Korea Exchange Banka n n u a lr e p o r t

20
07w w w . k e b . c o . k r

Celebrating 40 years of banking excellence

The next stage of successcc oo nn tt ee nn tt ss

40th anniversary

01

Message from the CEO

10

Financial Highlights

14

The Preferred
GlobalBankingPartner
Partner
The Preferred
GlobalBanking●Global Corporate Bank

18

International Group

21

Responding
Efficiently
to Diversified
Individual Needs
Needs
Responding
Efficiently
to Diversified
Individual●

Retail Bank

24

Card Bank