%

Borrowings from Trust Accounts

1,748.0

2,629.6-881.6-33.53%

9,248.6

8,257.8

990.8

12.00%

Total Liabilities

152,600.4

146,388.8

6,211.6

4.24%

Shareholders' Equity

12,024.3

11,213.2

811.1

7.23%

Total Liabilities & Shareholders' Equity

164,624.7

157,601.9

7,022.8

4.46%

Non-Interest Bearing Liabilities(KRW in billion)%

Fixed Income Securities
Other Revenue Earning Assets

Interest Earning Assets

143,152.7

138,570.1

2013

2014

Shareholders' Equity(KRW in billion)

Over the course of 2014, the Bank's total assets rose KRW 7.0 trillion to KRW 164.6 trillion; loans and marketable

12,024.3

securities increased, while dues from banks decreased.
Interest earning assets rose by KRW 4.6 trillion to KRW 143.2 trillion; loans went up by KRW 4.6 trillion to KRW 119.9
trillion: corporate loans by KRW 0.6 trillion; household loans by KRW 3.0 trillion; and bills bought by KRW 0.4 trillion.

11,213.2

The increase of corporate loans comprised mostly SME loans, while that of household loans consisted mainly ofmortgage loans. Marketable securities rose KRW 1.7 trillion on the expansion of the Bank’s government and publicbond holdings.

071

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana BankInterest bearing liabilities rose KRW 5.2 trillion; deposits increased KRW 9.2 trillion while borrowings decreased by
KRW 1.1 trillion, debentures by KRW 2.0 trillion, and trust account borrowings by KRW 0.9 trillion.
Shareholders' equity rose KRW 0.8 trillion; retained earnings increased by KRW 672.0 billion as a dividend of KRW
170.8 billion which had been paid out at the beginning of 2014, was subtracted from a year-end net income of KRW
842.8 billion; and other comprehensive income went up KRW 139.0 billion on the increase of gains on valuation ofavailable-for-sale securities.
Table 5. KRW Loans & Deposits(KRW in billion)

2014

2013

YoY

%

110,922.2

107,428.8

3,493.4

3.25%

53,238.1

52,731.3

506.8

0.96%

36,677.6

34,396.2

2,281.4

6.63%(SOHO)

17,103.2

14,699.2

2,404.0

16.35%

Large Corporate

15,442.4

16,573.8-1,131.4-6.83%

Others

1,118.1

1,761.4-643.3-36.52%

57,684.1

54,697.4

2,986.7

5.46%

KRW Loans(KRW in billion)

KRW Loans
Loans to Corporate
SME

Loans to Households

116,042.4

107,429.6

8,612.8

8.02%

Low Cost Funding

37,808.1

31,841.8

5,966.3

18.74%(Core Deposits)

19,421.7

16,766.3

2,655.4

15.84%(MMDA)

18,386.4

15,075.5

3,310.9

21.96%

Time Deposits

70,597.1

69,429.9

1,167.2

1.68%

Installment Deposits

6,601.0

5,421.1

1,179.9

21.76%

CD & Others

1,036.2

733.2

303.0

41.33%KRW Deposits *110,922.2

107,428.8

2013

2014

SOHO Loans(KRW in billion)*Excluding foreign currency and trust deposits

KRW loans as of Dec. 2014, stood at KRW 110.9 trillion, KRW 3.5 trillion more than the year before; corporate loans

17,103.2

rose KRW 0.5 trillion. Noteworthy of the increase of corporate loans is that SOHO loans jumped by KRW 2.4 trillion,
while large corporate loans dropped KRW 1.1 trillion, compared with the year before. Household loans rose by KRW
KRW 3 trillion comprising mostly mortgage loans.
KRW deposits rose KRW 8.6 trillion to KRW 116.0 trillion; core deposits increased KWR 2.7 trillion, or 15.84%, con-14,699.2

tributing to the improvement of the overall funding structure.
2013

Ⅲ Asset Quality
Table 6. Asset Quality and Loan Loss Provision(KRW in billion)

2014

2013

YoY

%

Total Credit

126,793.8

122,758.4

4,035.4

3.29%

Normal124,500.7

119,672.0

4,828.6

4.03%

Precautionary

801.5

1,276.0-474.5-37.19%Substandard

959.5

1,085.5-126.0-11.60%

Doubtful

267.9

341.9

-74.0

-21.63%

Estimated Loss

264.2

383.0

-118.8-31.02%(Continued on next page)

072

2014

Hana Financial Group Annual Report 2014

2014

2013

YoY

%

Amount2,293.1

3,086.3-793.2-25.70%

Ratio

1.81%

2.51%

-0.71%p-

Amount1,491.6

1,810.3-318.7-17.61%

Ratio

1.18%

1.47%

-0.30%p-

Loan Loss Reserves

888.7

1,063.1-174.5-16.41%Credit Loss Reserves

1,064.7

1,077.4-12.6-1.17%

Substandard & Below (NPL) Coverage Ratio

130.96%118.24%12.72%p-

NPL Ratio(%)

Precautionary & Below

1.47

Substandard & Below (NPL)

1.18

2013

2014

Over the course of 2014, the Bank's total credit rose KRW 4,035.4 billion to KRW 126,793.8 billion, while NPLs decreased KRW 318.7 billion to KRW 1,491.6 billion as a result of a rigorous liquidation of collateral and write-off/sales

NPL Coverage Ratioof NPLs conducted during the year.

(%)

The year-end NPL figure represents a reduction of KRW 318.7 billion from 2013, a result of a KRW 838.3 write-off/sales and a KRW 21.9 billion debt to equity swap, which led to the NPL ratio to improve 0.3%p to 1.18%.
130.96

Loan loss reserves amounted to KRW 888.7 billion as of Dec. 2014, down KRW 174.5 billion from the year before,
reflective of a drop in new NPLs.
The NPL coverage ratio increased 12.72%p to 130.96%, well above the target rate of 110%.

118.24

Ⅳ Capital Adequacy

2013

Table 7. BIS Capital and Ratio

Tier 1 Capital
Common Equity Tier 1 Capital(KRW in billion)

2014

2013

YoY

%

11,132.5

9,957.2

1,175.3

11.80%

10,976.8

9,945.0

1,031.8

10.38%

3,270.8

3,185.3

85.5

2.68%

Loan Loss Reserve

545.1

530.5

14.6

2.75%

Basel Ⅲ Tier 2

329.8

-

329.8

-

Basel Ⅱ Tier 2

2,357.2

2,651.9-294.7-11.11%

Tier 2 Capital

38.7

2.9

35.8

1,217.67%

Total BIS Capital

14,403.3

13,142.5

1,260.8

9.59%

Risk Weighted Assets

97,851.6

94,459.4

3,392.2

3.59%

BIS Capital Adequacy Ratio*

14.72%

13.91%

0.81%p-Tier 1 Ratio

11.38%

10.54%

0.69%p-Common Equity Tier 1 Ratio

11.22%

10.53%

0.84%p-Tier 2 Ratio

3.34%

3.37%

-0.03%p-

Others*Based on Basel III standards

The Bank issued a subordinated bond of USD 300 million in 2014, as part of the effort to strengthen the capital base.
Efforts were also made to maintain BIS capital adequacy ratios at recommended levels through the regular monitoring and analysis of risked-weighted assets.
From December 2013, the Bank started reporting BIS ratios in accordance with Basel IIII standards, and, as of Dec.
2014, maintained all BIS capital adequacy ratios well above recommended levels as shown in the chart above.

073

2014

BIS Ratio
(%)

14.72

13.91

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Korea Exchange Bank

Ⅰ Summary of Business Performance
Table 1. Comprehensive Income Statement(KRW in billion)

2014

2013

YoY

%

General Operating Income

2,343.1

2,519.1-176.0-6.99%Net Interest Income

1,660.6

1,577.9

82.7

5.24%

568.1

662.1

-94.0

-14.19%Gains on Disposition & Valuation

273.9

376.7

-102.8-27.30%

Other Operating Income-159.5

-97.6

-61.9

-

1,358.0

1,434.8-76.8-5.36%

Pre-Provisioning Operating Profit (PPOP)

985.2

1,084.3-99.1-9.14%

Credit Loss Provision

451.8

530.9

-79.1

-14.90%Operating Income

533.4

553.4

-20.0

-3.62%

Non-Operating Income-98.2-107.5

9.3-

Net Income before Income Tax

435.2

445.9

-10.7

-2.40%Net Fee and Commission Income

General & Administrative Expenses

Income Tax Expense

44.4

85.4

-41.0

-48.02%Net Income

390.8

360.4

30.4

8.41%

ROA

0.53%

0.35%

0.18%p

-

ROE

6.15%

4.01%

2.14%p

-

625

530

95

17.99%EPS (KRW)BPS (KRW)

16,703

13,9362,767

19.86%

Cost to Income Ratio

57.95%

56.96%

1.00%p-

In 2014, Korea Exchange Bank posted a net income of KRW 390.8 billion, KRW 30.4 billion more than the previous
year. The increase of net income would have been higher, had not for the spin-off effect from the credit card operations which led a sizeable hole in fee income and for the exchange rate fluctuations which cut deep into gains on
securities disposition and valuation. This is one reason why general operating income decreased KRW 176.0 billion
to KRW 2,343.1 billion, despite a 5.24% increase in net interest income.
Table 2. Non-Interest Income(KRW in billion)

2014

2013

YoY

%

568.1

662.1

-94.0

-14.19%Credit Card

199.7

317.3

-117.6-37.05%

Loan & FX-related

260.2

241.0

19.2

7.96%

Fees in Acceptances and Guarantees

57.1

53.2

3.9

7.24%

Fees Related to Loans

80.3

65.8

14.5

22.08%

Fees in Foreign Currencies

122.8

122.0

0.8

0.65%

108.2

103.8

4.4

4.24%

Sales of Beneficiary Certificate

30.7

33.6

-2.9

-8.69%

Bancassurance

23.2

31.2

-8.0

-25.48%● Credit Card

199.7

Trust Fees

54.3

39.0

15.3

39.24%● Loan & FX-related

260.2● Asset Management

108.2

Gains on Disposition & Valuation 		

273.9

376.7

-102.8-27.30%

Other Operating Income 		-159.5

-97.6

-61.9

-

45.1

10.3

34.8

337.75%

Deposit Insurance Fees

-110.2-103.8-6.4-

Contribution to the Credit Guarantee Fund-141.0-101.8

-39.2

-

46.6

97.7

-51.1

-52.32%

Fee & Commissions Income

Asset Management

Dividend Income

Others074

Fee & Commissions
Income Break-down(KRW in billion)

Hana Financial Group Annual Report 2014

As of Dec. 2014, non-interest income was KRW 682.5 billion, down KRW 258.7 billion from the year before; fee andcommission income reduced KRW 94.0 billion to KRW 568.1 billion; disposition and valuation gains diminished KRW
102.8 to KRW 273.9 billion; and other operating income fell to a negative KRW 159.5 billion.
Fees related to loans increased by KRW 14.5 billion following a strong profit performance in M&A financing; FXrelated and acceptance and guarantee fees combined inched up.
Credit card fee decreased as the spin-off of card operations caused card fee income to drop KRW 117.6 billion.
Disposition and valuation gains decreased KRW 102.8 billion to KRW 273.9 billion, due to FX translation losses of
non-monetary assets and impairment losses on investment securities.
Other operating income suffered a KRW 61.9 billion decrease to a negative KRW 159.5 billion, as the overall growthof assets and loans led to sizable increases in deposit insurance fees and in contribution to the Credit Guarantee Fund.

Table 3. General and Administrative Expenses(KRW in billion)

2014

2013

YoY

%

General & Administrative Expenses

1,358.0

1,434.8-76.8-5.36%

Salaries and Employee Benefits

709.4

771.9

-62.5

-8.10%

Severance and Retirement Benefits

92.3

86.2

6.1

7.13%

Administrative Expenses

420.9

438.1

-17.2

-3.92%

Depreciation and Amortization

97.6

100.7

-3.1

-3.07%

Taxes and Dues

37.7

37.9

-0.2

-0.59%

57.95%

56.96%

1.00%-

Cost to Income Ratio

General & administrative expenses decreased KRW 76.8 billion to KRW 1,358.0 billion; salaries and employee benefits KRW 62.5 billion owing to the spin-off of card operations and an increase in the number of employees who took

General &Administrative
Expenses(KRW in billion)

1,434.8

1,358.0

2013

2014

annual leaves; administrative expense decreased KRW 17.2 billion, as the spinoff led to a cut in outsource service
costs and a bank-wide cost rationalization; and retirement benefits increased KRW 6.1 billion, as the number of senior
employees increased who took advantage of an early retirement offer made during the year.

Ⅱ Summary of Financial Position
Table 4. Condensed Balance Sheets(KRW in billion)

2014

2013

YoY

%

88,982.4

83,427.9

5,554.5

6.66%

Total Assets(KRW in billion)

Interest Earning Assets
Due from Banks

3,981.0

3,061.7

919.3

30.03%

Fixed Income Securities

13,770.4

10,662.4

3,108.0

29.15%

Loans

71,231.0

69,703.8

1,527.2

2.19%

Other Revenue Earning Assets

1,613.3

1,925.4-312.1-16.21%

Stocks and Investments

1,524.9

1,859.1-334.2-17.98%

88.4

66.3

22.1

33.31%

Others
Non-Revenue Earning Assets

16,732.3

15,818.7

913.6

5.78%

Total Assets

107,328.0

101,172.0

6,156.0

6.08%(Continued on next page)075

107,328.0

101,172.0

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Korea Exchange Bank

2014

2013

YoY

%

Shareholders' Equity(%)

84,462.4

79,150.2

5,312.2

Deposits

69,371.0

65,135.3

4,235.7

6.50%

Borrowings

9,018.2

6,520.7

2,497.5

38.30%

Debentures

4,872.5

6,582.0-1,709.5-25.97%

Borrowings from Trust Accounts

1,200.7

912.3

288.4

31.61%

Non-Interest Bearing Liabilities

14,051.8

12,605.1

1,446.7

11.48%

Total Liabilities

98,514.2

91,755.3

6,758.9

7.37%

Interest Bearing Liabilities

Shareholders' Equity
Total Liabilities & Shareholders' Equity

6.71%

8,813.8

9,416.7-602.9-6.40%

107,328.0

101,172.0

6,156.0

6.08%

9,416.7

8,813.8

2013

2014

Total assets as of Dec. 2014, stood at KRW 107.3 trillion, up KRW 6.2 trillion from the year before. Loans and otherinterest earning assets and non-revenue earning assets rose, while other revenue earning assets decreased.
Interest earning assets increased by KRW 5.6 trillion to KRW 88.9 trillion. Loans rose by KRW 1.5 trillion to KRW 71.2
trillion; the increase of loans extended to SMEs and SOHOs offset the effect of decreases in household loans andin credit card loans following the spinoff of card operations. The increase of non-revenue earning assets is mostly

KRW Loansrelated to the increase in the reserves made to the Bank of Korea.

(KRW in billion)

Interest bearing liabilities rose KRW 5,312.2 billion; deposits and borrowings increased KRW 4.2 trillion and KRW 2.5
trillion, respectively, while debentures inched down. The increase of deposits, in particular, composed mostly of core

52,504.0

deposits and MMDA, both of which are regarded as low cost deposits.
Shareholders’ equity decreased by KRW 602.9 billion, due mainly to the spin-off of card operations.
50,433.1

Table 5. KRW Loans & Deposits(KRW in billion)

2014

2013

YoY

%

52,504.0

50,433.1

2,070.9

4.11%

31,176.2

28,512.5

2,663.7

9.34%

19,807.8

17,256.5

2,551.3

14.78%
53.80%

2013

KRW Loans
Loans to Corporate
SME(SOHO)

5,491.4

3,570.6

1,920.8

Large Corporate

10,310.2

10,596.4-286.2-2.70%

Public Sector & Others

1,058.1

659.6

398.5

60.42%

21,327.8

21,920.6-592.8-2.70%

54,111.2

51,664.7

2,446.5

4.74%

Low Cost Funding

20,524.3

18,209.1

2,315.2

12.71%

Core Deposit

13,926.8

12,591.7

1,335.1

10.60%

Loans to Households
KRW Deposits *MMDA

6,597.5

5,617.4

980.1

17.45%

Time Deposits

30,557.5

30,519.4

38.1

0.13%

Installment Deposits

2,799.5

2,598.6

200.9

7.73%

230.0

337.6

-107.6-31.88%

CD & Others

2014

SME Loan(KRW in billion)

19,807.8

17,256.5*Excluding foreign currency and trust deposits 		

2013

076

2014

Hana Financial Group Annual Report 2014

KRW loans expanded KRW 2.1 trillion in 2014 to KRW 52.5 trillion; in particular, SME loans grew significantly, contributing to the rebalance of the loan portfolio. The amount of loans made to SMEs increased KRW 2.6 trillion; andSOHO loans increased KRW 1.9 trillion; while household loans decreased KRW 0.6 trillion and large corporate loans
decreased KRW 0.3 trillion.
KRW deposits rose KRW 2.4 trillion to KRW 54.1 trillion. In particular, core deposits swelled KRW 1.3 trillion while
MMDA rose KRW 1 trillion, thereby contributing to the improvement of the funding structure. Time deposits also
increased, by a modest KRW 38.1 billion, while installment deposits rose by KRW 200.9 billion.

Ⅲ Asset Quality
Table 6. Asset Quality and Loan Loss Provision(KRW in billion)

2014

2013

YoY

%

Total Credit

81,687.0

80,512.2

1,174.8

1.46%

Normal

79,878.3

78,298.1

1,580.2

2.02%

Precautionary

696.7

1,274.1-577.4-45.32%

Substandard

850.8

657.5

193.3

29.40%

Doubtful

143.5

170.8

-27.3

-15.99%Estimated Loss

117.7

111.6

6.1

5.45%

Amount1,808.7

2,214.0-405.3-18.31%

Ratio

2.21%

2.75%

-0.54%p

18.31%NPL Ratio(%)

Precautionary & Below
1.36

Substandard & Below (NPL)
Amount1,112.0

939.9

172.1

Ratio

1.36%

1.17%

0.19%p

-

655.6

712.7

-57.1

-8.02%

Loan Loss Reserve
Credit Loss Reserve
Substandard & Below (NPL) Coverage Ratio

517.0

534.3

-17.3

-3.24%

105.45%132.67%-27.22%p

-

1.17

2013

Total credit rose KRW 1,174.8 billion to KRW 81,687.0 billion. NPLs increased KRW 172.1 billion to KRW 1,112.0 billion.
The NPL stood at 1.36% due mainly to unexpected credit events that transpired in Dec. 2014.
Loan loss reserve amounted to KRW 655.6 billion at the end of 2014, down KRW 57.1 billion from 2013, a result of
the card business spin-off.

077

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Korea Exchange BankⅣ Capital Adequacy
Table 7. BIS Capital and Ratio(KRW in billion, %)

2014

2013

YoY

%

BIS ratio(%)

Tier 1 Capital

8,063.4

8,375.1-311.77,869.5

7,989.3-119.8-1.50%

Paid in Capital

2,584.5

3,224.5-640.0-19.85%Retained Earnings

5,369.0

5,001.8

367.2

7.34%

-84.0

-237.1

153.1-64.59%

180.0

384.8

-204.8-53.22%

1,840.6

1,559.4

281.2

18.03%

Common Equity Capital

OthersHybrid Bonds
Tier 2 Capital-3.72%

Loan Loss Reserve

557.6

514.3

43.3

8.41%

Subordinated Bonds

1,265.6

1,045.0

220.6

21.12%

17.4

0.1

17.3

-

Total BIS Capital		

9,904.0

9,934.5-30.5-0.31%

Risk Weighted Assets		

68,782.0

71,820.6-3,038.6-4.23%BIS Capital Adequacy Ratio*

14.40%

13.83%

0.57%p-Common Equity Tier 1 Ratio

11.44%

11.12%

0.32%p-Tier 1 Ratio

11.72%

11.66%

0.06%p-Tier 2 Ratio

2.68%

2.17%

0.50%p-Others*Based on Basel III standards

The BIS ratio as of Dec. 2014 stood at 14.40%, well above the FSS-set minimum commercial banks have to meet inorder to be classified as “Grade A”. In comparison with 2013, the 2014 ratio represents a 0.57%p increase, which
can be ascribed to the USD 300 million subordinated bond issue, and the active management of risk-weighted assets. The common equity tier 1 ratio is at a stable 11.44%. Going forward, Korea Exchange Bank plans to maintain astable capital structure centering on common equity capital in full compliance with Basel III standards.

078

14.40

13.83

2013

2014

Hana Financial Group Annual Report 2014

Management’s Discussion and Analysis
Hana Daetoo Securities

Ⅰ OVERVIEW
In 2014, the domestic securities industry stagnated in the area of brokerage fee but improved its overall income performance on the backs of increasing disposition and valuation gains following the interest rate cuts and of growing
gains on interest income following the increase of OTC issues.
In response to structural problems plaguing the securities industry as a whole, Hana Daetoo Securities (HDS) induces
its employees to retire early, closed or consolidated branches, and took other steps for rationalizing under-performing
business operations. As a result, HDS’s 2014 profitability indexes improved, compared with those of the previous
year.
Going forward, HDS will continue to pursue efficiency in workforce management and other business operations andto take active yet measured steps of investing in areas deemed vital to its sustainable growth.
Table 1. Summarized Financial Information(KRW in billion, %)

2014

2013

YoY

%

Total Assets(KRW in billion)

Business Volume
Total Assets

15,068.2

13,057.7

2,010.5

15.40%

Shareholders' Equity

1,639.5

1,604.1

35.4

2.21%

General Operating Income

404.8

348.8

56.0

16.07%

Operating Income

93.0

65.8

27.2

41.23%Net Income

82.0

68.2

13.8

20.22%

0.54%

0.52%

0.02%p-15,068.2

Profitability

ROA
ROE

5.06%

4.30%

0.76%p-Cost to Income Ratio

76.26%

83.04%-6.78%p-

422.56%418.04%

4.52%p-Capital Adequacy
Net Capital Ratio

Ⅱ Summary of Business Performance
In 2014, Hana Daetoo Securities earned KRW 82.0 billion in net profit, up KRW 13.8 billion from the year before;
despite a smaller write-back of credit loss provision than that in 2013, and an ERP related general & administrative
expenses, the Company improved profit performances in the trading and brokerage operations.
Table 2. Comprehensive Income Statement(KRW in billion)

2014

2013

YoY

%

General Operating Income

404.8

348.8

56.0

16.07%Net Interest Income

152.2

153.7

-1.5

-0.99%Net Fees and Commissions Income

206.8

202.3

4.5

2.21%

Gains on Disposition & Valuation

23.8

-32.2

56.0

-

Other Operating Income

22.1

25.0

-2.9

-11.45%General & Administrative Expenses

308.7

289.6

19.1

6.59%

Pre-Provisioning Operating Profit (PPOP)

96.1

59.2

37.0

62.46%(Continued on next page)079

13,057.7

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana Daetoo Securities

2014

2013

YoY

%

Credit Loss Provision

3.2

-6.7

9.8

-

Operating Income

93.0

65.8

27.1

41.23%

Non-Operating Income

12.6

23.1

-10.5

-45.50%

Income before Income Tax

105.6

89.0

16.6

18.67%

Income Tax Expense

23.6

20.8

2.8

13.60%Net Income

82.0

68.2

13.8

20.22%Net Income(KRW in billion)

82.0
68.2

General operating income increased 16% over the course of 2014 to KRW 404.8 billion.
To review HDS’ general operating income performance in detail;

2013

2014

Fee & commission income, despite the continued slowdown of the IB market, increased KRW 4.5 billion on the backof growing market share in brokerage which resulted in an KRW 5.1 billion or 5% increase;
Gains on disposition and valuation securities jumped KRW 56.0 billion to KRW 23.8 billion on the strengths of robustbond operations boosted by the base rate cuts of the BOK, of strong stock/fixed-income OTC operations, and of arealization of IPO investment profits amounting to KRW 9.8 billion;
General & administrative expenses rose KRW 19.1 billion to KRW 308.7 billion, reflective of a high cost (KRW 18.7
billion) of the early retirement program offered in the year;
Credit loss provision decreased KRW 9.8 billion to a KRW 3.2 billion, a result of HDS’ successful efforts to recover
Woongjin-related bad loans, which led to a write-back of credit loss provision;
Non-operating income decreased KRW 10.5 billion to KRW 12.6 billion, as a result of a decrease in the dividend
income and the impairment loss from overseas equity investments.
Table 3. Fee & Commissions Income(KRW in billion)

2014

2013

YoY

%

206.8

202.3

4.5

2.21%

Brokerage Commissions

106.8

101.6

5.1

5.03%

Management Fee on Wrap Account and Asset Management

69.6

70.1

-0.6

-0.83%

Underwriting Commissions

11.8

11.5

0.3

2.98%

Commissions on Merger & Acquisition

22.3

27.5

-5.2

-18.88%Others

-3.7

-8.5

4.8

-

Fee & Commissions Income 		Fee & Commissions
Income(KRW in billion)

206.8

202.3

Net fee and commission income increased 2.2% in 2014 to KRW 206.8 billion, despite a stagnating securities industry hampered by a sluggish equity market. As HDS improved its research capacity, which elevated its ranking to the
2nd place in 2014, compared with the 10th in 2012, HDS continued to expand its market share in brokerage, bringing
in KRW 106.8 billion in fees, up 5% from 2013, a laudable feat when viewed in the light of a brokerage sector thatremained languid throughout the year,
HDS ranked No.1 in the league table of M&A finance and provided advisory service to three special purpose acquisition companies (SPAC) IPOs, despite the decrease in commission and fee on merger & acquisition on the account of
the drop of 'big deal' in the M&A market.

080

2013

2014

Hana Financial Group Annual Report 2014

Table 4. General and Administrative Expenses(KRW in billion)

2014

2013

YoY

%

General & Administrative Expenses

308.7

289.6

19.1

6.59%

Salaries and Employee Benefits

166.1

161.0

5.2

3.21%

Severance and Retirement Benefits

28.0

10.5

17.5

166.38%Administrative Expenses

91.6

93.1

-1.4

-1.55%

Depreciation and Amortization

11.2

13.5

-2.3

-16.76%

Taxes and Dues
Cost to Income Ratio

11.7

11.6

0.2

1.45%

76.26%

83.04%-6.78%p-

General &Administrative
Expenses(KRW in billion)

308.7

289.6

General & administrative expenses increased KRW 19.1 billion to KRW 308.7 billion. Despite the hefty price of KRW
18.7 billion attached to the early retirement program, the cost to income ratio decreased 6.78%p on the back ofincreased general operating income.
To review general & administrative expenses in detail, salaries and employee benefits rose KRW 5.2 billion to KRW
166.1 billion on the increase of bonus payouts;
Administrative expense decreased KRW 1.4 billion to KRW 91.6 billion as a result of the closure and consolidation of
10 branches and of concerted cost-rationalization efforts made during the year.

Ⅲ Key Figures
Table 5. AUM Breakdown(KRW in billion)

2014

2013

YoY

%

57,772.9

50,980.5

6,792.4

13.3%

Beneficiary Certificates

15,899.4

13,937.1

1,962.3

14.1%

Equity (hybrid) Type3,700.5

3,600.5

100.0

2.8%

Fixed Income (hybrid) Type3,490.2

3,223.0

267.2

8.3%

MMF

3,756.8

2,787.4

969.4

34.8%

Customer Assets of HDS (AUM)		

4,951.9

4,326.2

625.7

14.5%

24,273.7

23,028.0

1,245.7

5.4%

Trust

7,112.1

6,606.8

505.3

7.6%

RP

3,370.0

3,385.3

-15.3

-0.5%

Fixed Income/CD/CP

7,405.3

7,369.2

36.1

0.5%

Other

6,386.4

5,666.7

719.7

12.7%

Other
Financial Products

Entrusted Assets
Market		
M/S17,599.8

14,015.4

3,584.4

25.6%

381,902.6

334,895.9

47,006.7

14.0%

4.16%

4.16%

-

-

Customer assets entrusted to HDS rose 13.3% in 2014 to KRW 57.8 trillion, as beneficiary certificates rose by KRW
2.0 trillion, financial products by KRW 1.2 trillion, entrusted assets by KRW 3.6 trillion.
Beneficiary certificates sold rose 14.1% to KRW 15.9 trillion, which represents 4.16% in market share. In particular,
the equity (hybrid) type, though the market as a whole shrank 6%, increased 2.8%, which can be ascribed to concerted efforts made to develop and market products tailored to customer needs.

081

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana Daetoo Securities

Financial products sold to customers illustrate HDS’s superior competencies in managing customer assets, as trust,
fixed income-type wrap, and other in-house products showed robust growth. In particular, “China (mainland) No. 1
Equity” recorded KRW 200 billion in sales, demonstrating HDS’s leadership of developing competitive alternatives
to domestic investment products stagnating in a market verging on growth limits.
Entrusted assets showed a noteworthy 25% jump from 2013, which can be ascribed to the increase of investments
in market research and the distribution of quality reports to branches and customers.
Table 6. Acquisition and Issuance(KRW in billion)

2014

2013

YoY

%

214.6

177.7

36.9

20.8%

Debenture Issued

1,340.0

1,020.0

320.0

31.4%

ELS/DLS issued (ELB/DLB included)

7,503.5

5,141.5

2,362.0

45.9%

IPO & Capital Increase (lead-managed)

In the IPO area, HDS lead-managed the listing of six corporations, in particular, by successfully listing Daechang Steelwhich had previously failed in two IPO attempts lead-managed by another securities company. Having well received
by the SPAC market for its 2013 merger of Sunday Toz and Hana Green SPAC, HDS listed three SPACs in 2014, of
which Hana Must SPAC and Hana Must No.3 SPAC are each scheduled to acquire other businesses in 2015.
Debentures issued in 2014 reached KRW 1,340.0 billion, up 31.4% from the year before.
OTC products issued in 2014 jumped a staggering 45.9% to KRW 7,503.5 billion on the rise of a market demand in
response to the low interest rate environment and on the early redemption of derivative linked bond (DLB) products
linked to GTAA, an index developed by HDS. Together with China No.1 Equities, OTC products have become leading
financial products at HDS.
Table 7. Brokerage Contracts(KRW in billion)

2014

2013

YoY

%

Brokerage Contracts

104,953.7

101,840.6

3,113.1

3.1%

OFF

32,506.7

30,537.0

1,969.7

6.5%

ON

72,447.2

71,303.6

1,143.6

1.6%

3,270,961.1

3,306,487.0-35,525.9

-1.1%

3.21%

3.08%

0.13%p-Market		
M/S

HDS’s brokerage contracts increased 3.1% to KRW 10.5 trillion, or 3.21% in market share, up 0.13%p from the year
before. The increase can be attributed to HDS’s improved research ratings, with expanded research coverage andstrengthened research competencies.

082

Hana Financial Group Annual Report 2014

Ⅳ Asset Quality
Table 8. Asset Quality and Loan Loss Provision(KRW in billion)

2014

2013

YoY

%

Total Credit

1,185.6

898.9

286.7

31.90%

Normal43.34%NPL Ratio(%)

1,069.1

745.8

323.3

Precautionary

0.9

1.0

-0.1

-9.07%

Substandard

23.7

34.8

-11.1

-31.88%

Doubtful

6.7

14.4

-7.7

-53.35%

Estimated Loss

85.2

102.8

-17.6

-17.14%

16.91

9.75

Precautionary & Below
Amount

116.5

153.0

-36.5

-23.84%

Ratio

9.83%

17.02%-7.19%p

2013

Substandard & Below (NPL)
Amount

115.6

152.0

-36.4

Ratio

9.75%

16.91%-7.16%p

-

91.9

117.3

-25.4

-21.59%

2014

2013

YoY

%

91.9

117.3

-25.4

-21.59%

Normal----Precautionary

-

-

-

-

Substandard

-

-

-

-

Loan Loss Reserve2014-23.94%

NPL Coverage Ratio(%)

Loan Loss Reserve

Doubtful

6.7

14.4

-7.7

-53.46%

Estimated Loss

85.2

102.8

-17.6

-17.14%

79.51

77.12

Precautionary & Below
Loan Loss Reserve
Coverage Ratio

91.9

117.3

-25.4

-21.59%78.89%

76.62%

2.27%p2013

Substandard & Below (NPL)
Loan Loss Reserve
Coverage Ratio

91.9

117.3

-25.4

-21.59%79.51%

77.12%

2.39%p-Total credit as of Dec. 2014 stood at KRW 1,185.6 billion, up KRW 286.7 billion from a year ago. The NPL ratio
improved about 7.16%p over the course of 2014, while loan loss provision decreased about KRW 25.4 billion. The
NPL coverage ratio increased 2.39%p to 79.51%. Loan loss reserve was at a level sufficient enough to deal with any
decline in credit cycle.

083

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana Daetoo Securities

Ⅴ Capital Adequacy
Table 9. Net Capital Ratio(KRW in billion, %)

2014

2013

YoY

%

1,412.8

1,354.6

58.2

4.30%

Net Capital Ratio(%)

Net Capital

1,639.5

1,604.1

35.4

2.21%

(+)Allowances for Currency Assets

3.9

34.3

-30.4

-88.66%(+)Subordinated debentures

60.0

80.0

-20.0

-25.00%(−)Fixed Assets

73.0

76.2

-3.2

-4.16%(−)Prepaid Expenses

3.2

5.3

-2.1

-40.24%(−)Unsecured Loans (over 3M)

99.7

161.8

-62.1

-38.40%(−)Others

114.6

120.5

-5.9

-4.83%

334.4

324.0

10.4

3.18%

Market Risk

227.9

206.2

21.7

10.50%Counter Party Risk

43.2

47.1

-3.9

-8.26%

Credit Concentration Risk

16.0

26.7

-10.7

-39.99%Operational Risk

47.2

44.0

3.2

7.33%

-

-

-

-

422.56%418.04%

4.52%p-(+)Shareholders' Equity on B/S

Gross Risk AmountIndirect Investment Risk
Net Capital Ratio

The net capital ratio as of Dec. 2014 stood at 423%, up 4.5%p from a year ago, well above the 200% level by the
newly enacted Capital Market Act, and the 250% level set by Hana Financial Group.
Shareholders' equity on the B/S rose by 2% to KRW 1,639.5 billion, while net capital increased by KRW 58.2 billion
to KRW 1,412.8 billion. The increase of net capital can be attributed to a decrease in loans with 3-month and longer
maturities.
Gross risk amount rose KRW 10.4 billion over the year, reflecting an increase in market risk following the growth ofassets.

084

422.56418.0420132014

Hana Financial Group Annual Report 2014

Management’s Discussion and Analysis
KEB Hana CardⅠ OVERVIEW
Table 1. Summarized Financial Information(KRW in billion, thousands)

2014
Profitability
103.2

General Operating Income
Operating Income-8.0

Net Income-11.2

Balance Sheet Outstanding*
2,848

Credit sales

574

Cash Advance

1,539

Card Loan*Other credit card assets and installments are included in credit sales.
			In a year characterized by a contracting economy, devastating news of customer data leaks involving some cardcompanies, and a stiffening regulatory environment, KEB Hana Card recorded KRW 55.2 trillion* in sales and grew
7.2%, 2.6%p more than the market growth rate of 4.6%.
Despite a high cost of the merger it underwent during the year, the Company achieved a net profit of KRW 5.1 billion
by maintaining its firm focus on profitability.
In December 2014, KEB Hana Card merged with KEB Card, thereby expanding market share to over 8% and becoming the industry’s 5th largest, with 11 million card membership (including 4.7 million card membership for credit cardonly) and 2.3 million merchants.
* Sales(KRW in trillion)

2014

2013

YoY

%

Hana SK Card

30.8

28.8

2.0

6.94%

KEB Card

24.3

22.7

1.6

7.05%

Total

55.2

51.5

3.7

7.18%

Jan.~Aug.

Sep.~Nov.

Dec.

Total
16.3

Sales
(KRW in trillion)* Net income

Hana SK Card

(KRW in billion)

3.0

13.3

-

KEB Card

-

3.3

-

3.3

KEB Hana Card

-

-

-14.5

-14.5

3.0

16.6

-14.5

5.1

Total

085

55.2

51.5

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
KEB Hana Card

Ⅱ Summary of Business Performance
Table 2. Comprehensive Income Statement(KRW in billion)

2014
103.2

General Operating Income
Net Interest Income-26.5

Net Fee & Commission Income

133.2
-3.5

Other Operating Income
General & Administrative Expense

78.8

Pre-Provisioning Operating Profit (PPOP)

24.4

Credit Loss Provision

32.4

Operating Income-8.0

Non-Operating Income

-2.7
0.4

Income Tax Expense-11.2

Net Income**The KRW -11.2 billion is the sum of Hana SK Card’s net income through December of 2014, and KEB Card’s from September to November.

Table 3. Fee Structure(KRW in billion)

2014

Fee Income(KRW in billion)

307.8

Fee Revenue
Credit Card Receivables in Won

155.3

Cash Advance

23.0

Card Loan

38.7

Others

90.9

Fee Expense

174.7

Fee Income

133.2

133.2

The merger with KEB Card generated an expense of KRW 12.6 billion (KRW 3.0 billion in advertising, KRW 4.1 billion in consulting, and KRW 5.5 billion for destroying unused cards). Despite this one-off expense, KEB Hana Card
recorded KRW 5.1 billion in net profit. Though the card loan market continued to face the downward pressures of
toughening regulations and the waning risk appetites of industry players, KEB Hana Card was able to improve its asset portfolio through the merger and thus enhance profitability through the expansion of revolving assets comprisingsome card payments.
*Financial Assets Before/After Merger(KRW in trillion)

2014(After Merger)

2013(Before Merger)

ChangeProduct Assets

6.17

4.18

1.99

Financial Assets

2.55

1.28

1.27

41.30%

30.60%

10.70%p

2014(After Merger)

2013(Before Merger)

ChangeCard Loans

1.54

0.84

0.70

Cash Service

0.6

0.32

0.28

Revolving

0.41

0.12

0.29

Total

2.55

1.28

1.27

The Portion of Financial Assets (%)*Financial Products Outstanding Before/After Merger

086(KRW in trillion)

2014

Hana Financial Group Annual Report 2014

Ⅲ Asset Quality
Table 4. Asset Quality and Loan Loss Provision(KRW in billion)

2014

NPL Coverage Ratio(%)

Total Credit		
Normal

6,301
5,930

Precautionary

278

Substandard

1

Doubtful

61

Estimated Loss

32

Substandard & Below (NPL)
Substandard & Below (NPL) Ratio*
Precautionary & Below
Precautionary & Below Ratio
Loan Loss Reserves		

93
1.47%
371
5.88%
200

Normal81

Precautionary

46

Substandard-

Doubtful

47

Estimated Loss

26

Coverage Ratio
Substandard & Below (NPL) Coverage

215%

Precautionary & Below

54%* NPL ratio inclusive of factoring		KEB Hana Card maintained a conservative risk management stance through the practice of a provisioning policy approaching the level of the first-tier financial industry.
The NPL ratio for card assets was kept at 1.38%, the lowest in the industry.

Ⅳ Capital Adequacy
Table 5. Adjusted Equity Capital Ratio and Leverage Ratio(KRW in billion)

2014
Adjusted Equity Capital*		

1,316

Adjusted Total Asset		

6,018

Adjusted Equity Capital Ratio (%)

21.9%

Total Equity Capital		

1,333

Total Assets		

7,312

Leverage Ratio (multiples)*

5.49*Adjusted Equity Capital Ratio based on separate F/S; Leverage Ratio based on consolidated F/S							The leverage ratio, before the merger (as of the end of November 2014) stood at 6.0% for Hana SK Card and 4.8%
for KEB Card, and after the merger, came to 5.5%, below the regulation of 6.0%.
The leverage ratio of 5.49% for KEB Hana Card, which is somewhat higher than that of the competition, reflects
a temporary rise in the amount of cash held at the Company after the November merger. Once adjusted, the ratio
dropped to a stable 5.2% range.

087

215

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana Capital

Ⅰ Summary of Business Performance
In 2014, Hana Capital posted a net income of KRW 50.4 billion, the largest in its corporate history. Financial assets
totaled KRW 3,777.3 billion.
Through a continued expansion of financial assets and efforts aimed at improving risk management, the Company
has made progress while maintaining a fine balance between asset growth and asset quality. In 2015 the Company
plans to realign a part of its business portfolio through product diversification and maximize profitability through efficient cost management.
Table 1. Comprehensive Income Statement(KRW in billion)

2014

2013

YoY

%

General Operating Income

171.5

143.3

28.2

19.7%

Net Interest Income

159.3

142.6

16.7

11.7%

Net Fee and Commission Income

4.7

-7.1

11.8

-165.8%

Gains on Disposition & Valuation

-0.2

-

-0.2

-

7.7

7.8

-0.1

-1.2%

General & Administrative Expenses

42.8

38.4

4.4

11.6%

Pre-Provisioning Operating Profit (PPOP)

128.7

104.9

23.8

22.6%

Credit Loss Provision

65.0

46.3

18.7

40.2%

Operating Income

63.7

58.6

5.1

8.7%

Non-Operating Income

1.8

0.3

1.5

522.9%Net Income before Income Tax

65.5

58.9

6.6

11.3%

Income Tax Expense

15.2

14.5

0.7

4.8%

Net Income

50.4

44.4

6.0

13.4%

Other Operating Income

General operating income rose 19.7% in 2014, as both interest income and fee incomes rose. Domestic auto andfacility financing and construction equipment financing increased by KRW 308.0 billion, KRW 62.9 billion, and KRW

General Operating
Income(KRW in billion)

171.5

143.3

2013

2014

Net Income(KRW in billion)

30.9 billion, respectively. Auto financing rose 5.8%p from 53.3% to 59.1% in proportion to total assets, while facility
financing and construction equipment financing combined decreased 0.2%p from 17.5% to 17.3%.
General & administrative expenses rose 11.6%, or KRW 4.4 billion, due to an increase in wages following the expan50.4

sion of business operations. The cost to income ratio, however, improved by 0.81%p to 24.97%.
Loan loss provision increased KRW 8.5 billion YoY, while the reserve ratio inched down 0.17%p from 2.35% to2.52%.

44.4

2013

088

2014

Hana Financial Group Annual Report 2014

Ⅱ Financial Assets
Table 2. Lease/Installment(KRW in billion, %)

2014

2013

YoY

%

Lease

1,267.2

959.3

307.9

32.1%

Auto

998.1

702.8

295.3

42.0%

General

269.1

256.5

12.6

4.9%

Installment

240.8

276.4

-35.6

-12.9%

Durable goods

81.5

31.5

50.0

158.4%

Auto

158.4

242.5

-84.1

-34.7%

General

0.9

2.4

-1.5

-62.4%

1,508.0

1,235.7

272.3

22.0%

Total

In 2014, lease/financing assets rose KRW 272.3 billion or 22.0%, to KRW 1,508.0 billion. Auto lease increased 42%
and durable goods financing increased 158.4% in growth on the strength of stable distribution channels. Auto installment showed a sharp fall due to the reclassification of the used car financing as used car loan, effective from the
2nd quarter of 2013.

Ⅲ Asset Quality
Table 3. Asset Quality and Loan Loss Provision(KRW in billion)

2014

2013

YoY

%

Total Credit

3,777.3

3,184.4

592.9

18.62%

Normal

3,599.0

2,997.3

601.7

20.08%

Precautionary

99.4

115.2

-15.8

-13.70%Substandard

37.8

41.6

-3.8

-9.08%

Doubtful

37.8

27.9

9.9

35.67%

Estimated Loss

3.2

2.4

0.8

32.29%

Precautionary & Below
Amount

178.3

187.1

-8.8

-4.72%

Ratio

4.72%

5.88%

-1.16%p-

Substandard & Below (NPL)
Amount

78.9

71.9

7.0

9.67%

Ratio

2.09%

2.26%

-0.17%p-089

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONS(KRW in billion)

2014

2013

YoY

%

88.6

80.1

8.5

10.59%

Normal

24.6

23.2

1.4

6.02%

Precautionary

24.3

20.8

3.5

16.73%

Substandard

5.8

11.8

-6.0

-50.65%

Doubtful

30.8

21.8

9.0

41.44%

Estimated Loss

3.0

2.5

0.5

21.97%

64.0

56.9

7.1

12.46%

49.70%

42.82%

6.88%p

-

39.7

36.1

3.6

9.99%

112.30%111.37%

0.93%p-

NPL Coverage Ratio(%)

Loan Loss Reserve

Precautionary & Below
Loan Loss Reserve
Coverage Ratio

Coverage Ratio

NPLs rose KRW 7.0 billion YoY to KRW 78.9 billion, but the NPL ratio improved 0.17%p to 2.09% on the continued
efforts directed at managing bad debts. Compared with an industry average NPL ratio being in the upper part of 2%,
Hana Capital’s NPL ratio of 2.09% represents sound asset quality.

Ⅳ Capital Adequacy
Table 4. Adjusted Equity Capital Ratio(KRW in billion, %)

2014

2013

YoY

%

357.7

303.3

54.4

17.93%

311.7

261.1

50.6

19.39%

311.7

261.1

50.6

19.39%

46.0

42.2

3.8

8.96%

Subordinate Debt

4.0

6.0

-2.0

-33.33%

Loan Loss Reserve

49.0

44.1

4.9

11.09%

6.9

7.8

-0.9

-11.48%Adjusted Total Assets

3,848.5

3,207.8

640.7

19.97%

Total Assets on B/S

3,870.7

3,271.3

599.4

18.32%

22.2

63.4

-41.2

-64.99%

9.29%

9.46%

-0.17%p-

Adjusted Equity Capital
Tier 1 Capital
Shareholders' Equity
Tier 2 Capital(−)Deduction(−)Deduction
Adjusted Equity Capital Ratio

The adjusted equity capital ratio decreased 0.17%p YoY to 9.29% due to the slight increase of assets. Though thefigure is below the industry average, it is well above the regulatory minimum guideline of 7%.

090

111

2013

Substandard & Below (NPL)
Loan Loss Reserve

112

2014

Hana Financial Group Annual Report 2014

Management’s Discussion and Analysis
Hana LifeⅠ OVERVIEW
Overview of the life insurance industry in 2014
In 2014, among the life insurance distribution channels, telemarketing was severely suffered by data leak incidents
which occurred at the beginning of the year. The performance of the company-specific face-to-face channel was
also partially affected by stricter regulations regarding incomplete sales. General agencies, however, enjoyed robust
growth, while online channels were newly launched. In terms of products, protection-type insurance products grewin sales, due to rising concerns among consumers over medical expenses and retirement plans, amid the acceleration of the ageing population. The saving-type insurance performance gradually recovered despite the discontinued
tax benefit revision in 2013.

Ⅱ Summary of Business Performance
Table 1. Main Performance Indicators

MCP (Monthly Converged Premiums)(KRW in billion)

2014

2013

YoY

%
-10.92%

10.6

11.9

-1.3

Annuity

4.6

3.8

0.8

21.05%

Saving

5.6

7.3

-1.7

-23.29%Protection

0.4

0.6

-0.2

-33.33%

Variable

-

0.2

-0.2

-100.00%

Premium Income

441.0

378.4

62.6

16.54%

Investment Income

95.4

93.9

1.5

1.60%

4.65%

4.58%

0.07%p

-

32.9

44.9

-12.0

-26.73%

Investment Income Ratio
Operating Expense

7.46%

11.87%-4.41%p-

Net Income

2.9

18.1

-15.2

-83.98%Adjusted Net Income*

17.1

5.8

11.3

194.83%MVA Effect

14.2

-12.3

26.5

-215.45%

Cost to Income Ratio (Operating Expense/Gross Premium Written)* The calculation of the adjusted net income excludes the profit/loss effect of market value-added (MVA) incomes generated by assetlinked products.

As of Dec. 2014, Hana Life’s adjusted net income reached KRW 17.1 billion, a notable KRW 11.3 billion improvementfrom the previous year, exceeding the business target set at the beginning of the year, thus laying a firm base forsustainable profit growth.

091

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana LifeIn terms of monthly converged premiums (MCP), this important performance indicator, improved utilizing bancassurance sales channels. The volume of protection-type products slightly shrank due to the restructuring of the telemarketing and agency channels. The Company boosted the sales of protection-type insurance products throughNet Insurance
Business Incomebancassurance channels as part of its product portfolio diversification strategy. Meanwhile, the investment income(KRW in billion)

ratio improved 7bp, as the Company shrank the proportion of interest-bearing assets in response to the low interest
rate environment and instead expanded alternative investments and loans. In terms of management efficiency, Hana

199.6

Life led the industry in 2014. The Company dramatically improved the cost to income ratio on the strength of channel and organizational innovations that helped secure a strong revenue structure and sustainable growth. As a result,

196.8

the cost to income ratio decreased 4.41%p over the year, as the Company’s premium income increased KRW 62.5
billion, while reducing operating expenses by KRW 3.6 billion.
Table 2. Comprehensive Income Statement(KRW in billion)

2014

2013

196.8

199.6

-2.8

-1.40%

448.3

385.0

63.3

16.44%

441.0

378.4

62.6

16.54%

7.3

6.6

0.7

10.61%

251.5

185.4

66.1

35.65%

Benefit & Payments

191.3

111.3

80.0

71.88%

Reinsurance Expense

8.2

7.8

0.4

5.13%

General & Administrative Expense

30.9

41.2

-10.3

-25.00%

Increase of Deferred Acquisition Cost

21.1

25.1

-4.0

-15.94%

-

-

-

-

91.4

77.4

14.0

18.09%

Investment Income

95.4

93.9

1.5

1.60%

Investment Expense

4.0

16.5

-12.5

-75.76%

Increase of Policy Reserve

302.5

269.6

32.9

12.20%

Operating Income

-14.3

7.3

-21.6

-

Non-operating Income

18.9

16.2

2.7

16.67%Net Income Before Income Tax

4.7

23.5

-18.8

-80.00%

Income Tax Expense

1.8

5.4

-3.6

-66.67%Net Income

2.9

18.1

-15.2

-83.98%Net Insurance Business Income
Insurance Income
Premium Income
Reinsurance Income
Insurance Expense

Discount
Net Investment Business Income

YoY

2013

2014

%

Net Investment
Business Income(KRW in billion)

91.4

77.4

2013

2014

Hana Life’s net income decreased KRW 15.2 billion in 2014 to KRW 2.9 billion. Net insurance business income also
dwindled KRW 2.8 billion to KRW 196.8 billion, as the growth of insurance premiums was offset by increases inbenefit and payments. Meanwhile, general & administrative expenses fell by KRW 10.3 billion, due mainly to such

Net Income(KRW in billion)

cost-saving efforts as a workforce reduction made in October. Net investment business income rose KRW 14.0 billion to KRW 91.4 billion, as net interest income and securities trading gains increased KRW 2.5 billion and KRW 9.0
billion, respectively. Reserves increased proportionately to the increase of assets. Other operating income also rose,

18.1

as sundry income increased with a refund of education tax.
The Company’s narrowed net income margin can be attributed to additional reserves allocated for asset-linked products in holding. In 2014, an additional KRW 15.7 billion was reserved in response to market value added (MVA)
2.9
2013

092

2014

Hana Financial Group Annual Report 2014changes in the aftermath of the asset-linked products’ lower disclosure rates following market interest downturns.
The additional reserves, however, were offset by higher gains on the valuation of bonds held by the Company (amidlower market interests), which were included in cumulative other comprehensive incomes, thereby leaving no impact
on the Company’s financial structure.
Without this market value-added (MVA) effect, the improvement of the expense structure as a result of personnel
expense would drop and the steady growth of premium incomes are expected to have a lasting impact on the Company’s profit performance.

Ⅲ Capital Adequacy
Table 3. Solvency Margin Ratio(KRW in billion, %)

2014

2013

YoY

%

Solvency Margin(KRW in billion)

253.8

167.0

86.8

Shareholders' Equity

251.5

168.2

83.3

49.53%

Loan Loss Reserve

0.6

0.1

0.5

459.83%

Solvency Margin

Subordinated Debts
Net Premium Reserve in Excess(−)Deduction
Standard Amount of Solvency Margin
Solvency Margin Ratio

52.00%

-

-

-

-

54.2

56.7

-2.5

-4.42%

52.5

58.1

-5.4

-9.49%

120.2

78.9

41.3

52.23%

211.2%

211.5%-0.3%p-Hana Life’s RBC ratio slightly decreased 0.3%p in 2014. The Company’s shareholders’ equity increased KRW 83.3
billion, thanks to a capital increase of KRW 50.0 billion, a KRW 2.9 billion improvement in retained earnings, and a
KRW 30.5 billion increase in other comprehensive income on account of lower interest rate (5-year government bondrate dropped from 3.23% to 2.28%).
As of Dec. 2014, the Company’s standard amount of solvency margin stood at KRW 120.2 billion, up KRW 41.3 billion
from a year ago. As for contributing factors, interest risk exposure increased by KRW 31.6 billion on account of theincreased exposure and extended durations of marketable securities, and that credit risk exposure increased KRW
5.7 billion on the increased exposure of special purpose bonds, corporate bonds, and loans as part of investment
diversification strategies.

093

253.8
167.0

2013

2014

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana Savings Bank

Ⅰ Summary of Business Performance
Table 1. Comprehensive Income Statement(KRW in billion)

2014

2013

YoY

%

General Operating Income

49.2

35.9

13.3

36.9%

Net Interest Income

47.2

37.2

10.0

26.8%

Net Fee and Commission Income

1.0

0.3

0.7

257.1%
53.5%

Gains on Disposition & Valuation

3.4

2.2

1.2

Other Operating Income (Expenses)

-2.3

-3.7

1.4

-

General & Administrative Expenses

25.0

25.5

-0.5

-1.9%

Pre-Provisioning Operating Profit (PPOP)

24.2

10.5

13.7

131.5%

Credit Loss Provision

10.2

4.3

5.9

136.9%

Operating Income

14.0

6.2

7.8

127.7%

Non-Operating Income

0.2

-3.2

3.4

-105.5%Net Income before Income Tax

14.2

3.0

11.2

376.1%

Income Tax Expense

3.1

-2.8

5.8

-209.8%Net Income

11.2

5.8

5.4

93.6%

In 2014, Hana Savings Bank recorded a net profit of KRW 11.2 billion, an increase of 93.6% YoY, reflecting increased

General Operating
Income(KRW in billion)

49.2
35.9

2013

2014

Net Interest Income(KRW in billion)loans, a decreased NPL ratio, and decreased funding costs.
Having reached the break-even point in 2013, HSB has since maintained a stable profit structure, which is expected
to further improve as the Bank makes progress in its efforts to de-market the bad debts of the savings banks it has
acquired.

47.2
37.2

Ⅱ Summary of Financial Position
Table 2. Condensed Balance Sheets

Interest Earning Assets
Due from Banks(KRW in billion)

2014

2013

YoY

948.2

742.8

205.4

27.65%

157.7

72.8

84.9

116.71%

-

-

-

-

804.2

78.5

9.76%

Loan Loss Allowance-92.3-134.2

41.9-

Other Revenue Earning Assets

8.5

6.8

1.7

24.98%

5.0

5.1

-0.1

-0.38%

Lease

-

-

-

-

Trust Account Assets

-

-

-

-

Loans

Stocks and Others

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

3.4

1.7

1.7

100.66%

110.2

126.7

-16.5

-13.06%

1,066.8

876.2

190.5

21.74%

885.9

710.8

175.1

24.64%

885.9

709.1

176.8

24.93%----(Continued on next page)

094

2014

%

882.7

Fixed Income Securities

2013

Net Income(KRW in billion)

11.2

5.8

2013

2014

Hana Financial Group Annual Report 2014

2014

2013

YoY

%

Debentures

-

-

-

-

Policy Reserve

-

-

-

-

Borrowings from Trust Accounts

-

-

-

-

Trust Account Liabilities

-

-

-

-

Domestic Exchange Settlement

-

1.7

-1.7

-

Non-Interest Bearing Liabilities

21.5

18.1

3.4

18.53%

Total Liabilities

907.4

728.9

178.5

24.48%

Shareholders' Equity

159.4

147.3

12.1

8.19%

1,066.8

876.2

190.6

21.74%

Total Liabilities & Shareholders' Equity*The above financial statement contains figures that are different from those in Hana Financial Group’s K-IFRS-based consolidated statements.

Hana Savings Bank (HSB) is a bank Hana Financial Holding Company has established with a paid-in capital of KRW
184.3 billion with which the Company acquired Jeil and Ace Savings Banks in February and Korea Savings Bank in
September 2012 in a P&A method. As of Dec. 2014, HSB has eight branches and three offices, KRW 1,066.8 billion
in assets, KRW 907.4 billion in liabilities, and KRW 159.4 billion in equity.
In 2014, HSB’s total assets amounted to KRW 1,066.8 billion, up KRW 191 billion from the year before, hitting thetrillion mark which puts HSB in the top tier among domestic savings banks. The growth of assets can be ascribed to
an increase in loan and a decrease in loan loss reserve, reflective of HSB’s stabilizing asset/liability structure.
Loans rose KRW 78.5 billion from 2013, to KRW 882.7 billion, of which household loans took up KRW 340.4 billon (upKRW69.5 billion) and business loans KRW 542.3 billion (up 9.0 billion).
Total deposits rose KRW 176.8 billion to KRW 885.9 billion on the back of a stable loan enlargement policy, while
the year-end balance of demand deposits represented a KRW 56.4 billion increase, contributing to the stabilizationof funding costs.

Ⅲ Asset Quality
Table 3. Asset Quality and Loan Loss Provision(KRW in billion)

2014

2013

YoY

%

Total Credit

883.2

804.9

78.3

9.73%

Normal

347.3

311.7

35.6

11.41%

Precautionary

414.9

316.5

98.4

31.10%

Substandard

48.9

69.7

-20.8

-29.91%

Doubtful

45.5

44.6

0.9

2.08%

Estimated Loss

26.6

62.3

-35.7

-57.35%

Precautionary & Below
Amount

535.9

493.2

42.7

8.67%

Ratio

60.68%

61.27%-0.59%p-

Substandard & Below (NPL)
Amount

121.0

176.6

-55.6

-31.51%

Ratio

13.70%

21.95%-8.25%p-095

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONSManagement’s Discussion and Analysis
Hana Savings Bank

2014

2013

YoY

%

92.6

134.7

-42.1

-31.24%

NPL Coverage Ratio(KRW in billion)

Loan Loss Reserve
Normal

5.0

5.4

-0.4

-7.51%

Precautionary

13.2

10.3

2.9

27.49%

Substandard

20.2

33.7

-13.5

-40.07%

Doubtful

33.0

35.4

-2.4

-6.71%

Estimated Loss

21.2

49.9

-28.7

-57.40%Precautionary & Below
Loan Loss Reserve
Coverage Ratio

87.6

129.3

-41.7

32.23%

17.28%

27.30%-10.02%p

-

74.5

119.0

-44.5

-37.42%76.53%

76.23%

0.30%p-Substandard & Below (NPL)
Coverage Ratio

Total credit increased KRW 78.3 billion to KRW 883.2 billion on the back of efficacious product development androbust lending operations.
NPLs decreased KRW 55.6 billion to KRW 121.0 billion on the strength of rigorous bad debt management. Accordingly, the NPL ratio lowered 8.25%p to 13.70%.
The NPL coverage ratio increased 0.30%p to 76.53% thanks to the management of loan loss reserve at an appropriate level, reflecting the improvement of asset soundness.

Ⅳ Capital Adequacy
Table 4. BIS Capital and Ratio*Based on Basel I standards

096

76.23

2013

Loan Loss Reserve

Tier 1 Capital		
Common Equity Capital
Capital Stock
Capital Surplus
Retained Earnings
OthersHybrid Bonds
Tier 2 Capital		
Loan Loss Reserve
Subordinated Bonds
OthersTotal BIS Capital		
Risk Weighted Assets		
BIS Capital Adequacy Ratio*		
Tier 1 Ratio
Tier 2 Ratio

76.53(Unit : KRW in billions)

2014

2013

YoY

%

102.5
102.5
75.0
108.3
-19.0
-61.8
12.5
11.7
0.8
115.0
865.1
13.30%
11.85%
1.45%

90.5
90.5
75.0
108.3
-24.0
-68.9
10.8
10.4
0.3
101.2
724.4
13.97%
12.49%
1.48%

12.0
12.0
1.7
1.3
0.5
13.8
140.7
-0.67%p-0.64%p-0.03%p

13.34%
13.34%
16.26%
12.23%
142.56%13.65%
19.43%-

2014

Hana Financial Group Annual Report 2014

Independent Auditors’ Report
The Board of Directors and Shareholders
Hana Financial Group Inc. and its subsidiaries
We have audited the accompanying consolidated financial statements of Hana Financial Group Inc. (the Hana Financial Group) and its subsidiaries (collectively, the Company), which comprise the consolidated statements of financial position as at December 31, 2014, and 2013, and the related consolidated
statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended
and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility For the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Korean International Financial Reporting Standards (KIFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance withauditing standards generally accepted in the Republic of Korea. Those standards require that we comply with ethical requirements and plan and perform theaudits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion the consolidated financial statements above present fairly, in all material respects, the financial position of Hana financial Group Inc. and its
subsidiaries as at December 31, 2014, and 2013, and the results of its financial performance, and its cash flows for the years then ended in accordancewith Korean International Financial Reporting Standards.
Matter of emphasis
The users of this audit report need to pay attention to Note 59-3, which does not influence our audit opinion. Note 59-3 describes that Hana Financial Group
Inc. decided a merger between Hana Bank and Korea Exchange Bank at the Board of Director’s meeting on October 29, 2014, and on February 4, 2015, theSeoul Central District Court ordered an injunction to hold-off on the merger between Hana Bank and Korea Exchange Bank until June 30, 2015.
Other matter
The consolidated financial statements of Hana Financial Group Inc. and its subsidiaries for the year ended December 31, 2013, presented herewith forcomparative purposes, were audited in accordance with previous auditing standards generally accepted in the Republic of Korea applicable to the previous
period.

March 6, 2015

This audit report is effective as at March 6, 2015, the independent auditors’ report date. Accordingly, certain material subsequent events orcircumstances may have occurred during the period from the independent auditors’ report date to the time this audit report is used. Such
events and circumstances could significantly affect the accompanying consolidated financial statements and may result in modifications to thisaudit report.

097

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONS

Consolidated Statements of Financial Position
as at December 31, 2014 and 2013

(KRW in million)
Notes

December 31, 2014

December 31, 2013

AssetsCash and due from banks
Financial assets held-for-trading
Financial assets designated at fair value through profit and loss
Available-for-sale financial assets
Held-to-maturity investments
Loans receivable

5, 6, 7, 9, 11, 57₩ 22,257,731₩ 19,343,218

5, 6, 7, 8, 9, 12, 17, 19

17,218,152

15,766,359

5, 6, 7, 9, 13

1,045,676

240,597

5, 6, 7, 8, 9, 14, 17

35,065,938

29,529,156

5, 6, 7, 9, 15, 17

4,365,450

4,736,987

5, 6, 7, 8, 9, 17, 18, 23

213,963,138

203,597,827

5, 6, 7, 8, 9, 19

87,89496,068Investments in associates

10, 20984,294

948,686

Property and equipment

10, 212,759,339

2,688,451

Investment property

10, 22512,988515,431

Intangible assets

10, 24

1,258,332

1,457,186

53

51,04545,595

7,364

7,316

Derivative assets used for hedging purposes

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

25

529

660

5, 6, 7, 8, 9, 26

15,970,376

16,215,102₩ 315,548,246₩ 295,188,639
4,373,515

Total assets
Liabilities
5, 6, 7, 8, 9, 19, 27

5,239,660

Financial liabilities designated at fair value through profit and loss

5, 6, 7, 9, 28

6,687,800

4,904,171

Deposits

5, 6, 7, 9, 29

201,896,985

187,225,676

Borrowings

5, 6, 7, 8, 9, 30

23,263,986

21,833,638

Debentures

5, 6, 7, 9, 31

29,308,115

30,419,564

5, 6, 7, 8, 9, 19

50,736140,081

Net defined benefit liability

32

169,168

162,053

Provisions

33

364,295

448,972

Deferred income tax liabilities

53354,258

304,447

Financial liabilities held-for-trading

Derivative liabilities used for hedging purposes

Current tax liabilities
Other liabilities

5, 6, 7, 8, 9, 34

Total liabilities

71,67531,004

26,247,926

24,455,893

293,654,604

274,299,014
1,449,470

EquityIssued capital

35

1,449,470

Hybrid equity securities

35

299,121299,121

Capital surplus

35

10,351,748

10,380,574

Capital adjustments

36(13,122)(170,261)

Accumulated other comprehensive income

37

251,158(9,740)Retained earnings

38

8,788,923

7,982,838

21,127,298

19,932,002

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

098

766,344957,623

21,893,642

20,889,625₩ 315,548,246₩ 295,188,639

Hana Financial Group Annual Report 2014

Consolidated Statements of Comprehensive Income
for the years ended December 31, 2104 and 2013

(KRW in million, except per share amounts)
Notes

2014

2013

Interest income₩ 10,215,433₩ 10,534,899

Interest expense(5,561,526)(6,049,858)

4,653,907

4,485,041

Fee and commission income

2,535,613

2,478,039

Fee and commission expense(917,786)(885,223)

1,617,827

1,592,816

Net interest income:Net fee and commission income:40, 4140, 42

Net trading income

40, 43

279,407

233,557

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

40, 44(158,126)(63,625)

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

40, 45

6,120(37,243)

Net gain on available-for-sale financial assets and other financial assets not

40, 46493,611285,477

measures at fair value
Gain on foreign currency translation and transactions
Total operating income
Impairment loss on financial assets

40, 47

Net operating income

273,275

247,322

7,166,021

6,743,345(1,444,010)(1,271,655)

5,722,011

5,471,690(3,936,205)(3,846,309)

General and administrative expenses

40, 48Other operating income

40, 49792,313564,597

Other operating expenses

40, 50(1,334,672)(1,024,968)

1,243,447

1,165,010

Operating income
Non-operating expense:
10, 20122,441

85,213

Other non-operating income

51

90,237

138,610

Other non-operating expenses

52(203,562)(118,560)

Share of earnings from investments in associates and joint ventures

Net income before income tax

9,116

105,263

1,252,563

1,270,273(272,774)(277,305)

Net income

979,789

992,968

Attributable to: Equity holders of the parent

937,707933,877

42,08259,091

Income tax expense53

Non-controlling interests
Other comprehensive income:37

Items that could be recycled to profit or loss at a future point in time:
Gain (loss) on valuation of available-for-sale financial assets

335,194(88,703)

Exchange differences on transaction of foreign operations

20,483(105,322)

Changes in unrealized gain on valuation of equity method investments(10,715)(36,568)

Net income (loss) on cash flow hedges(2,689)957

Items that will never be recycled:(81,445)(57,685)₩ 1,240,617₩ 705,647

1,198,605

617,554

42,012

88,093

Basic earnings per share (KRW)₩ 3,177₩ 3,399

Diluted earnings per share (KRW)

3,168

3,388

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

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

099

55

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONS

Consolidated Statements of Changes in Equity
for the years ended December 31, 2104 and 2013

Notes
As at January 1, 2013

Issued capitalHybrid equity
securities

Capital surplus₩ 1,215,249₩ 299,121₩ 6,814,903

Dividends

54

-

-

-

Interim dividends

54

-

-

-

-

-

(9,920)-Acquisition of additional equity interests in subsidiaries
Issuance of hybrid equity securities--

Dividends on hybrid equity securities

54

-

-

-

Issuance of share capital (share swap)

35

234,221-3,575,804

Acquisition and disposal of treasury stock

36

-

-

(213)

Exercise and expiration of share-based payment transactions

-

-

-

Others---1,449,470

299,121

10,380,574

Net income for the period

-

-

-

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

-

-

-

Exchange differences on transaction of foreign operations

-

-

-

Changes in unrealized gain on valuation of equity method investments

-

-

-

Net gain on cash flow hedges

-

-

-

Remeasurement of the net defined benefit liability

-

-

-

Total comprehensive income

-

-

-

₩ 1,449,470₩ 299,121₩ 10,380,574

Issued capitalHybrid equity
securities

Capital surplus

As at December 31, 2013

Notes
As at January 1, 2014

₩ 1,449,470₩ 299,121₩ 10,380,574

Dividends

54

-

-

-

Interim dividends

54

-

-

-

Issuance of share capital in subsidiaries

-

-

(235)

Merger of subsidiaries--(46,756)

Spin off of subsidiaries--(3,087)

Redemption of hybrid equity securities--

16,725

Dividends on hybrid equity securities

54

-

-

-

Acquisition and disposal of treasury stock

36

-

-

4,648

Acquisition of treasury stock of subsidiary

-

-

-

Others

-

-

(121)

1,449,470

299,121

10,351,748

Net income for the period

-

-

-

Gain on valuation of available-for-sale financial assets

-

-

-

Exchange differences on transaction of foreign operations

-

-

-

Changes in unrealized gain on valuation of equity method investments

-

-

-

Net loss on cash flow hedges

-

-

-

Remeasurement of the net defined benefit liability

-

-

-

Total comprehensive income

-

-

-

₩ 1,449,470₩ 299,121₩ 10,351,748

As at December 31, 2014
The accompanying notes are integral part of the consolidated financial statements

100

Hana Financial Group Annual Report 2014

(KRW in million)

Capital adjustments

Accumulated othercomprehensive
incomeRetained earnings

Equity attributable
to equity holders of
the parent

Non-controllingshareholders' equity

Total₩ (80,949)-₩ 306,583₩ 7,169,418₩ 15,724,325₩ 4,618,112₩ 20,342,437-(60,257)(60,257)(12,898)(73,155)--(43,288)(43,288)-(43,288)---(9,920)(10,749)(20,669)

-

-

-

-

179,737

179,737--(19,082)(19,082)(20,063)(39,145)(94,740)--

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

5,022

-

-

4,809

-

4,809

410

-

-

410

(1,029)

(619)

(4)

-

2,170

2,166

(19)

2,147

(170,261)

306,583

7,048,961

19,314,448

869,530

20,183,978--933,877

933,877

59,091

992,968-(106,932)-(106,932)

18,229(88,703)-(115,916)-(115,916)

10,594(105,322)-(36,206)-(36,206)(362)(36,568)

-

488

-

488

469

957

-

(57,757)-(57,757)

72(57,685)-(316,323)

933,877

617,554

88,093705,647₩ (170,261)₩ (9,740)₩ 7,982,838₩ 19,932,002₩ 957,623₩ 20,889,625

Capital adjustments

Accumulated othercomprehensive
incomeRetained earnings

Equity attributable
to equity holders of
the parent

Non-controllingshareholders' equity

Total₩ (170,261)₩ (9,740)₩ 7,982,838₩ 19,932,002₩ 957,623₩ 20,889,625--(71,388)(71,388)-(71,388)--(43,484)(43,484)-(43,484)

-

-

-

(235)

10,067

9,832

-

-

-

(46,756)

46,735

(21)

-

-

-

(3,087)-(3,087)---

16,725(266,725)(250,000)--(19,082)(19,082)(14,325)(33,407)

170,023--

174,671-

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

211

-

2,332

2,422

(2,198)224(13,122)(9,740)7,851,216

19,928,693

724,332

20,653,025--

937,707937,707

42,082

979,789-

334,800-

334,800

394

335,194-

18,666-

18,666

1,817

20,483-(10,602)-(10,602)(113)(10,715)-(1,211)-(1,211)(1,478)(2,689)-(80,755)-(80,755)(690)(81,445)

-

101

-

260,898

937,707

1,198,605

42,012

1,240,617₩ (13,122)₩ 251,158₩ 8,788,923₩ 21,127,298₩ 766,344₩ 21,893,642

GROUP OVERVIEWFINANCIALSREVIEW OF OPERATIONS

Consolidated Statements of Cash Flowsfor the years ended December 31, 2104 and 2013

(KRW in million)
Notes

2014

2013

₩ 1,252,563₩ 1,270,273

Net interest expense

124,759

30,391

Net loss (gain) on valuation of trading securities(40,541)

12,32033,710(75,918)(388,186)(196,220)(2,059)36,893Operating activities
Net income before income tax
Adjustments to reconcile net income before income tax to net cash flows:	Net loss (gain) on valuation of financial assets and liabilities designated at fair value throughprofit and loss
Net gain on disposal of available-for-sale financial assets
Net loss (gain) on fair value of hedged items
Net gain on disposal of held-to-maturity investments

(492)

(345)

Impairment loss on available-for-sale financial assets

310,214

162,304

34,871

240,329

1,133,796

1,109,351

Depreciation and amortization

470,487499,542

Share based payment expense (income)(1,467)

8,649

Provision of post-employment benefit obligations

181,110

142,855

Net gain on valuation of investments in associates(122,441)(85,213)

Net loss on foreign exchange translation
Provision of allowance for possible loan losses

Other loss relating to property, equipment and intangible assets, net
Gain on a bargain purchase

20,684

10,715-(73,602)(7,394)

16,676

1,747,051

1,838,727

Due from banks(3,257,262)

1,892,744

Financial assets held-for-trading(1,370,598)(793,517)

OthersChanges in operating assets and liabilities:(791,954)(206,074)(11,145,206)(9,260,874)

Derivative assets used for hedging purposes

59,445(124,703)

Investment in associates

59,49625,569Other assets

468,975

1,104,010

863,132

424,759

Financial assets designated at fair value through profit and loss
Loans receivable

Financial liabilities held-for-trading
Financial liabilities designated at fair value through profit and loss

1,736,794

655,142

Deposits

14,365,476

9,144,457

Derivative liabilities used for hedging purposes(89,345)

125,930

Net defined benefit liabilities(281,442)(170,772)

Provisions
Other liabilities(44,885)(76,694)

1,756,876(317,109)

2,329,502

2,422,868

Payment of income tax(272,546)(183,533)

Net cash flows provided by operating activities

5,056,570

5,348,335

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

102(Continued)

Hana Financial Group Annual Report 2014

(KRW in million)
Notes

2014

2013

Investing activities-

272,176(33,463,371)(18,831,627)

Proceeds from disposal of available-for-sale financial assets

28,444,313

15,816,717

Purchase of held-to-maturity financial assets(1,981,407)(3,620,350)

Proceeds from redemption of held-to-maturity financial assets

2,360,685

6,211,081

Purchase of investments in associates(1,109)(149,998)

Proceeds from disposal of investments in associates

33,86388,802(317,619)(190,593)

Proceeds from disposal of property and equipment

48,81818,277Purchase of investment property(1,995)(4,941)

Proceeds from disposal of investment property

6,596

-

(104,123)(68,212)Net cash flow from acquiring subsidiaries
Purchase of available-for-sale financial assets

Acquisition of property and equipment

Purchase of intangible assets
Proceeds from disposal of intangible assets
Increase in guarantee deposit, net
Net cash flows used in investing activities

9,422

5,986

(19,372)(53,246)(4,985,299)(505,928)

Financing activities
Increase in borrowings, net

1,312,855

6,993

Issuance of debentures

8,536,460

8,868,767(10,103,398)(10,570,302)

Dividends paid

(114,872)(103,545)

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

Acquisition and Disposal of treasury stock

176,155(6,094)-(1,215)

Redemption of debentures

Issuance costs of stock swap
Issuance costs of spin off of investment in subsidiaries(3,087)-

Decrease in non-controlling shareholders' equity, net(274,433)(571,047)(489,402)(2,395,525)

Net cash flows used in Financing activities
Effect of exchange rate changes on cash and cash equivalents

75,184(101,790)

Net Increase(decrease) in cash and cash equivalents (I+II+III+IV)(342,947)

2,345,092

Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes are integral part of the consolidated financial statements.

103

57

10,014,592

7,669,500₩ 9,671,645₩ 10,014,592

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Notes to the Consolidated Financial Statements
December 31, 2014 and 2013

1. Company information
The accompanying consolidated financial statements include Hana Financial Group Inc. (HFG or the Company or the Parent Company), its controlled subsidiaries (collectively, the Group), and investment in joint ventures. General information describing HFG, the Group and joint ventures is provided below.
1.1 HFGHFG was incorporated on December 1, 2005 under the Financial Holding Company Act, by issuing 204,256,243 common shares with the aggregate par valueof ￦1,021,281 million to the shareholders of Hana Bank, Hana Daetoo Securities Co., Ltd. (formerly, Daehan Investment and Securities Co. Ltd., H&DS),
Hana I&S Co., Ltd. (Hana I&S), and Hana I&Stitute of Finance (HIF) in exchange for those entities’ shares owned by their shareholders. HFG was establishedto primarily engage in management of its subsidiaries, which operate in the financial services industry in the Republic of Korea.
Date of acquisition

Subsidiaries

Notes

October 13, 2006

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

Acquired by H&DS in 2008

April 27, 2007

Hana Capital Co., Ltd.(Hana Capital)

Acquired through the stock swap transaction with Hana Bank

August 10, 2007

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

Acquired through the stock swap transaction with Hana Bank

October 31, 2009

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

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

March 10, 2010

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

Acquired through the purchase of common shares

February 8, 2012

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

Established through the purchase and assumption agreement

February 9, 2012

Korea Exchange Bank (KEB)

Acquired through the purchase of common shares

August 30, 2013

Hana Bancorp, Inc.

Acquired through the purchase of common shares

September 1, 2014

KEB Hana Card (formerly KEB Card)

Established through the spin-off of KEB credit card business

The total number of the Company’s issued and outstanding common shares is 289,894,062 shares with the aggregate par value of ￦1,449,470 million as ofDecember 31, 2014. The Company’s common shares were listed on the Korea Exchange (KRX) on December 12, 2005 and the Company’s authorized common shares are 800,000,000 shares as of December 31, 2014.
1.2 Scope of consolidation
Country

Major business

Number of shares

Ownership (%)

Reporting dateSubsidiaries of HFG:
Hana Bank

Korea

Banking219,799,157

100.0

December 31

KEB

Korea

Banking

516,906,826

100.0

December 31

H&DS

Korea

Financial investments

35,060,263

100.0

December 31

KEB Hana Card

Korea

Credit card business

198,387,898

74.6

December 31

Hana Capital

Korea

Installment credit financing

7,261,199

50.1

December 31

Hana Asset Trust

Korea

Real estate trust

10,000,000

100.0

December 31

Hana I&S

Korea

System development service

18,600,000

90.0

December 31

HIF

Korea

Specialized service

640,000

100.0

December 31

Hana Savings Bank

Korea

Mutual savings banking

15,000,000

100.0

December 31

Hana Life Insurance

Korea

Life insurance

27,040,200

100.0

December 31

Hana Bancorp, Inc.

U.S

Financial holdings company

6,764,474

71.4

December 31

Special money intrust (*1) (*2)

Korea

Specified money intrust--

December 31

-

100.0

December 31

97,357

99.9

December 31

Subsidiaries of Hana Bank:
Hana Bank (China)Co., Ltd.(*1)
Hana Micro Finance Ltd.

China

Banking

Myanmar

Other financial business(Continued on next page)104

Hana Financial Group Annual Report 2014

Country

Major business

UBS Hana Power Private
Investment Trust 20[Bond] (*1)

Korea

Private investment trust company

-

100.0

December 31

UBS Hana Power Private
Investment Trust 21[Bond] (*1)

Korea

Private investment trust company

-

100.0

December 31

Hyundai Trust PEF Invest 15[Bond] (*1)

Korea

Private investment trust company

-

100.0

December 31

Korea

Private investment trust company

-

100.0

December 31

Korea

Private investment trust company

-

100.0

December 31

Korea

Private investment trust company

-

100.0

December 31

Hana CSP Co., Ltd (*1)

Korea

SPC

-

-

December 31

Sevenstar Co., Ltd (*1)

Korea

SPC

-

-

December 31

Marine Solution Co., Ltd. (*1)

Korea

SPC

-

-

December 31

Chungangstar Co., Ltd. (*1)

Korea

SPC

-

-

December 31

Coverbill LLC (*1)

Korea

SPC

-

-

December 31

Trust Accounts (*1)(*2)

Korea

Trust accounts--

December 31

Investment and management
service for NPL assets backed
securities

14,976,192

99.3

December 31

Hyundai Trust PEF Invest
16 [Bond] (*1)
Korea Investment Basic 63
Private Equity Investment
Vehicles [Bond] (*1)
LS Leading Solution 143 Private
Equity Investment Vehicles[Bond] (*1)

Number of shares

Ownership (%)

Reporting dateSubsidiaries of KEB:KEB F&I (“formerly KEB CapitalInc.”)Korea

KEB Futures Co., Ltd.

Korea

Futures brokerage service

3,000,000

100.0

December 31

KEB Fund Services Co., Ltd.

Korea

Transfer agent

510,000

100.0

December 31

KEB(Australia) Holdings Ltd. (*1)

Australia

Financial business

-

100.0

December 31

Korea Exchange Bank ofCanada

CanadaFinancial business

334,000

100.0

December 31

Korea ExchangeBank(Deutschland) A.G.

Germany

Financial business

40,000100.0

December 31

PT Bank KEB Hana(“formerly PT.
Bank KEB Indonesia”)

Indonesia

Financial business

1,002,091,945

88.9

December 31

Banco KEB do Brasil S. A.

BrazilFinancial business

69,726,415

100.0

December 31

KEB NY Financial Corp.

U.S.

Financial business

100

100.0

December 31

KEB LA Financial Corp.

U.S.

Financial business

200

100.0

December 31

KEB USA Int’l Corp.

U.S.

Financial business

100

100.0

December 31

KEB Asia Finance Limited

Hong Kong

Financial business

50,000,000

100.0

December 31

KEB Russia (*1)

RussiaFinancial business

-

99.9

December 31

Athene 1st Co., Ltd. (*)

Korea

Special Purpose Company--

December 31

Athene 2nd Co., Ltd. (*)

Korea

Special Purpose Company--

December 31

Trust accounts guaranteeing
a fixed rate of return and therepayment of principal (*1)

Korea

Trust accounts--

December 31

Trust accounts guaranteeing therepayment of principal (*1)

Korea

Trust accounts--

December 31

KEBW First
Securitization Specialty
Co., Ltd.

Korea

Asset securitization

50

5.0

December 31

KEB VERITAS First
Securitization Co., Ltd.

Korea

Asset securitization

580

29.0

December 31

Subsidiaries of KEB F&I Inc.:(Continued on next page)

105

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSCountry

Major business

Number of shares

Ownership (%)

Reporting date

KEB VERITAS Second
Securitization Co., Ltd.

Korea

Asset securitization

98

49.0

December 31

KEBS First
Securitization Co., Ltd.

Korea

Asset securitization

30

5.0

December 31

KEBS Second
Securitization Co., Ltd.

Korea

Asset securitization

30

5.0

December 31

KEB Pepper First
Securitization Co., Ltd.

Korea

Asset securitization

30

5.0

December 31

KEBI First
Securitization Co., Ltd.

Korea

Asset securitization

18

9.0

December 31

KEBBS First
Securitization Co., Ltd.

Korea

Asset securitization

30

5.0

December 31

Australia

Financial business

1

100.0

December 31

Korea

Private equity fund

-

48.90

December 31

3,000,000

100.00December 31

Subsidiaries of KEB(Australia)
Holdings Ltd.:KEB Australia Ltd.
Subsidiaries of H&DS:
Hana the First Private
Equity Fund (*1)
Hana Asia Limited

Hong Kong

Advisory services for securities

Hana Power Limited
Liability Company (*1)

Korea

Private equity fund

-

0.90

December 31

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

Korea

Investment trust-

100.00December 31

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

Korea

Private equity fund

-

29.20

December 31

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

China

Investment consulting-

100.00December 31

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

Korea

Investment trust-

100.00December 31

Special money intrust (*1) (*2)

Korea

Special money intrust--

December 31

Radian 1 SPC Co., Ltd.

Korea

SPC

60,000,020

100.00December 31

Warden 1 SPC Ltd.

Korea

SPC

1,001,340,000

100.00December 31

Saenggakdaero T 17th
Securitization Specialty
Co., Ltd. (*1)

Korea

Asset securitization--

December 31

Special money intrust (*1) (*2)

Korea

Investment trust company--

December 31

Korea

Asset management

2,000,000

100.0

December 31

BNB Hana Bank, N.A

U.S

Banking

500,100

100.0

December 31

BNB Funding Corp. (*1)

U.S

SPC

-

-

December 31

BNB Statutory trust I

U.S

SPC

155,000

100.0

December 31

Korea

Investment trust company--

December 31

Subsidiaries of Hana theFirst Private Equity Fund:

Subsidiaries of KEB Hana Card:

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

Subsidiaries of Hana Capital:
Special money intrust (*1) (*2)(*1) These investees maintain no shares as they were incorporated as either a private equity investment vehicle, special purpose entity or a trust.
(*2) Special money intrust accounts consist of many accounts, but the number of accounts is not recorded.

106

Hana Financial Group Annual Report 2014

The financial information of subsidiaries as of December 31, 2014 and 2013 is as follows (Korean won in millions):
December 31, 2014
AssetsLiabilities

EquityRevenue

Net income(loss)

Other
Comprehensive
comprehensive
income (loss)
income(loss)

172,455,354 ￦

159,695,785 ￦

12,759,569 ￦

14,378,839 ￦

856,419 ￦

182,325 ￦KEB (*1)

112,339,636

103,312,956

9,026,680

9,976,423

376,394(37,769)

338,625

H&DS (*1)

15,293,071

13,655,378

1,637,693

2,084,675

96,327(13,004)

83,323

KEB Hana Card (*1)(*3)

7,233,659

5,907,010

1,326,649

1,069,161

5,090(4,242)

848

Hana Capital (*1)

Hana Bank (*1)

￦

1,038,744

3,870,668

3,558,993

311,675

307,91050,36839

50,407

Hana Asset Trust (*1)

112,013

10,326

101,687

32,848

11,197(476)

10,721

Hana I&S

131,607

25,791

105,816

93,512

2,261

(668)

1,593

4,428

1,007

3,421

9,900

70

(164)

(94)

HIF
Hana Savings Bank

1,066,787

907,383

159,404

78,179

11,161866

12,027

Hana Life Insurance

3,376,553

3,124,967

251,586

563,125

2,875

30,59033,465

Hana Bancorp, Inc.(*1)

298,040

266,582

31,458

10,959(14,472)

1,387(13,085)

Revenue Net income (loss)

Other
comprehensive
income(loss)

Comprehensive
income (loss)

December 31, 2013

Hana Bank (*1)

AssetsLiabilities

Equity162,894,654 ￦

151,449,384 ￦

11,445,270 ￦

12,640,198 ￦708,740 ￦(196,533) ￦512,207

KEB (*1)

106,633,816

97,050,850

9,582,966

9,486,414

444,123(23,696)

420,427

H&DS (*1)

￦

13,325,966

11,721,902

1,604,064

2,047,990

62,046(4,736)57,310KEB Hana Card (*1)

4,897,814

4,209,106

688,708

880,728

3,522

1,151

4,673

Hana Capital

44,2193,271,267

3,010,200

261,067

275,11344,426(207)

Hana Asset Trust (*1)

101,513

10,45591,05834,006

9,805

68

9,873

Hana I&S

26,81917,435

9,384

91,155

1,088

(23)

1,065

HIF

4,557

1,047

3,510

9,794

24

7

31

876,248

728,917

147,331

69,277

5,766

(278)

5,488

Hana Life
Insurance (*2)

2,989,949

2,822,009

167,940

320,023

18,136(44,162)(26,026)

Hana Bancorp,
Inc.(*1) (*2)

334,166

281,981

52,1854,479(2,609)(2,975)(5,584)

Hana Savings Bank(*1) Consolidated financial information of the intermediate parents(*2) Income incurred up to the date of the business combination was excluded.
(*3) Formerly Hana SK Card’s profit or loss for the current term is included.
Changes in scope of consolidation for the year ended December 31, 2014 are as follows:
Name of subsidiaries

ReasonIncluded in scope of consolidation:
KEB Hana Card (“formerly KEB Card)

KEB credit card business unit was spun off, and merged with Hana SK Card

Hana Micro Finance Ltd

Included due to the new investments

Hanhwa PEF Invest Trust
69 [Bond]

Included due to the new investments

Hyundai Trust PEF Invest 15 [Bond]

Included due to the new investments(Continued on next page)107

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Name of subsidiaries

ReasonUBS Hana Power Private Investment Trust 20 [Bond]

Included due to the new investments

UBS Hana Power Private Investment Trust 21 [Bond]

Included due to the new investments

Hyundai Trust PEF Invest 16 [Bond]

Included due to the new investments

Korea Investment Basic 63 Private Equity Investment Vehicles [Bond]

Included due to the new investments

LS Leading Solution 143 Private Equity Private Equity [Bond]

Included due to the new investments

Coverbill LLC

Included due to the new investments

KEB Russia

Included due to the new investments

Hana Land Chip Houston Real Estate Private Fund 59

Included due to the new investments

KEBW First Securitization Specialty Co., Ltd.

Included due to the new investments

KEB VERITAS First Securitization Co., Ltd.

Included due to the new investments

KEB VERITAS Second Securitization Co., Ltd.

Included due to the new investments

KEBS First Securitization Co., Ltd.

Included due to the new investments

KEBS Second Securitization Co., Ltd.

Included due to the new investments

KEB Pepper First Securitization Co., Ltd.

Included due to the new investments

KEBI First Securitization Co., Ltd.

Included due to the new investments

KEBBS First Securitization Co., Ltd.

Included due to the new investments

KEB Hana Card Special money intrust

Included due to the new investments

H&DS Special money intrust

Included due to the new investments

Hana Capital Special money intrust

Included due to the new investments

Excluded from scope of consolidation:
Hana SK Card

Merged with Hana KEB Hana Card (formerly KEB Card)

PT Bank Hana (*1)

Merged with PT. Bank KEB Indonesia

KEB China (*2)

Merged with Hana Bank (China) Co., Ltd.

Hanhwa PEF Invest Trust 29 [Bond]

Excluded due to the disposal

Hyundai Trust PEF Invest 6 [Bond]

Excluded due to the disposal

Samsung Partner 22 Private Equity Investment
Vehicle [Bond]

Excluded due to the disposal

UBS Hana Power Private Investment Trust 18 [Bond]

Excluded due to the disposal

UBS Hana Power Private Investment Trust 19 [Bond]

Excluded due to the disposal

Korea Investment Basic 54 Private Equity Investment Vehicles [Bond]

Excluded due to the disposal

LS Leading Solution 128 Private Equity Private Equity [Bond]

Excluded due to the disposal

Hyundai Trust PEF Invest 14 [Bond]

Excluded due to the disposal

Hanhwa PEF Invest Trust 69 [Bond]

Excluded due to the disposal

Hana Aphrodite Co., Ltd.

Excluded due to the liquidation

Hana Cymbidium Co., Ltd.

Excluded due to the liquidation

Saenggakdaero T 10th Securitization Specialty Co., Ltd.

Excluded due to the liquidation

Saenggakdaero T 11th Securitization Specialty Co., Ltd.

Excluded due to the liquidation

Saenggakdaero T 12th Securitization Specialty Co., Ltd.

Excluded due to the liquidation(*1) In 2014, PT Bank Hana merged with PT. Bank KEB Indonesia.
(*2) In 2014, KEB China merged with Hana Bank (China) Co., Ltd.
1.2.1 Hana Bank
Hana Bank was incorporated in November 1959 under the name of Seoul Bank. Seoul Bank acquired Korea Trust Bank in August 1976. On September 27, 2002,
Seoul Bank entered into a business combination contract with the former Hana Bank as approved by Seoul Bank’s shareholders. On December 1, 2002, uponcompletion of the merger, with Seoul Bank as the surviving entity, Seoul Bank changed its name to Hana Bank. Hana Bank is engaged in commercial andconsumer banking, investment trusts, foreign currency exchanges and other related operations as permitted under the Banking Act, the Capital Market and
Financial Investment Business Act and other relevant laws and regulations in the Republic of Korea. Hana Bank is also engaged in the bancassurance businesssince September 26, 2003, upon the revision of the Insurance Act.
1.2.2 Korea Exchange Bank (KEB)
KEB was established on January 30, 1967, as a government-invested bank to engage in foreign exchange and trade finance business under the Korea Ex-

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Hana Financial Group Annual Report 2014change Bank Act proclaimed on July 28, 1966. On December 30, 1989, the Korea Exchange Bank Act was repealed and KEB was converted into a corporation
under the Commercial Code of the Republic of Korea. On April 4, 1994, KEB was listed on the Korean Stock Exchange. The merger between KEB and Korea
Exchange Bank Credit Service Co., Ltd. was finalized on February 28, 2004. KEB primarily provides commercial banking services, trust banking services, forwoperations as permitted under the Banking Act, the Capital Market and the Financial Investment Business Act and other relevant laws and regulations in the
Republic of Korea. As of Febrary 9, 2012, the Company purchased 57.27% interest in KEB, which gives it control of KEB. On March 15, 2013, the Company’s
Board of Directors approved a share swap contract to acquire a 100 percent stake of KEB. Pursuant ot the contract, KEB was incorporated into the Company’s
wholly owned subsidiary as of April 5, 2013. As of September 1, 2014, Hana Card ("formerly KEB Card") was spun off from the credit card business unit of KEB.
1.2.3 H&DS
H&DS was incorporated on January 18, 1977 pursuant to the Security Investment Trust Act of the Republic of Korea for the purpose of providing a wide rangeof security investment trust services for its customers. H&DS combined with Hana IB (formerly, Hana Securities Co., Ltd.) as a business combination undercommon control (wholly-owned by HFG) on December 1, 2008.
1.2.4 KEB Hana Card
Hana SK Card merged into Korea Exchange Bank Credit Service Co., Ltd. (KEB Card) on December 1, 2014 and KEB Card changed its name to KEB Hana
Card. As a result of the merger, the Company, the majority shareholder of KEB Hana Card, owns 74.58% (266,015,485 common shares) of KEB Hana Card,the combined entity.
The common shares were exchanged at a ratio of 1 common share of Hana SK Card for 1.1731316 common shares of KEB Card both with the face value pershare of \5,000.
1.2.5 Hana Capital
Hana Capital (formerly, Kolon Capital Co., Ltd.) was incorporated on February 13, 1987 pursuant to the laws of the Republic of Korea and changed its name to
Hana Capital on April 8, 2005. Hana Capital obtained a license to engage in the installment financing business on January 9, 1996 in accordance with the Credit
Card Business Act of the Republic of Korea and was registered as an installment financing company in accordance with the Credit-Specialized Financial Business Act of the Republic of Korea on February 16, 1999 to engage in leasing, installment financing and corporate and consumer loan business. The Company
acquired a 50.13% ownership of Hana Capital through a stock swap transaction with Hana Bank on April 27, 2007.
1.2.6 Hana Asset Trust
Hana Asset Trust was incorporated on June 15, 1999 for the purpose of conducting research and analysis of regional and local developments. On February 27,
2004, Hana Asset Trust changed its primary business to a real estate investment trust company, pursuant to the Trust Business Act. The Company acquired
58% ownership of Hana Daol Trust (formerly, Daol Trust Co., Ltd.) and incorporated Hana Daol Trust as its subsidiary as of March 10, 2010. The Company additionally acquired 7% ownership of Hana Daol Trust as of December 30, 2011, and purchased residual interest in Hana Daol Trust for the year ended December
31, 2013 and incorporated Hana Asset Trust (formerly, Hana Daol Trust) as its wholly owned subsidiary as of December 31, 2013.
1.2.7 Hana I&S
Hana I&S was incorporated on August 30, 1990 pursuant to the laws of the Republic of Korea for the purpose of developing and maintaining software usedin the financial service industry.
1.2.8 HIF
HIF (formerly, Korea Investment & Economy Research Inc.) was incorporated on July 3, 1990 pursuant to the laws of the Republic of Korea for the purposeof engaging in research and analysis of domestic and global economies, various industry sectors, including the financial industry, and sales of such researchfindings.
1.2.9 Hana Savings Bank
Hana Savings Bank was incorporated on February 8, 2012 pursuant to the Depositor Protection Act of the Republic of Korea for the purpose of engaging in thecredit business as permitted by Financial Services Commission and the Company made a purchase and assumption agreement with Korea Deposit Insurance
Corporation. In accordance to the agreement, Hana Savings Bank commenced its business after purchasing assets and assuming liabilities from Ace Savings
Bank and Jeil-Ⅱ Savings Bank on February 17, 2012. On September 5, 2012, Hana Savings Bank purchased assets and assumed liabilities from Korea Mutual
Savings Bank in accordance to the purchase and assumption agreement with Korea Deposit Insurance Corporation after the approval of the Board of Directors
held on August 21, 2012.
1.2.10 Hana Life Insurance (formerly, Hana HSBC Insurance Co., Ltd.)
Hana Life Insurance was incorporated on November 25, 1991 pursuant to the laws of the Republic of Korea to engage in the life insurance business. The
Company acquired 100% ownership of Hana Life Insurance Co., Ltd. through a stock swap transaction with Hana Bank on August 10, 2007 and the Company
subsequently sold its 50% ownership minus 1 share of Hana Life Insurance on January 28, 2008 to the HSBC Group, and changed its name to Hana HSBC
Insurance. On April 26, 2013, the Company’s Board of Directors approved a share purchase contract to acquire a 50 percent minus 1 share of Hana HSBC
Insurance, and changed its name to Hana Life Insurance on May 10, 2013.

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1.2.11 Hana Bancorp, Inc.
Hana Bancorp, Inc.(formerly, BNB Financial Service Corporation) was incorporated on April 8, 1988 to engage in the bank business. The Company acquired
52.29% ownership of BNB Financial Service Corporation and incorporated Hana Bancorp, Inc. as its subsidiaries as of October 31, 2013. The Company additionally acquired 19.08% of ownership of Hana Bancorp, Inc. and consequently has 71.37% ownership as of December 31, 2013.
1.2.12 Special money intrust
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Company consolidated the special money intrust because the Company is exposed, or has rights, to variable returns from its involvement with the private equity investment vehicles and has the ability to affect those returns through its
power over the private equity investment vehicles.
1.2.13 Subsidiaries of Hana Bank
1.2.13.1 Hana Bank (China) Co., Ltd. (Hana Bank China)
Hana Bank China was incorporated in Beijing to engage in commercial banking, foreign currency exchanges and other related operations in China on December 14, 2007. On December 24, 2007, Hana Bank took investment in kind through assets and liabilities of branches in Shanghai and Syenyang and shares in
Qingdao International Bank owned by Hana Bank. The branches and Qingdao International Bank were changed into the branches of Hana Bank China. Hana
Bank China was merged with KEB China and incorporated into a subsidiary of Hana Bank in December, 2014 since Hana Bank acquired control over Hana
Bank China after the merger.
1.2.13.2 Hana Micro Finance Ltd.
Hana Micro Finance Ltd., a subsidiary established in Yangon, Myanmar on August 7, 2014, is doing small-loan finance services. The objective of the service
is to satisfy low incomers' demand for small-loan finance and at the same time to lay the foundation for a retail market with excellent growth potential. As of
December 31, 2014, its captial is US$ 1 million, and it owns a head office in Yangon.As of December 31, 2014, it owns a head office in Yangon.
1.2.13.3 Hyundai Trust PEF Invest 15 [Bond] and other 5 collective Private investment trust company
In accordance with KIFRS 1110 Consolidated Financial Statements, the Bank has consolidated 6 collective private investment trust company including Hyundai
Trust PEF Invest 15 [Bond] because they currently have controlling power to instruct the activities of investees, are exposed to or hold rights to the changeableprofits of the investees, and are capable of influencing on the profits of the investees.
1.2.13.4 Special Purpose Entities
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Company consolidated 4 special purpose companies because the Company is
exposed, or has rights, to variable returns from its involvement with the SPEs and has the ability to affect those returns through its power over the SPEs.
1.2.13.5 Trust Accounts
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Company consolidated trust accounts with a guarantee of principal repayment orwith a guarantee of principal and interest repayment because the Company is exposed, or has rights, to variable returns from its involvement with the trust
accounts and has the ability to affect those returns through its power over the trust accounts.
1.2.14 Subsidiaries of KEB
1.2.14.1 KEB F&I Inc (formerly, KEB Capital Inc).
KEB F&I Inc. (KEBF&I) was established on September 11, 1989, to engage in equipment rental and other relevant businesses under the Specialized Credit
Financial Business Act (formerly, Equipment Rental Business Act) and was listed on the Korea Securities Dealers Automated Quotation (KOSDAQ) on January 15, 1995. KEBF&I has changed its name to KEB F&I Inc. KEB is restricted to control a company which runs the specialized credit financial business inaccordance with the Finacial Holding Companies Act Article 19 as on and after January 31, 2014. On October 17, 2013, KEBF&I’s Board of Directors approved
to change business field to investment in asset backed securities and asset management business in Asset-Backed Securitization Act.
1.2.14.2 KEB Futures Co., Ltd. (KEBF)
KEBF was incorporated on September 24, 1997 as an integrated futures broker of KEB. In 1998, KEBF was granted a futures trading license for overseas
markets and domestic operations from the Ministry of Economy and Finance. KEBF changed its name to KEB Futures Co., Ltd. on March 19, 1999.
1.2.14.3 KEB Fund Services Co., Ltd. (KEB Fund Services)
KEB Fund Services was established on April 1, 2003 to provide trust services for securities companies and general services including accounting and trust
services for banks, pension funds and other companies under the Capital Market and Financial Investment Business Act (formerly, Indirect Investment AssetManagement Business Act).

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Hana Financial Group Annual Report 2014

1.2.14.4 Korea Exchange Bank of Canada (KEBOC)
KEBOC was established in Toronto, Canada on October 6, 1981 to provide financial services to Korean companies and residents in Toronto and the surrounding area.
1.2.14.5 KEB (Australia) Holdings Ltd.
KEB (Australia) Holdings Ltd. is a paper company with the purose to establish KEB Australia Ltd. and is wholly owned by KEB. KEB Australia Ltd. (KEBA) wasestablished in Sydney, Australia on July 6, 1986 to provide financial services to Korean companies and residents in Sydney and the surrounding area.
1.2.14.6 Korea Exchange Bank (Deutschland) A.G. (KEBDAG)KEBDAG was established in Frankfurt, Germany on December 29, 1992 to provide financial services to Korean companies and residents in Frankfurt and thesurrounding area.
1.2.14.7 PT. Bank KEB Hana ( Formerly, PT Bank KEB Indonesia)
PT. Bank KEB Hana was established in Jakarta, Indonesia on November 5, 1990 to provide financial services to Korean companies and residents in Jakarta.
In accordance with the regulations of the Bank Indonesia, 2 or more local banks with the same ultimate parent company are prohibited to operate as anindependent entity in Indonesia. Accordingly, PT. Bank KEB Indonesia (KEBI), a subsidiary of the Bank, and PT. Bank Hana, a subsidiary of Hana Bank, havecompleted a merger process on February 20, 2014 and changed the name to PT. Bank KEB Hana. PT. Bank KEB Hana incorporated into a subsidiary of KEB on
February 28, 2014 since KEB owned the major shares of PT. Bank KEB Hana after the acquisition.
1.2.14.8 Banco KEB do Brasil S. A. (“KEBB”)KEBB was incorporated on May 21, 1999 to provide finance services for foreign clients, advisory services, finance arrangement and security investment trust
services regarding overseas investment for domestic companies.
1.2.14.9 KEB NY Financial Corp. (NYFinCo)
NYFinCo was established in New York, USA on April 8, 2004 to provide financial services to Korean companies and residents in New York and the surroundingarea.
1.2.14.10 KEB LA Financial Corp. (LAFinCo)
LAFinCo was established in Los Angeles, USA on July 2, 2009 to provide financial services to Korean companies and residents in Los Angeles and the surrounding area.
1.2.14.11 KEB USA Int’l Corp. (USAI)USAI was incorporated on May 3, 2004 to engage in the foreign exchange business.
1.2.14.12 KEB Asia Finance Limited (KAF)
KAF was established on July 2, 2009 to provide finance services for foreign clients, advisory services, finance arrangement and security investment trust
services regarding overseas investment for domestic companies.
1.2.14.13 KEB Russia
KEB launched a Moscow representative office in 2008 to provide financial information and consulting services for Korean and local companies in Russia. To
extend business fields, it got approval from the Central Bank of Russia to establish a subsidiary in July, 2014, and KEB Russia was established on August 15,
2014.
1.2.14.14 Athene 1st Co., Ltd. and Athene 2nd Co., Ltd.
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Company consolidated two special purpose entities because the Company is
exposed, or has rights, to variable returns from its involvement with the SPEs and has the ability to affect those returns through its power over the SPEs.
1.2.14.15 Trust accounts
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Company consolidated 11 trust accounts with guarantee of the repayment ofprincipal or with guarantee of the repayment of principal and interest because the Company is exposed, or has rights, to variable returns from its involvementwith the trust accounts and has the ability to affect those returns through its power over the trust accounts.
1.2.15 Subsidiaries of H&DS
1.2.15.1 Hana the First Private Equity Fund
Hana the First Private Equity Fund (Hana the First PEF) was established on December 22, 2009 as a joint-stock company under the Capital Market Financial

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GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Investment Business Act for the purpose of distributing to the partners of Hana the First PEF the profits generated from participating in control, improving
financial, business and governance structures of invested companies. Hana the First PEF is owned by Hana Bank (29.97% ownership) as a limited partner andH&DS (18.93% ownership) as a general and management partner.
1.2.15.2 Hana Asia Limited
Hana Asia Limited was incorporated on July 3, 2008 under the Securities and Futures Ordinance to engage in investment trusts.
1.2.15.3 Hana Power Limited Liability Company
Hana Power Limited Liability Company was incorporated on December 27, 2010 under the Commercial Act to acquire and manage common shares issued byCommerce & Industry Energy Co., Ltd. and the related rights. Issued capital of Hana Power Limited Liability Company amounts to \10,000 thousand as of
the reporting date. H&DS controls Hana Power Limited Liability Company because H&DS is exposed, or has rights, to variable returns from its involvementwith Hana Power Limited Liability Company and has the ability to affect those returns through its power over Hana Power Limited Liability Company based on
the facts that the Company obtains benefits from the loans and equity investments and provides credit enhancements.
1.2.15.4 Hana Daol Land Chip Heungdeok Real Estate Private Fund 35
Hana Daol Land Chip Heungdeok Real Estate Private Fund 35 was incorporated on September 19, 2011 in accordance with the Financial Investment Services
and Capital Markets Act and wholly owned by H&DS. It manges Knowledge Industrial Center (apartment-style factory) , Heungdeok IT Valley that was built
in Heungdeok housing site development district G1 block. The collective investment company, an asset management company, is Hana Asset Management
Co., Ltd. and the trustor is National Agricultural Cooperative Federation.
1.2.15.5 KoFC Hana-Dongbu Frontier Champ 2010 No. 6 Private Equity Fund
KoFC Hana-Dongbu Frontier Champ 2010 No. 6 Private Equity Fund was incorporated on November 22, 2010 under the Financial Investment Services andCapital Market Act to engage in investment trust services. The Company controls this entity because the Company is exposed, or has rights, to variable returns
from its involvement with this entity and has the ability to affect those returns through its power over this entity in accordance with KIFRS 1110 Consoldated
Financial Statements.
1.2.15.6 Hana Global Investment Consulting Co., Ltd.
Hana Global Investment Consulting Co., Ltd. was incorporated in Beijing on October 14, 2011 and engages in advisory services on issuing bonds, listing China
companies on the Korean stock market, cross-border M&A transactions and others.
1.2.15.7 Hana Land Chip Houston Real Estate Private Fund 59
Hana Land Chief Houston Private Equity Real Estate Investment Trust (REIT) 59, which was established by the Capital Markets and Financial Investment Services Act on October 30, 2014, manages common stocks of FG US Holdings 2 LLC that was established to acquire preferred stocks of 3000Post Oak Blvd. in
Houston, the USA. The collective investment company, or an asset management company, is Hana Asset Management Co., Ltd. and the trustor is National
Agricultural Cooperative Federation.
1.2.15.8 Special money intrust
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Company consolidated special money intrust because the Company is exposed,or has rights, to variable returns from its involvement with the private equity investment vehicles and has the ability to affect those returns through its powerover the private equity investment vehicles.
1.2.16 Subsidiaries of KEB Hana Card
1.2.16.1 Saenggakdaero T 17th Securitization Specialty Co., Ltd.,In accordance with the KIFRS 1110 Consolidated Financial Statements, the Company consolidated special purpose entity assuming that KEB Hana Card is
exposed, or has rights, to variable returns from its involvement with the special purpose entity and has the ability to affect those returns through its powerover the entity.
1.2.16.2 Special money intrust
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Company consolidated special money intrust because the Company is exposed,or has rights, to variable returns from its involvement with the private equity investment vehicles and has the ability to affect those returns through its powerover the private equity investment vehicles.

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Hana Financial Group Annual Report 2014

1.2.17 Subsidiaries of Hana Asset trust
1.2.17.1 Hana Asset Management Co., Ltd.
Hana Asset Management Co., Ltd. (Hana Asset Management) was incorporated on April 14, 2006 for the purpose of providing asset management and investment advisory services, pursuant to the Capital Market Financial Investment Business Act. Hana Asset Management changes its name from Hana Daol FundManagement to Hana Asset Management on December 12, 2013.
1.2.18 Subsidiaries of Hana Capital
1.2.18.1 Special money intrust
In accordance with the KIFRS 1110 Consolidated Financial Statements, the Company consolidated special money intrust because the Company is exposed,or has rights, to variable returns from its involvement with the private equity investment vehicles and has the ability to affect those returns through its powerover the private equity investment vehicles.

1.3 The financial support to a consolidated structured entity
Nature and reason of the contractual arrangements for providing the financial support to a consolidated structured entity as at December 31, 2014 are as
follows:
EntityThe Characteristics and Purposes

Intention

Hana CSP Co., Ltd.

The Group offers purchase commitment for ABCP issued by Hana CSP Co.,Ltd.
If there are not enough investors who acquire the ABCP, the Group required
to acquire the deficit amount of ABCP.

Credit risk mitigation on
liquidation plan

Trust accounts with guaranteeof the repayment of principal and interest

The Group offers principal conservation commitment to trust accounts. The
Group required to conserve the deficit amount in case the trust accountstands below the principal as a result of the operation .

Credit risk mitigation on
financial management oftrust accountAthene 1st Co.,Ltd.

The Group lends ￦11,500 million to Athene 1st Co.,Ltd. which takes overprivate corporate bonds amounting to ￦10,200 million issued by other banks. Due to business activities
The Group established the right of pledge on the bonds.

Athene 2nd Co.,Ltd.

The Group lends ￦5,200 million to Athene 2nd Co.,Ltd. which takes overprivate corporate bonds amounting to ￦4,800 million issued by other banks.
The Group established the right of pledge on the bonds.

Due to business activities

Saenggakdaero T 17th
Securitization Specialty Co., Ltd.,The Group transferred installment financial assets purchased to Saenggak-daero T 17th Securitization Specialty Co., Ltd. and takes over subordinatedbonds issued with the underlying assets of transferred assets.

Due to smooth raise inunsubordinated bonds

KEBW First Securitization Specialty Co., Ltd.

The Group purchased the unsubordinated securities and subordinatedsecurities issued by KEBW First Securitization Specialty Co., Ltd. in theamount of ￦347 million, respectively.

Operating activities

KEB VERITAS First Securitization Co., Ltd.

KEB F&I underwrote tranche 1 bonds of ￦8,800 million, tranche 2 bondsof ￦10,200 million, and tranche 3 bonds of ￦1,000 million issued by KEB
VERITAS First Securitization Co., Ltd.

Operating activities

KEB VERITAS Second Securitization Co., Ltd.

KEB F&I underwrote tranche 1 bonds of ￦7,800 million, tranche 2 bonds of￦2,700 million, and tranche 3 bonds of ￦300 million issued by KEB VERITAS
Second Securitization Co., Ltd.

Operating activities

KEBS First Securitization Co., Ltd.

KEB F&I underwrote ￦21,800 million of senior bonds issued by KEBS First
Securitization Co., Ltd.

Operating activities

KEBS Second Securitization Co., Ltd.

KEB F&I underwrote ￦18,300 million of senior bonds issued by KEBS Second
Operating activities
Securitization Co., Ltd.

KEB Pepper First Securitization Co., Ltd.

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

KEBI First Securitization Co., Ltd.

KEB F&I underwrote ￦40,700 million of senior bonds and ￦40,700 million of
Operating activities
subordinated bonds issued by KEBI First Securitization Co., Ltd.

KEBBS First Securitization Co., Ltd.

KEB F&I underwrote ￦21,700 million of senior bonds issued by KEBBS First
Securitization Co., Ltd.

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Operating activities

Operating activities

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

2. Unconsolidated structured entities
Details of the nature of the Group’s interests in unconsolidated structured entities as of December 31, 2014 and 2013 are as follows (Korean won in millions):
Total assets
Classification

PurposeFinancing arrangement

Special purpose company

Financing through asset liquidationand securitization

Issuing ABL/ABCP and others

Real estate financeOperation for real estate (including
SOC) development

Shipping finance andprimary market finance
Investment fundDecember 31, 2014

December 31, 2013

12,604,058 ￦

14,274,804

Investment and borrowing

33,989,439

24,161,773

Financing to purchase ships, NPL
and ownership

Investment and borrowing

26,279,991

25,021,180

Managing investment
fund and trust

Issuing beneficiary certificates

42,635,266

15,817,339￦

Details of the Company’s maximum exposure to loss from its interests in unconsolidated structured entities as of December 31, 2014 and 2013 are as follows(Korean won in millions):
December 31, 2014
Special purpose
company

Classification

Real estate finance

Shipping finance andprimary market finance

Investment fund

Assets:2,143,051 ￦

2,191,817 ￦Securities (B)64,898104,397-

1,619,255

Derivatives (C)12,349

5,260

262

7,576

Others (D)24,002

7,558

8,974

4,305

Loans receivable (A)￦2,491,357 ￦

1,177,429

Liabilities:
Derivatives

-

-

485

5,541

Provision

415

208

112

1,093

Others

14,391

3,186

-

-

Net asset

2,229,494

2,305,638

2,499,996

2,801,931

Financial assets (A+B+C+D)

2,244,300

2,309,032

2,500,593

2,808,565

Credit and other commitment

2,276,084

105,061

284,822640

Shipping finance andprimary market finance

Investment fundMaximum exposure to loss

December 31, 2013
Special purpose
company

Classification

Real estate finance

Assets:Loans receivable (A)1,030,602 ￦

2,085,171 ￦

94,89999,780Derivatives (C)1,998

33,913

1,968

5,902

Others (D)27,516

5,913

11,932

10,19014,544

Securities (B)￦2,225,174 ￦-1,040,417
976,106

Liabilities:
Derivatives

16,950--

Provision

277

435

41

-

Others21,228

564

-

1,718

Net asset

1,116,560

2,223,778

2,239,033

2,016,353

Financial assets (A+B+C+D)

1,155,015

2,224,777

2,239,074

2,032,615

Credit and other commitment

1,363,627

153,404

41,248631

Maximum exposure to loss

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Hana Financial Group Annual Report 2014

3. Summary of significant accounting policies and Basis of preparation
3.1 Basis of preparation
The Group prepares statutory consolidated financial statements in the Korean language for the year ended December 31, 2014, which have been prepared inaccordance with Korea International Financial Reporting Standards (KIFRS) enacted by the Corporate External Audit Law.
The accompanying consolidated financial statements have been translated into English from the Korean language financial statements. In the event of any
differences in interpreting the financial statements or the Report on review of separate financial statements thereon, the Korean version, which is used forregulatory reporting purposes, shall prevail.
3.2 Principles of consolidation
The significant accounting policies that the Group adopts in preparing the consolidated financial statements are as follows.
3.2.1 Subsidiaries
Subsidiaries are the companies controlled by the Group, and the Group has rights to determine the financial and operational policies of the subsidiaries. Generally, it has at least 50% voting rights, and special purpose vehicles are included. When the Group evaluates whether a company falls under a subsidiary, itconsiders the existence of an exercisable or convertible potential voting right and its effect. When the Group controls a subsidiary, the subsidiary is subject toconsolidation; when the Group loses the control, it is eliminated from the consolidation.
3.2.2 Offsetting investment account against equity account
The investment accounts of the Group and the corresponding equity accounts of the subsidiaries were offset and eliminated as of the dates of acquiringcontrols.
3.2.3 Difference between net assets of an investee and acquisition costs
When offsetting the investment of the Bank and the equity of a subsidiary, the Group applies an acquisition method in accounting treatment. When applying
the acquisition method, if the Bank’s purchase price to acquire shares of the subsidiary’s assets·liabilities at fair value exceeds the Bank’s investment as ofthe date of acquiring control, the excess is recognized as goodwill and recorded as an intangible asset, and an impairment test for the goodwill is conductedat the end of every reporting period.
If the Bank acquires additional shares of the subsidiary after acquiring the control of the subsidiary, the investment of the Bank and the equity of the subsidiary
are offset and eliminated as of the initial acquisition date: at this time, if the investment and the corresponding equity are not equal, the difference is recorded
as consolidated capital surplus (or consolidated capital adjustments).
3.2.4 Elimination of related party transactions and unrealized gains or losses
The Group offset and eliminated intercompany receivables·payables, and intercompany revenues·expenses, and interest incomes or expenses arising fromintercompany loans by applying an interest rate for the current term.
3.2.5 Application of equity method
According to the sources of changes in net assets of an investee under equity method, the Group differently records the changes in accounting treatments. If
the net assets of an investee are changed due to a net profit or loss for the current term, the change is recorded as an investment income or loss under equity
method; if the net assets are changed due to an increase or decrease in retained earnings carried over from the previous term, the change is recorded as apositive or negative change in retained earnings under equity method; if the net assets are changed due to an increase or decrease in equity other than the
net profit or loss for the current term or the change in retained earnings carried over from the previous term, the change is recorded as a positive or negativechange in equity under equity method.
3.2.6 Special reserve of trust accountIn the trusts with stipulations of preserving principals and interests, which are consolidated, special reserves accumulated in accordance with the terms andconditions of the trusts are adjusted in the consolidated retained earnings in accordance with the detailed enforcement regulations on banking supervision.
3.2.7 Minority interest
Of the equity of a subsidiary, a portion that does not belong to the Bank is a minority interest. If the minority interest falls below "0" because of a loss of a
subsidiary, the negative portion below "0" is presented in the form of subtraction from equity (contra equity).
3.2.8 Business combination
3.2.8.1 Business combination
Acquisition method is applied to business combinations except a business combination between business entities under the control of the same ultimate
parent company.

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GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSThe Group recognizes identifiable assets acquired and liabilities taken over at fair value on the acquisition date except the following cases.
- Lease contracts: classified by the terms and conditions of contracts on the date of contract- Contingent liabilities: recognized as the liabilities that can be reliably measured as current obligations- Deferred tax assets and liabilities: recognized and measured in accordance with KIFRS 1012 corporate income tax.
- Employee benefits: recognized and measured in accordance with KIFRS 1019 employee benefits- Compensable assets: recognized and measured in accordance with standards applicable to compensable items- Reacquired rights: measured in accordance with special regulations- Stock options: stock option related debt or equity securities are measured in accordance with KIFRS 1102 stock options- Assets held-for-sale: measured at net fair value in accordance with KIFRS 1105 non-current assets held-for-sale and discontinued operation
In business combination, consideration for transfer is measured at fair value, which is a sum of the fair values of assets transferred by the Group, liabilities that
the Group bears for the previous owner of a company being acquired, and equities issued by the Group on the date of acquisition. However, the stock options
included in the consideration for transfer, which the acquisitor grants in exchange for the compensations that are held by the employees of the Group being
acquired, are not measured at fair value but evaluated in the way described above.
The acquisition related costs, which the Group has incurred to achieve effects of business combination, include brokerage fees – in other words, consulting,legal, accounting, valuation and other professional or consulting fees – general administrative costs including costs to maintain a business unit being acquired,and costs to register and issue debt securities and equity securities. Except the costs of issuing debt and equity securities under KIFRS 1032 and KIFRS 1039,
the acquisition related costs are recognized as expenses when they are incurred and services are rendered.
3.2.8.2 Goodwill or gain on bargain purchase
If the sum of the fair value of consideration for transfer and the minority interest of an investee measured in accordance with KIFRS 1103 business combination
exceeds the fair value of net assets of identifiable assets acquired and liabilities assumed of a subsidiary as of the date of acquisition, the Group recognizes
the excess as goodwill. However, if the fair value of net assets exceeds the sum of the consideration for transfer and the minority interest of an investee
measured on the date of acquisition, the Group reviews the fair value of net assets. If the excess still remains after review, it immediately recognizes as acurrent profit or loss (gain on bargain purchase).
Additional acquisition of minority interest is recorded as a transaction between shareholders in accounting treatments, and goodwill is not recognized.
3.3 Foreign exchange
3.3.1 Functional currency
When preparing for the financial statements, the Group measures and recognizes all transactions according to the functional currency. The term, functional
currency, is defined as the currency used to conduct operating activities in the primary economic environment and trades between entities using its ownfunctional currency and other currencies which are converted to the functional currency to be measured and recognized.
3.3.2 Translation of foreign currency transactions and balances at the end of the reporting period
Transactions in foreign currencies are initially recorded at the functional currency rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the reporting date. Non–monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.
Non–monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
3.3.3 Translation of the Group’s foreign affiliates
As at the reporting date, the assets and liabilities of subsidiaries and overseas branches are translated into the Group’s presentation currency, Korean Won(KRW), at the rate of exchange as at the reporting date, and their statement of comprehensive income are translated at the weighted-average exchange rates
for the year. Exchange differences arising on translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred
cumulative amount recognized in equity related to that particular foreign operation is recognized as other operating expenses or other operating income in theGroup’s consolidated statements of comprehensive income.
3.4 Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise of cash at banks and on hand and short-term deposits with an original maturity of
three months or less. The purpose of cash and cash equivalents are to make short-term investments and to meet short-term cash demands. Cash and cash
equivalents are highly liquidable and can be easily convertible and subject to changes in value.

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3.5. Initial recognition and measurement of financial assets
Financial assets within the scope of KIFRS 1039 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity
investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition.
All financial assets are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction
costs.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular
way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
The Company’s financial assets include cash and short-term deposits, trade and other receivables, loan and other receivables, quoted and unquoted financial
instruments, and derivative financial instruments.
3.5.1 Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held-for-trading and financial assets designated upon initial recognition at fair value
through profit or loss. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. This
category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as definedby KIFRS 1039. Derivatives, including separated embedded derivatives are also classified as held-for-trading unless they are designated as effective hedging
instruments. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with changes in fair value recognized in finance income or finance cost in the statement of comprehensive income.
The Group may only designate financial assets as financial assets at fair value through profit or loss upon initial recognition when the following criteria is met.
- The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis.
- The assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value
basis, in accordance with a documented risk management or investment strategy.
- The financial instrument contains one or more embedded derivatives which significantly modify the cash flows that otherwise would be required by thecontract.
3.5.2 Available-for-sale financial investments
Available-for-sale financial investments include equity and debt securities. Equity investments classified as available-for-sale are those, which are neitherclassified as held-for-trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for anindefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.
After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealized gains or losses recognized as othercomprehensive income in the available-for-sale reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in otheroperating income, or the investment is determined to be impaired, at which time the cumulative loss is recognized in the statement of comprehensive income
in finance costs and removed from the available-for-sale reserve.
The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term is still appropriate. When the Group is unable
to trade these financial assets due to inactive markets and the management’s intention significantly changes in the foreseeable future, the Group may elect toreclassify these financial assets. Reclassification to loans and receivables is permitted when the financial asset meets the definition of loans and receivables
and has the intent and ability to hold these assets for the foreseeable future or maturity.Reclassification to held-to-maturity is permitted only when the entity
has the ability and intention to hold the financial asset accordingly.
For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognized in equity is amortized
to profit or loss over the remaining life of the investment using the effective interest rate(“EIR”) method. Any difference between the new amortized cost andthe expected cash flows is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired then theamount recorded in equity is reclassified to the statement of comprehensive income.
3.5.3 Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to maturity when the Group has the positive
intention and ability to hold it to maturity. After initial measurement held-to-maturity investments are measured at amortized cost using the effective interest
method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral partof the EIR. The EIR amortization is included in finance income in the statement of comprehensive income. The losses arising from impairment are recognizedin the statement of comprehensive income in finance costs.

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3.5.4 Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the EIR, less impairment. Amortized cost is calculated by taking into accountany discount or premium on acquisition and fee or costs that are an integral part of the EIR.
The EIR amortization is included in finance income in the statement of comprehensive income. The losses arising from impairment are recognized in thestatement of comprehensive income in finance costs.
3.6 Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments such as forward currency contracts, interest rate swaps and forward commodity contracts to hedge its foreign
currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially recognized at fair value on the dateon which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value ispositive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value on derivatives are taken directly to the statement of comprehensive income, except for the effective
portion of cash flow hedges, which is recognized in other comprehensive income.
For the purpose of hedge accounting, hedges are classified as:- Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment (except forforeign currency risk)- Cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability
or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge
accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument,
the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s
fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to behighly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly
effective throughout the financial reporting periods for which they were designated.
3.6.1 Fair value hedges
The change in the fair value of an interest rate hedging derivative is recognized in the statement of comprehensive income in finance costs. The change in thefair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognized in the statement of comprehensive income in finance costs.
For fair value hedges relating to items carried at amortized cost, the adjustment to carrying value is amortized through the statement of comprehensive income over the remaining term until maturity. Effective interest rate amortization may begin as soon as an adjustment exists and shall begin no later than when
the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the statement of comprehensive income.
3.6.2 Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized directly as other comprehensive income in the cash flow hedge reserve, while
any ineffective portion is recognized immediately in the statement of comprehensive income in finance costs.
Amounts recognized as other comprehensive income are transferred to the statement of comprehensive income when the hedged transaction affects profit
or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs. Where the hedged item is the cost ofa non-financial asset or non-financial liability, the amounts recognized as other comprehensive income are transferred to the initial carrying amount of thenon-financial asset or liability.
If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in equity are transferred to thestatement of comprehensive income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation
as a hedge is revoked, any cumulative gain or loss previously recognized in other comprehensive income remains in other comprehensive income until theforecast transaction or firm commitment affects profit or loss.

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3.6.3 Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are accounted for as separate derivatives. When their risks and characteristics are
not closely related to those of the host contracts and the host contracts are not measured at fair value through profit or loss (FVTPL).
In case where fair value is determined using data which is not observable, the difference between the transaction price and model value is deferred andamortized over the life of the associated instrument using the straight-line method.
3.6.4 ‘Day 1’ profit or loss
When the transaction price is different from the fair value of other observable current market transactions in the same instrument or based on a valuation
technique whose variables include only data from observable markets, the Group immediately recognizes the differences between the transaction price andfair value (a ‘Day 1’ profit or loss) in ‘Net trading income’.
3.6.5 Liquidity adjustment and credit valuation adjustment
When measuring derivatives at fair value, the liquidity adjustment and credit valuation adjustment are calculated to reflect the effectiveness of the adjustments
for counterparties.
3.7 Investments in associates and joint ventures
Investments in entities over which the Group has control or significant influence are accounted for using the equity method. Under the equity method of
accounting, the Group’s initial investment in an investee is recorded at acquisition cost. Subsequently, the carrying amount of the investment is adjusted toreflect the Group’s share of income or loss of the investee in the statement of comprehensive income and share of changes in equity that have been recognized directly in the equity of the investee in the related equity account of the Group on the statement of financial position. If the Group’s share of losses of theinvestee equals or exceeds its interest in the investee, it suspends recognizing its share of further losses. However, if the Group has other long-term interestsin the investee, it continues recognizing its share of further losses to the extent of the carrying amount of such long-term interests. The Group resumes theapplication of the equity method if the Group’s share of income or change in equity of an investee exceeds the Group’s share of losses accumulated during
the period of suspension of the equity method of accounting.
At the date of acquisition, the excess of the cost of the investment over the Group’s share of the net fair value of the investee’s identifiable assets and liabilities
is accounted for as goodwill or negative goodwill. The amortization expense is included as part of valuation gain or loss on the equity method investments inthe statement of comprehensive income. The difference related to goodwill is recorded as the carrying amount. Goodwill is reviewed for impairment whensigns of damage arise and is not amortized over its useful life.
Further, the Group’s share of any difference between the net fair value of the investee’s identifiable assets and liabilities, and the net book value of such assets
and liabilities is amortized based on the investee’s accounting treatments on the related assets and liabilities and charged or credited to the valuation gain orloss on the equity method investments in the statement of comprehensive income
The Group’s share in the investee’s unrealized profits and losses resulting from transactions between the Group and its investee are eliminated to the extent
of the interest in the investee.
3.8 Impairment of financial assets
3.8.1 Available-for-sale financial assets
For available-for-sale financial assets, the Group assesses at each reporting date whether there is objective evidence that an asset is impaired. When there isevidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss onthat investment previously recognized in the statement of comprehensive income is removed from equity and recognized in the statement of comprehensive
income.
In the case of equity investments classified as available-for-sale, objective evidence would also include a ‘significant’ or ‘prolonged’ decline in the fair value ofthe investment below its cost. Also, when objective evidence exists for the impairment of available-for-sale equity securities which are measured using thecost method, the Group calculates the difference between the item’s carrying amount and the present value of the estimated future cash flows using thecurrent market rate of return. Impairment losses on equity investments are not reversed through the statement of comprehensive income; increases in thefair value after impairment are recognized directly in equity.
3.8.2 Held-to-maturity investments
When objective evidence exists for the impairment of a particular held-to-maturity financial asset, the Group calculates the difference between the item’s carrying amount and the present value of the estimated future cash flows using the EIR. If, in a subsequent year, the amount of the estimated impairment loss
decreases because of an event occurring after the impairment was recognized, the previously recognized impairment is reversed and reduced by adjusting theallowance account. If the carrying amount does not reflect the impairment at the initial recognition after the reversal, the amount cannot exceed the amortizedcost at the date of the reversal recognition.

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3.8.3 Loans and receivables
The Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant or collectively for
financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assetsthat are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessmentof impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The
carrying amount of the asset is reduced through the use of an allowance account and the amount of the impairment loss is recognized in the statement ofcomprehensive income. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discountthe future cash flows for the purpose of measuring the amount of impairment loss.
The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate
for measuring any impairment loss is the current EIR. The calculation of the present value of the estimated future cash flows of a collateralized financial asset
reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Group’s internal credit grading system, that considers
credit risk characteristics such as asset type, industry, geographical location, collateral type, past–due status and other relevant factors.
A collective evaluation of impairment is based on incurred loss model. The ratio of allowance for possible loan losses on credit by collective assessment is theincurred but not reported possibility of default (IBNR PD) times loss given default (LGD). IBNR PD is estimated by applying Loss Emergence Period (LEP) to
Probability of default (PD) regulated by Basel II on the basis of historical loss experience for a group of loan receivables with similar credit risk characteristics.
LGD is estimated by applying EIR of a group of loan receivables and reflecting types of products and collaterals.
3.9 Reclassification of financial assets
The Group may reclassify, in certain circumstances, non–derivative financial assets out of the ‘Held–for–trading’ category and into the ‘Available–for–sale’,‘Loans and receivables’, or ‘Held–to–maturity’ categories. From this date it was also permitted to reclassify, in certain circumstances, financial instruments
out of the ‘Available–for–sale’ category and into the ‘Loans and receivables’ category. Reclassifications are recorded at fair value at the date of reclassification,
which becomes the new amortized cost.
For a financial asset reclassified out of the ‘Available–for–sale’ category, any previous gain or loss on that asset that has been recognized in equity is amortized
to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the expected cash flows is alsoamortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired then the amount recorded in equity is
recycled to the statement of comprehensive income.
The Group may reclassify a non–derivative trading asset out of the ‘Held–for–trading’ category and into the ‘Loans and receivables’ category if it meets thedefinition of loans and receivables and the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial
asset is reclassified, and if the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts,
the effect of that increase is recognized as an adjustment to the EIR from the date of the change in estimate.
3.10 Derecognition of financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:- The rights to receive cash flows from the asset have expired.
- The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material
delay to a third party under a ‘Pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b)the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor
retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing
involvement in the asset.
In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights
and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset andthe maximum amount of consideration that the Group could be required to repay.

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Hana Financial Group Annual Report 20143.11 Recognition and measurement of financial liabilities
All financial liabilities are recognized initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.
3.11.1 Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as atfair value through profit or loss.
Financial liabilities are classified as held-for-trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial
instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by KIFRS 1039. Separated embedded
derivatives are also classified as held-for-trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held-for-trading arerecognized in the statement of comprehensive income.
3.11.2 Deposits, borrowings, and debentures
After initial recognition, interest bearing deposits, borrowings and debentures are subsequently measured at amortized cost using the effective interest rate
method. Gains and losses are recognized in the statement of comprehensive income when the liabilities are derecognized as well as through the EIR method
amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortization is included in finance cost in the statement of comprehensive income.
3.12 Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced byanother from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modificationis treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in
the statement of comprehensive income.
3.13 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
3.14 Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The provision
is used only for expenditures for which the provision was originally recognized. If the effect of the time value of money is material, provisions are stated atpresent value.
Confirmed acceptances and guarantees, unconfirmed acceptances and guarantees and bills endorsed are not recognized on the statement of financial
position, but are disclosed as off-statement of financial position items in the notes to the financial statements. The Group provides a provision for such offstatement of financial position items, applying a Credit Conversion Factor (“CCF”) and provision rates, and records the provision as a reserve for possible
losses on acceptances and guarantees.
The Group provides an allowance for possible losses on a certain portion of unused credit line and cash advance commitments on credit cards. The Group
records the provision for such unused balances as an allowance for possible losses on unused commitments and cash advance commitments which arecalculated by applying a CCF and the minimum required provision percentage provided by the Regulation on the Supervision of Banking Business.
3.15 Financial guarantees
In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees
are initially recognized in the financial statements at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under eachguarantee is measured at the higher of the amount initially recognized less, when appropriate, cumulative amortization recognized in the statement of comprehensive income, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in theliability relating to financial guarantees and the premium received are recognized in the statement of comprehensive income.
3.16 Bonds purchased under resale agreements and bonds sold under repurchase agreements
Bonds purchased under resale agreements and bonds sold under repurchase agreements are included in loans receivable and borrowings, respectively, inthe accompanying statement of financial position. Interest income and expense from purchase or sale are recognized as interest income on loan receivables
and interest expense on borrowings.

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3.17 Property and equipment
Property and equipment (including equipment under operating leases where the Group is the lessor) is stated at cost excluding the costs of day–to–day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the depreciation
period or method, as appropriate, and are treated as changes in accounting estimates.
Depreciation is calculated using the straight–line method to write down the cost of property and equipment to their residual values over their estimated useful
lives. Land is not depreciated. The estimated useful lives are as follows:

Buildings
Vehicles, furniture and fixtures, leasehold improvements

Depreciation method

Years

Straight-line method

5 to 50

Declining balance method

3 to 20

Property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arisingon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized as otheroperating income in the statement of comprehensive income when the asset is derecognized.
Government grants are recognized where there is reasonable assurance that the grant will be received and all attached conditions will be complied with.
When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the related costs, for which it is intended tocompensate, are expensed. When the grant relates to an asset, it is recognized as income in equal amounts over the expected useful life of the related asset.
3.18 Investment properties
Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day to day servicing of an investment property.
Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arisingfrom changes in the fair values of investment properties are included in the statement of comprehensive income in the period in which they occur.
Depreciation is calculated using the straight–line method to write down the cost of property and equipment to their residual values over their estimated useful
lives. Land is not depreciated. The estimated useful lives are as follows:

Buildings

Depreciation method

Years

Straight-line method

40 to 50

Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no
future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognizedin the statement of comprehensive income in the period of derecognition.
Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property,
the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, theGroup accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.
3.19 Lease
The Group classifies a lease as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. Otherwise, a lease is classified as
an operating lease.
3.19.1 Finance lease
The Group recognizes finance leases as lease payment receivables in the statements of financial position at the amounts of the net investment in the lease
contract. Any initial direct costs of the lease contract including commissions, legal fees and internal costs that are incremental and directly attributable tonegotiating and arranging a lease contract are added to the amount of lease payment receivables. The Group accounts for the lease payment and the financeincome separately and the finance income is calculated by using the EIR method on the lessor's net investment in the lease contract.
3.19.2 Operating lease
The Group presents operating lease assets in the statements of financial position according to the nature of the assets. Initial direct costs incurred by lessors
in negotiating and arranging the lease contract are added to the carrying amount of the operating lease assets and recognized as an expense over the periodof the lease contract corresponding to the amount of lease revenues. Depreciation of operating lease assets is calculated using the same method of othersimilar assets.

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Hana Financial Group Annual Report 20143.20 Intangible assets
An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable
to it will flow to the Group. Intangible assets include industrial right, software, development cost and others.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fairvalue as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated
impairment loss.

Industrial property, software, systemdevelopment, trademark rights

Depreciation method

Years

Straight-line method

5Core deposit

Straight-line method

7

Client membership

Straight-line method

10

OthersStraight-line method

1 to 7The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life.
The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes
in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing theamortization period or method, as appropriate, and they are treated as changes in accounting estimates. The amortization expense on intangible assets withfinite lives is recognized in the statement of comprehensive income in the expense category consistent with the function of the intangible asset. An intangible
asset with an indefinite useful life shall not be amortized but are tested for impairment annually and its useful life shall be reviewed each period to determine
whether events and circumstances continue to support an indefinite useful life assessment for that asset.
3.21 Non-current assets held for sale
The Group classifies a non-current asset or disposal group as held for sale if its carrying amount will be recovered principally through a sale transaction rather
than through counting use. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition and its sale mustbe highly probable.
The Group measures a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell.
3.22 Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment
testing for an asset is required, the Group estimates the assets recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cashgenerating unit’s (CGU) fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, theasset is considered impaired and is written down to its recoverable amount.
3.23 Retirement benefits
The Group has both defined benefit (“DB plan”) and defined contribution (“DC plan”) plans. A defined contribution plan is a pension plan under which theGroup pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not holdsufficient assets to pay all employees the benefits relating to employee service rendered in the current and prior periods. A defined benefit plan is a pension
plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such as age, years ofservice and compensation.
The defined benefit liability comprises the present value of the defined benefit obligation less unrecognized past service costs and less the fair value of plan
assets out of which the obligations are to be settled directly, less unrecognized actuarial losses. The cost of providing benefits under the defined benefit planis determined separately using the projected unit credit actuarial valuation method. The present value of the defined benefit liability is recorded in the same
currency as the payment itself and is calculated by discounting the expected future cash flow and using the interest rate of other reputable companies withsimilar payment and end of reporting dates.
Changes in the actuarial estimates and actuarial gains and losses between estimates and results are recognized in the period they occur as part of othercomprehensive income. The past service cost is recognized immediately.
The Group has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when
they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.
3.24 Share-based payment transactions
The Group grants share options to its employees in the form of share-based payment transactions, whereby employees render services as consideration for123

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

equity instruments or they are granted share appreciation rights, which can only be settled in cash. If the goods or services provide cannot be reliably measured, the endowed equity is indirectly estimated at fair value and the Group accounts for compensation costs and equity. The cost of cash-settled transactions
is measured initially at fair value at the grant date, taking into account the terms and conditions upon which the instruments were granted. This fair value isexpensed over the period until vesting with recognition of a corresponding liability. The liability is re-measured to fair value at each reporting date up to andincluding the settlement date, which changes in fair value recognized in the statement of comprehensive income. Also, in the case of a selectable sharebased payment transaction in which the employees have a choice between a cash-settled transaction and an equity-settled transaction, the Group records
the amount depending on its materiality.
3.25 Income tax expenses and deferred tax assets and liabilities
Income taxes comprise of current and deferred taxes. All items related to taxes, other than those recognized directly in equity, are accounted for in the statement of comprehensive income. Accordingly, items recognized directly in equity and the related taxes are accounted for as other comprehensive income inthe consolidated statements of comprehensive income.
The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. If the applied tax laws
require an interpretation, the Group calculates income tax payable expected to be paid to the taxation authorities based on the opinion made when the taxes
were reported.
Deferred tax is provided on the temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts forfinancial reporting purposes. Deferred liabilities are recognized for all taxable temporary differences, except:
When the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, atthe time of the transaction, affects neither the accounting profit nor taxable profit loss.
In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can becontrolled and it is probable that the temporary differences will not reverse in the foreseeable future.
The Group and its wholly owned subsidiaries have adopted a Consolidated Tax Return which is calculated based on the consolidated taxable income generated
on or after January 1, 2010. Under the Consolidated Tax Return, the Group recognizes the current tax liabilities on behalf of its subsidiary and also recognizes
accounts receivable or accounts payable for the amount to be collected from or to be paid to the subsidiary for its share of the consolidated taxation.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and thedeferred taxes relate to the same taxable entity and taxation authority.
3.26 Insurance contracts
Hana Life Insurance’s significant accounting policies relating to insurance contracts are as follows.
3.26.1 Reinsurance assets
The Group does not offset the reinsurance assets against the related reinsurance liabilities. If a reinsurance asset is impaired, the Group reduces its carrying
amount accordingly and recognizes that impairment loss in profit or loss.
3.26.2 Deferred acquisition costs
The Group amortized the acquisition costs arising from long-duration contracts during the term of the contracts in the straight-line methed in accourdance withAccounting standards for insurance business article 31 and article 3 of the supplementary provisions. If the acquisition costs exceed the expected amount or
the additional premiums are setted highly for earlier term of the contracts to collect the acquisition costs in early stage, the acquisition costs are recognized in
the period they occur as profit or loss. The deferred acquisition costs are amortized over the term of the contracts within the limits of 7 years. The unamortized
costs of surrendered insurance contract are amortized in the period it is surrendered.
3.26.3 Liablities reserves
The Group recognizes liabilities reserves by types of insurance contracts as of the reporting date in accordance with the Insurance Business Act and therelated regulations. The liablilities reserves refer to an amount calculated pursuant to the the premiums and liabilities reserves calculation manual for paymentof claims, bonus return and policyholders dividend.
3.26.4 Valuation of special accounts assets and liabilities
The Group designates and operates any of the retirement insurance contracts, retirement dividend insurance contracts and variable insurance contracts(including
variable universal insurance contracts) as special accounts pursuant to Article 108 (1) of the Actand Article 52 of the Regulations on Supervision of Insurance
Business .

124

Hana Financial Group Annual Report 20143.27 Equity
3.27.1 Classification of equity
The Group classifies financial instruments at initial recognition as either a liability or equity depending on the contractual materiality. In the case where it ispossible to avoid the related contractual obligations, the financial item is classified as equity. The Group classifies a hybrid equity security as equity at the timeof its issuance if it meets the criteria of an equity instrument.
3.27.2 Stock issuance costs
Additional stock issuance costs or incremental costs related to the stock issuance for business combinations are recorded as a deduction from issued capitalnet of tax effects.
3.27.3 Dividends on common stock
Dividends from common stock are deducted from the Group’s equity and recognized as a liability when the shareholders’ meeting of the Group approves thedividends. Dividends declared for the year that are approved after the reporting date are disclosed as asubsequent event.
3.27.4 Treasury stock
Equity instruments of the Group which are acquired by the Group or any of its subsidiaries are deducted from its equity and recorded at acquisition cost, including transaction costs. Consideration received on the sale or issuance of the Group’s own equity instruments is recognized directly in equity.
3.28 Per share amounts
Basic and diluted earnings per share are computed by dividing net income by the weighted-average number of shares of common stock outstanding during
the year.
3.29 Accounting basis for trust accounts
The Group separates trust properties from proprietary properties in accordance with the Supervisory Regulatons on Financial Investment Business. The Group
recognizes funds lended or borrowed to trust accounts as accounts receivables or account payables, respectively. The Group recognizes trust commissions
earned from trust accounts as income from trust operations. When a loss is incurred on a trust account that includes a guarantee of principal repayment, thecorresponding loss is recognized as a loss from trust operations.
3.30 Merchant banking accounts
As permitted by the Restructuring of Financial Institutions Act, the Group may continue its merchant banking operations, including the leasing business, until
the existing contracts acquired from Korea International Merchant Bank upon merger are terminated. Significant accounting policies applied to the Group‟smerchant banking operations are summarized as follows:
3.30.1 Revenue recognition on discounted notes
Interest income on discounted notes is accrued over the term of the notes. Income from the sale of the discounted notes is recognized at the date of salebased on the difference between the purchase and sales prices of the notes, adjusted for interest earned during the holding period.
3.30. 2 Cash Management Accounts (CMA)The Group recognizes interest income from CMA investments and interest expense from CMA deposits as other income and other expenses, respectively.
3.31 Interest income and interest expense
For all financial instruments measured at amortized cost, interest bearing financial assets classified as available–for–sale and financial instruments designatedat fair value through profit or loss, interest income or expense is recorded using the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset
or financial liability. The Group takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees orincremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.
Once the recorded value of a financial asset has been reduced due to an impairment loss, interest income continues to be recognized using the rate of interest
used to discount the future cash flows for the purpose of measuring the impairment loss.
3.32 Fee and commission income
The Group earns fees and commissions income from a diverse range of services it provides to its customers. Fees and commissions income from financial
services are accounted for based on the related accounting standards of financial instruments and their purpose of such fees and commissions. Fees andcommissions income are accounted for as follows:- When the earned fees and commissions are a significant component of EIR from the related financial assets, the income is accounted for using the EIR
method.
- Fees and commissions income earned from rendering services are recognized throughout the service period.

125

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS- Fees and commissions income earned through financial services are recognized immediately when the services are complete.
3.33 Dividend income
Dividend income is recognized when the Group’s right to receive the payment is established.
3.34 New and amended standards and interpretations
The Group applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after January 1, 2014. The natureand the impact of each new standard and amendment are described below:
3.34.1 Investment Entities (Amendments to KIFRS 1110, KIFRS 1112 and KIFRS 1027)
These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under KIFRS 1110
Consolidated Financial Statements and must be applied retrospectively, subject to certain transition relief. The exception to consolidation requires investment
entities to account for subsidiaries at fair value through profit or loss. These amendments have no impact on the Group, since none of the entities in the Groupqualifies to be an investment entity under KIFRS 1110.
3.34.2 Offsetting Financial Assets and Financial Liabilities - Amendments to KIFRS 1032
These amendments clarify the meaning of ’currently has a legally enforceable right to set-off’ and the criteria for non-simultaneous settlement mechanismsof clearing houses to qualify for offsetting and is applied retrospectively. These amendments have no impact on the Group.
3.34.3 Recoverable Amount Disclosures for Non-Financial Assets – Amendments to KIFRS 1036 Impairment of Assets
These amendments remove the unintended consequences of KIFRS 1113 on the disclosures required under KIFRS 1036. In addition, these amendments
require disclosure of the recoverable amounts for the assets or CGUs for which impairment loss has been recognized or reversed during the period. These
amendments have no impact on the Group
3.34.4 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to KIFRS 1039
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain
criteria and retrospective application is required. These amendments have no impact on the Group as the Group has not novated its derivatives during thecurrent or prior periods.
3.34.5 KIFRS 2021 Levies
KIFRS 2021 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For
a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum
threshold is reached.
3.35 Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s consolidated financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.
3.35.1 KIFRS 1019 ‘Employee benefits’ (amendments) – Defined benefit pension plan: employee’s contribution
These amendments instruct a company to consider employees’ or a third party’s contribution to a defined benefit pension plan in accounting treatments. If
the contribution is related to services rendered, the contribution should reduce a service cost. These amendments specify that if the contribution is irrelevant
to a service period, the company may subtract the contribution from the service cost during the period when the services are rendered, instead of allocating
the contribution to the service period. These amendments are effective for annual periods beginning on or after July 1, 2014. Because the Group does notoperate defined benefit pension plan to which employees or a third party make a contribution, the Group does not expect that the amendments will have an
impact on its consolidated financial statements.
3.35.2 KIFRS 1111 ‘Joint Arrangements’ (amendments): Accounting for Acquisitions of Interests
The amendment to KIFRS 1111 requires that a joint operator accounting for the acquisition of a share in a joint operation, in which the activity of the joint
operation constitutes a business must apply the relevant KIFRS 1103 principles for business combinations accounting. The amendments also clarify that apreviously held shares in a joint operation are not remeasured on the acquisition of additional shares in the same joint operation while joint control is retained.
In addition, aa exclusion of a scope has been added to KIFRS 1111 to specify that the amendments do not apply when the parties sharing joint control, including
the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in ajoint operation and the acquisition of any additional shares in the same joint operation and are prospectively effective for annual periods beginning on or afterJanuary 1, 2016, with early adoption permitted. These amendments are not expected to have any impact on the Group.
3.35.3 KIFRS 1016 ‘Tangible assets’ and 1038 ‘Intangible assets’ (amendments) – Allowable depreciation methods and the clarification of the depreciation methods

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Hana Financial Group Annual Report 2014

These amendments specify that as an income reflects the economic benefit that is generated by operating the business in which an asset is included rather
than reflecting the economic benefit that is consumed by using the asset, a depreciation method based on the income cannot be used to depreciate a tangible asset but can be used to amortize an intangible asset in a very limited circumstance. These amendments are progressively effective for annual periods
beginning on or after January 1, 2016 or earlier. As the Group does not apply the income-based depreciation method, it does not expect that the amendments
will have an impact on its financial statements.
3.35.4 KIFRS 1027: Equity Method in Separate Financial Statements (amendments)
The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The amendments will apply retrospectively and are effective for annual periods beginning on or after January 1, 2016, with early adoption
permitted. These amendments will not have any impact on the Group’s financial statements.
These amendments will not have any impact on the Group’s consolidated financial statements.

4. Significant judgements and accounting estimates
The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect thereported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability
affected in future periods.
In the process of applying the Group’s accounting policies, management has made the following judgmentshthat have a significant effect on the amounts
recognized in the consolidated financial statements.
4.1 Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are
determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data is not available, a degree of judgment is required to establish fair values. The judgments include
considerations of liquidity and model inputs such as volatility for longer dated derivatives and discount rates, prepayment rates and default rate assumptions
for asset backed securities.
4.2 Impairment losses on available-for-sale equity instruments
The Group assesses its equity securities classified as available–for–sale investments at the end of each reporting period whether there is any indication thatan asset may be impaired.
The Group also records impairment charges on available–for–sale equity investments when there has been a significant or prolonged decline in the fair valueof the investment below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. In making this judgment, the Group evaluates,
among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost.
When the fair value below the cost of available-for-sale equity instruments is significant or prolonged, the Group reclassifies the cumulative loss and is recognized as other comprehensive income from equity to profit or loss.
4.3 Impairment losses on loans
The Group assesses its individually significant loans at the end of each reporting period whether there is any indication that an asset may be impaired. In
particular, management judgment is required for the estimation of the amount and timing of future cash flows. These estimates are based on assumptions
regarding a number of factors and actual results may differ, causing future changes to the allowance.
Loans that have been assessed individually and found not to be impaired and all individually insignificant loans are then assessed collectively, in groups ofassets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but
whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as levels of arrears, credit utilization, loan tocollateral ratios, etc.), and judgments to the effect of concentrations of risks and economic data (including levels of unemployment, real estate prices indices,
country risk and the performance of different individual groups).
4.4 Provision for severance and retirement benefits
The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method. Actuarial assumptions were made for the discount rate, the overall expected rates of return on assets, and an increase in the future pay rate. Severance and retirement benefits
include significant uncertainties in the estimates due to the long duration of the period.

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GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

4.5 Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs tosell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions conducted at arm’s length transaction for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash
flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed toor significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is most sensitive
to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.
4.6 Deferred tax assets
Deferred tax assets are recognized in respect of tax losses to the extent that it is probable that taxable profit will be available against which the losses can beutilized. Significant judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level offuture taxable profits, together with future tax planning strategies.
4.7 Share-based payment transactions
The Group measured the compensation cost of share-based payment tranactoins at fair value. The fair value is estimated by applying appropriate valuation
model taking into account the terms of conditions upon which those equity instruments were granted. The Group should determine and assume the inputsof valuation model including the expected life, volatility and dividend ratio of the share option. The applied assumptions and models are described in Note 56.

5. Fair value measurement of financial assets and financial liabilities
The following standards are applied in measuring fair value of financial assets and financial liabilities:- Financial assets and financial liabilities traded in active markets at the reporting date are based on their quoted market price or dealer price quotations (bidprice for long positions and ask price for short positions), without any deduction for transaction costs. For all other financial instruments not traded in an active
market, the fair value is determined by using appropriate valuation techniques.
- Valuation techniques include the discounted cash flow method, comparison with the similar instruments for which market observable prices exist, options
pricing models, credit models and other relevant valuation models. These techniques incorporate the Group’s estimate of assumptions that a market participant would make when valuing the instruments. Valuation techniques which provide reliable estimates on mark–to–market prices are applied.
- When determining fair value by using the valuation techniques, comparison with the current market transaction of another instrument that is substantiallythe same as the financial instrument needed to be objectively substantiated or inclusion of variables in the marketable data must be performed. Not all of thesignificant market variables are observable and in relevant cases, the reasonable estimates or assumptions are required to determine the fair value.
- Investments in equity instruments that do not have a quoted market price in an active market as well as the derivatives that are linked to these equity instruments are accounted for using the cost method when it is determined that their fair values cannot be reliably measured.
The fair value hierarchy of financial instruments as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Level 1

Level 2

Level 3Total

2,306,390 ￦9,374,869 ￦

114,8131,600

21,402

137,815

Derivative assets used for trading

4,996

4,372,891

240,8714,618,758

Others30,457

146,567

603,296780,320

2,456,656

13,895,927

865,569

17,218,152-

417,794

627,882

1,045,676

13,352,259

18,463,765

46,086

31,862,110

707,721

1,436,833

889,186

3,033,740

681

149,117

20,290170,088

14,060,661

20,049,715

955,562

35,065,938-

77,047

10,847

Financial assets :Financial assets held-for-trading
through profit or loss
Debt securities
Equity securities

Financial assets designated atfair value through profit or loss￦

- ￦11,681,259

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

87,894(Continued on next page)

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Hana Financial Group Annual Report 2014

December 31, 2014￦

Level 1

Level 2

Level 3

Total

16,517,317 ￦

34,440,483 ￦2,459,860 ￦

53,417,660

Financial liabilities:
Financial liabilities held-for-trading
trading
Securities sold499,388--499,388

Derivative liabilities used for trading

47,5494,337,862

354,861

4,740,272

546,937

4,337,862

354,861

5,239,660

Financial liabilities designated atfair value through profit or loss-

1,438,733

5,249,067

6,687,800

Derivative liabilities
used for hedging-

50,736-50,736546,937 ￦￦5,827,331 ￦

5,603,928 ￦

11,978,196

December 31, 2013
Level 1

Level 2

Level 3

Total

1,915,091 ￦

8,610,537 ￦

181,280

1,526

20,591

203,397

Derivative assets used for trading

3,579

3,371,558

648,443

4,023,580

Others7,709

137,394

868,651

1,013,754

2,107,659

12,121,015

1,537,685

15,766,359-

138,895

101,702240,597

Debt securities

8,076,468

18,272,078

65,196

26,413,742

Equity securities (*)

1,411,813

773,839

911,149

3,096,801

89-

18,524

18,613

9,488,370

19,045,917

994,869

29,529,156

Financial assets :Financial assets held-for-trading
through profit or loss
Debt securities￦

Equity securities

Financial assets designated atfair value through profit or loss

- ￦10,525,628

Available–for–sale financial assets

OthersDerivative assets used for Hedging￦

11,596,029 ￦82,137

13,931

31,387,964 ￦2,648,187 ￦

96,06845,632,180

Financial liabilities:
Financial liabilities held-for-trading trading
Securities sold
Derivative liabilities used for trading

699,353--

699,3533,5403,201,036

469,586

3,674,162

702,8933,201,036

469,586

4,373,515

Financial liabilities designated at fair value
through profit or loss-

640,0114,264,160

4,904,171

Derivative liabilities
used for hedging-

132,4317,650

140,081

3,973,478 ￦

4,741,396 ￦9,417,767￦

702,893 ￦(*) Available–for–sale financial assets in the amount of \67,459 million and \67,203 million were valued at cost as of December 31, 2014 and 2013, respec-

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GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

tively. Since their fair values were not able to be reasonably estimated, they are included in Level 3 in the fair value hierarchy.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: Quoted (unadjusted) prices in active markets for similar assets or liabilities
Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
Fair value, valuation method, and input variables used to measure fair value of financial instruments classified as fair value hierarchy Level 2 as of December
31, 2014 and 2013 are as follows (Korean won in millions):
Fair value
December 31, 2014

Valuation method

Input variable

8,610,537

DCF model, etc

Discount rate, etc

1,526

DCF model, etc

Discount rate, etc

3,371,558

Black-Scholes model
Hull-White 1 factor model
Black model, DCFmodel

Volatility, Discount rate,
Exchange rate
Interest rate

DCF model, etc

Discount rate, etc

December 31, 2013

Financial assets:
Financial assets
held-for-trading
Debt securities￦

9,374,869 ￦1,600

Equity securities
Derivative assets
held-for-trading

4,372,891
146,567

137,394

13,895,927

12,121,015

417,794

138,895

DCF model, etc

Discount rate, etc

Debt securities

18,463,765

18,272,078

DCF model, etc.

Discount rate, etc

Equity securities

1,436,833

773,839

DCF model, etc.

Discount rate, etc

149,117-

DCF model, etc

Discount rate, etc

20,049,715

19,045,917

77,047

82,137Hull-White 1 factor
model, Black model, etc

Volatility
Discount rate, etc

Volatility, Discount rate,
Exchange rate, Interest
rate, etc.

OthersFinancial assets designatedat fair value throughprofit or loss
Available-for-salefinancial assets

OthersDerivative assets
used for hedging￦

34,440,483 ￦

31,387,964

Financial liabilities :Derivative
liabilities
used for trading

4,337,862

3,201,036

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

Financial liabilities
designated at fair value
through
profit or loss

1,438,733

640,011

DCF model, etc

Discount rate,
Exchange rate, Interest
rate, stock price, etc.

50,736

132,431

Hull-White 1 factor
modelBlack model

Volatility
Discount rate

5,827,331 ￦

3,973,478

Derivative
liabilities used
for hedging￦

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Hana Financial Group Annual Report 2014

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

Fair value

December 31,
2014

Description of
the valuation
technique

Inputs used in
the fair value
measurement

Significant
unobservable
inputs usedin the fair value
measurement

DCF model, etc

Range

The effect ofchanges in
unobservable
Inputs on fairvalue

December 31,
2013

Financial assets :Financial assets heldfor-trading
Equity securities￦

Derivative assets
used for trading

240,871

20,591

648,443

Discount rate etc

Discount rate etc

KRW interest swap
yield curve, KRW treasury
bond, yield curve,Black model
Volatility of eachbond yield, Correlation ofunderlying assets

Correlation ofunderlying assets

0.94 ~
0.95

Negative

KRW treasury bondyield curve, Volatility of
KRW, treasury bondyield,,Correlation ofunderlying assets

Correlation ofunderlying
assets-1.0 ~
1.0

Positive

DCF model, etc

Discount rate etc

Discount rate etc

603,296868,651￦865,569 ￦1,537,685￦

627,882 ￦

101,702

DCF model, etc

Discount rate etc

Discount rate etc

46,086

65,196

DCF model, etc

Discount rate etc

Discount rate etc

27.8

Negative

Growth rate

0.0~
+0.2

Positive

Discount rate

4.2~
15.4

Negative

Growth rate
Discount rate
Liquidation value

Liquidation value

0.0

Positive

Discount rate

Discount rate

5.78~
20.19

Negative

Bid rate

Bid rate

KRW interest
swap yield curve
USD treasury
bond yield curve

Correlation ofunderlying assets

0.45 ~
0.98

Positive

Volatility ofinterest rate
Correlation ofunderlying assets
Correlation between
USD interest rateand KRW/USD
exchange rate

Correlation
between USD
interest rateand KRW/USD
exchange rate

0.23

Positive

OthersFinancial assets at
designated fair value
through profit or loss

21,402 ￦Available-for-salefinancial assets
Debt securities

DCF model,
Comparativeon similarbusiness,

889,186

Equity securities

911,149

Net asset value
model,
Utilization of
past transaction

20,290

Others￦Derivative assets
used for hedging

131￦955,562 ￦

10,847 ￦

18,524

DCF model
Comparativeon similarbusiness,,
WACC model

61.86

Positive

994,869

13,931

Hull-White 1
factor model(Continued on next page)GROUP OVERVIEWREVIEW OF OPERATIONSFair value

December 31,
2014

December 31,
2013

2,459,860

2,648,187

5,249,067 ￦

4,264,160

FINANCIALS

Significant
unobservable
inputs usedin the fair value
measurement

Range

The effect ofchanges in
unobservable
Inputs on fairvalue

KRW interest
swap yield curve
KRW treasury
bond yield curve
Volatility ofinterest rate
Correlation ofunderlying assets

Correlation ofunderlying assets

0.94 ~
0.95

Negative

KRW treasury
bond yield curve
Volatility of KRW
treasury bond yield
Correlation ofunderlying assets

Correlation ofunderlying
assets-1.0 ~+1.0

Positive

KRW interest
swap yield curve
USD treasury
bond yield curve

Correlation ofunderlying assets

0.45 ~
0.98

Positive

Volatility ofinterest rate
Correlation ofunderlying assets
Correlation between
USD interest rateand KRW/USD
exchange rate

Correlation
between USD
interest rateand KRW/USD
exchange rate

0.23

Positive

Description of
the valuation
technique

Inputs used in
the fair value
measurement

DCF model, etc.

Discount rate, etc.

Black model

Financial liabilities :Financial liabilities
designated at fair value￦
through
profit or loss

Derivative liabilities
used for trading￦

Derivative liabilities
used for hedging

-

￦

132

354,861 ￦5,603,928 ￦

469,586

7,650

4,741,396

Hull-White 1
factor modelHana Financial Group Annual Report 2014

Changes in the fair value of Level 3 financial instruments for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions)
Financial assets
held-for-trading

January 1, 2014

Financialassetsdesignatedat fair value
through

Equitysecurities

Others￦ 20,591 ￦

868,651 ￦

101,702 ￦Available-for-sale financial assets
Debt
securities

Equitysecurities

Others65,196 ￦911,149 ￦

18,524 ￦Financialliabilities
designatedat fair value
through

Net derivative instruments
Held-for-trading

4,264,160 ￦

178,857 ￦Held forhedging

6,281

From others to
Level 3

-

-

-

-

45,905----

From Level 3 to
Others----(48,922)

-

-

-

-

Net income

811

13,615

4,501

1,863

(263,560)

27

4,019

29,259

4,491

Other
comprehensive
income

-

-

-

(985)

61,145

421

-

-

-

Buy / Issue-

163,527

569,045-251,039

2,066

3,743,044(7,530)160

Sell / Settlement-(442,497)(47,366)(19,988)(67,570)(748)(2,762,156)(314,577)

603,296 ￦627,882 ￦46,086 ￦889,186 ￦5,249,067 ￦(113,990) ￦Financial

Available-for-sale financial assets

December 31, 2014 ￦ 21,402 ￦Financial assets
held-for-trading

January 1, 2013

assetsdesignatedat fair value
through

Equitysecurities

Others￦ 18,852 ￦

733,270 ￦

65,212 ￦Debt
securities

20,290 ￦Financialliabilities

Net derivative instruments

designatedEquitysecurities

Othersat fair value
through

104,328 ￦ 1,394,638 ￦

13,988 ￦(85)
10,847

Held-fortrading

3,972,090 ￦472,584 ￦Held forhedging

15,775

Increase dueto the businesscombination

-

-

-

-

12,283----

From others to
Level 3(*)

-

-

-

5,431

-

-

-

-

-

From Level 3 to
Others(*)

-

-

-

-

(330,664)

-

-

-

-

1,739

16,090(26,330)

9,717(44,531)-

85,357(19,504)(1,364)Other
comprehensive
incomeNet income

-

-

-

(8,903)(28,734)

314

-

-

(479)

Buy / Issue-

313,163

63,845-

161,02147

2,909,904

79,718(7,651)

Sell / Settlement-(193,872)(1,025)(45,377)(252,864)

4,175(2,703,191)(353,941)

868,651 ￦

101,702 ￦65,196 ￦18,524 ￦4,264,160 ￦

178,857 ￦December 31, 2013

￦ 20,591 ￦

911,149 ￦6,281(*) The Group recognizes transfers between the levels in the fair value hierarchy at the beginning of every quarter when an event or a change in circumstance,
which causes the transfers, occurs
Total gains or losses recognized in profit or loss, and the line item in profit or loss in which those gains or losses are recognized for the years ended December
31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014

Classification

Total gains or losses
recognized in profit or
loss

Gain (loss) on financial assets held-for-trading￦

Gain (loss) on financial assets designated at FVTPL

133

43,685 ￦482

December 31, 2013

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

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

Total gains or losses
recognized in profit orloss(2,820) ￦(1,675) ￦18,483(1,456)59,02728,067(Continued on next page)GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014

December 31, 2013

Total gains or losses
recognized in profit orloss

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

Derivative instruments used for hedging

4,491

Loss on other financial instruments

14,958Classification

Impairment loss on other financial instruments￦

Total gains or losses
recognized in profit orloss

The line item in profit
or loss in which thosegains or losses arerecognized(3,158)(1,364)(1,636)882

56,7388,041(276,628)(275,530)(91,552)(213,012) ￦(282,082) ￦(91,175)

21,174 ￦(38,220)

The amount of transfers into or out of level 3 of the fair value hierarchy for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Transfer to level 1 from level 3(18,014) ￦￦(330,664)(30,908)

Transfer to level 2 from level 3

Transfer to level 3 from level 1

December 31, 2013￦

(48,922) ￦￦45,905 ￦(330,664)
-

-

5,431

45,905 ￦5,431Transfer to level 3 from level 2￦-

Changes in significant unobservable input variables are subject of a sensitivity analysis, which measures the impact on the fair value of financial instruments classified as Level 3. The amount of impact reported as favorable and unfavorable changes for the years ended December 31, 2014 and 2013 are as
follows(Korean won in millions):
December 31, 2014
Favorable changes

Classification

December 31, 2013

Unfavorable changes

Favorable changes

Unfavorable changes

Financial assets :Financial assets held-for-trading
Equity securities￦

Derivative assets held-for-trading (*1)
Financial assets designated at fair value throughprofit and loss

214 ￦(211) ￦

898

(833)

1,466

(1,461)

1,675(1,632)

-

-

- ￦

-

Available-for-sale financial assets
Debt securities
Equity securities (*2)

92

(59)

-

-

170,123(49,359)

216,289(95,054)(7,434)

139

(136)

7,775

2,330

(2,464)--

175,471(54,694)

225,530(103,949)

Derivative liabilities held-for-trading

1,394(1,359)--Financial liabilities designated at fair value throughprofit and loss

2,571

(2,571)

-

-

-

-

432

(424)

3,965 ￦

(3,930) ￦

432 ￦

(424)

Others (*2)
Derivative assets used for hedging (*1)
Financial liabilities :Derivative liabilities used for hedging (*1)
￦(*1) By increasing or decreasing 10% of (i). correlation between interest rate swap rate of KRW, (ii) correlation between interest rates of treasury, (iii) correlation between interest rate swap and interest rate of treasury, (iv) correlation between KRW-USD interest rate swap, and (v) correlation between KRW/USD
exchange rate and interest rate swap rate of USD, favorable or unfavorable changes of fair value were measured.
(*2) Fair value variation of equity securities is measured by changing growth rate(0.0~1.0%) and discount rate, or liquidation value(-1.0~1.0%) and discount134

Hana Financial Group Annual Report 2014

rate. In case of income securities, it is impossible to calculate sensitivity in practice. But if it consists of real estate, impact on fair value can be measured byincreasing or decreasing discount rate of rental cash flow(-1.0~1.0%) and growth rate of sale price of real estate(-1.0~1.0%) .
Fair value hierarchy of financial instruments disclosured as fair value though it cannot be measured as fair value as of December 31, 2014 and 2013 are as
follows (Korean won in millions):
December 31, 2014
Fair Value

Total

Level 1

Level 2

Level 3

2,894,963 ￦

19,355,196 ￦- ￦1,701,697

2,839,341-

4,541,038--

215,190,891

215,190,891

Financial assets :Cash and due from Banks￦

Financial assets held–to–maturity
Loans

-

22,250,159

9,454

14,449,801

14,459,255￦

4,596,660 ￦22,203,991 ￦

229,640,692 ￦

256,441,343￦- ￦126,664,733 ￦OthersFinancial liabilities :75,961,144 ￦202,625,877

Borrowings-

9,463,409

13,794,785

23,258,194

Debentures-

29,663,021

183,215

29,846,236

Others-284,172

22,352,758

22,636,930

166,075,335 ￦

112,291,902 ￦

278,367,237

Deposits￦- ￦December 31, 2013
Fair Value
Level 1

Level 2

Total

Level 3Financial assets :Cash and due from banks￦

Financial assets held–to–maturity
Loans
Others2,102,863 ￦

17,151,213 ￦- ￦1,513,826

3,313,581-

19,254,076
4,827,407-

21,262

203,443,460

203,464,722

-

6,439

14,796,491

14,802,930￦

3,616,689 ￦

20,492,495 ￦

218,239,951 ￦

242,349,135￦

72,356,398 ￦

187,804,440

Financial liabilities :Deposits

25,985 ￦115,422,057 ￦Borrowings-

9,909,534

12,568,351

22,477,885

Debentures-

29,275,587

1,539,170

30,814,757-

150,024

23,922,675

24,072,699

25,985 ￦154,757,202 ￦110,386,594 ￦

265,169,781

Others￦Fair value, valuation method, and input variables of financial instruments disclosured as fair value though it cannot be measured as fair value and the fair value
hierarchy Level 2 as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Fair Value

Valuation method

Input variables

19,355,196

DCF model, etc

Credit and other spread,

2,839,341

DCF model, etc

Financial assets :Cash and due from banks
Financial assets held–to-maturity

￦

Loans

-

DCF model, etc

Others

9,454

DCF model, etc

135

Discount rate
Credit and other spread,
Rate of advanced redemption
Other spread(Continued on next page)GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014
Fair Value

Valuation method

Input variables

Other spread,
Rate of advanced redemption￦

22,203,991￦

126,664,733

DCF model, etc

9,463,409

DCF model, etc

Other spread

29,663,021

DCF model, etc

Other spread,
Rate of inherence bankruptcy

284,172

DCF model, etc

Other spread

Financial liabilities :Deposits
Borrowings
Debentures
Others￦166,075,335

December 31, 2013
Fair Value

Valuation method

Input variables

17,151,213

DCF model, etc

Credit and other spread,

3,313,581

DCF model, etc

Discount rate

21,262

DCF model, etc

Credit and other spread,
Rate of advanced redemption

6,439

DCF model, etc

Other spread

Other spread,
Rate of advanced redemption

Financial assets :Cash and due from banks￦

Financial assets held–to-maturity
Loans
Others￦

20,492,495￦

115,422,057

DCF model, etc

9,909,534

DCF model, etc

Other spread

29,275,587

DCF model, etc

Other spread,
Rate of inherence bankruptcy

150,024

DCF model, etc

Other spread

Financial liabilities :Deposits
Borrowings
Debentures
Others￦154,757,202

Fair value, valuation method, and input variables of financial instruments disclosured as fair value though it cannot be measured as fair value and the fair value
hierarchy Level 3 as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Fair Value

Valuation method

Input variables￦

215,190,891

DCF model, etc

Credit and other spread,
Rate of advanced redemption

14,449,801(*)

￦

229,640,692￦

75,961,144

DCF model, etc

13,794,785

DCF model, etc

Other spread183,215

DCF model, etc

Other spread,
Rate of inherence bankruptcy

22,352,758(*)

Financial assets :Loans
OthersFinancial liabilities :Deposits
Borrowings
Debentures
Others￦136

112,291,902

Other spread,
Rate of advanced redemption

Hana Financial Group Annual Report 2014

December 31, 2013
Fair Value

Valuation method

Input variables￦

203,443,460

DCF model, etc

Credit and other spread,
Rate of advanced redemption

14,796,491(*)

￦

218,239,951￦

72,356,398

DCF model, etc

12,568,351

DCF model, etc

Other spread

1,539,170

DCF model, etc

Other spread,
Rate of inherence bankruptcy

23,922,675(*)

Financial assets :Loans
OthersFinancial liabilities :Deposits
Borrowings
Debentures
OthersOther spread,
Rate of advanced redemption

110,386,594￦(*) Other financial instruments are temporary accounts derived from various transactions, with maturity not fixed or short. Therefore, the Group doesn’t apply
DCF method to calculate fair value and disclosure book value as fair value.
Changes in deferred Day 1 gain (loss), for the years ended December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
Year ended December 31, 2014

Year ended December 31, 2013(25,795) ￦(27,272)

Increase(12,553)(14,538)

Profit or loss

16,325

16,154

Repayment

3,430(1,689)(18,593) ￦(25,795)

Beginning balance￦Ending balance￦

6. Fair value of financial assets and liabilities
Details of carrying amount and fair value of financial instruments as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Carrying Amount

December 31, 2013
Fair value

Carrying amount

Fair value

Financial assets:
Cash and due from banks￦

22,257,731 ￦

22,250,159 ￦

19,343,218 ￦

19,254,076

Financial assets held-for-trading

17,218,152

17,218,152

15,766,359

15,766,359

 inancial assets designated at fair value throughF
profit and loss

1,045,676

1,045,676

240,597

240,597

Available-for-sale financial assets

35,065,938

35,065,938

29,529,156

29,529,156

Held-to-maturity investments
Loans

4,365,450

4,541,038

4,736,987

4,827,407

213,963,138

215,190,891

203,597,827

203,464,722

87,89487,89496,06896,06814,459,373

14,459,255

14,806,516

14,802,930￦

308,463,352 ￦

309,859,003 ￦288,116,728 ￦

287,981,315￦

5,239,660 ￦

5,239,660 ￦

4,373,515 ￦

4,373,515

6,687,800

6,687,800

4,904,171

4,904,171

Derivative instruments
OthersFinancial liabilities
Financial liabilities held-for-trading
Financial liabilities designated atfair value through profit and loss

(Continued on next page)137

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014

December 31, 2013

Carrying Amount

Fair value

Carrying amount

Fair value

Deposits

201,896,985

202,625,877

187,225,676

187,804,440

Borrowings

23,263,986

23,258,194

21,833,638

22,477,885

Debentures

29,308,115

29,846,236

30,419,564

30,814,757

50,73650,736140,081

140,081

22,623,185

22,636,930

24,072,336

24,072,699

289,070,467 ￦

290,345,433 ￦

272,968,981 ￦

274,587,548

Derivative instruments
Others￦

The following standards are applied in measuring the fair value of financial instruments- Loans and receivable: Expected cash flows, current market interest rates and discount rates including borrowers’ credit risks are factors to calculate the fairvalue of loans and receivables. For lines of credit and loans that have a short term maturity (less than three months), it is assumed that the carrying amounts
approximate to their fair value.
- Financial assets at fair value through profit or loss: The fair value of financial assets held-to-maturity are as stated by the market, broker, or by credible sources.
If none of the information from these entititles is usable, published market price of financial instruments with similar credit rating, maturity, and ROI is used
to estimate the fair value.
- Depository liabilities: For deposits with no interests, deposits without an explicit maturity period, deposits that have a short term maturity (less than threemonths), and deposits with a floating rate readjustment period of less than three months, it is assumed that the carrying amounts approximate to their fairvalue. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts
with similar credit risk and maturity.
- Borrowing liabilities: For borrowings that have a short term maturity (less than three months) and borrowings with floating rate readjustment period of lessthan three months, it is assumed that the carrying amounts approximate to their fair value. The estimated fair value of fixed interest bearing borrowings isbased on and discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity.
- Bonds: For quoted debt issued the fair values are determined based on quoted market prices. For those notes issued where quoted market prices are notavailable, a discounted cash flow model is used based on a current interest rate yield curve appropriate for the remaining term to maturity and credit spreads.

7. Categories of financial assets and financial liabilities
Categories of financial assets and financial liabilities as of December 31, 2014 and December 31, 2013 are as follows (Korean won in millions):
December 31, 2014
Financial
instruments
held-fortrading

Financial
instruments
at fair value
through profit
and loss

Available-forsale
financial
instruments

Amortized cost of
Held-to-maturity
a financial asset orinvestments
financial liability

Derivatives
for hedging
purposes

Total

Financial assets:
Cash and due from
banks

- ￦

- ￦

- ￦

- ￦

Financial assets
held-for-trading

-

-

-

-

Financial assets atfair value throughprofit and loss-

1,045,676-

Available-forsale financial
instruments--

Held-to-maturity
investments

-

Loans

-

￦

22,257,731 ￦- ￦22,257,731--

17,218,152

-

-

-

1,045,676

35,065,938

-

-

-

35,065,938--

4,365,450--

4,365,450---

213,963,138-

213,963,138(Continued on next page)138

Hana Financial Group Annual Report 2014

December 31, 2014
Financial
instruments
held-fortrading

Financial
instruments
at fair value
through profit
and loss

Available-forsale
financial
instruments

-

-

-

Derivative forhedging purposes

-

-

Total

87,89487,894

14,459,373-

14,459,373

1,045,676 ￦

35,065,938 ￦

4,365,450 ￦

250,680,242 ￦

87,894 ￦308,463,352￦ 5,239,660 ￦

- ￦

- ￦

- ￦

- ￦

- ￦

5,239,660￦--

Derivatives
for hedging
purposes

17,218,152 ￦Others-Amortized cost of
Held-to-maturity
a financial asset orinvestments
financial liability

Financial liabilities:
Financial liabilities
held-for-trading
Financial liabilities
at fair value throughprofit and loss-

6,687,800

-

-

-

-

6,687,800

Deposits

-

-

-

-

201,896,985-

201,896,985

Borrowings

-

-

-

-

23,263,986-

23,263,986

Bonds

-

-

-

-

29,308,115-

29,308,115

Derivative forhedging purposes

-

-

-

-

-

50,73650,736--

22,623,185-

22,623,185

- ￦

- ￦

277,092,271 ￦

50,736 ￦289,070,467-

Others￦ 5,239,660 ￦

6,687,800 ￦December 31, 2013
Financial
instruments
held-fortrading

Financial
instruments atfair value throughprofit and loss

Available-forsale
financial
instruments

Held-to-maturity
investments

Amortized cost ofa financial asset or
financial liability

Derivatives
for hedging
purposes

Total

Financial assets:
Cash and duefrom banks

￦

- ￦

- ￦

- ￦

- ￦

19,343,218 ￦- ￦19,343,218

Financial assets
held-for-trading

15,766,359

-

-

-

-

-

15,766,359

Financial assets
at fair value
through profit
and loss-

240,597

-

-

-

-

240,597

Available-forsale financial
assets--29,529,156

-

-

-

29,529,156

Held-tomaturity
investments

-

-

-

4,736,987--

4,736,987

Loans
receivable

-

-

-

-

203,597,827-

203,597,827

Derivative
assets used forhedging
purposes

-

-

-

-

-

96,06896,068Others￦ 15,766,359 ￦

240,597 ￦29,529,156 ￦2,289,567 ￦

14,806,516
237,747,561 ￦-

14,806,516

96,068 ￦288,116,728(Continued on next page)139

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2013
Financial
instruments
held-fortrading

Financial
instruments atfair value throughprofit and loss

Available-forsale
financial
instruments

Amortized cost ofa financial asset or
financial liability

Held-to-maturity
investments

Derivatives
for hedging
purposes

Total

Financialliabilities:
Financialliabilities heldfor-trading￦

4,373,515 ￦

- ￦

- ￦

- ￦

- ￦

- ￦

4,373,515

Financialliabilities at fairvaluethrough profit
and loss-

4,904,171

-

-

-

-

4,904,171

Deposits

-

-

-

-

187,225,676-

187,225,676

Borrowings

-

-

-

-

21,833,638-

21,833,638

Debentures

-

-

-

-

30,419,564-

30,419,564

Derivative
liabilities usedforhedging
purposes

-

-

-

-

-

140,081

140,081---

24,072,336

- ￦

- ￦

263,551,214 ￦Others￦4,373,515 ￦

4,904,171 ￦

140,081 ￦24,072,336
272,968,981

8. Offsetting financial assets and liabilities
Details of financial assets subject to offsetting, enforceable master netting arrangements and similar agreements as of December 31, 2014 and 2013 are as
follows (Korean won in millions):
December 31, 2014
Related amounts not offset in thestatement of financial position (*)

Gross amountsof recognizedfinancial assets

Net amounts offinancial assets
presented in thestatement offinancial position

4,475,019 ￦(3,015,932) ￦273,210(273,210)--

Bonds purchased underresale agreement

1,687,460-

1,687,460(1,687,460)--

Receivables unpaid
spot exchanges

1,833,607-

1,833,607(1,833,330)-

277

Domestic exchange
settlement debts

25,971,412(24,263,214)

1,708,198--

1,708,198

Others￦140

217,025(208,938)

8,087(1,647)34,457,733 ￦(24,472,152) ￦9,985,581 ￦(6,811,579) ￦(51,308) ￦Net amount-￦

Equity securities- ￦Financial
Financial
instruments collateral received

273,210

Derivatives

4,475,019 ￦Gross amounts ofrecognizedfinancial liabilities
set off in thestatement offinancial position(51,308) ￦1,407,779

6,440
3,122,694

Hana Financial Group Annual Report 2014

December 31, 2013
Related amounts not offset in thestatement of financial position (*)
Gross amounts ofrecognized financial
assetsDerivatives

Gross amounts ofrecognizedfinancial liabilities set
off in the statementof financial position

2,822,534 ￦Net amounts offinancial assets
presented in thestatement offinancial position

Financial collateral
received

Net amount

2,822,534 ￦(1,847,197) ￦170,382-

170,382(170,382)--

2,215,700-

2,215,700(2,215,700)--

Receivables unpaid
spot exchanges

108,575-

108,575(108,565)-

10

Domestic exchange
settlement debts

22,886,526(20,524,867)

2,361,659--

2,361,659￦

Equity securities
Bonds purchased underresale agreement

Others￦- ￦Financial
instruments

153,714(137,574)

16,14028,357,431 ￦(20,662,441) ￦7,694,990 ￦(278,059) ￦(4,341,844) ￦-697,278

16,140(278,059) ￦3,075,087(*) The rights to offset exist only in case of default, insolvency or bankruptcy. Accordingly, the amounts are not offset in the statement of financial position as
they do not meet the criteria for offsetting.
Details of financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements as of December 31, 2014 and 2013 are as
follows (Korean won in millions):
December 31, 2014
Related amounts not off set in thestatement of financial position (*)
Gross amounts of
Net amounts ofGross amounts
recognized financial liabilities
of recognized financial assets set
presented in thefinancial liabilities off in the statement
statement ofof financial position financial position

Financial Financial collateral
instruments
pledged

3,941,417 ￦- ￦3,941,417 ￦(2,818,293) ￦Bonds sold under
repurchase
Agreements

4,714,813-

4,714,813(4,714,813)--

Payables unpaid spot
exchange

1,834,807-

1,834,807(1,833,330)

-

1,477

Domestic exchange
settlement credits

26,483,336(24,263,214)

2,220,122(1,316,032)-

904,090

Derivatives￦

Others￦141

214,074(208,938)

5,136(1,647)37,188,447 ￦(24,472,152) ￦12,716,295 ￦(10,684,115) ￦(154,722) ￦Net amount(154,722) ￦968,402

3,489
1,877,458

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2013
Related amounts not offset in thestatement of financial position (*)
Gross amounts ofrecognized financial
liabilities

Derivatives

Gross amounts ofrecognizedfinancial assets set
off in the statementof financial position

Net amounts offinancial liabilities
presented in thestatement offinancial position

Financial
instruments

Financial collateralpledged

2,613,086 ￦- ￦2,613,086 ￦(1,847,197) ￦4,377,946-

4,377,946(4,377,946)--

Payables unpaid spot
exchange

108,576-108,576(108,565)-

11

Domestic exchange
settlement credits

22,568,559(20,524,867)

2,043,692(974,242)-

1,069,450￦

Bonds sold under repurchaseagreements

Others￦147,920(137,574)

10,34629,816,087 ￦(20,662,441) ￦9,153,646 ￦(7,307,950) ￦(14,323) ￦Net amount(14,323) ￦751,566

10,346
1,831,373(*) The rights to offset exist only in case of default, insolvency or bankruptcy. Accordingly, the amounts are not offset in the statement of financial position as
they do not meet the criteria for offsetting.

9. Risk management
The Group is exposed to credit risk, liquidity risk, market risk and operational risk of its financial instruments. Risk management is the basic activities to use
the Group’s limited capital effectively under the rapidly changing financial circumstances. The ultimate goal of risk management is to maximize the Group’s
shareholder value with minimizing the sudden fluctuation of its income through a proper balance between risks and returns.
To keep the consistent risk management on a group level basis, the Group establishes and manages the group risk management policies and each of its subsidiaries also establishes its own risk management systems and policies suitable for the subsidiaries’ industry through the risk committees and working-levelcouncils under the group risk management policies. The Group identifies improvements by diagnosing the subsidiaries’ risk management performance at least
once a year and continuously enforces the subsidiaries’ risk management activities to make them reflect the improvements.
The group risk management committee is the top decision-making organization of the group risk management and has responsibilities to establish and monitor risk management strategies and policies, allowable risk limits and investment limits, and capital allocation, which are required to be managed on a grouplevel basis. The subsidiaries’ risk management committees (or board of directors) are responsible for its own risk management strategies, policies and monitoring. If necessary, the group risk management committee or group risk management execution committee can apply separate risk management standards
considering distinct characteristics of each subsidiary.
9.1 Credit risk
Credit risk is the risk that the Group will incur a loss because its customers’ or counterparties’ credit rating goes down or fail to discharge their contractual
obligations. Credit risk is the highest risk exposed to the Group. Credit risk arises from on-balance and off-balance accounts including loans, financial guarantees, securities and derivatives. The purpose of managing credit risk is to control the relevant losses upon counterparties’ default, for a certain period, within
the allowable range.
The Group’s group risk management committee and group risk management execution committee examines its credit risk on a regular basis. The Group
continuously monitors whether credit limits set for each individual, corporation, borrower, subsidiary and major shareholder are complied and reviews thesubsidiaries’ asset quality. The Group also checks the status of change of risk exposure, residual limit, profitability, delinquency rate and change of loan loss
provision, etc. at least on a quarterly basis.
The Group classifies expected loss and unexpected loss calculating the credit risk. The expected loss is assessed based on estimated LGD (Loss Given Default). The LGD is calculated by using EAD (Exposure at Default), estimated PD (Probability of Default), which is based on a historical default rate, and historicalcollection rate. The assessed expected loss is reflected on the interest rates on new or rolled over loans and loan loss provision. The unexpected loss, whichmeans a potential volatility between estimate loss and actual loss, is estimated as a credit risk exposure of a portfolio using statistical models. The unexpected
loss is used for the Group’s internal management purpose.

142

Hana Financial Group Annual Report 2014

The maximum exposure to credit risk as of December 31, 2014 and 2013 are as follows. The following table shows the maximum exposure to credit risk forthe items in the statement of financial position, including derivatives, by geography of counterparty and by industry before the effect of mitigation through theuse of master netting and collateral agreements. Equity securities in the trading financial assets and financial assets available-for-sale are excluded (Korean
won in millions):
December 31, 2014

December 31, 2013

On balance accounts:
19,361,988 ￦

15,828,349

Debt securities

11,681,259

10,525,628

Derivative assets held-for-trading

4,618,758

4,023,580

603,296859,695

Due from banks￦

Financial assets held-for-trading

Others809,757

148,380

Available-for-sale financial assets

31,873,489

26,423,561

Held-to-maturity investments

4,365,450

4,736,987

87,89496,068Financial assets at fair value through profit and loss

Derivative assets for hedging purposes
Loans receivable:
Household loans

82,547,568

80,536,681

Large business

49,511,275

49,955,806

Small business and medium business

62,503,210

56,514,897

Public institution and others

13,514,872

10,924,632

Credit card loans

5,886,213

5,668,953

213,963,138

203,600,969

Others￦

14,459,373

14,806,516

301,824,402 ￦281,046,591

Off balance accounts:
Financial guarantees

2,901,767 ￦￦2,537,653

Guarantee contracts

24,798,969

26,212,655

Commitment

124,653,652

125,902,602

152,354,388 ￦

154,652,910￦

Details of collateral management and credit risk mitigation as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Impaired loan
Individual assessment

Unimpaired loan

Collective assessment

Non past due

Total

95,620 ￦69,968 ￦18,588,433 ￦

18,850,773

412

13,57527,124

3,851,356

3,892,467

Movable assets

14,072--36,31250,384

Real estate692,270

391,354

301,074

85,579,329

86,964,027

Securities

265,549

2,188

2,765

3,970,146

4,240,648

Others

1,484

3,672

5,398

468,516

1,070,539 ￦

506,409 ￦406,329 ￦112,494,092 ￦Guarantees￦

Deposit￦143

96,752 ￦Past due

479,070
114,477,369

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2013
Impaired loan
Individual assessment

Guarantees

Unimpaired loan
Collective
assessment

Past due

Non past due

Total

153,135 ￦

121,677 ￦

72,706 ￦15,887,391 ￦

16,234,909

7,127

15,954

15,6693,185,072

3,223,822

Movable assets

21,9482,162

394

1,504,840

1,529,344

Real estate

683,731419,724

247,777

79,319,606

80,670,838

Securities

36,786

8,389

3,491

2,697,280

2,745,946

-

348

4,000

265,807568,254 ￦

344,037 ￦102,859,996 ￦￦Deposit

Others902,727 ￦￦

270,155
104,675,014

Details of delinquency rates on loans and receivable as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Corporate loans
Householdloans

Neither past due
nor impaired￦

Past due but unimpaired
ImpairedDeferred loan fees
Present value premium(discount)
Allowance forpossible loan losses￦

Small andmediumbusinessLargebusiness

Public institution
and others

Credit cardloans

81,629,148 ￦

48,888,780 ￦

61,423,020 ￦

13,468,110 ￦

5,776,369 ￦

393,717

18,786170,291

20,722

174,105

Total

211,185,427
777,621592,417

1,478,327

1,658,486

81,188130,590

3,941,008

82,615,282

50,385,893

63,251,797

13,570,020

6,081,064

215,904,056

179,293(18,470)

20,8336,100

1187,757

93(2,574)(779)-(2,353)(5,613)(291,273)(629,724)(948,318)(61,248)(192,499)(2,123,062)

82,503,395 ￦

49,735,125 ￦

62,323,533 ￦

13,514,872 ￦

5,886,213 ￦

213,963,138

December 31, 2013
Corporate loans
Householdloans
Neither past due
nor impaired￦

79,547,129 ￦Large Small and medium
businessbusiness

49,102,871 ￦

55,693,170 ￦Public institution
and others

Credit cardloans

10,875,718 ￦

5,555,712 ￦Total

200,774,600

Past due but unimpaired

353,226

1,336

140,293

19,229162,051

676,135

Impaired

684,852

1,643,343

1,562,121

118,091

133,715

4,142,122

80,585,207

50,747,550

57,395,584

11,013,038

5,851,478

205,592,857

189,423(23,636)

12,770

5,174

(81)

183,650

2,485(3,583)(686)-(1,283)(3,067)(240,434)(767,769)(892,669)(93,580)(181,161)(2,175,613)

80,536,681 ￦

49,952,562 ￦

56,514,999 ￦10,924,632 ￦

5,668,953 ￦

203,597,827

Deferred loan fees
Present value premium(discount)
Allowance forpossible loan losses￦

Delinquency occurs when a counterparty is unable to make principle and interest payments at the due date. A financial item is deemed impaired if, and only
if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the item (an incurred ‘loss
event’) and that loss event (or events) has an impact on the estimated future cash flows, such as changes in arrears or economic conditions that correlatewith defaults, delinquency in interest for more than 90 days, credit deterioration resulting in misleading information, damages incurred due to poor exposure.

144

Hana Financial Group Annual Report 2014

Details on loans with no impairment or overdue payments as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Corporate loans
Household
loans

Large
business

Small and medium
business

Public institution
and others

Credit card
loans

Total

58,432,039 ￦

22,387,328 ￦

7,373,567 ￦

4,243,868 ￦

1,421,024 ￦

93,857,826

20,246,339

25,270,799

48,142,048

5,368,483

4,132,954

103,160,623

Grade 3560,853

1,065,171

3,467,681

1,133,925

222,389

6,450,019

Others2,389,917

165,4822,439,724

2,721,834

2

81,629,148 ￦

48,888,780 ￦

61,423,020 ￦

13,468,110 ￦Grade 1￦

Grade 2￦

7,716,959

5,776,369 ￦

211,185,427

December 31, 2013
Corporate loans
Householdloans
Grade 1Largebusiness

Small and medium
business

Public institution
and others

Credit card
loans

Total

48,202,637 ￦

29,907,779 ￦

11,415,152 ￦

4,420,112 ￦

1,374,318 ￦

95,319,998

28,593,069

17,443,857

38,894,306

4,505,863

3,943,995

93,381,090

Grade 3

728,356

1,257,028

3,921,356

935,919

237,392

7,080,051

Others2,023,067

494,207

1,462,356

1,013,824

7

4,993,461

49,102,871 ￦

55,693,170 ￦

10,875,718 ￦￦Grade 2￦

79,547,129 ￦5,555,712 ￦

200,774,600

The Group classifies the grade of loans in accordance with a credit rating chart below, based on the character of the borrowers.
Household loans

Corporate loans

SOHO

Grade 1Less or equal to 0.37% of PD

A1+ ~ A3

Grade 1~4

Grade 2

From 0.37% to 9.03% of PD

B1+ ~ B3

Grade 5 ~ 20

Grade 3

From 9.03% to 100% of PD

C1 ~ C3

Grade 21 ~ 29

Types of unimpaired loans and receivables with delinquent payments as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Corporate loans
Household
loans

Large
business

Small and medium
business

Public institution
and others

Credit card
loans

Total

335,151 ￦

18,786 ￦132,904 ￦14,524 ￦

130,820 ￦632,185

31 to 60 days

38,836-

19,722

4,139

27,10189,79861 to 90 days

19,730-17,627

1,184

11,071

49,612

-

-

38

875

5,113

6,026

18,786 ￦170,291 ￦

20,722 ￦174,105 ￦777,621Less than 30 days￦

Others￦393,717 ￦December 31, 2013
Corporate loans
Householdloans
Less than 30 days

Credit card
loans

Total

5,698 ￦

123,851 ￦-

26,181

985

17,737

94,54161 to 90 days

26,099-18,731

11,556

9,614

66,000￦145

353,226 ￦

95,100 ￦Public institution
and others

49,638Others

1,336 ￦

Small and medium
business

31 to 60 days￦

277,489 ￦Largebusiness

503,474

-

281

990

10,84912,1201,336 ￦

140,293 ￦19,229 ￦162,051 ￦

676,135GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Types of impaired loans and receivables as of December 31, 2014 and December 31, 2013 are as follows (Korean won in millions):
December 31, 2014
Corporate loans
Largebusiness

Small andmediumbusiness

4,221 ￦

1,411,571 ￦

1,335,805 ￦

63,548 ￦

-

(78)

(818)

-

-

(896)

(2,096)(470,646)(525,576)(17,657)-(1,015,975)

2,125

940,847

809,41145,891-

1,798,274

588,196

66,756322,681

17,640130,590

1,125,863

1,088

-

69

80

-

1,237

9

-

-

-

-

9

(131,712)(24,207)(99,086)(6,490)(102,924)(364,419)

11,23027,666

57,121 ￦27,666 ￦Householdloans

Public institution
and others

Credit card
loans

Total

Individual impairment:
Book value￦

Deferred loan
fees and expenses
Allowance for possible
loan losses- ￦2,815,145

Collective impairment:
Book value
Deferred loan
fees and expenses
Present value
premium
Allowance for possible
loan losses￦

457,581

42,549223,664

459,706 ￦983,396 ￦1,033,075 ￦

762,690
2,560,964

December 31, 2013
Corporate loans
Household
Loans

Large
business

Small and medium
business

Public institution
and others

Credit card
loans

Total

Individual impairment:
Book value￦

Deferred loan
fees and expenses
Allowance for possible
loan losses

5,345 ￦

1,424,410 ￦

1,235,583 ￦

99,652 ￦- ￦2,764,990

-

(135)

(179)

36

-

(278)

(2,566)(481,860)(557,994)(61,763)-(1,104,183)

2,779

942,415

677,41037,925-

1,660,529

679,507

218,933

326,538

18,439133,715

1,377,132

1,383

-

(24)

8

-

1,367

60

-

1

-

(36)

25

(122,456)(7,909)(75,315)(4,963)(103,099)(313,742)

211,024251,200

13,48430,5801,064,782

928,610 ￦

51,409 ￦30,580 ￦2,725,311

Collective impairment:
Book value
Deferred loan
fees and expenses
Present value
premium(discount)
Allowance for possible
loan losses

558,494￦146

561,273 ￦

1,153,439 ￦Hana Financial Group Annual Report 2014

Interest income on impaired loans and receivables as of December 31, 2014 and 2013 is as follows (Korean won in millions):
Year ended December 31, 2014
Corporate loans
Householdloans
Individual impairment￦

Collective impairment￦

Largebusiness

153 ￦Small and medium
business

Public institution
and others

44,789 ￦36,780 ￦26,893

2,541

11,10027,046 ￦47,330 ￦47,880 ￦Credit cardloans

1,083 ￦
875
1,958 ￦

- ￦

Total

82,805

1,876

43,285

1,876 ￦

126,090

Year ended December 31, 2013
Corporate loans
Householdloans
Individual impairment￦

Collective impairment￦

Largebusiness

84 ￦Small and medium
business

Public institution
and others

56,807 ￦30,185 ￦36,8982,957

10,60536,982 ￦59,764 ￦40,790 ￦Credit cardloans

1,469 ￦
618
2,087 ￦

- ￦

Total

88,545

5,080

56,1585,080 ￦

144,703

Overdue payments on debt securities as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Financial assets
designatedat fair value throughprofit or loss

Financialassets heldfor-trading

Neither past due nor impaired￦

11,681,259 ￦-Impaired￦

Available-for-salefinancial assets

809,757 ￦-

11,681,259 ￦

31,855,318 ￦
6,792

809,757 ￦

31,862,110 ￦Held-tomaturity
investments

4,365,450 ￦
4,365,450 ￦Total

48,711,784
6,792
48,718,576

December 31, 2013
Financial assets
designatedat fair value throughprofit or loss

Financialassets heldfor-trading

Neither past due nor impaired￦

10,525,628 ￦Impaired

148,380 ￦￦-

10,525,628 ￦

148,380 ￦Available-for-salefinancial assets

26,406,382 ￦
7,360
26,413,742 ￦Held-tomaturity
investments

4,736,987 ￦
4,736,987 ￦Total

41,817,377
7,360
41,824,737

Internal credit ratings of debt securities as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Financialassets heldfor-trading

Financial assets
designatedat fair value throughprofit or loss

Total

31,488,355 ￦

4,136,474 ￦--

52,106

118,973

171,079

Others9,019,064

809,757

321,649

110,003

10,260,473

11,681,259 ￦

809,757 ￦

31,862,110 ￦

4,365,450 ￦

48,718,576

￦

￦

147

- ￦

Held-tomaturity
investments

Grade 2

Grade 12,662,195 ￦Available-for-salefinancial assets

38,287,024

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2013
Financial assets
designatedat fair value throughprofit or loss

Financialassets heldfor-trading

Grade 1￦

2,491,735 ￦Held-tomaturity
investments

Available-for-salefinancial assets

Total

- ￦

24,458,256 ￦4,424,314 ￦

31,374,305
1,505,197

Grade 2--

1,374,683

130,514

Grade 3--

265,732

58,397324,129

Others8,033,893

148,380

315,071

123,7628,621,106

10,525,628 ￦

148,380 ￦

26,413,742 ￦

4,736,987 ￦

41,824,737￦

The credit rating classification of debt securities, which is rated by external rating agencies and applied by Hana Bank, is as follows:

Internal rating

Overseas rating agencies

Domestic rating
agencies

Moody’s

S&P

Fitch
AAA ~ BBB

Grade 1A1+ ~ A3

AAA ~ A-

Aaa ~ Baa2

AAA ~ BBB

Grade 2

B1+ ~ B3

BBB+ ~ BB

Baa3 ~ B3

BBB- ~ B-

BBB- ~ B-

Grade 3

C1 ~ C3

BB- ~ B-

Caa1 ~ Caa3

CCC+ ~ CCC-

CCC+ ~ CCC-

Credit risk concentration in each major industry as of December 31, 2014 and 2013 is as follows (Korean won in millions):
December 31, 2014
Industry

Korean won

Foreign currency

Total
AmountRatio (%)

On balance accounts:
Due from banks

Financial assets
held-for-trading

19,027,804

98.3

Public administration

Financial services ￦10,965,344 ￦-

8,062,460 ￦
46,28746,287

0.2

Others-287,897

287,897

1.5

10,965,344

8,396,644

19,361,988

100.0

Financial services

4,980,099

304,086

5,284,185

45.2

Manufacturing

721,989

72,445

794,434

6.8

Public administration

3,887,899

40,435

3,928,334

33.6

Construction

221,403-

221,403

1.9

Wholesale & retail

50,409-50,4090.4

Others1,380,475

22,0191,402,494

12.1

11,242,274

438,985

11,681,259

100.0

809,757

100.0

13,223,737

41.5

Financial assets at fair value
through profit and loss

Financial services ￦Available-for-sale financial
assetsFinancial services

753,070 ￦
11,514,888

56,687 ￦1,708,849

Manufacturing526,666

69,019595,685

1.9

Public administration

14,850,308

643,710

15,494,018

48.6

Construction

180,617-

180,6170.6

Wholesale & retail

60,844-60,844

0.2

Others2,098,048

220,540

2,318,588

7.2

29,231,371

2,642,118

31,873,489

100.0(Continued on next page)148

Hana Financial Group Annual Report 2014

December 31, 2014

Held-to-maturity investments

Industry

Korean won

Foreign currency

Financial services

2,055,293

Manufacturing

49,908Public administration

1,190,676

Total
AmountRatio (%)

88,883

2,144,176

49.1-

49,9081.1

107,390

1,298,066

29.7

Construction

30,000-30,000

0.7

Others838,668

4,632

843,300

19.4

4,164,545

200,905

4,365,450

100.0Household loans

81,878,187

737,095

82,615,282

38.6

Credit card loans

6,081,064-

6,081,064

2.8

29,511,181

16,343,790

45,854,971

21.4

Loans receivable:

Business loans

Manufacturing
Construction

3,784,758

566,469

4,351,227

2.0

Wholesale & retail

11,585,349

5,313,776

16,899,125

7.9

Financial services

6,007,311

6,407,255

12,414,566

5.8Real estate rental

16,205,662

906,060

17,111,722

8.0

Transportation

969,911

1,101,599

2,071,510

1.0Electricity, gas andwater supply

530,732

147,679

678,411

0.3

Others21,523,353

6,302,825

27,826,178

13.1

Deferred loan fees andexpenses

195,299(7,542)

187,757

0.1

Present value premium(5,703)90(5,613)-(1,857,189)(265,873)(2,123,062)(1.0)

176,409,915 ￦

37,553,223 ￦

213,963,138

100.0

Allowance for possible loan
losses￦282,055,081
Off-balance accounts:
Financial guarantees

Manufacturing ￦485,075 ￦852,037 ￦1,337,112

Construction

30,47885,027

115,505

4.0

Wholesale & retail245,986

248,925494,911

17.1

Real estate rental

60,006

11,102

71,108

2.5

Transportation

430

17,847

18,277

0.6

Electricity, gas andwater supply-

12,146

12,146

0.4

OthersGuarantee contracts

272,741

579,967

852,708

29.3

1,094,716

1,807,051

2,901,767

100.0

Manufacturing872,533

10,422,847

11,295,380

45.5

Construction

217,186

4,799,568

5,016,754

20.2

Wholesale & retail576,7882,689,818

3,266,606

13.2

Financial services

16,083

1,063,049

1,079,132

4.4

Real estate rental

15,835

177,385

193,220

0.8

Transportation

128,305

94,005

222,310

0.9

Electricity, gas andwater supply-

453,121453,121

1.8

OthersCommitment

46.1

562,4222,710,024

3,272,446

13.2

2,389,152

22,409,817

24,798,969

100.0

Manufacturing

26,815,693

17,074,721

43,890,414

35.2

Construction

2,683,745

963,332

3,647,077

2.9

Wholesale & retail7,622,265

4,925,086

12,547,351

10.1(Continued on next page)149

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014
Industry

Korean won

Foreign currency

Financial services

5,522,527

Real estate rental

1,753,944

Total
AmountRatio (%)

210,267

5,732,794

4.6

18,217

1,772,161

1.4

Transportation

846,911

193,663

1,040,574

0.8Electricity, gas andwater supply

2,668,312

231,750

2,900,062

2.3

Others50,410,638

2,712,581

53,123,219

42.7

98,324,035

26,329,617

124,653,652

100.0

101,807,903 ￦

50,546,485 ￦

152,354,388￦

December 31, 2013

On balance accounts:
Due from banks

Financial assets held-fortrading

Financial services ￦7,762,205 ￦

15,507,129

98.0

Public administration-

64,63064,630

0.4

Others-

256,590

256,590

1.6

7,744,924

8,083,425

15,828,349

100.0

Financial services

3,995,234

149,989

4,145,223

39.4

Manufacturing

1,259,381

8,097

1,267,478

12.0

Public administration

2,815,616

7,605

2,823,221

26.8

Construction

337,708-

337,708

3.2

Wholesale & retail60,866-60,866

0.6

Others

1,867,777

23,355

1,891,132

18.0

10,336,582

189,046

10,525,628

100.0

148,380

100.0

11,587,626

43.9

Financial assets at fair value
through profit and loss

Financial services ￦Available-for-sale financial
assetsFinancial services

89,556 ￦10,458,381

58,824 ￦
1,129,245

Manufacturing576,248

77,529653,777

2.5

Public administration

10,741,890

65,445

10,807,335

40.9

Construction

129,309-129,309

0.5

Wholesale & retail

91,43838,585130,023

0.5

Others150

7,744,924 ￦

2,770,129

345,362

3,115,491

11.7

24,767,395

1,656,166

26,423,561

100.0

Hana Financial Group Annual Report 2014

December 31, 2014

Held-to-maturity investments

Industry

Korean won

Foreign currency

Financial services

1,745,351

Manufacturing

49,850Public administration
Construction
OthersTotal
AmountRatio (%)

97,543

1,842,894

38.9

10,55360,403

1.3

1,824,873

42,236

1,867,109

39.4

40,000-40,0000.8

926,581-926,58119.6

4,586,655

150,332

4,736,987

100.0

Loans receivable:

79,917,175

668,032

80,585,207

39.6

Household loans

5,847,686

3,792

5,851,478

2.9

Manufacturing

29,664,492

14,927,986

44,592,478

21.9

Construction

4,095,758

639,693

4,735,451

2.3

Wholesale & retail

10,839,281

5,753,935

16,593,216

8.1

Financial services

5,806,383

4,193,006

9,999,389

4.9

Real estate rental

13,787,562

910,346

14,697,908

7.2

Credit card loans
Business loans

Transportation

15,742,844

2,784,438

18,527,282

9.1

Electricity, gas andwater supply

464,119

93,808557,927

0.3

Others5,851,490

3,601,031

9,452,521

4.6

Deferred loan feesand expenses

189,256(5,606)

183,650

0.1

Present value premium(3,168)101(3,067)0.0(1,946,930)(228,683)(2,175,613)(1.0)

170,255,948 ￦

33,341,879 ￦

203,597,827

100.0

Allowance for possible loan
losses￦261,260,732

December 31, 2013
Industry

Korean won

Foreign currency

Total
AmountRatio (%)

1,269,975

50.0

Off-balance accounts:
Financial guarantees

Manufacturing ￦552,318 ￦

717,657 ￦Construction

70,23745,963

116,200

4.6

Wholesale & retail266,989

123,590

390,579

15.4

Real estate rental

22,254

13,29735,551

1.4

Transportation

100

24,06924,1691.0Electricity, gas andwater supply

2,400

3,166

5,566

0.2

OthersGuarantee contracts

328,819366,794

695,61327.4

1,243,117

1,294,536

2,537,653

100.0

Manufacturing906,042

12,283,286

13,189,328

50.4

Construction

397,740

4,511,264

4,909,004

18.7

Wholesale & retail545,4433,864,316

4,409,759

16.8

Financial services

13,954

1,326,605

1,340,559

5.1

Real estate rental

15,884160,307

176,191

0.7

Transportation

108,590

176,429

285,019

1.1

Electricity, gas andwater supply

329

342,817343,146

1.3

Others151

513,839

1,045,810

1,559,649

5.92,501,821

23,710,834

26,212,655

100.0(Continued on next page)GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2013

Commitment

Industry

Korean won

Foreign currency

Manufacturing

27,559,817

Construction

3,680,520

Wholesale & retail

Total
AmountRatio (%)

14,924,381

42,484,198

33.7

838,964

4,519,484

3.6

4,456,176

1,810,748

6,266,924

5.0

Financial services

6,823,948

2,819,535

9,643,483

7.7

Real estate rental

4,829,791

329,541

5,159,332

4.1

Transportation

813,957

140,533

954,4900.8Electricity, gas andwater supply

21,857,416

1,841,027

23,698,443

18.8

Others￦32,628,773

547,475

33,176,248

26.3

102,650,398

23,252,204

125,902,602

100.0

106,395,336 ￦

48,257,574 ￦

154,652,910

Credit risk concentration in each country as of December 31, 2014 and 2013 is as follows (Korean won in millions):
December 31, 2014
Country

Korean won

Foreign currency

Total
AmountRatio (%)

11,652,667

60.2

On balance accounts:
Due from banks

Korea ￦ 
U.S-

2,455,072

2,455,072

12.7

China

-

2,727,210

2,727,210

14.1

Japan

-

112,117

112,117

0.6

Singapore-

324,719

324,719

1.7

Hong Kong-

17,58017,5800.1

Brazil-30,81830,8180.2

OthersFinancial assets held-for-trading

Financial assets at fair value throughprofit and loss

Available-for-sale financial assets

Held-to-maturity
investments

10,965,344 ￦687,323 ￦

-2,041,805

2,041,805

10.4

10,965,344

8,396,644

19,361,988

100.0

Korea

11,242,274

307,706

11,549,980

98.9

U.S

-

30,60730,607

0.3

China

-

23,20823,2080.2

Others-77,464

77,4640.6

11,242,274

438,985

11,681,259

100.0

Korea

753,070-753,070

93.0

Others-56,68756,6877.0

753,070

56,687809,757

100.0

Korea

29,231,371

1,953,882

31,185,253

97.8

U.S

-

73,72273,722

0.2

China

-

90,921

90,921

0.3

Japan

-

25,73525,7350.1

Singapore-

14,66914,6690.0

Hong Kong-

176,965

176,965

0.6

Malaysia

-

8,708

8,708

0.0

Others-297,516

297,516

1.0

29,231,371

2,642,118

31,873,489

100.0

4,164,545

31,717

4,196,262

96.1

Korea

(Continued on next page)152

Hana Financial Group Annual Report 2014

December 31, 2014
Country

Korean won

Foreign currency

Total
AmountRatio (%)

U.S

-

259

259

0.0

Hong Kong-

20,85820,8580.5

Brazil

-23,613

23,613

0.5

Others-124,458

124,458

2.9

4,164,545

200,905

4,365,450

100.0

December 31, 2014

Loans receivable

Country

Korean won

Foreign currency

Korea

177,760,426

U.S

115,199

China
Japan

Total
AmountRatio (%)

22,538,832

200,299,258

93.6

1,792,539

1,907,738

0.9

12,0873,243,780

3,255,867

1.5

12,916

502,593

515,5090.2

Singapore

3,525

435,659

439,184

0.2

Hong Kong

3,676

1,848,617

1,852,293

0.9

Panama-455,667

455,667

0.2

Germany

1,259

190,555

191,814

0.1

Others168,420

6,818,306

6,986,726

3.3

Deferred loan fees and expenses

195,299(7,542)

187,757

0.1

Present value premium(5,703)90(5,613)-(1,857,189)(265,873)(2,123,062)(1.0)

37,553,223 ￦

213,963,138

100.0

Allowance for possible loan losses￦

176,409,915 ￦ 

282,055,081
Off-balance accounts:
Financial guarantees

Korea ￦1,094,716 ￦

1,807,051 ￦2,901,767

100.0

Guarantee contracts

Korea

2,175,939

19,466,985

21,642,924

87.3

U.S

-

104,738

104,738

0.4

China

-

1,096,002

1,096,002

4.4

Japan

-

63,187

63,1870.3
0.5

Commitment

Singapore-

118,455

118,455

Hong Kong-

38,261

38,261

0.2

Germany

346

74,07574,421

0.3
0.0

Panama

-

9,439

9,439

Others212,867

1,438,675

1,651,542

6.6

2,389,152

22,409,817

24,798,969

100.0

Korea

98,322,487

24,223,648

122,546,135

98.3

U.S

700

304,062304,762

0.2

China

54

237,464

237,518

0.2

Japan

-

91,97891,9780.1

Singapore-

328,302328,3020.3

Hong Kong-

186,775

186,775

0.1

Others

￦

153

794

957,388958,182

0.8

98,324,035

26,329,617

124,653,652

100.0

101,807,903 ￦50,546,485 ￦

152,354,388

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2013
Country

Korean won

Foreign currency

AmountRatio (%)

1,462,896 ￦	9,207,820

58.2

On balance accounts:
Due from banks

Korea ￦

Financial assets at fair value throughprofit and loss

U.S-

2,637,604

2,637,604

16.7-

2,087,057

2,087,057

13.2

Japan

-

171,478

171,478

1.1

Singapore-

171,536

171,536

1.1

Hong Kong-

31,79531,7950.2

Brazil

-

2,054

2,054

-

-

1,519,005

1,519,005

9.5

7,744,924

8,083,425

15,828,349

100.0

Korea

10,336,582

93,493

10,430,075

99.1

U.S

-

42,83842,838

0.4

Others-52,71552,7150.5

10,336,582

189,046

10,525,628

100.0

89,556-89,556

60.4

Korea
OthersAvailable-for-sale financial assets

Held-to-maturity investments

Loans receivable

￦

China

OthersFinancial assets held-for-trading

7,744,924-

58,82458,824

39.6

89,55658,824

148,380

100.0

Korea

24,767,395

1,116,153

25,883,548

97.9

U.S

-

162,812

162,812

0.6

Japan

-

14,322

14,322

0.1

Hong Kong

-

5,153

5,153

-

Others-357,726

357,726

1.4

24,767,395

1,656,166

26,423,561

100.0

Korea

4,586,655

28,491

4,615,146

97.2

U.S

-

15,932

15,932

0.3

Singapore

-

5,837

5,837

0.1
0.6

Brazil-27,14627,146

Others-72,92672,926

1.5

4,586,655

150,332

4,736,987

100.0

Korea

171,482,788

20,314,924

191,797,712

94.2

U.S

104,345

1,976,622

2,080,967

1.0

China

11,494

3,864,486

3,875,980

1.9

Japan

13,485

729,717743,2020.4

Singapore

2,905

1,056,292

1,059,197

0.5

Hong Kong

2,792

673,972

676,764

0.3

Panama-435,551435,551

0.2

Germany

1,165

213,506

214,6710.1

397,816

4,310,997

4,708,813

2.3

Deferred loan fees and expenses

Others

189,256(5,606)

183,650

0.1

Present value premium(3,168)101(3,067)-(1,946,930)(228,683)(2,175,613)(1.0)

170,255,948

33,341,879

203,597,827

100.0

Allowance for possible loan losses￦261,260,732

Off-balance accounts:
Financial guarantees

Korea ￦ 

1,243,117 ￦  1,294,536 ￦ Guarantee contracts

Korea

2,500,209

20,662,064

2,537,653

100.0

23,162,273

88.4(Continued on next page)154

Hana Financial Group Annual Report 2014

December 31, 2013
Country

Commitment

Korean won

Foreign currency

AmountRatio (%)

U.S-

568,569

568,569

2.2

China

-

1,481,817

1,481,817

5.7

Japan

-

57,55557,5550.2

Singapore-

143,999

143,999

0.5

Hong Kong-

131,843

131,843

0.5

Saudi Arabia

346

62,67963,025

0.2

Panama

-

9,514

9,514

-

Others1,266

592,794

594,060

2.3

2,501,821

23,710,834

26,212,655

100.0

Korea

102,645,690

21,028,123

123,673,813

98.2

U.S

93

766,832

766,925

0.6

China

878

41,69742,575

-

Japan

-

63,166

63,1660.1

Singapore-

258,480

258,480

0.2

Hong Kong-

140,017140,0170.1

Australia-

189,810

189,810

0.2

Indonesia-

98,977

98,977

0.1

Others

3,737

665,102668,839

0.5

102,650,398

23,252,204

125,902,602

100.0

106,395,336 ￦ 

48,257,574 ￦

154,652,910￦

9.2 Liquidity risk
Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. The purpose to manage
liquidity risk is to early identify the potential risk factors upon raising and operating the Group’s funds and to obtain a stable revenue base maintaining an appropriate level of the Group’s liquidity by systematically managing the risk.
The targets of liquidity risk management are all assets and liabilities outstanding in the Group’s statements of financial position.
The Group’s principles regarding liquidity risk management are as follows:- Set up and comply with tolerable limits to liquidity risk
- Maintain liquidity by regularly forecasting cash requirements on a regular basis- Establish an emergency plan against a liquidity crisis to prepare an unexpected liquidity risk
- Evaluate and manage the effect of a large amount of money that is loaned out, invested, or procured on liquidity risks
The Group assesses and manages liquidity ratio of the relevant assets and liabilities denominated in Korean won and in foreign currency by applying therelevant supervisory regulations. The Group also establishes an acceptable limit and emergency plan for liquidity risk through its group risk management
executive committee, whereby the subsidiaries maintain an adequate liquidity ratio.
The Group’s future cash flows related to its financial assets and financial liabilities are presented below using undiscounted contractual cash flows. In addition,short-term financial assets and financial liabilities subject to fair value through profit and loss and deposits are presented in the on demand column below.

155

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

The table below summarizes the maturity profile of the contractual undiscounted cash flows of the Group’s financial assets. The maturity of financial assets
as of December 31, 2014 and 2013 is summarized as follows (Korean won in millions):
December 31, 2014
On demand

839,127-

30,07549,895

809,757---

Available-for-salefinancial assets

16,183

320,683

1,108,279

1,965,647

Held-to-maturity
investments

131

209,340

232,174

450,720Loans receivable

9,051,700

22,645,049

32,762,389

31,216,710

36,745(2,712)110,912

34,143￦Financial assets held-fortrading

16,303,252

Financial assets at fairvalue through profit andloss

Derivatives used forhedging purposes
Others￦3,333,782 ￦After 3 months~ but no later than 6months593,749 ￦Cash and due from banks

16,853,785 ￦After 1 month~ but no later than 3monthsWithin 1 month

5,162,424

6,512,190

1,269,162

48,834,038 ￦

33,018,332 ￦

36,076,665 ￦

73,85534,580,202

December 31, 2013
On demand

Cash and due from banks￦

14,421,454 ￦Within 1 month

After 1 month~ but no later than 3 months

2,695,201 ￦After 3 months~ but no later than 6 months

829,080 ￦

773,842

Financial assets held-fortrading

18,476,561

-

-

-

Financial assets at fairvalue through profit andloss

240,597---

Available-for-salefinancial assets

471,276

314,206

1,021,317

1,196,230

Held-to-maturity
investments

131

149,469

851,872

760,693

Loans receivable

11,208,384

23,605,190

34,420,421

27,244,012

23,820(5,914)219

34,614

Derivatives used forhedging purposes
Others￦156

1,396,360

4,945,034

1,188,969

1,294,062

46,238,583 ￦

31,703,186 ￦38,311,878 ￦

31,303,453

Hana Financial Group Annual Report 2014

December 31, 2014
After 6 months~ but no later than 1 year￦￦

After 1 year
~ but no later than 3 years

After 3 years~ but no later than 5 years

525,980 ￦

80,417 ￦

200,384

262,548-- ￦After 5 years

Total

30,891 ￦22,257,731

35,14322,016

16,903,313

-

-

-

809,757

3,345,040

14,621,419

6,752,107

4,938,937

33,068,295

247,624

1,447,697

967,626

1,235,092

4,790,404

40,221,564

39,195,398

12,985,531

42,445,668

230,524,009

17,101

24,1404,587

37,543

262,459

457,774

398,880

73,06242,02013,989,367

44,815,083 ￦

55,767,951 ￦

20,782,913 ￦

48,730,151 ￦

322,605,335

December 31, 2013
After 6 months~ but no later than 1 year

￦

￦

157

After 1 year
~ but no later than 3 years

539,741 ￦3,317 ￦

123,593

After 3 years~ but no later than 5 years

After 5 years

Total

56,488 ￦24,095 ￦19,343,218

12,960--18,613,114

-

-

-

-

240,597

3,336,943

13,314,191

6,641,577

2,361,880

28,657,620

570,659

1,022,406

715,065

1,095,505

5,165,800

38,409,829

34,662,388

12,407,295

40,435,514

222,393,033

18,42249,268(4,945)22,418137,902

1,327,734

1,477,497

1,210,191

1,259,848

14,099,695

44,326,921 ￦

50,542,027 ￦

21,025,671 ￦

45,199,260 ￦

308,650,979

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

The table below summarizes the maturity profile of the contractual undiscounted cash flows of the Group’s financial liabilities. The maturity of financial liabilities
as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
December 31, 2014
On demand

After 1 month~ but no later than 3monthsWithin 1 month

After 3 months~ but no later than 6months

On balance accounts:
Financial liabilities
held-for-trading

5,239,660 ￦

- ￦

- ￦

-

Financial liabilities
designated at fair value
through profit and loss

6,687,800---

Deposits

76,113,991

20,816,997

31,277,927

28,292,273

Borrowings

3,989,975

6,720,522

4,282,362

2,522,891

Debentures

7,228

723,156

1,311,190

1,729,628

-

(737)

9,192

(15,875)￦

Derivative liabilities used
for hedging purposes
Others3,065,496

17,299,488

135,039

44,372

95,104,150

45,559,426

37,015,710

32,573,289

2,901,767---

124,653,652

-

-

-

Off balance accounts:
Financial guarantees
Commitment

127,555,419￦

222,659,569 ￦--45,559,426 ￦-

37,015,710 ￦

32,573,289

December 31, 2013
On demand

Within 1 month

After 1 month~ but no later than 3 months

After 3 months~ but no later than 6 months

On balance accounts:
Financial liabilities
held-for-trading

4,373,515 ￦

- ￦

- ￦

-

Financial liabilities
designated at fair value
through profit and loss

4,904,171---

Deposits

65,839,249

19,681,449

27,822,122

25,031,262

Borrowings

3,302,075

4,754,236

5,492,817

2,266,496

Debentures

9,978

1,099,609

930,983

2,766,126

Derivative liabilities used
for hedging purposes

14,938797

8,897

13,545

4,295,509

13,838,590

98,861

18,75482,739,435

39,374,681

34,353,680

30,096,183￦

Others
Off balance accounts:
Financial guarantees
Commitment￦

158

2,537,653---

125,863,781

10

-

-

128,401,434

10

-

-

211,140,869 ￦

39,374,691 ￦

34,353,680 ￦

30,096,183

Hana Financial Group Annual Report 2014

December 31, 2014
After 6 months~ but no later than 1 year￦

After 1 year
~ but no later than 3 years

After 5 years

Total

- ￦

- ￦

- ￦

- ￦

5,239,660

-

-

-

-

6,687,800

38,238,910

6,841,380

949,794

2,883,130

205,414,402

2,094,142

2,767,695

978,799

437,058

23,793,444

5,835,001

12,539,812

3,870,577

5,684,291

31,700,883(3,185)(13,804)(984)(23,893)(49,286)

197,415

183,375

48,608

192,820

21,166,613

46,362,283

22,318,458

5,846,794

9,173,406

293,953,516

-

-

-

-

2,901,767

-

-

-

-

124,653,652-

127,555,419￦

After 3 years~ but no later than 5 years

46,362,283 ￦

22,318,458 ￦

5,846,794 ￦

9,173,406 ￦

421,508,935

December 31, 2013
After 6 months~ but no later than 1 year

￦

￦

159

After 1 year
~ but no later than 3 years

After 3 years~ but no later than 5 years

After 5 years

Total

- ￦

- ￦

- ￦

- ￦

4,373,515

-

-

-

-

4,904,171

42,302,330

6,291,673

813,868

2,878,440

190,660,393

2,671,058

2,277,413

887,892

446,551

22,098,538

5,087,994

12,654,535

5,288,267

4,812,731

32,650,223(8,339)22,077(336)(116,730)(65,151)

98,355

177,828

18,712

209,570

18,756,179

50,151,398

21,423,526

7,008,403

8,230,562

273,377,868

-

-

-

-

2,537,653

469

35,0001

3,341

125,902,602

469

35,0001

3,341

128,440,255

8,233,903 ￦

401,818,123

50,151,867 ￦

21,458,526 ￦7,008,404 ￦GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Derivative liabilities used for hedging purposes are denominated based on the net cash flow because the accounts consist of interest rate swap only. Available
assets that exist in redeeming financial liabilities and unused loan commitments are cash and bank deposits, debt securities, equity securities, and loans.
In addition, the Group is able to cope with unexpected cash flows through the sale of securities and additional sources of funding, similar to asset backed
securitization.
9.3 Market risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to the changes in market variables such as interest
rates, equity prices, exchange ratios in the market .
The purpose of market risk management is to maintain the loss of assets and liabilities incurred due to changes in market variables such as interest rates,
foreign exchanges and equity prices within the allowable limits in order to ensure profitability and stability. Market risk management targets include marketablesecurities, foreign currency net positions, derivatives and other assets and liabilities with embedded market risks,. Significant risks exposed to the Group asof the reporting date are interest rate risk, currency risk and equity price risk.
For market risk management, the Group measures and monitors the relevant risk exposures on a regular basis. The Group also established and complies
with market risk limits, whereby it can manage the exposures arising from changes of market variables within an adequate level. The subsidiaries exposed tomarket risks, such as Hana Bank, KEB and H&DS, set up and operate their own market risk management system. The group-level market risk exposures are
consistently calculated through the group-integrated risk management system. The Group reports its current status of market risk management to the grouprisk management execution committee and group risk management committee on a monthly and quarterly basis.
The trading positions include positions of interest rate, equity price, commodity and foreign exchange held for trading purpose:- Financial instruments for the purpose of acquiring the differences incurred due to short-term trading or price fluctuations.
- Financial instruments for the purpose of hedging risks- Financial instruments for the purpose of acquiring arbitrages- Financial instruments for the purpose of acquisition, brokerage, and market-making- Monetary financial instruments expressed in other currencies other than the functional currency
The Group establishes group-level trading policies, which clearly defines types of financial instruments to be included into trading positions by risk factors. The
Company’s subsidiaries comply with the policies.
The Group’s principles to manage market risk of its trading positions are to measure its market risk status on a regular basis and to establish and comply withthe various market risk limits. The Group analyzes whether the return against risk are appropriate reviewing its profit and risk on a regular basis.
Value at Risk (“VaR”) is a primary method that manages and measures the degree of market risks of the trading portfolio subject to exposure, which estimates
the potential loss of the trading portfolio that is not expected to be exceeded if the current market risk positions were to be held unchanged for one day. The
Group calculates the VaR for a standard 10 days in the 99% confidence level. In addition, to account for the method’s limited use, stress tests are performed
in order to measure the extent of the loss in extreme cases.
Risk types of VaR as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
December 31, 2014

Average

Min

Max

December 31, 2013

22,235 ￦41,485 ￦14,103 ￦83,583 ￦Foreign exchange rates risk

65,60371,08628,190107,153

54,711

Stock price risk

19,45821,7991,850

82,916

16,552

87,567 ￦102,302 ￦49,690 ￦

165,826 ￦

101,522

Interest rates risk

Total risk￦￦

45,619The calculation of the total risk VaR takes into consideration the correlation and diversification effects between each risk factor and therefore, is not the sameas the arithmetic additions of all the VaRs.
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Groupmanages interest rate risks in order to maintain the stability of net interest income and net asset value.
- Financial assets with interest rates such as bank deposits, debt securities, and loans- Financial liabilities with interest rates such as depository liabilities, borrowings, and debentures- Financial derivatives such as interest rate swaps
To manage interest rate risk, the Group mainly monitors the interest rate gap and VaR, and establishes the relevant limits in advance. The interest rate VaR is
an estimated maximum loss of net asset due to adverse changes of interest rate.

160

Hana Financial Group Annual Report 2014

Details of interest rate VaR of the Group as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Interest rate VaR￦

435,970 ￦Average279,815 ￦

Min

Max

December 31, 2013

136,628 ￦440,063 ￦

180,082

Interest rate VaR is calculated by using the maturity bucket repricing gap, interest maturity bucket on modified durations, and expected gap due to interest
rate fluctuation in accordance with BIS standards. Assets classified as below substandard and amounts in checking accounts and temporary deposits are
excluded from the amount calculated.
Equity price risk is the risk that the fair value of equities results in changes in the level of related revenue and capital. Effects on capital due to fluctuations inequity price risk as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
20% decline
Equity price risk

10% decline(122,512) ￦￦(61,256) ￦10% rise
61,256 ￦20% rise
122,512

December 31, 2013
20% decline
Equity price risk

10% decline(287,766) ￦￦(143,883) ￦10% rise

20% rise

143,883 ￦

287,766

The Group measures the non-trading equity price risk on the domestic available-for-sale equity securities only.
Currency risk is the risk that the value of a financial instrument or future cash flows will fluctuate due to changes in foreign exchange rates. Currency riskarises in financial instruments expressed in currencies other than the functional currency. Currency risk does not arise in financial instruments expressed in thefunctional currency or in non-monetary items measured using historical foreign exchange rates. In order to establish stop loss and limits, the Group manages
the foreign exchange net exposure amount of the trading and non-trading portfolios by each currency.
Significant assets and liabilities denominated in foreign currencies as of December 31, 2014 and 2013 are as follows (Korean won in millions or U.S. dollar inthousands):
December 31, 2014
Currency

Amount in foreign currency inunits

U.S. dollars (*)

Korean won
equivalent

Assets:Cash and due from banks

USD

4,033,230,286 US$

JPY

21,098,925,287

176,619

194,140EUR

671,459,074

816,429

897,418CNY

12,578,285,267

2,023,259

2,223,967

IDR

4,665,660,581,757

374,798

411,978

BRL

78,583,464

29,57032,504HKD

647,634,949

83,48891,770CAD

573,475,135

493,824

542,811

AUD

16,915

14

OthersFinancial assets held-for-tradingUS$4,033,230 ￦

220,661 ￦4,433,327

15
242,550

8,251,892

9,070,480

USD

691,686,699

691,687

760,302

JPY

659,933,862

5,524

6,072

EUR

15,158,325

18,431

20,259CHY

183,024,396

29,44032,361(Continued on next page)

161

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014
Currency

Amount in foreign currency in
units

HKD

23,142,037

U.S. dollars (*)

Others

Korean won
equivalent

2,983

3,279

13,43014,763

761,495

837,036

Financial assets designated at fairvalue through profit and loss

USD

83,591,770

83,592

91,884

Available-for-sale financial assets

USD

1,867,444,092

1,867,444

2,052,695

CNY

90,242,567

14,516

15,956IDR

129,037,372,593

10,366

11,394

Others
Held-to-maturity investments

562,073
2,642,118
52,834USD

48,065,693

48,066EUR

515,990

627

690

IDR

732,319,122,412

58,82864,664

BRL

57,089,730

OthersLoans receivable

511,348
2,403,674

21,482

23,61353,77059,104

182,773

200,905
27,509,999

USD

25,027,292,086

25,027,292

JPY

178,391,794,788

1,493,317

1,641,454

EUR

1,294,140,146

1,573,548

1,729,644

CNY

18,965,916,342

3,050,731

3,353,364

IDR

8,021,362,640,996

644,365

708,286

BRL

304,532,640

114,593

125,961

HKD

168,607,319

21,73523,892CAD

1,277,230,799

1,099,834

1,208,937

AUD

250,976,341

205,286

225,650

933,438

1,026,036

US$

34,164,139 ￦

37,553,223

66,175,176 US$

66,175 ￦72,740

OthersDerivative assets used for hedging
purposes

USD

Other assets

USD

3,031,834,968

3,031,835

JPY

35,177,204,118

294,468

323,680

EUR

192,384,462

233,921257,126

CNY

2,507,084,517

403,273443,278

IDR

481,919,026,866

38,71342,553

BRL

28,660,215

10,785

11,854

3,332,593

HKD

729,495,951

94,041

103,370

CAD

21,593,461

18,594

20,439AUD

10,045,302

8,217

9,032

133,735

147,000

Others4,267,582

4,690,925

US$

50,181,322 ￦

55,159,311

USD

234,422,328 US$

234,422 ￦

257,677

JPY

656,152,366

5,493

6,038

EUR

15,836,231

19,255

21,165CNY

2,425,849

390

429

Liabilities:
Financial liabilities held-for-trading(Continued on next page)162

Hana Financial Group Annual Report 2014

December 31, 2014
Currency

Amount in foreign currency inunits

U.S. dollars (*)

HKD

212,996,572

27,45830,182

9,805

10,777

296,823

326,268

656,087,803

656,088721,172
17,034,554

Others

Korean won
equivalentFinancial liabilities designated at fairvalue through profit and loss

USD

Deposits

USD

15,497,228,868

15,497,229

JPY

185,870,754,769

1,555,924

1,710,271

EUR

1,503,315,053

1,827,884

2,009,211

CNY

29,941,846,363

4,816,246

5,294,018

IDR

7,406,235,129,586

594,951

653,971

BRL

193,115,412

72,66879,876HKD

1,426,615,603

183,908

202,151

CAD

1,221,303,147

1,051,674

1,156,000

AUD

295,516,823

241,718

265,696889,735

977,997

US$

26,731,937 ￦

29,383,745

USD

9,617,286,379 US$

9,617,286 ￦

10,571,321

JPY

45,792,824,846

383,332

421,358EUR

478,679,390

582,027

639,765

CNY(846,815,423)(136,213)(149,725)

IDR(61,628,195,227)(4,951)(5,442)

BRL

108,614,419

40,871

44,925
2,807

OthersBorrowings

HKD

19,807,801

2,553

CAD

186,870

161

177

AUD

4,877,354

3,989

4,385

OthersDebentures

USD

6,089,401,139

70,684

77,696

10,559,739

11,607,267

6,089,401

6,693,470

EUR

36,000,000

43,772

48,115HKD

310,000,000

39,96343,927

Others376,284

413,6126,549,420

7,199,124Derivative liabilities used for hedging
purposes

USD

19,278,762

19,27921,191Other liabilities

USD

3,753,496,281

3,753,496

4,125,843

JPY

28,525,501,203

238,787

262,475

EUR

284,245,676

345,615

379,900

CNY

2,703,796,607

434,915

478,058

IDR

437,261,684,479

35,126

38,610BRL

60,898,728

22,91625,189HKD

603,826,454

77,84085,562

CAD

136,496,318

117,538

129,198

AUD

36,344,261

29,72832,677

143,897

158,172

OthersUS$

163

5,199,858

5,715,684

50,013,144 ￦

54,974,451

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2013
Currency

Amount in foreign currency inunits

U.S. dollars (*)

Korean won
equivalent

Assets:Cash and due from banks

USD

4,663,763,758

4,663,764 ￦

5,013,546

JPY

27,409,222,292

US$

262,565

282,257EUR

357,872,431

487,925

524,519CNY

9,887,953,685

1,634,042

1,756,595

IDR

356,948,010,241

29,35331,554

BRL

6,918,003

2,916

3,135

HKD

411,161,075

53,00056,975

OthersFinancial assets held-for-trading

959,884

1,031,876

8,093,449

8,700,457

USD

540,068,940

540,069

580,574

JPY

971,165,619

9,303

10,001

EUR

17,925,009

24,43926,272

CHY183,264,494

30,28632,557HKD

14,996,218

Others

1,933

2,078

3,009

3,235

609,039654,717

Financial assets designated at fairvalue through profit and loss

USD

54,720,256

54,72058,824

Available-for-sale financial assets

USD

1,174,492,287

1,174,492

1,262,579

CNY

193,787,208

32,02434,426IDR

236,481,188,413

19,446

20,905

Others
Held-to-maturity investments

338,256
1,656,166
37,410USD

34,800,086

34,800EUR529,366

722

776

IDR

789,391,457,518

64,91469,782

BRL

75,383,311

31,77334,156

OthersLoans receivable

314,657
1,540,619

7,634

8,208

139,843

150,332

USD

22,229,518,313

22,229,518

23,776,008

JPY

201,540,612,034

1,930,647

2,063,825

EUR

947,372,937

1,291,653

1,387,090

CNY

17,851,789,615

2,950,112

3,166,886

IDR

5,597,090,500,202

460,263492,203

BRL

281,868,110

118,804

127,345

HKD

645,681,257

83,23089,472CAD

1,223,907,655

1,097,179

1,176,668

AUD

256,141,984

OthersUS$
Derivative assets
used for hedging
purposes

USD

Other assets

225,379

241,847

628,825

820,433

31,015,610 ￦

33,341,777

71,966,222

71,96677,364USD

2,957,052,660

2,957,053

3,178,832

JPY

42,818,018,620

410,173

440,936

EUR

138,428,897

188,735

202,890CNY

237,796,159

39,29742,244(Continued on next page)164

Hana Financial Group Annual Report 2014

December 31, 2013
Currency

Amount in foreign currency inunits

U.S. dollars (*)

Korean won
equivalent

IDR

68,044,949,020

5,596

6,015

BRL

7,816,585

3,295

3,542

HKD

549,741,269

70,86376,178CAD

20,953,049

18,783

20,192

AUD

8,438,002

7,425

7,981

306,570329,563

Others4,007,790

4,308,373

US$

45,533,036 ￦

48,948,010

USD

257,479,824 US$

257,480 ￦

276,791

Liabilities:
Financial liabilities
held-for-trading

JPY

954,654,099

9,145

9,831

EUR

7,659,267

10,443

11,226HKD

35,192,014

4,536

4,877

Others
Deposits

14,539,029,235

14,539,029

15,629,456

190,181,402,103

1,821,832

1,958,469

EUR

939,588,920

1,281,040

1,377,118

CNY

25,326,436,467

4,185,341

4,499,241

IDR

3,381,648,875,986

278,082

298,938

BRL

138,558,149

58,40162,781HKD

1,063,026,000

137,027

147,304

CAD

1,137,054,229

1,019,319

1,095,768

AUD

95,248,336

83,80990,094906,291

974,263

24,310,171

26,133,432

USD

7,283,028,099

7,283,028

7,829,255

JPY

59,127,713,247

566,410

608,891EUR

581,087,351

792,257

851,676

CNY

228,954,588

37,836

40,674

IDR

990,610,136,323

81,46087,570BRL

101,906,777

42,953

46,174378

HKD

2,726,586

351

CAD

867,419

778

836

AUD

86,220,355

75,86581,55538,42941,312

8,919,367

9,588,321

USD

4,918,429,666

4,918,430

5,287,312

JPY

37,335,877,987

357,657

384,481HKD

304,451,902

39,24542,188AUD

50,15444

47

609,941655,686

5,925,317

6,369,714

78,85984,773

OthersDerivative liabilities
used for hedging
purposes

304,640JPY

OthersDebentures

1,915

283,386
USD

OthersBorrowings

1,782

USD

78,858,686(Continued on next page)

165

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2013
Amount in foreign currency inunits

U.S. dollars (*)

Korean won
equivalentUSD

3,888,736,302

3,888,736

4,180,392

JPY

20,157,976,851

193,102207,585

EUR

217,354,908

296,343

318,568

CNY

701,084,597

115,858

124,548

IDR

59,662,696,622

4,906

5,274

BRL

20,360,059

8,582

9,225

Currency

Other liabilities

HKD

34,175,143

4,405

4,736

CAD

145,805,837

130,708

140,512

AUD

27,293,813

OthersUS$

24,01625,817

287,603309,173

4,954,259

5,325,830

44,471,359 ￦

47,806,710(*) Foreign currencies other than US Dollar are converted into US Dollar equivalent at the exchange rate of the closing date.
9.4 Operational risk
Operational risk is the risk of loss arising from systems failure, human error, fraud or other external events. Risks related to strategy or damaging reputation
are excluded but legal or regulatory implications are identified as operational risks. Operational risk includes non-financial risks related to losses due to internal
operational problems and externalities such as natural disasters and terrorist attacks. Operational risk does not have a direct correlation with income and theGroup needs to mitigate such risk through internal controls and insurance.
The Group measures and monitors its operational risk on a regular basis and complies with the predetermined risk limits, whereby the Group manages andcontrols its operational risk arising from changes of its operation environments and internal controls within an appropriate level. The Company’s subsidiaries
measures the operational risk exposures using their own approaches suitable to the relevant supervisory regulations of each industry and the group-level operational risk exposures are consistently calculated through the group-integrated risk management system. The Group reports its current status of operationalrisk management to the group risk management execution committee and group risk management committee on a monthly and quarterly basis.
9.5 Capital management
The Group implements the BIS capital requirement system in order to secure capital adequacy and comply with the supervisory regulations. The Group
maintains over 8% total capital ratio , 4.5% aditional Tier 1 capital ratio, 3.5% common Equity Tier 1 ratio in accordance with BIS capital requirement system.
In addition, the Group performs a capital adequacy assessment in order to cope with an unexpected loss.
Risk-weighted assets calculated per each risk type when calculating BIS ratio are as follows:- Credit risk incurs when potential loss arises from default of a borrower or counterparty or downgrading of its credit rating Risk-weighted assets of credit
risk of bank subsidiaries are calculated using the internal model approved by Financial Supervisory Service. Risk-weighted assets of credit risk are calculated
by multiplying risk weights reflecting counter party credit rating, maturity, collateral and guarantees granted according to the standardized model of Basel III.
- Market risk incurs when potential loss arises from the fluctuation of market price of stocks, interest rates and foreign currency rates. Risk-weighted assets ofmarket risk are calculated by multiplying 12.5 to the required capital of market risk, which consists of the interest rate risk, equity price risk, foreign currency
risk, commodity risk and option risk, according to the standardized model of Supervisory Regulations on Financial Holding Companies.
- Operational risk incurs when loss arises from systems failure, human error, business process. Risk-weighted assets of operational risk are calculated bymultiplying 12.5 to the required capital of operational risk according to Detailed Regulations on Supervisory of Banking Business.
Regulatory capital in accordance with the Regulations on the Supervision of Banking Business for calculating BIS ratio is as follows:- Common Equity Tier 1: common shares issued by the bank that meet the criteria for classification as common shares for regulatory purposes, stock surplus(share premium) resulting from the issue of instruments included in Common Equity Tier 1, retained earnings, Accumulated other comprehensive income
and other disclosed reserves, common shares issued by consolidated subsidiaries of the bank and held by third parties (ie minority interest) that meet thecriteria for inclusion in Common Equity Tier 1 capital, regulatory adjustments applied in the calculation of Common Equity Tier 1- Additional Tier 1: instruments issued by the bank that meet the criteria for inclusion in Additional Tier 1 capital, stock surplus (share premium) resulting fromthe issue of instruments included in Additional Tier 1 capital, instruments issued by consolidated subsidiaries of the bank and held by third parties that meet

166

Hana Financial Group Annual Report 2014

the criteria for inclusion in Additional Tier 1 capital and are not included in Common Equity Tier 1, regulatory adjustments applied in the calculation of Additional
Tier 1- Tier 2 capital: Instruments issued by the bank that meet the criteria for inclusion in Tier 2 capital (and are not included in Tier 1 capital), Stock surplus (sharepremium) resulting from the issue of instruments included in Tier 2 capital, Instruments issued by consolidated subsidiaries of the bank and held by third
parties that meet the criteria for inclusion in Tier 2 capital and are not included in Tier 1 capital, Certain loan loss provisions, Regulatory adjustments appliedin the calculation of Tier 2 Capital
Regulatory capital and BIS ratios as of December 31, 2014 and 2013 are as follows (ratio in %):December 31, 2014
Common Equity Tier 1 capital￦

17,301,967 ￦December 31, 2013
16,401,549

905,997

1,134,979

18,207,964

17,068,872

5,578,705

5,605,619

23,786,669

22,674,491

Credit risk-weighted assets

170,081,611

166,992,229

Market risk-weighted assets

7,954,673

7,176,912

Operational risk-weighted assets

10,344,401

10,516,488

188,380,685 ￦

184,685,629

Additional Tier 1 capital
Tier 2 capital
Risk-weighted assets:￦
BIS capital ratio:
Common Equity Tier 1 ratio

9.18%

8.63%

Additional Tier 1 capital ratio

9.67%

9.24%

Tier 2 capital ratio

2.96%

3.04%

Total capital ratio

12.63%

12.28%

Internal capital is the amount that allows for continuous operation of business while accounting for all risks. Internal capital is defined as the size of capitalneeded to cope with unexpected loss under a certain rate. The purpose of managing the internal capital is to compare the size of internal capital and available
capital (Tier 1) and to serve as a measure of financial strength. Managing the internal capital also provides the amount of risk-adjusted capital and the basis formeasurement. The indicators consist of risk appetite ratio as well as exhaustion ratio of foreign holding limits. The risk appetite ratio is an internal capital ratio
established after taking into consideration a capital buffer in Tier 1 capital. The exhaustion ratio of foreign holding limits is a ratio used to measure the amountof internal capital used against the internal capital limits.
Internal capital limits are established after accounting for the size of current and subsequent Tier 1 capital as well as the components, quality, risk appetite,target credit rating, operational strategy and business plans. The Risk Committee determines risk types and internal capital limits for HFG and each subsidiary
more than once a year. In the case where new operations or expansion of operations result in the amount exceeding the internal capital limits, an approval
from the Risk. Committee is needed beforehand. If such a situation occurs in cases outlined as exceptions, an approval from the Risk Committee is needed
for the information on exceeded amount, post hoc results, as well as subsequent plans.

10. Operating segments information
The Group is organized into five operating segments based on their financial information of each legal entities used for making decisions about resources tobe allocated to the segment and assessing its performance. Details of operating segments are presented below:- Hana Bank and its subsidiaries (Hana Bank)- KEB and its subsidiaries (KEB)- H&DS and its subsidiaries (H&DS)- KEB Hana Card and its subsidiaries (KEB Hana Card)- Others: consist of Hana Financial Group’s separate performance and its other subsidiaries such as Hana Capital, Hana Asset Trust, Hana I&S, HIF, Hana Savings Bank, Hana Life Insurance and Hana Bancorp, Inc.

167

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

The net income of the operating segments for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Hana BankKEB

KEBHana Card

H&DS

OthersSubtotal

Adjustments

Total

Operating income:Net interest income ￦2,626,131 ￦1,851,819 ￦160,510 ￦(123,412) ￦126,503 ￦4,641,551 ￦12,356 ￦4,653,907
Net fee andcommission income

338,148555,699

192,269

512,82735,088

1,634,031(16,204)

1,617,827

Others463,153437,960

51,104

19,14340,0001,011,360(117,073)

894,287

3,427,432

2,845,478

403,883

408,558

201,591

7,286,942(120,921)

7,166,021

604,413631,233

8,139

133,675

81,114

1,458,574(14,564)

1,444,010

2,823,019

2,214,245

395,744274,883

120,477

5,828,368(106,357)

5,722,011

General andadministrative
expenses

1,627,592

1,479,784

309,068

244,689

183,715

3,844,848

91,357

3,936,205

Net other operating
income (loss)(282,285)(126,702)

8,451(25,284)

242,446(183,374)(358,985)(542,359)

Operating income

913,142

607,759

95,127

4,910

179,2081,800,146(556,699)

1,243,447

Net other nonoperating income(loss)

179,866(149,187)

24,538339

3,819

59,375(50,259)

9,116

236,589

82,17823,3382,355

25,046

369,506(96,732)

272,774:
Impairment loss offinancial assets

Income tax expenses
Net income￦856,419 ￦376,394 ￦96,327 ￦2,894 ￦157,981 ￦1,490,015 ￦(510,226) ￦979,789

Year ended December 31, 2013
Hana Bank

KEB

H&DS

KEB
Hana Card

OthersSubtotal

Adjustments

Total

Operating income:Net interest income ￦

2,617,902 ￦ 1,730,895 ￦

151,224 ￦

(83,310) ￦

74,168 ￦ 4,490,879 ￦

(5,838) ￦ 4,485,041

Net fee andcommission income

352,720

667,849

189,638

362,080

17,823

1,590,110

2,706

1,592,816

Others264,302450,531(22,639)

23,096

16,341

731,631(66,143)

665,4883,234,924

2,849,275

318,223

301,866

108,332

6,812,620(69,275)

6,743,345

567,234

533,792(2,118)

108,51156,4901,263,909

7,746

1,271,655

2,667,690

2,315,483

320,341

193,355

51,8425,548,711(77,021)5,471,690

General andadministrative
expenses

1,544,399

1,540,227

290,751

175,212

168,4133,719,002

127,3073,846,309

Net other operating
income (loss)(322,504)(186,724)

26,151(15,285)

159,264(339,098)(121,273)(460,371)

Operating income

800,787

588,532

55,741

2,858

42,693

1,490,611(325,601)

1,165,010

Net other nonoperating income(loss)

74,128(21,485)

28,771

6,258(53,048)

34,62470,639105,263

166,175

122,923

22,467

5,594

18,885

708,740 ￦

444,124 ￦

62,045 ￦

3,522 ￦(29,240) ￦:Provision for possible
credit losses

Income tax expenses
Net income (loss)

168

￦

336,044
1,189,191 ￦

(58,739)

277,305(196,223) ￦992,968

Hana Financial Group Annual Report 2014

The operating income from external customers and intermal transactions for the years ended December 31, 2014 and 2013 are as follows (Korean won in
millions):
Year ended December 31, 2014
Hana Bank

Revenue fromexternal customers

KEB

KEB
Hana Card

H&DS

OthersSubtotal

Adjustments

Total￦3,348,461 ￦2,872,191 ￦416,634 ￦497,392 ￦145,149 ￦7,279,827 ￦(120,921) ￦7,158,906

Revenue (expense)from internaltransactions

78,971(26,713)(12,751)(88,834)

56,442

7,115

-

7,115

￦3,427,432 ￦2,845,478 ￦403,883 ￦408,558 ￦201,591 ￦7,286,942 ￦(120,921) ￦7,166,021

Year ended December 31, 2013
Hana Bank

Revenue fromexternal customers￦

Revenue (expense)from internaltransactions￦

KEB
Hana Card

KEB

H&DS

3,257,774 ￦

2,804,658 ￦

328,817 ￦351,886 ￦

62,593 ￦(22,850)

44,617(10,594)(50,020)

45,7396,892

3,234,924 ￦

2,849,275 ￦

318,223 ￦

301,866 ￦108,332 ￦6,812,620 ￦OthersSubtotal

Adjustments

6,805,728 ￦(69,275) ￦(69,275) ￦Total

6,736,453

6,892
6,743,345

Significant non-cash transactions included in income of operating segments for the years ended December 31, 2014 and 2013 are as follows (Korean won in
millions):
Year ended December 31, 2014
Hana Bank

Gain (loss) on equity
methodKEB
Hana Card

H&DS

92,286 ￦10,591 ￦18,380 ￦(180) ￦

118,539

106,639

11,2478,746￦

Depreciation andamortization

KEB

Others37 ￦44,376

Subtotal

Adjustments

121,114 ￦

1,327 ￦

Total

122,441

289,547

180,940

470,487

Subtotal

Adjustments

Total

Year ended December 31, 2013
Hana Bank

Gain (loss) on equity
methodDepreciation andamortization

76,067 ￦￦148,300

KEB

H&DS(821) ￦

11,906 ￦108,832

13,511KEB
Hana Card487 ￦25,282Others125 ￦23,27987,764 ￦319,204(2,551) ￦85,213

180,338

499,542

Revenue from external customers for the years ended December 31, 2014 and 2013 and non-current assets as of December 31, 2014 and 2013 is as follows(Korean won in millions):
Revenue from external customers
Year ended
December 31,
2014
Domestic￦

6,782,022 ￦Non-current assets
Year ended
December 31,
2013
6,353,701 ￦December 31, 2014

3,557,847 ￦December 31, 2013

3,512,483

Foreign:

169(Continued on next page)GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Revenue from external customers
Year ended
December 31,
2014

Non-current assets
Year ended
December 31,
2013

December 31, 2014

December 31, 2013

Hong Kong

68,82067,750

4,728

4,483

Singapore

25,72728,007

477

439

U.S

41,42433,260

8,121

661

Japan

18,98523,813

4,439

5,322

China

165,743

127,71235,42042,474

Indonesia

61,64059,664

10,062

4,364

U.K

14,315

13,784572

179

Canada31,63632,421

5,793

3,883

Others69,51565,616

4,005

4,104

497,805

452,027

73,61765,909(120,921)

Adjustments

7,158,906 ￦￦(69,275)

899,195

1,082,676

6,736,453 ￦4,530,659 ￦

4,661,068

Non-current assets consist of property and equipment, investment properties, and intangible assets and are classified as either domestic or overseas depending on its geographic proximity.

11. Cash and due from banks
Cash and due from banks as of December 31, 2014 and 2013 are as follows (Korean won in millions):
Counterparty

3,514,869

0.00~2.50

8,179,835

4,870,082

Due from banks In
foreign currencies￦
Bank of Korea(“BOK”), etc

Reserve deposits with BOK

December, 31, 2013

2,895,743 ￦Cash
Due from banks in
Korean won

December, 31 2014

Interest rate (%)

Certificates of Deposit

Other banks

0.00~3.30

1,091,855

1,151,438

Other deposits

Other financial institutions

0.00~3.00

1,693,655

1,723,404

10,965,345

7,744,924

0.00~0.50

4,496,702

4,917,418
2,325,622

Due from banks on demand

BOK, etc.

Time deposits

Bayern LB and others

0.00~6.60

2,399,498

Due from others on demand

Other financial institutions

0.00~0.50

1,500,443

840,3858,396,643

8,083,425

22,257,731 ￦

19,343,218￦

Restricted balances in due from banks as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
December 31, 2014

December 31, 2013

Restrictions

Due from banks in Korean won:Reserve deposits with BOK￦

Reserve for futures trading
Reserve for claims of customers’
deposits

8,179,835 ￦

4,870,082

The Bank of Korea Act

309

3,532

Margin for trading account282,545

245,983

Regulation on brokerage business of securities company,etc
For the right of pledge, etc

220,799

219,000

8,683,488

5,338,597

Due from banks on demand

916,703

1,344,800

Reserve for payment of deposits, etc

Due from others on demand

468,800

365,078

OTC derivative contracts, etc

1,385,503

1,709,878

10,068,991 ￦

7,048,475

Other deposits
Due from banks in foreign currencies:￦

170

Hana Financial Group Annual Report 2014

12. Financial assets held-for-trading
Financial assets held-for-trading as of December 31, 2014 and 2013 are as follows (Korean won in millions):
Fair value (book value)

Details Interest rate (%)

Equity securities

LG CHEM, LTD. and others

Government and public bonds

Finance bonds

Corporate bonds

December 31, 2014

- ￦December 31, 2013

115,033 ￦174,127

Government bonds

1.3~5.3

2,496,628

1,579,180

Housing bonds

1.1~2.4

307,260

85,629Others

2.0~2.9

233,241

219,599

3,037,129

1,884,408

Commercial bank bonds

2.1~3.9

1,346,480

572,976

Industrial financial debenture

2.1~6.3

678,159

627,589

Small & medium industry
finance bonds

2.0~3.0461,108

347,704

Currency stabilization bonds

2.0~2.9

740,756

990,280

KEXIM bond

2.1~2.1

157,398

118,611

Others

2.1~4.0

1,707,033

1,509,100

5,090,934

4,166,260

Corporate bonds and others

2.1~6.1

3,114,211

4,285,914

161,825

147,738

Beneficiary certificates
Securities denominatedin foreign currencies

Equity securities inforeign currencies-

20,52527,745

Bonds in foreign currencies

1.5~4.6

438,985

189,046

Beneficiary certificates in foreign
currencies-

15,855

6,322

475,365

223,113

Fair value (book value)

Details Interest rate (%)

December 31, 2014

December 31, 2013

Other securities-

604,897861,219

Derivatives assets held for trading
purpose (*)-

4,618,758

4,023,580

17,218,152 ￦

15,766,359￦(*) Refer to Note 19.

Debt securities included in trading securities as of December 31, 2014 and 2013 consist of the following (Korean won in millions):
December 31, 2014
Par value

Acquisition cost

Amortized Cost

Fair value(book value)

Government and public bonds ￦3,028,331 ￦

3,024,490 ￦3,023,792 ￦

3,037,129

Finance bonds

5,069,448

5,074,634

5,075,358

5,090,934

Corporate bonds

3,081,496

3,087,700

3,087,990

3,114,211

424,346424,647424,626

438,985

11,603,621 ￦

11,611,471 ￦

11,611,766 ￦

11,681,259

Bonds in foreign currencies￦

171

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2013
Par value

Acquisition cost

Amortized cost

Fair value(book value)

Government and public bonds ￦1,898,001 ￦1,890,349 ￦

1,887,655 ￦

1,884,408

Finance bonds

3,934,595

4,232,468

4,231,625

4,166,260

Corporate bonds

4,225,891

4,271,101

4,269,692

4,285,914

Bonds in foreign currencies￦

136,239

196,751

196,511

189,046

10,194,726 ￦

10,590,669 ￦

10,585,483 ￦10,525,628

13. Financial assets designated at fair value through profit or loss
Financial assets designated at fair value through profit or loss as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Derivative linked securities

December 31, 2013

490,038 ￦￦Deferred day 1 profit or loss
Equity securities
Debt securities￦

58,824

6,151

4,175

235,919

92,217

313,568

85,381

1,045,676 ￦

240,597

In regard to derivative linked securities, the Group does not separate embedded derivatives from main contracts but designates them as fair vair through profit
or loss. When equity securities are managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management orinvestment strategy, the Group designates them as fair vair through profit or loss.

14. Available-for-sale financial assets
Available-for-sale financial assets as of December 31, 2014 and 2013 are as follows (Korean won in millions):

Details

Equity securities
Investments inpartnerships
Government andpublic bonds

Finance bonds

Corporate bonds

POSCO and others

Interest rate (%)- ￦Fair value (book value)
December 31, 2014

December 31, 2013

1,281,032 ￦

1,989,668

United PF 1st Corporate Financial Stability
and others-

198,477

221,805

Treasury bonds

2.6~5.8

9,108,809

6,362,189

Housing bonds

2.3~3.0

3,078,801

1,859,322

Others

3.1~5.6

428,320

351,807

12,615,930

8,573,318
4,303,709

Currency stabilization bonds

2.5~2.9

6,217,623

Deposit money commercial bank bonds

2.6~6.7

1,076,253

755,914

Small & medium industry finance bonds

2.6~3.7

656,452

666,636

Industrial financial debenture

2.6~5.5

1,199,035

1,286,413

KEXIM bonds

2.6~5.2

461,713391,513

9,611,076

7,404,185

Non-financial corporate bonds

2.6~7.4

1,650,092

2,345,607

SOE bonds

2.6~7.1

5,342,894

5,678,274

Others--756,192

6,992,986

8,780,073(Continued on next page)

172

Hana Financial Group Annual Report 2014

Details

Fair value (book value)Interest rate (%)

December 31, 2014

December 31, 2013

1,607,202

768,503

Beneficiary certificates
Securities denominatedin foreign currencies

Equity securities in foreign currencies-

43,94981,709Bonds in foreign currencies

0.9~8.0

2,642,118

1,656,166

Investment in foreign currencies-

26,59536,223

Beneficiary certificatesin foreign currencies

-

59

83

2,712,721

1,774,181

Beneficiary certificates-

Other securities

46,514

17,42335,065,938 ￦￦

29,529,156

Equity securities (including equity securities denominated in foreign currencies) as of December 31, 2014 and 2013 are as follows (Korean won in millions):
Book value
Accumulated otherbefore valuation comprehensiv -e income

Marketable equity securities￦

Non-marketable equity securities￦

Fair value (book value)
December 31, 2014

December 31, 2013

623,660 ￦

54,653 ￦678,313 ￦689,186(42,518)

646,668

832,134

1,324,981 ￦

2,071,377

1,312,846 ￦

12,135 ￦1,239,243

Non-marketable equity securities including Korea Asset Management Corporation amounting to \56,063million and \25,949million as of December 31,
2014 and 2013, respectively, were valued at cost as their fair values could not be reasonably estimated.
The fair value of the available-for-sale non-marketable equity securities such as Korea Housing Guarantee Co., Ltd. was measured by an independent valuer
using actuarial assumptions. The fair value was determined based on more than one valuation model such as the Discounted Cash Flow (DCF) model, Imputed
Market Value (IMV) model, and Risk Adjusted Discounted Cash Flow (RADCF) model, depending on the characteristic of the equity securities as deemed
appropriate.
Shares held by the Group with disposal restrictions as of December 31, 2014 are summarized as follows (Korean won in millions):
December 31, 2014
Number of sharesBook value

Disposal restriction

SAMT Co., Ltd.

9,446,693 ￦

15,587

Until February 28, 2015

Daiyang Metal Co., Ltd.

7,563,000

4,273

Until September 4, 2015

Taihan Electric Wire Co.,Ltd. (Common stock)

7,300,000

3,606

Until December 31, 2015

Taihan Electric Wire Co.,Ltd. (Convertible preferred stock)

11,775,100

29,084

Until December 31, 2015

462,815

889

Until December 31, 2015

Ajin P and P Co., Ltd.

47,170523

Until December 31, 2015

Kores Co., Ltd.

492,000

431

Until December 31, 2015

Samho International Co., Ltd.

788,000

10,362

Until December 31, 2016

2,919,332

1,921

Until December 31, 2016

KPM TECH Co., Ltd.

Oriental Precision & Engineering Co.,Ltd.

305,333

434

Until December 31, 2016

Cosmotec Co., Ltd.

2,126,000

478

Until December 31, 2016

HYUNDAI CEMENT Co.,Ltd2,138,400

22,560

Until December 31, 2016

111,400

157

Until December 31, 2016

Oriental Precision & Engineering Co.,Ltd.

11,857,999

7,803

Until December 31, 2016

STX Engine Co., Ltd.

3,638,000

7,796

Until December 31, 2017

OSUNG LST Co., Ltd.

4,403,333

5,350

Until December 31, 2017

Jaeyoung Solutec Co., Ltd.

Young Gwang Stainless Co.,Ltd.

(Continued on next page)

173

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014
Number of sharesBook value

Disposal restriction

STX Heavy Industries Co., Ltd.

2,250,000

1,391

Until December 31, 2017

STX Offshore & Shipbuilding Co.,Ltd.

11,589,600

12Until December 31, 2017

438,000

1,299

Until M&A be madeKukje, Machinery Co., Ltd.

962,048

21,838

Until M&A be made

2,427,429

23,473

Until resolution of creditors association

Kumho Industrial Co., Ltd.

480,526

10,908

Until resolution of creditors association

Chinheung International Co.,Ltd.

600,400

1,000

Until resolution of creditors association

20,287,611-(*)

Kumho Industrial Co., Ltd.
Kumho Tire Co., Ltd.

Others

171,175￦(*) Of the shares included in others that are embedded with restrictions on disposal, 18,426,419 shares of Pantech Co., Ltd. are restricted except when theinvestee undergoes liquidation procedures, 1,844,400 shares of Kohap Co., Ltd. are restricted until the end of liquidation, and 16,792 shares of Hae Won
Steeltech Co., Ltd. are restricted until July 31, 2015.
Debt securities as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
December 31, 2014
Par value

Acquisition Cost

Amortized cost

Fair value(book value)

12,038,800 ￦

12,444,293 ￦

12,389,296 ￦

12,615,930

Finance bonds

9,565,139

9,559,868

9,566,397

9,611,076

Corporate bonds

6,830,900

6,919,162

6,858,320

6,992,986

Government and public bonds￦

Bonds denominated in foreign currencies￦

2,549,251

2,631,562

2,614,487

2,642,118

30,984,090 ￦

31,554,885 ￦

31,428,500 ￦

31,862,110

December 31, 2013
Par value
Government and public bonds

Acquisition cost

Amortized cost

Fair value(book value)

8,459,694 ￦

8,604,106 ￦8,366,603 ￦Finance bonds

7,389,139

7,396,781

7,311,436

7,404,185

Corporate bonds

8,667,800

8,758,984

7,797,355

8,780,073￦

Bonds denominated in foreign currencies￦

8,573,318

1,606,383

1,656,458

1,553,620

1,656,166

26,123,016 ￦26,416,329 ￦

25,029,014 ￦

26,413,742

The fair value of debt securities is measured based on the average of the valuations provided by KIS Pricing Inc., the Korea Asset Pricing Co., NICE Pricing
Service Inc.,(Hana Bank: including Fn Pricing Inc)
Beneficiary certificates securities as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
December 31, 2014
Acquisition cost

Book value
before valuation

Accumulated othercomprehensive income

Book value

610,004 ￦550,004 ￦5,897 ￦

555,901

Securities certificates

160,249

160,243

1,847

162,090

Other certificates

877,701

885,856

3,415

889,270

1,647,954 ￦

1,596,103 ￦

11,159 ￦1,607,261

Beneficiary certificates

￦

￦

174

Hana Financial Group Annual Report 2014

December 31, 2013
Acquisition cost

Beneficiary certificatesBook value
before valuation

Accumulated othercomprehensive income

Book value

370,004 ￦370,004 ￦3,219 ￦

Securities certificates

79,984

79,984

3,140

83,124

Other certificates

306,315

307,594

4,645

312,239756,303 ￦757,582 ￦11,004 ￦768,586￦￦

373,223

Changes in the unrealized gain (loss) of the Group’s available-for-sale financial assets for the years ended December 31, 2014 and 2013 are as follows (Korean
won in millions):
Year ended December 31, 2014
Beginning balance

Unrealized
gain (loss)

Realizedloss

Tax effectEndingbalance

241,232 ￦222,512 ￦(217,460) ￦(1,223) ￦Investments in partnerships

12,164

26,711(26,502)(51)

12,322Government and public bonds(2,575)274,368(14,709)(62,837)

194,247

Finance bonds

1,610

47,635(3,215)(10,750)

35,280

Corporate bonds

18,415

159,422(21,715)(33,325)

122,797

Securities denominated in foreign currencies

8,159

11,286(16,644)

1,297

4,098

279,005 ￦741,934 ￦(300,245) ￦(106,889) ￦613,805

Tax effectEndingbalance

Equity securities￦￦

245,061

Year ended December 31, 2013
Beginning balance

Equity securities

Unrealized
gain (loss)

178,416 ￦91,217 ￦Investments in partnerships(2,418)Government and public bonds

88,199￦Realized
loss(11,970) ￦(16,431) ￦25,627(7,813)(3,232)

241,232
12,164(72,482)(47,650)

29,358(2,575)

Finance bonds

8,140

(622)

(8,445)

2,537

1,610

Corporate bonds

67,746

95,702(162,761)

17,72818,41545,854(37,647)(11,781)

11,7338,159

385,937 ￦

101,795 ￦(250,420) ￦41,693 ￦Securities denominated in foreign currencies￦

279,005

Realized gain and loss from disposal of available-for-sale financial assets for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Realized gain

Realized loss

199,078 ￦

19,285

Other equity securities

28,195

11,087

Government and public bonds

97,074

1,288

Finance bonds

24,53777

Corporate bonds

31,565

1,842

Securities denominated in foreign currencies

43,373

2,057

423,822 ￦

35,636Equity securities

￦

￦

175

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Year ended December 31, 2013
Realized gain
Equity securities

Realized loss

117,274 ￦53,493539

1,990

84,469

9,953

Finance bonds

6,390

503

Corporate bonds

17,622

77

Securities denominated in foreign currencies

37,1681,226

263,462 ￦

67,242￦Other equity securities
Government and public bonds￦

Dividend gain on available-for-sale financial assets for the years ended December 31, 2014 and 2013 is as follows (Korean won in millions):
Year ended December 31, 2014
Equity securities￦

Investment in partnerships￦

Year ended December 31, 201333,106 ￦28,685

9,749

8,250

42,855 ￦36,935

Transferred financial assets that are not fully derecognized as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Book value

Fair value

AssetsFinancial assets held-for-trading through profit or loss (*)

￦Available-for-sale financial assets (*)
Held-to-maturity investments

4,518,955 ￦

4,518,955

1,095,310

1,095,310

85,00093,0755,699,265

5,707,340

4,744,056

4,745,433

Liabilities
Bonds sold under repurchase agreements
Net position￦

955,209 ￦961,907(*) Loaned available-for-sale securities with no associated liabilities recognized amounting to \1,551,498 million have been included.
December 31, 2013
Book value

Fair value

1,418,706 ￦

1,188,787

AssetsAvailable-for-sale financial assets (*)

￦Held-to-maturity investments

181,700

187,667

1,600,406

1,376,454

654,365

655,739

946,041 ￦

720,715

Liabilities
Bonds sold under repurchase agreements
Net position￦(*) Loaned available-for-sale securities with no associated liabilities recognized amounting to \132,831 million have been included.

176

Hana Financial Group Annual Report 201415. Held-to-maturity investments
Held-to-maturity investments as of December 31, 2014 and 2013 consist of the following (Korean won in millions):

Details

Book value

Interest rate (%)

December 31,2014

December 31, 2013

Treasury bonds

3.8~5.8 ￦352,296 ￦Housing bonds

2.3~5.4

569,520

497,450

Regional development bonds

2.5

51

124,797

921,867

1,321,661

Finance bonds

2.1~2.8

1,310,558

850,313

Commercial bank Bonds

3.4~7.1

391,944593,076

Small & medium
industry finance bonds

3.3~4.4

100,369

100,409

Industrial financial Bond

3.5~4.6

81,491

11,788Others--

10,003

1,884,362

1,565,589

SOE bonds

3.0~6.5

1,028,352

796,171

Corporate bonds

3.4~5.5

249,964

843,234

Specific law bonds

4.4~5.2

Government and public bonds

Finance bonds

Corporate bonds

Bonds denominated inforeign currencies

Bonds in foreign
Currencies

80,00060,0001,358,316

1,699,405

200,905

150,332

4,365,450 ￦

4,736,987

1.0~7.6￦

699,414

Details of held-to-maturity securities as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
December 31, 2014
Par value

Government and public bonds￦

968,626 ￦Acquisition cost

907,715 ￦Amortized cost

921,867 ￦Book value

921,867

Finance bonds

1,880,000

1,885,218

1,884,362

1,884,362

Corporate bonds

1,345,400

1,360,719

1,358,316

1,358,316

Bonds denominated in foreign currencies￦

196,810

198,777

200,905

200,905

4,390,836 ￦

4,352,429 ￦

4,365,450 ￦

4,365,450

December 31, 2013
Par value
Government and public bonds￦

1,358,191 ￦Acquisition cost

Amortized cost

Book value

1,324,142 ￦

1,321,661 ￦

1,321,661

Finance bonds

1,560,000

1,573,018

1,565,589

1,565,589

Corporate bonds

1,684,997

1,719,981

1,699,405

1,699,405

152,004

152,219

150,332

150,332

4,755,192 ￦4,769,360 ￦4,736,987 ￦

4,736,987

Bonds denominated in foreign currencies￦

177

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

16. Structured securities included in financial assets held-for-trading, available-for-sale financial assets and held-to-maturity investments
Structured securities included in financial assets held-for-trading, available-for-sale financial assets and held-to-maturity investments as of December 31, 2014
and 2013 are summarized as follows (Korean won in millions and U.S. dollar in thousands and Brazilian real in thousands):
December 31, 2014
IssuerType

Par value

Issued date

MaturityBook value

Risk

MERLION CAPITAL$FUNDING

20,632

2007.03.06

2015.09.15 ₩22,679CreditWoori Bank ₩50,0002006.04.10

2016.04.10 ₩50,000Interest< Available-for-sale financial assets >Structured securities in foreign currencies:
CreditCollateralized debt
obligation< Held-to-maturity investments >Structured securities in Korean won:Interest

Range accrual note
Range accrual note

Shinhan Bank

50,0002006.06.16

2016.06.16

50,000Interest

Range accrual note

SC Bank of Korea.,Ltd.

50,0002006.06.30

2016.06.30

50,000Interest₩

150,000₩

150,000

December 31, 2013
Type

IssuerPar value

Issued date

MaturityBook value

Risk

MERLION CAPITAL$FUNDING

20,0642007.03.06

2015.09.15 ₩23,024CreditWoori Bank ₩< Available-for-sale financial assets >Structured securities in foreign currencies:
CreditCollateralized debt obligation< Held-to-maturity investments >Structured securities in Korean won:Interest

50,0002006.04.10

2016.04.10 ₩50,000Interest

Range accrual note

Shinhan Bank

50,0002006.06.16

2016.06.16

50,000Interest

Range accrual note

SC Bank of Korea., Ltd.

50,0002006.06.30

2016.06.30

50,000Interest

Range accrual note₩

150,000₩

150,000

In addition, the Group holds structured securities included in loans that are privately-placed securities (Company has 9 and 19 privately-placed securities as ofDecember 31, 2014 and 2013, respectively) amounting to ₩7,790 million and ₩38,498 million as of December 31, 2014 and 2013, respectively.

17. Pledged assets
Assets pledged as collateral for the purpose of resale agreement bonds from other banks, futures options and securities deposits for membership maintenance at the stock exchange for trading financial assets, available-for-sale financial assets and held-to-maturity investments as of December 31, 2014 and 2013
are as follows (Korean won in millions):
Book value
Details
Financial assets held-for-trading

Pledged securities ￦December 31, 2014
968,934 ￦December 31, 2013
1,900,938

Derivative instruments

1,757,305

180,214

KRX, etc

290,076

255,427(Continued on next page)

178

Hana Financial Group Annual Report 2014

Book value
Details

December 31, 2014

December 31, 2013

Client RP

3,550,021

3,140,347

6,566,336

5,476,926

Futures

186,974

127,315

Daylight credit

687,153502,599

Client RP

-

2,629

Foreign currency borrowing

512,746

687,188

Pledged securities

557,310

179,859

Borrowings

596,664

493,086

BOK payment

3,042,117

1,794,840

Contract fulfillment guarantees

1,210

10,602

Borrowing denominated inforeign currency (CSA)

47,255

390,177

BOK RP

504,333-

Available-for-sale financial assets

216,71483,525

6,352,476

4,271,820

Others
Held-to-maturity investments

Foreign currency borrowing-

640,111

Futures275,287

350,176

BOK payment

933,045

941,586

Daylight credit

610,359

180,311

Borrowings

152,659

171,476

Client RP

85,250182,609

Securities paid

5,046

5,066

Borrowing denominated inforeign currency (CSA)

438,931

148,646

243,554

164,316

2,744,131

2,784,297

15,662,943 ￦

12,533,043

Others

￦

18. Loans and receivables
Details of loans and receivables as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014

December 31, 2013

Loans and receivables:
165,574,424 ￦

158,052,842

Loans in foreign currencies

21,519,941

17,692,716

Domestic import usance

5,583,234

5,175,778

Call loans

3,299,790

3,029,566

Loans in Korean won

Bills purchased in Korean won
Bills purchased in foreign currencies￦

737,816

742,859

7,151,175

6,751,429

29,43245,395Credit card loans

6,081,187

5,851,477

Bonds purchased under resale agreement

1,687,460

2,215,700

Installment receivables purchased

1,628,178

3,660,433

Privately-placed corporate bonds

1,316,895

1,355,256

Lease receivables

1,294,524

1,019,406

215,904,056

205,592,857

Advance payments on acceptances and guarantees(Continued on next page)179

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014

December 31, 2013

Deferred loan fees and expenses

187,757

183,650

Present value premium(5,613)(3,067)(2,123,062)(2,175,613)

213,963,138 ￦

203,597,827

Plus (less):

Allowance for possible loan losses￦

Allocations of loans in Korean won and in foreign currencies by customer as of December 31, 2014 and December 31, 2013 are listed as follows (Korean won
in millions):
December 31, 2014
Korean won

Foreign currencies

Total

Corporate loans:
29,734,087 ￦

20,651,806 ￦

50,385,893

Small and medium business

55,227,550

8,024,247

63,251,797

Public sector and others

5,156,620

8,413,400

13,570,020

90,118,257

37,089,453

127,207,710

Household loans

81,878,187

737,095

82,615,282

Credit card loans

6,081,064-

6,081,064

178,077,508

37,826,548

215,904,056

Deferred loan fees and expenses

195,299(7,542)

187,757

Present value premium(5,703)90(5,613)(1,857,189)(265,873)(2,123,062)

176,409,915 ￦

37,553,223 ￦

213,963,138

Large business￦

Plus (less):

Allowance for possible loan losses￦

December 31, 2013
Korean won

Foreign currencies

Total

Corporate loans:
Large business

31,981,134 ￦￦Small and medium business

18,766,416 ￦

50,747,550

7,587,990

57,395,584

49,807,594

Public sector and others

4,463,201

6,549,837

11,013,038

86,251,929

32,904,243

119,156,172

Household loans

79,917,175

668,032

80,585,207

Credit card loans

5,847,686

3,792

5,851,478

172,016,790

33,576,067

205,592,857

Deferred loan fees and expenses

189,256(5,606)

183,650

Present value premium(3,168)101(3,067)(1,946,930)(228,683)(2,175,613)

170,255,948 ￦

33,341,879 ￦

203,597,827

Plus (less):

Allowance for possible loan losses￦

Changes in deferred loan fees, net of expenses, for the years ended December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
Year ended December 31, 2014
January 1, 2014

Deferred loan fees, net of expenses

180￦

183,650 ￦Increase

Decrease

122,378 ￦(118,271) ￦December 31, 2014

187,757

Hana Financial Group Annual Report 2014

Year ended December 31, 2013
Increase dueto the businesscombination

January 1, 2013

Deferred loan fees, net of expenses￦

189,574 ￦(1,647) ￦Increase

Decrease

December 31, 2013

119,359 ￦(123,636) ￦183,650

Changes in allowance for possible loan losses for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Loans in
Korean won

Advance
Loans inpayments on
foreign
acceptances
currencies
and guarantees

1,658,028 ￦

195,523 ￦Disposal of non-performing
loans(65,352)(24)

Write-offs

As of January 1, 2014￦

23,455 ￦Billspurchasedin foreign
currencies

Credit cardloans

Privatelyplacedcorporate
bonds

OthersTotal

9,148 ￦

181,161 ￦

23,775 ￦84,523 ￦2,175,613(22,137)-(2,468)--(89,981)(801,436)(24,585)(4,572)(213)(218,238)(2,000)(35,014)(1,086,058)

Collection of loans writtenoff in prior periods

68,745

2,537

-

-

44,555-

1,844

117,681

Debt-to-equity swap

(30,586)

-

-

-

112

-

610

(29,864)

Changes in exchange rate,etc

37,722

13,281(6,503)342(1,745)

60(37,484)

5,673

Provisions of allowance forpossible loan losses

827,481

48,791

14,504

9,942

193,987523

18,626

1,113,854

Interest income from
impaired loans(73,112)(3,666)

(771)

(423)

(4,748)

(200)

(936)

(83,856)

1,621,490 ￦

231,857 ￦3,976 ￦

18,796 ￦192,616 ￦

22,158 ￦32,169 ￦2,123,062

As of December 31, 2014￦

Year ended December 31, 2013
Loans in
Korean won

As of January 1, 2013￦

Disposal of non-performing
loans

1,534,714 ￦Advance
Loans inpayments on
foreign
acceptances andcurrencies
guarantees
1 ￦

Bills
purchasedin foreign
currencies

Credit cardloans

Privatelyplacedcorporate
bonds

OthersTotal

30,970 ￦18,904 ￦163,954 ￦

29,095 ￦122,514 ￦2,089,195(65,431)---(6,993)-(29)(72,453)(1,065,159)(35,186)(16,912)(27,166)(199,244)(1)(26,768)(1,370,436)

Collection of loans writtenoff in prior periods

268,252

2--

46,965-

2,372

317,591

Write-offs

Debt-to-equity swap

(9,567)

-

-

-

140

-

-

(9,427)

Changes in exchange rate,etc

192,863

19,125

759

7,978

(5)

707

330

221,757

Provisions of allowance forpossible loan losses

880,797

26,111

9,726

9,675

181,424(6,493)(8,837)

1,092,403

Interest income from
impaired loans(78,441)(3,573)(1,088)(243)(5,080)467(5,059)(93,017)

1,658,028 ￦

195,523 ￦

23,455 ￦9,148 ￦

181,161 ￦

23,775 ￦As of December 31, 2013

181￦

84,523 ￦2,175,613

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

19. Derivative instruments
Unsettled derivative contracts held for trading purpose as of December 31, 2014 and 2013 are as follows (Korean won in millions):

Notional amounts
Currency:
Forwards
Swap
Options purchased
Options soldFutures￦Interest:
Swap
Options purchased
Options soldFutures
Stock:
Swap
Options purchased
Options soldFutures
Credit:Credit swap
Others:Other swap
Options purchased
Options sold￦165,298,711 ￦
50,088,639
1,487,273
2,881,344
772,376
220,528,343￦

Interest:
Swap
Options purchased
Options soldFutures
Stock:
Swap
Options purchased
Options soldFutures
Credit:Credit swap
Others:Other swap
Options purchased
Options sold￦

182

December 31, 2014
Net valuation loss

AssetsLiabilities

2,409,806 ￦
744,362
15,92014,571
123
3,184,782

2,307,655 ￦
890,545
12,088
11,995
3,222,283

2,367,152 ￦
883,30236,746
4,976
123
3,292,299

2,442,445
732,538
1,067
37,001
3,213,051

125,215,984
1,198,500
4,885,000
4,946,482
136,245,966

771,203
9,516
7,553
334
788,606

774,645
2,119
34,429596
811,789

940,588
19,200335
960,123

967,072
76,440709
1,044,221

6,111,479
1,171,351
1,491,582
188,556
8,962,968

104,0142,224
20,486
798
127,522

112,132
4,677
15,756474
133,039

170,938
7,365
8,359
798
187,460

199,884
4,779
70,311
474
275,448

3,884,489

15,59812,326

84,07919,312

2,929,999
498,135
598,699
4,026,833
373,648,599 ￦87,16249,509136,671
4,253,179 ￦

41,67149,405655
91,731
4,271,168 ￦

45,94748,85094,797
4,618,758 ￦

137,038
51,202
188,240
4,740,272

AssetsLiabilities

Notional amounts
Currency:
Forwards
Swap
Options purchased
Options soldFutures

Net valuation gain

121,790,486 ￦
39,767,442
1,831,270
2,294,877
321,737
166,005,812

Net valuation gain

December 31, 2013
Net valuation loss

1,567,038 ￦
548,551
10,852
18,231133
2,144,805

1,570,465 ￦
477,665
14,952
14,342157
2,077,581

1,671,973 ￦
1,060,481
34,03231
2,766,517

1,742,708
741,772
45,43010
2,529,920

100,398,979
1,128,500
4,775,000
2,791,400
109,093,879

380,142
381
10,540690
391,753

373,8072,844
871
6
377,528

529,681
12,153
662
542,496572,292
53,128
6625,426

5,785,892
745,412
1,551,350
80,303
8,162,957

22,596
6,338
11,875812
41,62170,35423,2993,216
119
96,988497,494
24,152
859
680
523,185

318,632
3,386
45,96519
368,0022,940,011

28,09728,62688,39821,6742,366,154
316,682359,285
3,042,121
289,244,780 ￦

86,395
3,645
90,0402,696,316 ￦

114,706(61)
4,994
119,6392,700,361 ￦

98,393
4,591
102,984
4,023,580 ￦

120,426
8,713
129,139
3,674,161

Hana Financial Group Annual Report 2014

Unsettled derivative contracts held for hedging purpose as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Notional amounts

Net valuation gain

Net valuation loss

AssetsLiabilities

Fair value hedge:
Currency swap￦

334,400 ￦3,002 ￦

- ￦- ￦24,4397,440,162

88,30036,48087,894

21,1917,774,562

91,302

36,48087,89445,630Currency swap

-

-

3

-

-

Interest swap

693,000

-

-

-

5,106

Interest swap
Cash flow hedge:￦

693,000

-

3

-

5,106

8,467,562 ￦

91,302 ￦36,483 ￦87,894 ￦50,736

December 31, 2013
Notional amounts

Net valuation gain

Net valuation loss

AssetsLiabilities

Fair value hedge:
Interest swap

5,978,214 ￦2,060 ￦

163,996 ￦Currency swap

578,520-

Interest swap

693,000-

1,271,520￦

95,232 ￦92,42335,48386

45,281

-

750

2,377

-

35,483836

47,6582,060 ￦

199,479 ￦

96,068 ￦

140,081

Cash flow hedge:￦

7,249,734 ￦For derivative transactions involving both Korean won and foreign currency, the fair value of the unsettled amount for such transaction is presented using thebasic foreign exchange rate of the contract amount in foreign currency. For a derivative transaction involving only foreign currency, the fair value of the unsettled
amount is presented using the basic foreign exchange rate of the foreign currency purchased at the reporting date.
The Group recorded a provision for liquidity adjustments and a provision for credit risk adjustments for derivative instruments amounting to \21,306 million
and \12,214 million, respectively, on December 31, 2014 and \16,206 million and \22,830 million, respectively, on December 31, 2013.
Credit derivatives entered into by the Group as of December 31, 2014 and 2013 are as follows (Korean won in millions and US dollar in thousands):
December 31, 2014
Counterparty

AmountTransaction type

Reference entity

Credit default swap

DAISHIN SECURITIES￦CO.,LTD, etc

1,545,954

Purchased credit derivative

Doosan Heavy Industries &Construction Co.,Ltd, etc

Credit default swap

Korea Investment &￦Securities Co., Ltd., etc

1,572,942

Sold credit derivative

Woori Bank, etc

Credit Linked Note

HSBC, etc ￦54,960Sold credit derivative

Republic of Korea

Total Return Swap

Standard Chartered￦
Securities, etc

710,633

Sold credit derivative

China Railway Construction

December 31, 2013
Counterparty

AmountTransaction type

Reference entity

Credit default swap

DAISHIN SECURITIES￦CO.,LTD, etc

1,309,710

Purchased credit derivative

Doosan Heavy Industries &Construction Co.,Ltd, etc

Credit default swap

Korea Investment &￦Securities Co., Ltd., etc

1,549,961

Sold credit derivative

Woori Bank, etc

Credit Linked Note

HSBC, etc ￦52,765

Sold credit derivative

Republic of Korea

Total Return Swap

Standard Chartered￦
Securities, etc

27,576

Purchased credit derivative

China Railway Construction

183

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

When a reference entity ceases to be able to secure its financial commitments due to a sharp decline or default in credit rating, the Group guarantees losses
incurred arising from transactions for credit derivative instruments on its behalf.

20. Investments in associates and joint ventures
Details of investments in associates and joint ventures as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Type

Country

Number of shares Ownership (%)

Book value

Mirae Credit Information Services Corp

Associates

Korea

186,000

31.0 ￦UAM Co., Ltd. (*1)

Associates

Korea

85,05017.5

114,240

8,126

Bank of Jilin (*1)

Associates

China

1,200,000,000

17.0

548,499

Hana UBS Asset Management

Associates

Korea

4,410,000

49.0

34,290Odin 2 LLC (*3)

Associates

Korea

13,340,000

26.7

61,152

Doosan Capital (*1)(*2)(*3)

Associates

Korea

2,116,580

8.8

8,050

Taewon Lighting co.,ltd. (*1)(*3)

Associates

Korea

54,00018.0

22,438

Plakor Co., Ltd. (*3)

Associates

Korea

1,899,418

30.6

35,058

Najeon Co.,Ltd. (*3)

Associates

Korea

546,093

31.1

6,737

LIG Nex1 Co., Ltd. (*1)(*3)

Associates

Korea

2,333,333

11.7

109,536

Hyundai Cement Co., Ltd.

Associates

Korea

2,138,400

24.4

22,56013,608Others￦984,294

December 31, 2013
Type

Country

Numberof shares

Ownership(%)

Mirae Credit Information Services Corp

Associates

Korea

186,000

31.0 ￦UAM Co., Ltd. (*1)

Associates

Korea

85,05017.5

139,286

Bank of Jilin (*1)

Associates

China

1,200,000,000

17.0

485,900

Hana UBS Asset Management

Associates

Korea

4,410,000

49.0

33,201

Odin 2 LLC (*3)

Associates

Korea

13,340,000

26.7

61,855

Doosan Capital (*1)(*2)(*3)

Associates

Korea

2,116,580

8.8

12,532

Taewon Lighting co.,ltd. (*1)(*3)

Associates

Korea

10,80018.0

22,619Korea Finance Security Co., Ltd.

Associates

Korea

268,560

22.4

5,321

Plakor Co., Ltd. (*3)

Associates

Korea

2,630,567

42.3

45,061

Book value

7,605

Najeon Co.,Ltd. (*3)

Associates

Korea

546,093

31.1

5,264

LIG Nex1 Co., Ltd. (*1)(*3)

Associates

Korea

2,333,333

11.7

102,973

Sambo Motors Co., Ltd.(*1)

Associates

Korea

1,500,000

16.7

13,692Others13,377￦

948,686(*1) The Group exercises significant influence on the investee’s Board of Directors and therefore, is included as part of affiliated companies under the equity
method.
(*2) The Group considered the treasury stock owned by Doosan Capital when assessing whether the Group has significant influence on Doosan Capitalowned by Hana First PEF, a subsidiary of H&DS.
(*3) The financial statements for the current period were not available therefore the financial statements from the prior 3 months were used and the effectfrom all material transactions or events from the current period were evaluated and appropriately reflected.

184

Hana Financial Group Annual Report 2014

Balances of investment accounts became zero so equity method was no longer applied. In this regard, unrecognized amount of changes in equity for thecurrent year and unrecognized accumulated amount of changes in equity for the prior year are as follows (Korean won in millions):
Number of shares

Unrecognized changes
in equity for year ended
December, 31, 2014

Ownership (%)

Unrecognized accumulatedchanges in equity as ofDecember,31, 2013

Korea Travels Co., Ltd

54,00014.9 ￦(125) ￦

Flossom Co., Ltd

165,000

1.9

(353)

(308)

450

45.0

(114)

-

Mirae Asset KEB Second Securitization Specialty Co.,Ltd.

(1,670)The condensed financial information of investments in associates and joint ventures as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
AssetsMirae Credit Information
Services Corp

Liabilities

EquityRevenue (*)

Net income(loss) (*)

Other
Comprehensive
comprehensive
income(loss) (*)
income (loss) (*)

￦2,912 ￦6,698 ￦6,214 ￦9,922 ￦2,585 ￦3 ￦2,588

UAM Co., Ltd.

4,357,490

3,688,589

668,901

548,990

57,541-57,541

Bank of Jilin

48,878,619

45,739,128

3,139,491

5,264,651

451,217-451,21775,0795,099

69,98036,031

12,29727

12,324

386,677

157,472

229,205

9,854(6,339)3,526(2,813)

1,797,101

1,588,720

208,381

25,266(73,825)(404)(74,229)

Hana UBS AssetManagement
Odin 2 LLC
Doosan Capital
Taewon Lighting Co.,Ltd.

59,812

20,06639,74677,350

915

-

915

Plakor Co., Ltd.

250,944

136,269

114,675

275,669

12,373(2,270)10,103

Najeon Co.,Ltd

57,61235,954

21,658115,270

4,736

-

4,736

LIG Nex1 Co., Ltd

1,742,338

1,381,191

361,147

549,003

68,8742,159

71,033

470,155

463,357

6,798

79,22863,233(171)

63,062

Net income(loss) (*)

Other
comprehensive
income (loss) (*)

Comprehensive
income(loss) (*)

Hyundai Cement Co., Ltd.

December 31, 2013
AssetsMirae Credit Information
Services Corp￦

1,821 ￦

Liabilities

7,290

Equity￦24,531

Revenue (*)

￦ 48,397￦ 1,852

￦

-

￦

1,852

UAM Co., Ltd.

4,365,097

3,567,972

797,125

708,035

105,085-

105,085

Bank of Jilin

44,511,256

41,837,236

2,674,020

1,271,384

428,132-

428,132

72,0904,333

67,757

29,824

14,815(51)

14,764

Hana UBS AssetManagement
Odin 2 LLC

389,229

157,391

231,838-(13,826)

2,516(11,310)

2,585,179

2,299,730

285,449

236,114(113,534)(2,255)(115,789)

Taewon Lighting Co.,Ltd.

68,15427,39840,75684,861

(444)

-

(444)

Korea Finance Security Co.,Ltd

26,3103,593

22,717

48,961

945

-

954

Plakor Co., Ltd.

199,370

92,931

106,439

181,171

1,487

94

1,581

Doosan Capital

Najeon Co.,Ltd53,512

36,591

16,92158,539

469

-

469

LIG Nex1 Co., Ltd

1,507,557

1,202,666

304,891

767,792

25,482(15,867)

9,615

Sambo Motors Co., Ltd.

485,565

340,958

144,607

-

-

-

-

(*) Revenue and net income incurred after the acquisition date were only taken into consideration in case of acquisition during the term.

185

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Changes in the investments in associates and joint ventures for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Beginning
Balance

Ownership(%)
Mirae Credit Information Services Corp

31.0 ￦UAM Co., Ltd.

17.5

Bank of Jilin

17.0

Hana UBS Asset Management

Replace

Dividend

Book value
before valuation

- ￦

- ￦

139,286--(35,041)

104,245

485,900--(15,758)

470,14249.0

33,201--(4,949)28,252

Odin 2 LLC

26.7

61,855---61,855

Doosan Capital

8.8

12,532---

12,532

Taewon Lighting Co.,Ltd.

18.0

22,619

-

-

(720)

21,899

Plakor Co., Ltd.

30.6

45,061---45,061

Najeon Co.,Ltd

31.1

5,264

-

-

-

5,264

LIG Nex1 Co., Ltd

11.7

102,973--(1,563)

101,410Sambo Motors Co., Ltd. (*)-

13,692---

13,692

Korea Finance Security Co., Ltd

-

5,321

-

-

(81)

5,240

Hyundai Cement Co., Ltd.

24.4

Others￦7,605 ￦

Addition(186) ￦

7,419

-

-

38,705-38,705

13,377

1,109-(1,199)13,287

948,686 ￦1,109 ￦

38,705 ￦(59,497) ￦929,003

Year ended December 31, 2013

Beginningbalance

Ownership(%)

Replace

Dividend

Book value
before valuation

Mirae Credit Information Services Corp

31.0 ￦- ￦- ￦(186) ￦

7,149

UAM Co., Ltd.

17.5

120,916---

120,916

Bank of Jilin

17.0

433,828--(17,679)

416,149

Hana UBS Asset Management

49.0

32,435--(6,468)25,967

Odin 2 LLC

26.7

65,834---

65,834

Doosan Capital

8.8

21,555---21,555

Taewon Lighting Co.,Ltd.

18.0

22,916

-

-

(180)

22,736

Korea Finance Security Co., Ltd

22.4

5,190

-

-

(81)

5,109

Plakor Co., Ltd.

42.3

-

34,416--

34,416

Najeon Co.,Ltd

31.1

-

4,417

-

-

4,417

LIG Nex1 Co., Ltd

11.7

-

100,000--

100,000

Sambo Motors Co., Ltd. (*)

16.7

Others￦7,335 ￦

Addition

-

9,570

-

-

9,570

171,938

1,595(102,220)(975)

70,338(25,569) ￦904,156

881,947 ￦

149,998 ￦(102,220) ￦(*)The Group recognizes the difference in the fair value of the net assets acquired and the consideration transterred at the time of acquisition as gain on equity
methodAs of December 31, 2014, the marketable equity securities of Hyundai Cement Co., Ltd., one of the associates, are restricted to be sold because its debts
were converted into equity, of which the fair value is \22,560 million (\10,550 per share).

186

Hana Financial Group Annual Report 2014

Year ended December 31, 2014
Equity method valuation
Earnings (loss)￦￦

Other comprehensive income

707 ￦

- ￦

Disposal- ￦Impairment loss

- ￦Book value

8,126 ￦

Goodwilland etc- ￦Proportionate
net asset
8,126

10,052(57)--

114,240(2,818)117,058

76,618

1,739

-

-

548,499

15,413533,086

6,026

12

-

-

34,290-34,290352(1,054)-(1)

61,152-

61,152(4,507)

25

-

-

8,050

-

8,050

537

2

-

-

22,43815,284

7,154

5,238

(1,276)(13,965)-

35,058-35,058

1,473

-

-

-

6,737

-

6,737

7,875

252

-

(1)

109,536

67,402

42,134

1,385-(15,077)

-

-

-

-

(5)

-

(5,235)

-

-

-

-

15,840--(31,985)

22,56020,901

1,659

850

(532)

-

3

13,608675

12,933

984,294 ￦

116,857 ￦

867,437

122,441 ￦(889) ￦

(34,277) ￦(31,984) ￦Year ended December 31, 2013
Equity method valuation
Earnings (loss)

￦

￦

187

457 ￦

Other comprehensive income

Disposal

Impairment loss

Book value

7,605 ￦

Goodwilland etc- ￦Proportionate
net asset

(1) ￦

- ￦

- ￦

18,388(18)--

139,286(211)

139,497

7,605

72,393(2,642)--

485,900

31,851

454,049

7,260

(26)

-

-

33,201-

33,201(3,689)

(290)

-

-

61,855-61,855(9,958)

(552)

1,487

-

12,532-

12,532

(117)

-

-

-

22,61915,283

7,336

212

-

-

-

5,321

237

5,084

10,60639--

45,061-45,061

847

-

-

-

5,264

-

5,264

2,973

-

-

-

102,973

67,40235,571
13,692

4,122

-

-

-

13,692-(18,281)

4,205(42,372)(513)

13,377

1,064

12,313(40,885) ￦(513) ￦

948,686 ￦

115,626 ￦

833,060

85,213 ￦715 ￦GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

21. Property and equipment
Details of property and equipment as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Acquisition costLand

Accumulated depreciation

1,589,115 ￦￦Book value- ￦1,589,115

Buildings

817,055(135,838)

Leasehold improvements

423,234(339,138)

84,096

1,467,367(1,156,112)

311,255

89,873-89,873

Vehicles, furniture and fixtures
Construction in progress

12,430(8,647)

4,399,074 ￦(1,639,735) ￦Operating lease assets￦

681,217

3,783
2,759,339

December 31, 2013
Acquisition costLand

Accumulated depreciation

1,597,177 ￦￦Book value- ￦1,597,177

Buildings

845,557(124,109)

Leasehold improvements

390,784(317,522)

73,262

1,453,773(1,179,186)

274,587

Vehicles, furniture and fixtures

721,448

Construction in progress

11,101-

11,101

Operating lease assets

30,310(19,434)

10,876

4,328,702 ￦(1,640,251) ￦￦2,688,451

Changes in property and equipment for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
January 1,
2014

Land

￦

Addition

1,597,177 ￦127 ￦Disposal

Depreciation(15,188) ￦Impairment
loss

- ￦

Transfer in
(out)

- ￦

6,952 ￦

Others (*)

December31,
2014

47 ￦ 1,589,115

Buildings

721,448

30,961(12,443)(28,489)(22,236)(9,114)

1,090

681,217

Leasehold improvements

73,262

40,710(1,557)(31,405)

(9)

2,693

402

84,096

Vehicles, furniture andfixtures274,587

142,705(1,571)(112,147)

(1)

5,148

2,534

311,255

Construction in progress

11,101

91,909---(13,137)-

89,873Operating lease assets

10,876

11,207(15,479)(2,821)

-

-

-

3,783

2,688,451 ￦

317,619 ￦(46,238) ￦￦(174,862) ￦(22,246) ￦(7,458) ￦4,073 ￦ 2,759,339

Year ended December 31, 2013
January 1,
2013

Land

Increasedue to thebusiness
combination

Addition

Depreciation(240) ￦

- ￦Transfer in(out)

Others (*)

December
31,
2013

1,597,015 ￦1,112 ￦

(1,334) ￦(359) ￦

1,597,177

Buildings

724,009

1,359

21,844(456)(26,897)

1,663

(74)

721,448

Leasehold improvements

65,609671

39,616(2,443)(30,665)

1,376

(902)

73,262

Vehicles, furniture andfixtures

286,471

2,212

105,626(1,851)(117,370)

335

(836)

274,587￦983 ￦Disposal(Continued on next page)

188

Hana Financial Group Annual Report 2014

Year ended December 31, 2013
January 1,
2013

Increasedue to thebusiness
combination

Construction in progress

11,51634

7,504

Operating lease assets

15,711-

15,0202,700,331 ￦

5,388 ￦

190,593 ￦(18,414) ￦￦Addition

December
31,
2013

Depreciation

Transfer in(out)

Others (*)--(7,953)-

11,101(13,424)(6,431)--

10,876(181,363) ￦(5,913) ￦Disposal(2,171) ￦ 2,688,451

Details of insured property and equipment as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
Insured amount
December 31, 2014
Buildings

Insurance provider
December 31, 2013

369,412 ￦￦354,088

Hyundai Fire & Marine Insurance Co.,Ltd, etc.

Leasehold improvements

46,561

59,387

Samsung Fire & Marine Insurance Co.,Ltd, etc.

Vehicles, furniture and fixtures

332,535

297,404

Dongbu Insurance Co.,Ltd, etc.

748,508 ￦710,879￦

The Company maintains general liability insurance for its registered directors and officers for up to ￦50,000 million as of December 31, 2014 and 2013, respectively, and fidelity guarantee insurance for up to \5,780 million as of December 31, 2014.

22. Investment properties
Details of investment properties as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
December 31, 2014
Acquisition cost

Land

￦

Buildings￦

Accumulated impairment
loss

Accumulated depreciation

378,367 ￦- ￦Book value(2,356) ￦376,011

182,962(43,496)(2,489)136,977

561,329 ￦(43,496) ￦(4,845) ￦512,988

December 31, 2013
Acquisition cost
Land￦

Buildings￦

Accumulated depreciation

385,110 ￦Accumulated impairment loss

- ￦Book value(2,356) ￦382,754

162,446(27,381)(2,388)132,677

547,556 ￦(27,381) ￦(4,744) ￦515,431

Changes in investment properties for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
January
1, 2014Land￦

Buildings￦

189382,754 ￦Addition- ￦Disposal- ￦Depreciation

Reclassification- ￦(6,743) ￦Others

December 31, 2014

- ￦376,011

132,677

1,995(6,507)(5,145)

13,756201

136,977

515,431 ￦1,995 ￦

(6,507) ￦(5,145) ￦7,013 ￦

201 ￦

512,988

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Year ended December 31, 2013
January
1, 2013Land￦

Buildings￦

Increase due tothe business combination

379,563 ￦Addition- ￦Depreciation

1,818 ￦

Reclassification- ￦December 31, 2013

1,373 ￦

382,754

123,260

6,335

3,123

(4,581)

4,540

132,677

502,823 ￦

6,335 ￦

4,941 ￦

(4,581) ￦5,913 ￦

515,431

The Group uses the straight-line depreciation method to measure its buildings’ market value and their useful lives range from 40 to 50 years. The fair value ofthe investment properties provided by independent valuers are \441,754 million and \556,477 million, respectively. All investment properties are classified
as the level 3 in the fair value hierarchy described in Note 5-1.
Rental income and operating expenses arising from the Group’s investment properties for the years ended December 31, 2014 and 2013 are as follows(Korean won in millions):
Year ended December 31, 2014
Rental income￦

Operating expenses

Year ended December 31, 2013

11,020 ￦

8,888

4,866

2,993

23. Finance leases and operating leases
Gross and net investment in the finance leases as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
December 31, 2014
Short-term
Present value of minimum lease payment￦

Initial direct cost
Net investment in the lease
Unearned finance income
Gross investment in the lease￦Long-term

Total

395,292 ￦

856,365 ￦

1,122

41,7451,251,657
42,867396,414898,110

1,294,524

68,484

66,375

134,859

464,898 ￦964,485 ￦1,429,383

December 31, 2013
Short-term
Present value of minimum lease payment￦

Initial direct cost
Net investment in the lease
Unearned finance income
Gross investment in the lease￦Long-term

Total

333,265 ￦

660,690 ￦

1,660

23,790993,955
25,450334,925

684,480

1,019,406

52,261

42,225

94,485387,186 ￦

726,705 ￦1,113,891

The maturities of gross and net investment in the finance leases as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Gross investment
Within 1 year￦

After 1 year but no later than 5 years
Later than 5 years￦

190

Net investment

464,898 ￦396,414964,095

897,734390

376

1,429,383 ￦

1,294,524

Hana Financial Group Annual Report 2014

December 31, 2013
Gross investment
Within 1 year

387,092 ￦

334,931726,632

684,315

167

160

￦

After 1 year but no later than 5 years

Net investment

Later than 5 years

1,113,891 ￦￦

1,019,406

Amounts to be collected as operating lease revenues for each upcoming period as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Within 1 year

December 31, 2013

850 ￦

￦

After 1 year but no later than 5 years
￦

3,039

206

811

1,056 ￦

3,850

24. Intangible assets
Details of intangible assets as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
December 31, 2014
Acquisition cost

Goodwill￦

Accumulated amortization

98,560 ￦Accumulated impairment
loss

- ￦

(18,722) ￦Book value

79,838Industrial property

57,313(33,360)-

23,953

Core deposits

991,785(413,352)(3,116)575,317

Client relationship388,486(98,749)-

289,737

Software andsystem development

930,253(751,979)-

178,274
52,767

Membership

78,620(300)(25,553)

Others

115,515(56,586)(483)

58,4462,660,532 ￦(1,354,326) ￦(47,874) ￦1,258,332￦

December 31, 2013
Acquisition cost
Goodwill￦Industrial property

98,594 ￦Accumulated amortization- ￦Accumulated impairment loss
(18,722) ￦Book value
79,87257,099(21,871)-

35,228Core deposits

991,629(271,511)(3,116)

717,002

Client relationship388,486(64,015)-

324,471

Software andsystem development

871,387(668,178)(366)

202,843

Membership

88,579(260)(31,664)

56,655

Others92,318(50,933)(270)

41,1152,588,092 ￦(1,076,768) ￦(54,138) ￦1,457,186￦

191

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Details of goodwill as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Acquisition cost Accumulated impairment loss
Hana Savings Bank

75,229 ￦￦(18,722) ￦22,377

Hana Asset Trust

22,377-98,560 ￦￦56,507-954

OthersBook Value

954(18,722) ￦79,838December 31, 2013
Acquisition cost
Hana Savings Bank

Accumulated impairment loss

75,229 ￦￦Hana Asset Trust
Others(18,722) ￦22,377-988-

98,594 ￦￦Book Value
56,507
22,377988(18,722) ￦79,872The Group allocated goodwill to cash-generating units which are composed of operating segments or its sub-segments. Impairment test was performed
regularly on an annual basis and at times there is any indication of impairment through comparing the carrying amount of cash-generating units including
goodwill with its recoverable amount.
The recoverable amount of a cash-generating unit is estimated to be the higher of the cash-generating unit’s fair value and its value in use. The fair value isbased on the best information available to reflect the amount that the Group could obtain, at the end of the reporting period, from the disposal of the assets or
the transfer of the liabilities in formal transaction between participants, after deducting the costs of disposal. However, if the fair value could not be measured
with sufficient reliability, it is possible applying the value in use which is present value of future cash flows. The Group estimates future cash flows based on
the financial budget authorized by management. The estimation period cannot exceed 5 years without reasonable causes.
The Group regards Hana Savings Bank as a one cash-generating unit for the impairment test as of December 31, 2014 and 2013
December 31, 2014

December 31, 2013

221,534 ￦

146,646

Carrying amount of net assets

157,179

149,750

Value in use which exceeds carrying amount of net assets

64,355(3,104)

Value in use (recoverable amount)￦

The Group estimates future cash flows based on the assumption that cash flows will continue to grow at 2.6% over 5 years referred to a recent macroeconomic indicator provided by EIU (Economist Intelligence Unit). The pre-tax discount rate used for discounting future cash flows is calculated based on theassumption of risk-free interest rate, market risk premium, systematic risk of cash generating unit and other factors.
Changes in the carrying amount of intangible assets for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
January
1, 2014Goodwill￦

79,872 ￦Additions- ￦Disposal- ￦Amortization- ￦Impair-ment
loss
- ￦

Reclassification

December31, 2014(34) ￦

79,838104-

23,953--361

575,317---289,737

Industrial
property

35,22838-(11,417)-Core deposits

717,002--(142,046)

Clientrelationship

324,471--(34,734)- ￦Others (*)(Continued on next page)

192

Hana Financial Group Annual Report 2014

Year ended December 31, 2014

Software andsystemdevelopment

January
1, 2014Additions

202,843

DisposalAmortization

Impair-ment
loss

Reclassification

Others (*)

December31, 2014

63,011-(93,771)-

7,373(1,182)

178,274

Membership

56,655

6,328(7,044)(34)(3,443)

409

(104)

52,767

Others41,11534,746(30)(8,478)(12)(7,441)(1,454)58,446

1,457,186 ￦104,123 ￦(7,074) ￦(290,480) ￦(3,455) ￦

￦

445 ￦

(2,413) ￦1,258,332

Year ended December 31, 2013
January
1, 2013

Goodwill

Increasedue to thebusiness
combination

Additions

Impairment
loss

Amortization- ￦(3,104) ￦- ￦Others (*)

83,166 ￦

- ￦
-

120

-

(11,386)-99-

35,228Core deposits

854,212

4,305

-

-

(141,515)---

717,002

Clientrelationship

296,836

61,694--(34,059)---

324,471

Software andsystemdevelopment

249,5485,489

58,104(19)(110,061)

-

-

(218)

202,843

Membership

68,568806

2,506(4,649)(49)(8,872)-(1,655)56,655

Others46,485

3,855

7,482

-

(16,528)

-

(99)

(80)

41,115

1,645,210 ￦

76,149 ￦68,212 ￦(4,668) ￦(313,598) ￦(11,976) ￦(2,143) ￦1,457,186- ￦(190) ￦

December31, 2013

46,395￦- ￦Reclassification

Industrial property￦- ￦Disposal

79,872(*) Includes the effect of exchange rate differences.

25. Non-current assets held for sale
The tangible assets for non-business use, which are recorded under non-current assets held-for-sale as of December 31, 2014, are 3 secured properties
that it acquired from customers to repay loans (2 secured properties as of December 31, 2013). They were classified as non-current assets held-for-sale but
undisposed.
Details of non-current assets held for sale as of December 31, 2014 and 2013 are as follows(Korean won in millions) :December 31, 2014

December 31, 2013

749 ￦

871

Accumulated impairment loss

(220)

(211)

Book value

529

660

Acquisiton cost￦

The fair market values of non-current assets held-for-sale are based on the valuation report of a qualified, independent appraisal and assessment institution,
and all of them are classified as the level 3 in the fair value hierarchy described in Note 5-1.

26. Other assets
Other assets as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Guarantee deposits
Accounts receivable￦

December 31, 2013

1,508,311 ￦

1,515,259

8,032,147

6,915,827(Continued on next page)

193

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014

December 31, 2013

Accrued income

1,055,807

999,924

Prepaid expenses

196,743

232,275

Advance payments

39,91845,507

Reinsurance assets

2,223

1,872

Unamortized new contract

6,968

2,894

Separate account assets

1,049,315

1,055,866

Receivables from spot exchange

1,708,198

2,361,659

Others2,468,276

3,175,492(97,530)(91,473)

15,970,376 ￦

16,215,102

Allowance for possible losses￦

Changes in the allowance for possible losses for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Beginning balanceYear ended December 31, 2013

91,473 ￦￦Write-offs

152,433-

90(17,146)(67,659)

Increase due to the business combination
Debt-to-equity swap
Provision for possible losses
Interest income from impaired assets
Others￦-699

19,942

16,948

(293)

(228)

3,554

(10,810)

97,530 ￦91,473

Changes in insurance assets for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
January 1, 2014
Reinsurance assets￦

Unamortized new contract￦

January 1, 2013

Reinsurance assets￦

Unamortized new contract

- ￦
-

￦

- ￦

Increase

Decrease

December 31, 2014

1,872 ￦

351 ￦

- ￦

2,223

2,894

4,074

-

6,968

4,766 ￦

4,425 ￦

- ￦

9,191

Increase due to thebusiness combination

Increase

1,896 ￦
1,896 ￦

Decrease

52 ￦(76) ￦

December 31, 2013

1,872

11,890(8,996)

2,894

11,942 ￦(9,072) ￦4,766

27. Financial liabilities held-for-trading
Financial liabilities held-for-trading as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Derivative liabilities held for trading purpose￦

Securities sold￦(*) Refer to Note 19.

194

4,740,272 ￦December 31, 2013
3,674,161

499,388699,354

5,239,660 ￦

4,373,515

Hana Financial Group Annual Report 2014

28. Financial liabilities designated at fair value through profit or loss
Financial liabilities designated at fair value through profit or loss as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Deposits￦

249,049 ￦6,414,918

Derivatives linked securities soldDeferred day 1 profit or loss￦

December 31, 2013
4,888,641

23,833

15,5306,687,800 ￦

4,904,171

With respect to derivative linked securities, the Group does not separate embedded derivatives from main contracts but designates them as fair vair throughprofit or loss.

29. Deposits
Details of deposits as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014

December 31, 2013

Demand deposits:
Demand deposits in Korean won:Checking deposits
Household checking deposits￦

1,975,358 ￦

1,499,298

24,26430,675

Temporary deposits

2,331,048

2,154,569

Passbook deposits

20,925,713

18,680,607

Public fund deposits

144,710

221,943

707

345

Nonresident’s deposit in Korean won

272,152

222,411Nonresident’s ‘free-won’ account

95,64022,430

Others

2,868

3,573

25,772,460

22,835,851

National Treasury deposits

Demand deposits in foreign currency:
Checking deposits

3,328,817

2,750,917

Passbook deposits

11,574,910

10,450,025

Notice deposits

4,607

7

Temporary deposits

68,47829,457

14,976,812

13,230,406

40,749,272

36,066,257

14,439,700

12,754,647

Time and saving deposits:
Time and saving deposits in Korean won:Households saving deposits

517,816

478,549

Corporate savings deposits

18,598,753

14,957,884

Time deposits

100,592,954

98,813,168

Free saving deposits

Apartment-application deposits

437,779

496,918

Installment savings deposits

3,346,253

3,123,138

Nonresident’s deposit in Korean won

439,202440,576

Nonresident’s ‘free-won’ account

175,654

328,032

Long-term housing savings deposits

505,948571,347

Workers’ preferential savings deposits
Mutual installment deposits

419

448

5,846,246

4,748,244(Continued on next page)

195

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014

December 31, 2013

Mutual installment for housing

38,301

44,777

Worker`s asset building savings deposits

206,514103,962

Trust deposits

517,553

519,970

Others152,21377,469145,815,305

137,459,129

14,349,738

12,683,206

Time and saving deposits in foreign currency:
Time deposits in foreign currency

57,195

219,820

14,406,933

12,903,026

160,222,238

150,362,155

Others925,475

Certificate of deposits

797,264

201,896,985 ￦￦

187,225,676

Allocations of deposits by customer as of December 31, 2014 and 2013 are listed as follows (Korean won in millions):
December 31, 2014

December 31, 2013

72,880,481 ￦

68,284,856

Corporations

55,028,337

55,637,679

Other banks

8,250,145

6,497,815

Public institutions

4,192,730

3,600,143

Other financial institutions

29,615,785

23,999,612

Government

5,582,858

4,928,382

Non-profit corporations

11,475,222

12,246,864

Foreign corporations

8,362,427

7,604,708

Individuals￦

Others￦6,509,000

4,425,617

201,896,985 ￦

187,225,676

30. Borrowings
Borrowings as of December 31, 2014 and 2013 are as follows (Korean won in millions):
LenderInterest rate (%)

December 31, 2014

December 31, 2013

Borrowings in Korean won:
BOK borrowings
Government borrowings
Other borrowings

0.5~1.0 ￦1,606,495 ￦

681,362

Korean government

0.0~3.1

3,101,489

3,357,874

Korea Energy Management Corporation, etc

0.0~5.1

1,712,246

2,478,219

6,420,230

6,517,455

BOK

Borrowings in foreign currencies:
Bank overdrafts
Other borrowings

Foreign Banks, etc.

0.7~16.3

159,142

235,547

Mizuho Corporate bank Seoul branch, etc

0.4~2.1

10,253,620

7,734,037

10,412,762

7,969,584

Call money:
Call money in Korean won
Call money in foreign
Currencies

National Agricultural Cooperative Federation, etc

2.2~2.3

641,000

1,732,400

KOREA DEVELOPMENT
BANK, TOKYO, etc

0.2~0.7

780,304

1,054,834

1,421,304

2,787,234(Continued on next page)

196

Hana Financial Group Annual Report 2014

LenderInterest rate (%)

December 31, 2014

December 31, 2013

Bonds sold under repurchaseagreements in Korean won

Korea Defense Industry association, etc

2.9~4.0

4,300,611

3,814,042

Bonds sold under repurchaseagreements in foreign
currencies

Nomura International
Ltd., etc.

0.8~3.3

414,201

563,9034,714,812

4,377,945

Bonds sold under repurchaseagreements:

Other borrowings
Bills soldKorea post, etc.

294,878

1.7~2.8￦

181,420

23,263,986 ￦

21,833,638

31. Debentures
Debentures as of December 31, 2014 and December 31, 2013 are as follows (Korean won in millions):
LenderInterest rate (%)

December 31, 2014

December 31, 2013

Korean won:
Debentures

Financial
institutions

2.2~5.5 ￦16,784,000 ￦

17,145,800

3.4~8.0

5,344,223

6,895,304

Net gain on fair value hedges (this term)(3,539)412

Net gain on fair value hedges(before the previous term)

9,043

9,217

(24,736)(884)

22,108,991

24,049,849

Subordinated bonds

Various investors

Issuance premium
Foreign currencies:
Morgan Stanley, etc.

0.6~4.9

6,267,616

6,040,391

Subordinated bonds

Barclays, etc.

3.0~4.7

884,856

209,918

Floating rate bonds

HSBC, etc.

Debentures-

52,765(18)(74,215)

65,692

147,422

Net gain (loss) on fair value hedges (this term)
Net gain on fair value hedges(before the previous term)
Issuance premium (present value discount)(19,022)(6,566)

7,199,124

6,369,715

29,308,115

30,419,564

32. Net defined benefit liability
Actuarial assumptions as of December 31, 2014 and 2013 are as follows:
Ratio (%)
December 31, 2014

December 31, 2013

Notes

Demographic assumptions:
Mortality

0.00~2.40

0.00~2.40

Table from Korea insurance development institute and etc.

Rates of employee turnover

2.50~43.14

2.50~41.21

Table from Korea insurance development institute and etc.

0.70~39.20

0.65~21.98

Financial assumptions:
Expected rate of salary increase(Continued on next page)

197

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Ratio (%)
December 31, 2014

December 31, 2013

Inflation rate

2.02~2.63

1.63~3.50

Discount rate

2.46~3.80

3.21~4.25

Notes

Return on corporate bond with the same credit rating

Details of net defined benefit liability as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Present value of defined benefit obligation￦

Fair value of plan assets
Net defined benefit liability

December 31, 2013

1,188,619 ￦

954,338(1,019,451)(792,285)

169,168 ￦￦162,053

Changes in present value of defined benefit obligation for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Beginning balance

954,338 ￦￦Year ended December 31, 2013
744,398-

6,012

Current service cost

137,268

126,998

Past service cost

37,714

10,958Interest cost on benefit obligation

37,83626,808

Increase due to the business combination

Remeasurements of the net defined benefit liability

98,532

79,682

Benefits paid

(76,751)(39,884)

(318)

(634)

1,188,619 ￦

954,338

Others￦

Details of losses incurred from Severance and retirement benefit plan for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Current service cost

Year ended December 31, 2013

137,268 ￦

126,998

37,714

10,958￦

Past service cost

6,128

4,899

181,110

142,855

Net interest on the net defined benefit liability
Benefits paid for the defined contribution plan

  

2,112

Long-term employee payment and others

  

828

6,117

184,050 ￦

151,215￦

2,243

Plan assets for severance benefit as of December 31, 2014 and 2013 consist of the followings (Korean won in millions):
December 31, 2014

December 31, 2013

Plan assets which have market price quoted in an active market:
Time deposit

￦

ELS
Bonds
Others￦198

773,478 ￦

666,505-

1,936

99,44963,679146,524

60,165

1,019,451 ￦

792,285

Hana Financial Group Annual Report 2014

Changes in the fair value of plan assets for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Beginning balance of fair value of plan assets

Year ended December 31, 2013

792,285 ￦￦634,969-

1,519

265,487

172,586

Expected return on plan assets

31,70821,909Remeasurements of the plan assets(9,716)519

Benefits paid

(60,311)(38,704)

Increase due to the business combination
Employer contributions(2)

Others(513)

1,019,451 ￦￦

792,285

Details of remeasurement accompanied by the application of actuarial assumptions for the years ended December 31, 2014 and 2013 are as follows (Korea
won in millions):
Year ended December 31, 2014

Year ended December 31, 2013

Actual gains (losses)
Changes in demographic assumptions￦

Changes in financial assumptions(1,919) ￦(7,804)(100,679)(9,855)

4,889(58,650)(97,709)(76,309)

Actual income on planned assets

21,992

22,428Amounts included in net interest on the net defined benefit liability

31,70821,909Experience adjustments
Income on planned assets(9,716)￦(107,425) ￦519(75,790)A quantitative sensitivity analysis for significant assumptions as of December 31, 2014 and 2013 are as follows (Korea won in millions):(1) Discount rate
Year ended December 31, 2014
Present value of defined benefit obligation￦

1,188,619 ￦Year ended December 31, 2013
Present value of defined benefit obligation￦

954,338 ￦1% point increase
1,079,827 ￦

1% point increase
862,934 ￦1% point decrease
1,310,476

1% point decrease
1,022,626(2) Expected rate of salary increase
Year ended December 31, 2014
Present value of defined benefit obligation￦

1,188,619 ￦Year ended December 31, 2013
Present value of defined benefit obligation

199￦

954,338 ￦1% point increase
1,305,312 ￦1% point increase
1,022,878 ￦

1% point decrease
1,082,220

1% point decrease
861,613

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

The sensitivity analyses above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonablechanges in key assumptions occurring at the end of the reporting period.
Employer contributions for the years ended December 31, 2014 and 2013 are reasonably estimated to be ￦133,468 million and ￦112,067 million, repectively
and the average durations of the defined benefit plan obligation as of December 31, 2014 and 2013 are 7.4~10.2 years and 7.2~14.0 years, respectively.

33. Provisions
33.1 Provisions
Details of provisions as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014

December 31, 2013

Allowance for possible losses on acceptances and guarantees:
Financial acceptances and guarantees￦

Non-financial acceptances and guarantees

2,331 ￦

2,066

59,43665,000450

277

Bills endorsed

62,217

67,343111,804

117,265

Allowances for restoration cost

44,52742,271

Allowances for reward points

35,01830,976

Allowance for lawsuits

68,572

142,514

Allowance for liquidity adjustment

21,306

16,206

Allowance for credit valuation adjustment

12,214

22,830Allowances for unused commitments
Other allowance:

Others

￦

8,637

9,567

190,274

264,364

364,295 ￦448,972(*) The Group recognizes the amount of financial guarantee contracts subsequently measured that exceed the unamortized balance as provisions for acceptances and guarantees on initial recognition. The unamortized balance amounts to ￦24,950 million and ￦30,468 million as of December 31, 2014 and 2013,
respectively and is categorized as financial guarantee contract liability.
Changes in provisions for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
January
1, 2014
Allowance for possible losses on
acceptances and guarantees￦

Allowances for unused commitments

Net loss of allowance(reversal of allowance)

Allowance used

Others

December 31,
2014

67,343 ￦(6,482) ￦- ￦1,356 ￦

62,217

117,265(4,243)-(1,218)111,804

42,271146(2,071)

4,181

44,527

Other allowance:
Allowance for possible losses on
acceptances and guarantees
Allowances for reward points

30,97643,054(58,475)

19,46335,018

Allowance for lawsuits

142,514(70,229)(3,701)(12)

68,572

Allowance for liquidity adjustment

16,206

5,097

-

3

21,306

22,830(10,616)--

12,214

Allowance for credit valuation
adjustment
Others

￦

200

9,567

3,481

(2,968)(1,443)

8,637

264,364(29,067)(67,215)

22,192

190,274

448,972 ￦(39,792) ￦(67,215) ￦22,330 ￦364,295

Hana Financial Group Annual Report 2014

Year ended December 31, 2013
January
1, 2013

Allowance for possible
losses on acceptancesand guarantees

Increase dueto the businesscombination

58,379 ￦￦Allowances for unused commitments- ￦Net loss ofallowance(reversal of
allowance)

Allowance used

December 31,
2013

Others9,203 ￦- ￦(239) ￦

67,343

120,448

106(2,967)-(322)

117,265

45,968355(1,414)(1,918)(720)

42,271Other allowance:
Allowance for possible losses on
acceptances and guarantees
Allowances for reward points

27,256-33,848(51,030)

20,90230,976

Allowance for lawsuits

85,56021

35,378(19,874)

41,429142,514

Allowance for liquidity adjustment

16,341

-

(133)

-

(2)

16,206

Allowance for credit valuation
adjustment

29,271-(6,438)-(3)

22,830

Others￦54,832743(651)(3,265)(42,092)

9,567

259,228

1,119

60,590(76,087)

19,514

264,364

438,055 ￦1,225 ￦

66,826 ￦(76,087) ￦18,953 ￦448,972

33.2 Guarantees and commitments
Details of guarantees as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014

December 31, 2013

Financial acceptances and guarantees in Korean won:
Collateral for loans

117,912 ￦￦

947,775

Loans for purchase

134,853
1,092,784

29,02915,4801,094,716

1,243,117

1,807,051

1,294,536

2,239,995

2,321,372

1,247,454

1,252,191

OthersFinancial acceptances and guarantees in foreign currencies
Local financial acceptances and guarantees:
Confirmed acceptances and guarantees in Korean won
Confirmed acceptances and guarantees in foreign currencies:
Acceptance on letter of credit

134,837

157,337

15,026,794

14,700,739

16,409,085

16,110,267

5,468,770

6,465,496

647,143

1,268,532

6,115,913

7,734,028

Acceptance on letter of guarantees
OthersContingent acceptances and guarantees:
Letters of credit
Others33,976

Bills endorsed￦

27,700,736 ￦

46,98828,750,308

Details of unused commitments as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Commitments on loans in Korean won
Commitments on loans in foreign currencies
Commitments on off-shore loans in foreign currencies￦

December 31, 2013

95,496,733 ￦

100,209,239

26,329,617

23,235,319-

16,885(Continued on next page)

201

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014
475,818

493,367

1,648,542

1,244,850

Commitments on purchase of asset-backed commercial papers
Commitments on credit lines on asset-backed securities

December 31, 2013

702,942

Commitments on purchase of securities

702,942

124,653,652 ￦￦

125,902,602

As of December 31, 2014, the Group is involved in 2,476 lawsuits as a plaintiff and 324 lawsuits as a defendant. The aggregate amount of claims as a plaintiff
and a defendant is in the amount of approximately ￦718,480 million and ￦337,177 million, respectively. The Group’s material lawsuits in progress as a defendant are as follows (Korean won in millions):

Defendant

Plaintiff

Hyundai Merchant￦Marine Co., Ltd.

KEB

Status of lawsuit

AmountFirst trial

On appeal

Content

68,875

Lost

In-progress

Return ofperformance bond

36,925In-progress-

Return of earnings of fund

KEB

Fairfield Sentry Limited
Bankruptcy administrator

KEB

In Chang ho
and 38 others

6,432

In-progress-

Cancellation ofcontracts of the sale in lots and nonexistence of loans for intermediatepayments

Hana Bank

Shinhan Bank

31,701

Won

In-progress

Return of a prepayment

Hana Bank

Dong-A Construction Co., Ltd

15,169In-progress-

Return of investments(2nd lawsuit)

Hana BankPark Man Song

8,441

In-progress-

Cancellation of right to collateral
security (2nd lawsuit)

Hana Bank

Dong-A Construction Co., Ltd

7,620

Lost

In-progress

Return of investments(2nd lawsuit)

Eun Ik Soo
and 1 others

6,167

In-progress-

Claim for damages

December 31, 2014

December 31, 2013

H&DS

34. Other liabilities
Details of other liabilities as of December 31, 2014 and 2013 are as follows (Korean won in millions):

Accounts payable￦

Accrued expense payables

8,334,927 ￦

7,210,429

2,298,450

2,305,308

Advances

82,54264,767

Income in advance283,782

276,909

Policy reserve

2,019,163

1,716,595

Separate account liabilities

1,054,921

1,061,566

Borrowing from trust accounts

2,882,793

3,401,877

Foreign exchanges settlement credits

530,719459,232

Domestic exchange settlement credits

2,223,147

2,043,692

Deposits for letter of guarantees and others

559,197573,361

Taxes withheld

150,397

171,506

Security deposits received

24,992

21,040Accounts for agency businesses

274,125

238,329

Agency2,744,881

2,682,562

Others2,804,135

2,243,219(20,245)

Present value discount￦202

26,247,926 ￦(14,499)
24,455,893

Hana Financial Group Annual Report 2014

Details of policy reserve as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Premium reserve

December 31, 2013

1,989,827 ￦￦Prepaid premium reserve
Guaranteed reserve
Outstanding claim￦

1,694,851

859

747

9,042

6,157

19,435

14,8402,019,163 ￦

1,716,595

Changes in the policy reserve for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
January 1, 2014
Premium reserve￦

1,694,851 ￦

294,976 ￦

747

112

859

6,157

2,885

9,042

Prepaid premium reserve
Guaranteed reserve

January 1, 2013

Premium reserve

1,989,827

14,8404,595

19,435

1,716,595 ￦

302,568 ￦2,019,163

Outstanding claim￦

December 31, 2014

Changes

Increase due to the businesscombination

December 31, 2013

1,694,851

1,535,734 ￦

159,117 ￦Prepaid premium reserve

-

1,399

(652)

747

Guaranteed reserve

-

6,050

107

6,157

-

13,0791,761

14,8401,556,262 ￦

160,333 ￦

1,716,595￦

Outstanding claim￦- ￦Changes- ￦35. Capital stock and capital surplus
Details of capital stock as of December 31, 2014 and December 31, 2013 are as follows:

Number of shares authorized
Par value per share

December 31, 2014

December 31, 2013

800,000,000 shares

800,000,000 shares

5,000 ￦￦

289,894,062 shares

Number of shares issued

5,000
289,894,062 shares

Changes in capital stock and capital surplus from December 1, 2005 (inception) to December 31, 2014 are as follows (Korean won in millions except for
number of shares):
Date

SharesCommon stock

Capital surplus

Incorporation

Dec. 1, 2005

204,256,243 ￦

1,021,281 ￦Stock dividends

Mar. 24, 2006

2,042,562

10,213-

Shares swap (*1)

Oct. 13, 2006

5,552,788

27,764215,427

Paid-in capital increase

Feb. 21, 2011

31,198,170

155,991

1,168,759

Shares swap (*2)

Apr. 5, 2013

46,844,299

234,221

1,511,856

289,894,062 ￦

1,449,470 ￦

7,971,530(*1) Represents transactions the Company conducted to incorporate HD&S (formerly, Hana IB) into its subsidiaries.
(*2) Represents transactions the Company conducted to incorporate KEB into its wholly owned subsidiaries.

203

5,075,488

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Details of hybrid equity securities classified as equity attributable to equity holders of the parent as of December 31, 2014 and 2013 are as follows (Korean
won in millions):
AmountInterest rate(%)

Issuance date

Maturity

The 1th Hybrid Tier I

Feb. 21, 2011

Feb. 21, 2041

6.43 ￦

170,000 ￦170,000

The 2nd Hybrid Tier I

Feb. 28, 2011

Feb. 28, 2041

6.27

130,000

130,000

300,000

300,000

December 31, 2014

(879)

(879)

299,121 ￦299,121Issuance cost￦

December 31, 2013(*) 5 years after the hybrid equity securities are issued, these can be redeemed at any point before the maturity date with an approval of the governor of the
Financial Supervisory Service.
Capital surplus as of December 31, 2014 and 2013 consists of the followings (Korean won in millions):
December 31, 2014
Paid-in capital in excess of par value

December 31, 2013

7,971,530 ￦￦Gain on disposal of treasury stock
Other capital surplus￦

7,971,530

76,39771,7502,303,821

2,337,294

10,351,748 ￦

10,380,574

36. Capital adjustment
Details of capital adjustment as of December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
December 31, 2014
Treasury stock

December 31, 2013

- ￦￦(170,023)(13,122)

Other capital adjustment(238)(13,122) ￦￦(170,261)

Changes in the Group’s treasury stock for the years ended December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
January 1, 2014

Acquisition

Disposal

December 31, 2014

Number of shares

4,341,877

5,388(4,347,265)-

Carrying amount

170,023

210(170,233)-

January 1, 2013

Acquisition

Disposal

December 31, 2013

Number of shares

2,020,000

14,052,135(11,730,258)

4,341,877

Carrying amount

80,144548,173(458,294)

170,023

204

Hana Financial Group Annual Report 2014

37. Accumulated other comprehensive income
Changes in accumulated other comprehensive income for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Gain (loss) on
valuation ofavailable-for-sale financial assets

Changes in
unrealized gain
(loss) on valuationof equity method
investments(680) ￦

742,651

-

-

-

-

742,651

Realized gain of availablefor-sale securities(300,245)

-

-

-

-

(300,245)

Changes in unrealized gain
on valuation of equity
method investments-(13,987)---(13,987)

Changes in net gain (loss)
on cash flow hedges--(1,598)--(1,598)Changes in exchange
differences on transactionof foreign operations

-

-

-

24,625-

24,625

Changes in remeasurementsof the net defined
benefit liability (asset)

-

-

-

-

(107,425)(107,425)

Changes in the unrealized
loss of available-for-sale securities￦

Income tax effectDecember 31, 2014￦

(183,381) ￦(111,027) ￦Total

6,343 ￦

January 1, 2014

279,005 ￦Exchange
Remeasurements
differences onof the net definedtransaction
benefit liabilities
of foreign(assets)
operations

Net gain (loss)
on cash flow
hedges(9,740)(107,606)

3,385

387

(5,959)26,670(83,124)

613,805 ￦(4,259) ￦(1,891) ￦(164,715) ￦(191,782) ￦251,158

Year ended December 31, 2013
Gain (loss) on
valuation of availablefor-sale financial assets

January 1, 2013

Exchangedifferences ontransaction offoreign operations

Remeasurementsof the net defined
benefit liabilities(assets)(1,168) ￦(67,465) ￦101,795

-

-

-

-

101,795

Realized gain of availablefor-sale securities(250,420)

-

-

-

-

(250,420)

Changes in unrealized gain
on valuation of equity
method investments-(47,765)---(47,765)

Changes in net gain (loss)
on cash flow hedges

-

-

644

-

-

644

Changes in exchange
differences on transactionof foreign operations

-

-

-

(152,923)-(152,923)

Changes in remeasurementsof the net defined
benefit liability (asset)

-

-

-

-

(75,790)(75,790)

41,693

11,559(156)

37,007

18,033

108,136

279,005 ￦6,343 ￦

(680) ￦

(183,381) ￦(111,027) ￦(9,740)￦

Income tax effectDecember 31, 2013

205￦

(53,270) ￦Total

42,549 ￦Changes in the unrealized
loss of available-for-sale securities

385,937 ￦Changes in
unrealized gain
Net gain (loss) on(loss) on valuation
cash flow hedgesof equity method
investments

306,583

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

38. Retained earnings
Retained earnings as of December 31, 2014 and 2013 consist of the following (Korean won in millions):
December 31, 2014
Legal reserve (*)

458,261 ￦￦Voluntary reserve
Unappropriated retained earnings￦

December 31, 2013
458,261

3,774,744

4,058,226

4,555,918

3,466,351

8,788,923 ￦

7,982,838(*) In accordance with the Financial Holding Company Act, whenever dividends are paid, an amount equal to at least 10% of net income is required to be appropriated as a legal reserve until the reserve amount equals the aggregate par value of common stock. The legal reserve may not be utilized for cash dividends
but may only be used to offset a deficit, if any, or be transferred to capital.
Changes in retained earnings for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Beginning balance￦Year ended December 31, 2013

7,982,838 ￦

7,169,418

Net income

937,707933,877

Dividends(114,872)(103,545)

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

2,332

Others￦2,170

8,788,923 ￦

7,982,838

39. Regulatory reserve for bad debts
Regulatory reserve for bad debt is calculated and disclosed in accordance with Article 27, Section 1 and 2 of the Financial Holding Company Act.
Regulatory reserve for bad debt as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Beginning balance￦

Planned regulatory reserve for bad debts
Ending balance￦

Attributable to equity holders of the parent
Attributable to non-controlling interests

2,180,422 ￦December 31, 2013
2,047,850

23,297

132,572

2,203,719 ￦

2,180,422

2,125,288

2,100,229

78,43180,193

Provisions for bad debt reserve and income adjusted for deductions of provisions for bad debt for the years ended December 31, 2014 and 2013 are as follows.
Year ended December 31, 2014
Net income attributable to equity holders of the parent
before deducting provisions for bad debt￦

937,707 million ￦Year ended December 31, 2013

933,877 million

Provisions for bad debt reserve

25,059 million

133,663 million

Adjusted income after deducting provisions for bad debt

912,648 million

800,214 million

Basic earnings per share on adjustment after reflecting reserve for bad debt￦

3,091 ￦

2,902

Diluted earnings per share on adjustment after reflecting reserve for bad debt￦

3,082 ￦

2,893

206

Hana Financial Group Annual Report 2014

40. Operating income and expense
Total operating income for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014

Year ended December 31, 2013

10,215,433 ￦

10,534,899

Fee and commission income

2,535,613

2,478,039

Gain on financial assets and liabilities held-for-trading

11,612,168

9,225,566

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

168,372

215,060

Gain on derivative instruments used for hedging purpose

144,060

174,801

Gain on financial instruments

556,546

383,683

1,901,748

1,910,904

Interest income￦

Gain on foreign currency transactions

905

1,002

792,313564,597

27,927,158 ￦

25,488,552

Recovery of impairment loss on financial assets
Other operating income￦

Total operating expense for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Interest expense￦

Fee and commission expense
Loss on financial assets and liabilities held-for-trading

Year ended December 31, 2013

5,561,526 ￦6,049,858

917,786

885,223

11,332,761

8,992,009

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

326,498

278,685

Loss on derivative instruments used for hedging purpose

137,940

212,044

Loss on financial instruments

62,93598,206

Loss on foreign currency transactions

1,628,473

1,663,582

Impairment loss of financial assets

1,444,915

1,272,657

General and administrative expense

3,936,205

3,846,309

Other operating expense

1,334,672

1,024,968

26,683,711 ￦

24,323,542￦

41. Net interest income
Interest income for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Interest income on due from banks￦

Interest income on available-for-sale financial assets
Interest income on held-to-maturity investments
Interest income on loans receivable
OthersInterest income on financial assets designated at fair value through profit or loss
Interest income on financial assets held-for-trading￦

207

Year ended December 31, 2013

213,310 ￦

175,698

836,037

782,286

166,120

216,148

8,418,065

8,743,707

208,529

246,087

9,842,061

10,163,926

6,073

1,003

367,299

369,970

10,215,433 ￦

10,534,899

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSInterest expense for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Interest expense on deposit liabilities￦

Year ended December 31, 2013

3,812,113 ￦

4,076,492

Interest expense on borrowings

398,045414,676

Interest expense on debentures

983,497

1,169,574

Others￦367,871

389,116

5,561,526 ￦6,049,858

42. Net fee and commission income
Fee and commission income for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Fee and commission received from loans and others￦

Year ended December 31, 2013

757,045 ￦784,748

Fee and commission received on credit card

1,438,046

1,356,788

Fee and commission received on guarantee

84,38680,975

Fee and commission received from redemption before maturity
Fee and commission related foreign exchange
￦

6,041

5,927

250,095

249,601

2,535,613 ￦

2,478,039

Fee and commission expenses for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Commission paid borrowings and others￦

Commission paid on credit card
Commission related foreign exchangeYear ended December 31, 2013

254,909 ￦261,731654,189

616,738

8,627

6,683

61

Commission paid trust￦

71

917,786 ￦885,223

43. Gain (loss) on financial assets and liabilities held-for-trading
Gain (loss) on financial assets and liabilities held-for-trading for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014

Year ended December 31, 2013

Gain on financial assets and liabilities held-for-trading:
Trading securities:
Gain on valuation
Gain on disposal￦

77,143 ￦37,970156,321

117,523

Gain on redemption

328

199

Dividend income

4,526

5,655

238,318

161,347

Derivatives held for trading purpose:
Gain on valuation of derivatives:

208

Currency related derivatives

3,184,782

2,144,805

Interest related derivatives

788,606

391,753

Stock related derivatives

127,522

41,621Credit related derivatives

15,59828,097(Continued on next page)Hana Financial Group Annual Report 2014

Year ended December 31, 2014
Others related derivatives

Year ended December 31, 2013

136,671

90,0404,253,179

2,696,316

Gain on settlement of derivatives:
Currency related derivatives

6,091,916

5,408,754

Interest related derivatives

511,007596,806

Stock related derivatives

28,17099,158Credit related derivatives-

705

Others related derivatives

465,927

246,005

7,097,020

6,351,428

Gain on securities sold10,106

16,476

Gain on others

13,545-

11,612,168

9,225,567

Loss on financial assets and liabilities held-for-trading:
Trading securities:
Loss on valuation

18,613

46,245

Loss on disposal

96,524

174,685

10,705

10,321￦

125,842 ￦

231,251￦

Loss on redemption
Derivatives held for trading purpose:
Loss on valuation of derivatives:

3,222,283 ￦2,077,581

Interest related derivatives

811,789

377,528

Stock related derivatives

133,039

96,988Credit related derivatives

12,326

28,626

Others related derivatives

91,731

119,638

4,271,168

2,700,361

Currency related derivatives

Loss on settlement of derivatives:
Currency related derivatives

5,936,252

5,246,489

Interest related derivatives

566,047

580,764

Stock related derivatives

27,981

96,325Credit related derivatives-

889

Others related derivatives

350,630

108,235

6,880,910

6,032,702

Loss on securities sold￦

54,841

27,696

11,332,761

8,992,010

279,407 ￦

233,557

44. Gain (loss) on financial assets and liabilities designated at fair value through profit or loss
Gain (loss) on financial assets and liabilities designated at fair value through profit or loss for the years ended December 31, 2014 and 2013 are as follows(Korean won in millions):
Year ended December 31, 2014

Year ended December 31, 2013

Gain on financial assets and liabilities designatedat fair value through profit and loss:
Securities designated at fair value through profit and loss:
15,535 ￦2,379

Gain on redemption

1,672

210

Gain on disposal

7,506

5

24,713

2,594

Gain on valuation￦(Continued on next page)209

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Year ended December 31, 2014

Year ended December 31, 2013

3,321

-

Gain on valuation

1,657

-

Gain on disposal

26-

Gain on valuation

115,338

194,012Gain on redemption

23,31718,454

138,655

212,466

168,372 ￦

215,060

2,570 ￦

26,632Derivative linked securities purchased:
Gain on valuation
Deposit liabilities

Derivative linked securities sold:￦
Loss on financial assets and liabilities designated at fair value through profit and loss:
Securities designated at fair value through profit and loss:
Loss on valuation￦

Loss on disposal

2,022

111

1,715

-

3,161

6,436

Deposit liabilities
Loss on valuation
Derivative linked securities purchased:
Loss on valuation
Derivative linked securities sold:
Loss on valuation

162,115

87,405

Loss on redemption

154,915

158,101

317,030

245,506

326,498

278,685(158,126) ￦(63,625)￦

45. Gain (loss) on derivative instruments used for hedging purpose
Gain (loss) on derivative instruments used for hedging purpose for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014

Year ended December 31, 2013

Gain on derivative instruments used for hedging purposes:
Hedged item:
Gain on valuation of hedged item:
Debentures
Deposits￦

35,315 ￦81,921

3,252

86,862

38,567

168,783

Gain on disposal of hedged item:
4,253

2,109

-

1,579

4,253

3,688

Currency related derivatives

3,002

566

Interest related derivatives

88,3001,494

91,302

2,060

Currency related derivatives-

264

Interest related derivatives

9,938

6

Debentures
Deposits
Derivative instruments used for hedging purposes:
Gain on valuation of derivatives:

Gain on settlement of derivatives:(Continued on next page)

210

Hana Financial Group Annual Report 2014

Year ended December 31, 2014

Year ended December 31, 2013

9,938

270

￦

144,060 ￦

174,801￦

31,756 ￦8,118

Loss on derivative instruments used for hedging purposes:
Hedged item:
Loss on valuation of hedged item:
Debentures
Deposits

59,572

140

91,328

8,258

-

-

10,137-

10,137-

Loss on disposal of hedged item:
Debenture
Deposits
Derivative instruments used for hedging purposes:
Loss on valuation of derivatives:
Currency related derivatives

335,483

Interest related derivatives

36,480163,996

36,483

199,479

Loss on settlement of derivatives:
Currency related derivatives

(43)

618

Interest related derivatives

35

3,689

￦

(8)

4,307

137,940

212,044

6,120 ￦

(37,243)

46. Net other income on financial instruments
Net other income on financial instruments for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014

Year ended December 31, 2013

Other income on financial instruments:
Available-for-sale financial assets:
Gain on disposal￦

415,477 ￦

237,110Gain on redemption

8,345

26,352

Dividend income

42,85536,935

466,677

300,397492

345

Held-to-maturity investments:
Gain on disposal
Loans receivable:
Gain on disposal

89,377

82,941

556,546

383,683

35,636

67,242

27,29930,964

Other loss on financial instruments:
Available-for-sale financial assets:
Loss on disposal
Loans receivable:
Loss on disposal￦

211

62,93598,206493,611 ￦285,477

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

47. Impairment loss of financial instruments
Impairment loss on financial instruments for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014

Year ended December 31, 2013

Available-for-sale financial assets
Impairment loss￦

311,119 ￦

163,306(905)(1,002)

1,113,854

1,092,403

Recovery of impairment loss
Loans receivable
Provision for possible loan losses
Other assets

19,942

Provision for possible other assets losses￦

16,9481,444,010 ￦

1,271,655

48. General and administrative expenses
General and administrative expenses for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Salaries￦Year ended December 31, 2013

1,838,265 ￦

1,810,713
130,925

Provision for severance and retirement benefits

181,291

Termination benefits

93,02751,611

Employee benefits

104,403125,766
296,333

Rental expenses

299,002

Entertainment expenses

42,69142,740Depreciation on property and equipment

171,195

173,918

5,145

4,581

Amortization

289,970

312,503131,834

Depreciation on investment property
Taxes and dues

145,600

Advertising expenses

139,909

135,950Servicing expenses

237,653

164,650

Supplies expense

13,034

10,622Others￦375,020454,163

3,936,205 ￦3,846,309

49. Other operating income
Other operating income for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Reversal of allowances for unused commitments
Reversal of allowance for possible losses on acceptances and guarantees
Reversal of allowance for restoration cost
Reversal of allowance for lawsuits
Adjustment for offered price￦Year ended December 31, 2013

4,243 ￦

2,967

6,482

-

-

1,414

70,229--133

Reversal of credit valuation adjustment

10,616

6,438

Trust commissions

147,526

89,081Gain on redemption of debenture

-

2,914

Gains on business combination-

73,602(Continued on next page)212

Hana Financial Group Annual Report 2014

Year ended December 31, 2014-

19,594448,471244,641

Income from recovery of bad debts
Insurance profit
Others￦Year ended December 31, 2013

104,746

123,813792,313 ￦564,597

50. Other operating expense
Other operating expenses for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Provision of allowances for possible losses on acceptances and guarantees- ￦￦Provision of allowance for restoration cost
Provision for reward points

Year ended December 31, 2013
9,203

146

-

43,05433,848-35,378Provision of allowance for other losses

3,481

-

Adjustment for offered price

5,097

-

Provision of allowance for lawsuits

Contribution to guarantee fund273,320

245,869

Insurance fee on deposit

287,698

269,847

Contribution to housing credit guarantee fund72,00663,992

Insurance cost

200,767

78,776

Provision for policy reserves

302,486

160,333

Others￦146,617

127,722

1,334,672 ￦

1,024,968

51. Other non-operating income
Other non-operating income for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Rental fee income￦

Year ended December 31, 2013

11,020 ￦10,360

Disposal of property and equipment
Disposal of investment property
Disposal of investment in associates
Others
￦

9,917
583

187

65

2,750

47,921

65,92080,124

90,237 ￦138,610

52. Other non-operating expense
Other non-operating expenses for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Disposal of property and equipment￦

Year ended December 31, 2013

8,185 ￦

1,610

Disposal of investment in associates

3,164

4

Contribution

41,03264,205

Impairment loss on intangible assets

26,034

12,055(Continued on next page)213

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Year ended December 31, 2014

Year ended December 31, 2013

Impairment loss on investments in associates and joint venture

31,984

513

Commissions received on collection of special bond

4,753

3,229

88,41036,944

203,562 ￦

118,560

Others
￦53. Income taxes
The major components of income tax expense for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014

Year ended December 31, 2013

378,070 ￦

321,356(39,176)(32,344)

Changes of deferred income taxes due to the tax effect of temporary differences65,207(11,055)

Current and deferred income taxes recognized directly to equity(76,129)

12,282

Tax effect of consolidated tax returns(55,198)(12,934)

272,774 ￦

277,305

Current income taxes￦

Additional refundof prior year’s income tax

Income tax expense￦

Reconciliations of income tax expense applicable to income before income tax at the Korea statutory tax rate to income tax expense at the effective income
tax rate of the Group for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014
Income before income tax

Year ended December 31, 2013

1,252,563 ￦￦

1,270,273

Tax at domestic statutory income tax rate of 24.2%

300,787

307,406

Income not subject to tax(10,073)(16,545)

Expenses not deductible for tax purposes

15,26029,017

Tax deduction(23,293)(7,687)

Income tax expense of foreign branches and subsidiaries(6,618)25,181

Tax effect of consolidated tax return

21,757(12,934)

Additional refund of prior year’s income tax(55,198)(32,344)

Tax effect of bargain purchase(39,176)(17,812)

Effect of tax rates change, etc

924

2,694

68,404

OthersIncome tax expense329

272,774 ￦￦

277,305

21.8

Effective income tax rate (%)

21.8

Temporary differences and deferred income tax assets (liabilities) as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Deductible (taxable) temporary differences

Deferred income tax assets (liabilities)

78,157 ￦18,954

Impairment loss on investments

541,405

129,997

Gain on valuation of investments in subsidiaries(342,571)(81,990)

Gain on valuation of trading securities￦

Gain on valuation of derivatives

13,713

3,244

Deemed dividends

10,1092,446

Deferred loan fees and expenses(131,303)(31,787)(Continued on next page)214

Hana Financial Group Annual Report 2014

December 31, 2014
Deductible (taxable) temporary differences

Deferred income tax assets (liabilities)

Accrued interest income(379,290)(91,774)

Accrued expenses

160,785

38,458

Allowance for acceptance guarantees

51,242

12,400

Deposit for severance and retirement benefits(879,669)(212,202)

Provision for severance and retirement benefits

984,442

237,648

Allowance for other losses

201,291

48,709Loans written-off

411,653

98,891

Depreciation

42,20910,183

Fair value valuation resulting from merger(14,870)(3,598)

6,879

1,665

Advanced depreciation provision(180,315)(43,636)

Deemed cost for property and equipment(595,773)(144,177)

Available-for-sale financial assets(894,897)(215,565)

Tax loss carryforwards

179,724

41,352

Investment in kind

137,879

33,367

Dormant deposits

Financial acceptances and guarantees

22,723

5,499

Deferred point income

104,749

23,116

Fair value differences due to the business combination(829,505)(195,463)

Others￦(3,879)(7,828)(1,305,112) ￦(322,091)(322,091)

Domestic deferred income tax liabilities
Foreign deferred income tax assets (*)

51,045

Foreign deferred income tax liabilities (*)(32,167)(303,213)￦

December 31, 2013
Deductible (taxable) temporary differences
Gain on valuation of trading securities￦(498,977) ￦Deferred income tax assets (liabilities)(119,699)

Impairment loss on investments

554,664

134,098

Gain on valuation of investments in subsidiaries(196,461)(46,734)

Gain on valuation of derivatives(204,049)(49,445)

Deemed dividends

4,006

968

Deferred loan fees and expenses(106,984)(25,568)

Accrued interest income(367,351)(87,983)

Allowance for temporary depreciation
Accrued expenses
Allowance for acceptance guarantees

420

102

167,031

40,09165,473

15,845

Deposit for severance and retirement benefits(738,655)(178,649)

Provision for severance and retirement benefits

784,251

189,627

Allowance for other losses

349,341

83,959Loans written-off

690,348

166,725

Depreciation

36,231

8,752

Fair value valuation resulting from merger(11,358)(2,749)Dormant deposits

4,909

1,188

Advanced depreciation provision(180,315)(43,636)

Deemed cost for property and equipment(597,773)(144,661)(Continued on next page)215

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2013
Deductible (taxable) temporary differences

Deferred income tax assets (liabilities)

Available-for-sale financial assets(323,589)(78,119)

Tax loss carryforwards

232,843

45,263

Investment in kind

137,879

33,367

Financial acceptances and guarantees

28,872

6,981

Deferred point income

66,51516,097

Fair value differences due to the business combination(972,018)(235,228)

Others(96,144)￦(151)(1,170,891) ￦(269,559)

Domestic deferred income tax liabilities(269,559)

Foreign deferred income tax assets (*)

45,595

Foreign deferred income tax liabilities (*)(34,888)(258,852)￦(*) Deferred income tax assets of foreign branches are not offset against the deferred income tax liabilities due to differences in tax jurisdictions.
The effective income tax rate of 24.2% is applied when calculating deferred income tax assets or liabilities that will be realized. Also, deferred income tax assets are recognized when it is foreseeable that future taxable income will be incurred and that future tax credits will be realized.
Details of deferred income taxes charged (credited) directly to equity as of December 31, 2014 and 2013 are as follows (Korean won in millions):
December 31, 2014
Before tax amounts
Gain on valuation of available-for-sale financial assets￦

Deferred income tax assets (liabilities)

650,985 ￦(160,785)

Loss on valuation of derivative instruments(5,520)Changes in valuation of equity method investments(16,106)

3,895

7,401

(2,292)

Exchange differences on translation of foreign operations
Remeasurements of the net defined benefit liability (asset)
￦

1,221

52,289(12,842)

689,049 ￦(170,803)

December 31, 2013
Before tax amounts

Gain on valuation of available-for-salefinancial assets￦

Loss on valuation of derivative instruments
Changes in valuation of equity method investments
Exchange differences on translation of foreign operations
Remeasurements of the net defined benefit liability (asset)￦

216

352,083 ￦Deferred income tax assets (liabilities)(81,090)

139

(71)

7,900

(1,557)(14,199)3,444(42,834)

10,347303,089 ￦(68,927)

Hana Financial Group Annual Report 2014

54. Dividends
Details of the Group’s dividend including interim dividend for the years ended December 31, 2014 and 2013 are as follows (Korean won in units):
Year ended December 31, 2014
Number of shares

Dividend per share

Dividend pershare ratio (%)

Dividends

Cash dividend (interim)

289,894,062 ￦150

3.00 ￦

43,484

Cash dividend (annual)

289,894,062

450

9.00

130,452￦

173,936

Year ended December 31, 2013
Number of shares

Dividend per
share

Dividend pershare ratio (%)

Dividends

Cash dividend (interim)

288,583,804 ￦

150

3.00 ￦

43,287

Cash dividend (annual)

289,894,062

250

5.00

72,474￦

115,761

Details of the Group’s dividend payout ratio and dividend yield ratio for the years ended December 31, 2014 and 2013 are as follows.
Calculating formulaYear ended December 31, 2014

Year ended December 31, 2013

Dividend payout ratio (%)

Cash dividends / Net income

17.75

11.66

Dividend yield ratio (%)

Cash dividends per share /Market value per share atreporting date

1.88

0.91

Details of dividends on hybrid equity securities for the years ended December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
Year ended December 31, 2014
Par value￦

Weighted-average interest rate
Total dividends￦

Year ended December 31, 2013

300,000 ￦300,000

6.36 %

6.36 %

19,082 ￦19,082

55. Earnings per share
Weighted-average numbers of common shares for the years ended December 31, 2014 and 2013 are calculated as follows (shares in units):
Year ended December 31, 2014

Year ended December 31, 2013

285,552,185

241,029,763-

34,780,288

Issuance of common shares(4,315)(10,425,858)

Disposal of treasury shares

3,572,599

3,782,023

289,120,469

269,166,216

Beginning
Share swap

Weighted-average number of shares of common stocks outstanding

217

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALSThe Group’s basic earnings per share for the years ended December 31, 2014 and 2013 are calculated as follows (Korean won and per share amounts in units):
Year ended December 31, 2014
Net income for the period￦

Dividends on hybrid equity securities
Net income attributable to common stockYear ended December 31, 2013

937,706,832,786 ￦

933,876,852,111(19,082,000,000)(19,082,000,000)

918,624,832,786 ￦￦

914,794,852,111

289,120,466 shares

Weighted-average number of shares of common stocks outstanding
Basic earnings per share

269,166,216 shares

3,177 ￦￦

3,399

Weighted-average numbers of common shares adjusted for the effect of dilution for the years ended December 31, 2014 and 2013 are calculated as follows(shares in units):
Year ended December 31,
Year ended December 31, 20132014
Weighted-average number of common shares of outstanding for basic earnings per share

289,120,469

269,166,216

843,300

869,210

289,963,769

270,035,426

Dilution effect due to:
Stock grants
Weighted-average number of common shares (Diluted)

The Group’s diluted earnings per share for the years ended December 31, 2014 and 2013 are computed as follows (Korean won and number of shares in units):
Year ended December 31,
Year ended December 31, 20132014
Net income attributable to common stock holders

918,624,832,786 ￦￦

289,963,769 shares

Weighted-average number of shares of common stocks outstanding (Diluted)
Diluted earnings per share

914,794,852,111
270,035,426 shares

3,168 ￦￦

3,388

56. Share-based payment transactions
The Group has granted employees and directors of HFG and its subsidiaries share options which may be settled by the issuance of additional shares or bycash payment equal to the difference between the market value and exercise price.
Details of outstanding share options granted by HFG as of December 31, 2014 are as follows (in Korean won, rate in %):Assumptions to estimate fair value of the stock options
Settlement
methodExercise
price

Exercisable
period (*2)

Maturity

2009.03.12

(*1)

5,800

2011.03.13~
2016.03.12

2009.08.04(*1)

10,9002010.03.10(*1)

2010.03.30(*1)

Grant date

Optionpricing
model

Risk
free
rate
(%)

Expected
exerciseperiodEstimatedshare
volatility (%)(*3)

Expected
dividend

Stock priceat thegrant date

Fair valueof shareoptions

201603-12

BlackScholes

0.13

5.9

17.99

483

5,700

280

2011.08.05~
2016.08.04

201608-04

BlackScholes

2.07

5.9

28.44

483

11,7001

13,2002013.03.11~
2017.03.10

201703-10

BlackScholes

2.08

5.9

23.51

483

13,450-13,5002013.03.31~
2017.03.30

201703-30

BlackScholes

2.08

5.9

22.92

483

13,600-<KEB>(Continued on next page)218

Hana Financial Group Annual Report 2014

Assumptions to estimate fair value of the stock options
Grant dateSettlement
methodExercise
price

Exercisable
period (*2)

Maturity

2010.08.04(*1)

12,4002013.08.05~
2017.08.04

2010.09.29(*1)

13,5002011.08.10(*1)

2011.08.26
2011.09.02

Optionpricing
model

Risk
free
rate
(%)

Expected
exerciseperiodEstimatedshare
volatility (%)(*3)

Expected
dividend

Stock priceat thegrant date

Fair valueof shareoptions

201708-04

BlackScholes

2.08

5.9

23.62

483

12,3005

2013.09.29~
2017.09.28

201709-28

BlackScholes

2.08

5.9

24.47

483

13,5505

9,100

2014.08.11~
2018.08.10

201808-10

BlackScholes

2.09

5.9

27.38

483

8,060

305

(*1)

8,500

2014.08.27~
2018.08.26

201808-26

BlackScholes

2.09

5.9

27.22

483

7,720

394

(*1)

8,400

2014.09.03~
2018.09.02

201809-02

BlackScholes

2.09

5.9

27.12

483

7,930

  410

(*1) KEB chooses one of the following at its discretion: additional equity issue grants, treasury stock grant or cash settlement.
(*2) The above stock options will vest after a two-year vesting period and become exercisable within 3 years after the vesting date, except if KEB’s employees
or directors retire at the regular retirement age or for reasons not attributable to the fault of the employees or directors, such options will vest and become
exercisable immediately within 6 months from the retirement date (one year for the second granted options), or if death of KEB’s employee or director occurs,such options will vest and become exercisable immediately within two years from the date of death. In addition, if KEB’s employee or director is terminatedvoluntarily after the options have become vested, such options should be exercised within 30 days from the termination date.
(*3) Estimated share volatility is assessed based on the volatility of KEB’s share price for the same period as the expected exercise period.
Changes in stock options granted by the Group for the years ended December 31, 2014 are summarized as follows (number of shares in units):<KEB>
Grant dateCompany

Beginning

Forfeited

Exercised

Exercisable

2009.03.12

KEB

490,000(56,260)(181,035)

252,705

2009.08.04

KEB

470,000(54,390)-415,610

2010.03.10

KEB

350,000(37,650)-

312,350

2010.03.30

KEB360,000(122,860)-

237,140

2010.08.04

KEB

420,000(168,110)-

251,890

2010.09.29

KEB

90,000(72,190)-

17,8102011.08.10

KEB

550,000(217,000)-

333,000

2011.08.26

KEB

100,000(57,710)-

42,2902011.09.02

KEB

30,000(18,750)-

11,2502,860,000(804,920)(181,035)

1,874,045

The Group calculates compensation costs for stock options by using fair value approach. Because associates of the Group allocate on a straight line basis overcontractual service periods by using the fair value approach, there is no compensation costs, for stock options, to be recognized for and after the current term.
The details of stock grants as of December 31, 2014 are summarized as follows:

Grant dateSettlement method

Exercisable period(appraisal period)

Payment date

Estimated vested
shares as ofDecember 31, 2014

<HFG>
Grant in 20122012.01.01(*1)

2012.01.01~2014.12.31

2014.12.31

154,920

Grant in 20132013.01.01(*1)

2013.01.01~2015.12.31

2015.12.31

176,050(Continued on next page)

219

GROUP OVERVIEW

Grant in 2014

REVIEW OF OPERATIONS

2014.01.01

FINANCIALS(*1)

2014.01.01~2016.12.31

2016.12.31

138,450<KEB>
Grant in 20102010.08.04

Cash settlement

2012.08.04 ~ 2015.08.04

2012.08.04

11,270Grant in 20112011.09.21

Cash settlement

2013.09.21 ~ 2016.09.20

2013.09.21

130,250

Grant in 20102010.02.19

Cash settlement

2012.02.19 ~ 2015.02.18

2012.02.19

10,375Grant in 20102010.08.11

Cash settlement

2011.08.11 ~ 2014.08.10

2011.08.11

2,285

Grant in 20102010.08.11

Cash settlement

2012.08.11 ~ 2015.08.11

2012.08.11

2,855

Grant in 20112011.02.21

Cash settlement

2012.02.21 ~ 2015.02.20

2012.02.21

10,190Grant in 20112011.02.21

Cash settlement

2013.02.21 ~ 2016.02.21

2013.02.21

4,140

Grant in 20112011.02.21

Cash settlement

2012.02.21 ~ 2015.02.20

2012.02.21

8,065

Grant in 20112011.02.21

Cash settlement

2013.02.21 ~ 2016.02.21

2013.02.21

2,595

Grant in 20112011.03.21

Cash settlement

2012.03.20 ~ 2015.03.20

2012.03.20

50

Grant in 20112011.03.21

Cash settlement

2013.03.20 ~ 2016.03.19

2013.03.20

316

Grant in 20112011.03.21

Cash settlement

2014.03.20 ~ 2017.03.19

2014.03.20

344

Grant in 20112011.09.08

Cash settlement

2012.09.08 ~ 2015.09.08

2012.09.08

500

Grant in 20112011.09.08

Cash settlement

2013.09.08 ~ 2016.09.07

2013.09.08

430

Grant in 20122012.02.21

Cash settlement

2013.02.22 ~ 2017.02.21

2013.02.22

7,105

Grant in 20122012.02.21

Cash settlement

2014.02.22 ~ 2017.02.21

2014.02.22

13,855Grant in 20122012.02.21

Cash settlement

2013.02.22 ~ 2017.02.21

2013.02.22

715

Grant in 20122012.02.21

Cash settlement

2014.02.22 ~ 2017.02.21

2014.02.22

39,165(*1) HFG chooses one of the following at its discretion: treasury stock grant or cash settlement.
(*2) The maximum number of shares to be compensated is pre-determined before the grant date, and vested shares are determined by performance measures. The performance assessment consists of the group performance assessment (relative shareholder return) constituting 40% and the business unit
performance assessment (unit ROE, ROIC) constituting 60% of the total performance scorecard.
The stock grant liabilities in accounts payable are in the amount ￦18,630 million as of December 31, 2014 (\29,278 million as of December 31, 2013). The
Group uses the cash settlement method in connection with the stock grant liabilities based on past practice, and compensation costs are recorded by remeasuring fair value of liabilities at the end of every vesting year.

57. Cash flow information
Cash on hand as of December 31, 2014 and 2013 is summarized as follows (Korean won in millions):
December 31, 2014
Cash￦

2,895,743 ￦December 31, 2013
3,514,869

Due from banks in Korean won

10,965,345

7,744,924

Due from banks in other banks

8,396,643

8,083,425

22,257,731

19,343,218

Restricted balances

10,068,991

7,048,475

Due from banks with original maturities exceeding
three months from the date of acquisition

2,517,095

2,280,151

9,671,645 ￦

10,014,592￦

220

Hana Financial Group Annual Report 2014

Significant non-cash transactions for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014

Year ended December 31, 2013

1,176,039 ￦

1,370,436

Changes in gain or loss on valuation of available-for-sale financial assets, net

442,208(141,071)

Debt-to-equity swap

38,705

9,427

Decrease in allowance for possible loan losses due to sale of non-performing
loans

89,981

72,453Loans written-off￦

Cash flows from interest and dividend for the years ended December 31, 2014 and 2013 are as follows (Korean won in millions):
Year ended December 31, 2014

Year ended December 31, 2013

10,183,740 ￦

10,500,748

Interest payments(5,405,074)(6,301,499)

Dividend receipts

108,550

68,369Interest receipts￦

58. Related party transactions
Details of transactions with related parties for the years ended December 31, 2014 and 2013 are summarized as follows (Korean won in millions):
Year ended December 31, 2014
IncomeRelated party

Type

Mirae Credit
Information
Services Corp.

Associate ￦Korea Credit
BureauAssociate

Darby-Hana
Infrastructure FundManagement

Interest
income22 ￦ExpenseFee andcommission
incomeOther income

Bad debt
expenseInterest
expenseFee andcommission
expenseOther
expense

- ￦

- ￦

(1) ￦

116 ￦

4,311 ￦

-

-

5

-

(2)

33

-

-

Associate

-

-

1

-

194

-

-

UAM Co., Ltd.

Associate

4,117

-

1,025

-

-

-

50

Hana UBS AssetManagement

Associate-

15,593

-

-

101

-

-

Odin2.LLC

Associate

1,809

5

-

-

-

-

-

Doosan CapitalCo., Ltd.

Associate

41

-

-

-

48

-

2

F&U Credit
Information

Associate

-

1

-

-

-

1,142

12,085

Korea Travels

Associate

-

323

-

-

136

372

1,630

MIDAN City
Development Co.,
Ltd

Associate

581

212

-

-

1

-

-

NajeonCo., Ltd.

Associate

67

-

-

-

48

-

-

LIG NEX1
Co., Ltd.

Associate

30

67

22

-

25

-

-

(Continued on next page)221

GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

Year ended December 31, 2014
IncomeRelated party

Expense

Type

Interest
incomeFee andcommission
incomeFlossom
Corporation

Associate

1

-

1

-

1

-

-

Taewon Lighting
Co.,Ltd.

Associate

6

-

-

-

-

-

-

Plakor Co., Ltd.

Associate

497

-

12

-

352

-

-

Hyundai Cement
Co., Ltd.

Associate

9

-

-

(2)

-

-

-

HN NSCPrivate Equity
Fund

Associate

-

6

-

-

-

-

-

167

31

216

-

168

-

-

7,347 ￦

16,243 ￦1,277 ￦

(5) ￦1,223 ￦

5,825 ￦Key management
personnel￦

Other income

Bad debt
expenseInterest
expenseFee andcommission
expenseOther
expense13,767

Year ended December 31, 2013
Related party

Type

IncomeExpenseMirae Credit Information Services Corp.

Associate ￦Taesan LCD Co., Ltd.

Associate

1,050

13 ￦

4,307
357

Korea Credit Bureau

Associate

1

1,831

Darby-Hana Infrastructure FundManagement

Associate-180

UAM Co., Ltd.

Associate

5,686

1,413

Hana UBS Asset Management

Associate

1,604

34

Odin2.LLC

Associate

1,777

-

F&U Credit Information

Associate

178

17,739Korea Travels

Associate

378

640

MIDAN City Development Co., Ltd

Associate

1,314

-

Najeon Co., Ltd.

Associate

118

64

LIG NEX1 Co., Ltd.

Associate

179-

Sambo Motors Co., Ltd.

Associate

175-

12,473 ￦￦26,565

Outstanding balances with related parties arising from the below transactions as of December 31, 2014 and December 31, 2013 are summarized as follows(Korean won in millions):
December 31, 2014
Related party

AssetsType

Loans
Other receivables
receivables

Mirae Credit Information
Services Corp.

Associate ￦- ￦Korea Credit Bureau

Associate-

Darby-Hana Infrastructure
Fund Management

Associate

UAM Co., Ltd.
Hana UBS AssetManagement

222

175 ￦

Allowance forpossibleloan losses

Liabilities
Deposits

Debentures

Other payables- ￦5,761 ￦

- ￦

-

-

-

1,549

-

4

-

10

-

7,317

-

-

Associate-

96,912-

5--

Associate

-

2,862

-

6,705

-

-

(Continued on next page)Hana Financial Group Annual Report 2014

December 31, 2014
AssetsRelated party

Type

Allowance forpossibleloan losses

Loans
Other receivables
receivables

Liabilities
Deposits

Debentures

Other payables

Odin2.LLC

Associate

29,093

-

195

-

-

-

Doosan Capital Co., Ltd.

Associate

8,000

79

-

25,055-9

F&U Credit Information

Associate

-

498

-

-

-

1,105

Korea Travels

Associate

-

9

-

6,500

-

-

MIDAN City Development
Co., Ltd

Associate

-

18

2

-

-

-

Najeon Co., Ltd.

Associate

1,300

-

-

236

-

-

LIG NEX1 Co., Ltd.

Associate

-

51

-

3

-

29

Taewon Lighting Co.,Ltd.

Associate

1,000

2

-

-

-

-

Plakor Co., Ltd.

Associate

12,625

-

-

4,125

-

-

Hyundai Cement Co., Ltd.

Associate

979

1

-

-

-

-

HN NSC Private Equity
Fund

Associate

-

6

-

-

-

-

4,088

-

-

10,621-

24

67,877 ￦- ￦Key management
personnel￦

57,085 ￦100,623 ￦

197 ￦

1,171

December 31, 2013
Related party

Type

AssetsAllowance for possible
loan losses
2 ￦Liabilities

Mirae Credit Information Services Corp.

Associate ￦1,177 ￦

Taesan LCD Co., Ltd.

Associate

7,356

293

11,813

5,193

Korea Credit Bureau

Associate

2

-

2,012

Darby-Hana Infrastructure FundManagement

Associate

-

-

6,126

UAM Co., Ltd

Associate

125,634-

3

Hana UBS Asset Management

Associate

100,058-

2,290

Odin2.LLC

Associate

29,070162-

F&U Credit Information

Associate

291

-

1,182
7,052

Korea Travels

Associate

82

MIDAN City Development Co., Ltd

Associate

19,723130

34

Najeon Co., Ltd.

Associate

2,200

12

1,796

LIG NEX1 Co., Ltd.

Associate--

3

Sambo Motors Co., Ltd.

Associate

4,000

22

289,519 ￦

623 ￦

￦

37,504As of December 31, 2014, money transactions between related parties are as follows.
December 31, 2014
Related party

Type

Changes in loans
receivables

545 ￦Investment in cash

Mirae Credit Information Services Corp.

Associate ￦Korea Credit Bureau

Associate-(1,496)-

Darby-Hana Infrastructure FundManagement

Associate

-

1,191

-

UAM Co., Ltd

Associate-

1-

Hana UBS Asset Management

Associate

-

4,415

223

(1,000) ￦Changes in deposits
and Debentures-(Continued on next page)GROUP OVERVIEWREVIEW OF OPERATIONSFINANCIALS

December 31, 2014
Type

Related party

Changes in loans
receivables

Changes in deposits
and Debentures

Investment in cash

Odin2.LLC

Associate

23

-

-

Doosan Capital Co., Ltd.

Associate

8,000

-

-

Korea Travels

Associate

-

(552)

-

MIDAN City Development Co., Ltd

Associate(19,723)--

Najeon Co., Ltd.

Associate

(900)

1,214

-

Korea Finance Security Co., Ltd

Associate-(10,000)(807)

Taewon Lighting Co.,Ltd.

Associate

1,000

-

-

Plakor Co., Ltd.

Associate(375)

16,427-

Hyundai Cement Co., Ltd.

Associate

979

-

-

Key management personnel

Associate(666)(16,762)(12,662) ￦￦-(5,017) ￦(807)

Collateral provided between related parties as of December 31, 2014 and 2013 is summarized as follows (Korean won in millions):
December 31, 2014
Related parties

KEB
KEB

Transactions

Beneficiary

Benefactor

Amounts

LIG NEX1 Co., Ltd.

Issuance of Import L/C ￦3,380

LIG NEX1 Co., Ltd.

Guarantee ￦11,684

Content

December 31, 2013
Related parties
Transactions

Amounts

Content

LIG NEX1 Co., Ltd.

Guarantee for F/X ￦24,640Unconfirmed guarantee

LIG NEX1 Co., Ltd.

Guarantee ￦16,570KEB

LIG NEX1 Co., Ltd.

Issuance of Import L/C ￦

356

KEB

LIG NEX1 Co., Ltd.

Guarantee ￦18,232

Benefactor

Beneficiary

Hana Bank
Hana Bank

Details of compensation paid to key management personnel for the years ended December 31, 2014 and 2013 are summarized as follows (Korean won in
millions and number of personnel in units):
Year ended December 31, 2014
Registereddirectors

Nonregistereddirectors

Short-term
employeepayment

Severance
payment

Share-based
compensation expenses

HFG

8

15 ￦

3,882 ￦

248 ￦Hana Bank

9

17

7,784

819

KEB

3

15

4,922

H&DS

7

6

3,697

Hana Capital

3

1

818

Hana I&S

5

1

1,565

Hana Card

8

7

2,658

Hana Asset Trust

3

7

1,798

HIF

4

1

210

377 ￦

Total

4,507

1,578

10,181

182

9

5,113

181

682

4,560

53

198

1,069

-

27

1,592

117

319

3,094

108

248

2,154

-

10

220

(Continued on next page)224

Hana Financial Group Annual Report 2014

Year ended December 31, 2014
Registereddirectors

Nonregistereddirectors

Hana Life Insurance

5

2

607

38

222

867

Hana Savings Bank

5

8

1,182

23

168

1,373

Hana Bancorp, Inc.

7

1

42

-

-

42

67

81 ￦

29,165 ￦1,769 ￦

3,838 ￦

Short-term
employeepayment

Severance
payment

Share-based
compensation expenses

Total

34,772

Year ended December 31, 2013
Registereddirectors

Non- registereddirectors

Short-term
employeepayment

Severance
payment

Share-based
compensation expenses

Total

HFG

12

13 ￦

6,377 ￦

255 ￦

2,393 ￦

9,025

Hana Bank

15

14

6,959

469

1,863

9,291

KEB

10

6

2,838

203

(5)

3,036

H&DS

7

9

3,817

192

1,130

5,139

Hana Capital

3

-

852

169

259

1,280

Hana I&S

3

2

855

-

-

855

Hana SK Card

7

5

2,059

49

687

2,795

Hana Asset Trust

3

7

1,557

110

532

2,199

HIF

4

1

210

-

18

228

Hana Life Insurance

5

-

413

29

(22)

420

Hana Savings Bank

5

8

948

58

122

1,128

Hana Bancorp, Inc.

9

2

428

9

-

437

83

67 ￦

27,313 ￦1,543 ￦

6,977 ￦

35,833

59. Business Combination
59.1 Merger between Hana SK Card and KEB Card
Hana SK Card merged into Korea Exchange Bank Credit Service Co., Ltd. (KEB Card) on December 1, 2014 and KEB Card changed its name to KEB Hana
Card. As a result of the merger, the Company, the majority shareholder of KEB Hana Card, owns 74.58% (266,015,485 common shares) of KEB Hana Card,the combined entity.
The common shares were exchanged at a ratio of 1 common share of Hana SK Card for 1.1731316 common shares of KEB Card both with the face value pershare of \5,000.
59.2 Hana Bank (China) Co., Ltd.’s acquisition of KEB China
Upon a request from the Chinese financial supervisory authorities, Hana Bank (China) Co., Ltd., one of subsidiaries of Hana Bank, acquired KEB China, a local
subsidiary of KEB, on December 15, 2014.
59.3 Propelling a merger between Hana Bank and KEB
Hana Financial Group Inc. decided a merger between Hana Bank and KEB at the Board of Director’s meeting on October 29, 2014, and on February 4, 2015,
the Seoul Central District Court ordered an injunction to hold-off on the merger between Hana Bank and KEB until June 30, 2015.

60. Virtually committed date of financial statements and approval authority
The 2014 consolidated financial statements of the Group were approved by the Board of Directors on March 6, 2015.

225

Corporate Information
Hana Financial Group Inc.
55, Eulji-ro, Jung-gu, Seoul, 100-720
Tel. 822) 2002 – 1110
www.hanafn.com
Hana Bank
35, Eulji-ro, Jung-gu, Seoul, 100-719
Tel. 822) 2002 – 1111
www.hanabank.com
Korea Exchange Bank
66, Eulji-ro, Jung-gu, Seoul, 100-793
Tel. 822) 1544 - 3000
www.keb.co.kr
Hana Bank (China) Co.,Ltd.
11th F, China Life Center, No.17 Financial Street, Xi
Cheng District Beijing, P.R.China
Tel. 8610) 6658 - 1111
www.hanabank.cn
PT Bank KEB HANA Indonesia
Wisma Mulia, Suite 5201, Jl. Jend.
Gatot Subroto No. 42, Jakarta 12710
Tel. 8610) 8458-1111
www.myhana.co.id

Hana Capital Co.,Ltd.
8th~13th F Dea gong Bldg., 126,
Teheran-ro, Gangnam-gu, Seoul,135-933
Tel. 822) 2037 - 1111
www.hanacapital.co.kr
Hana Life
89-31, Seosomun-ro, Jung-gu, Seoul, 100-732
Tel. 822) 3709 - 7300
www.hanalife.co.kr
Hana Savings Bank
293, Jong-ro, Jongno-gu, Seoul, 110-855
Tel. 822) 1899 - 1122
www.hanasavings.com
Hana Asset Trust
12th F Shinan Bldg.,512, Teheran-ro,Gangnam-gu, Seoul, 135-845
Tel. 822) 3287-4600
www.hanatrust.com
Hana Asset Management
10th F Shinan Bldg.,512, Teheran-ro,Gangnam-gu, Seoul, 135-845
Tel. 822) 2190-6500
www.hana-assetmanagement.com

KEB F&I Inc.
10th F Hanoy Bldg 43, Dadong-gil, Jung-gu,
Seoul, 100-180
Tel. 822) 3708-2114
www.keb.co.kr

Hana Bancorp, Inc
250 Fifth Ave, New York, NEW YORK, NY 10001
Tel. 212) 689-8292
www.bnbbank.com

KEB Investor Services Co.,Ltd.
9th F Hanoy Bldg 43, Dadong-gil, Jung-gu,
Seoul, 100-180
Tel. 822) 729-8950
www.keb.co.kr

Hana I&S
9th F ,32, Hwangsaeul-ro 312 beon-gil,
Bundang-gu, Seongnamsi, Gyeonggi-do, 463-824
Tel. 822) 2151 - 6400
www.hanains.com

Hana Daetoo Securities Co.,Ltd.
82, Uisadang-daero, Yeongdeungpo-gu,
Seoul, 150-705
Tel. 822) 3771 - 7114
www.hanaw.com

Hana Institute of Finance
82, Uisadang-daero, Yeongdeungpo-gu,
Seoul, 150-705
Tel. 822) 2002 - 2200
www.hanaif.re.kr

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

226

Forward Looking Statements
Some of the information in this report constitute ‘forward looking statements’ which reflect Hana Financial Group’s current
intentions, plans, forecasts, expectations, assumptions and beliefs about future events or results and are subject to risks,
uncertainties and other factors. These statements may be identified by words such as “aim,” "believe," "estimate," "expect,""plan," "seek," “target,” "will," or words of similar meaning. These statements are not guarantees of future results or
performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond theHana Financial Group’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, theHana Financial Group’s forward-looking statements.

Global Network As of April 2015
Linking 136 points of financial business in 24 nations
15 local subsidiaries (with a total 91 branches),
23 branches and branch offices, and 7 field offices

EUROPE & MIDDLE EASTASIA & PACIFIC

10

100

Investor Relations
Please visit Hana Financial GroupIR website for more information.
www.hanafn.com/ir

AMERICA

26

55,Eulji-ro, Jung-gu, Seoul, 100-720 Republic of Korea
Tel : 822)2002-1110
www.hanafn.com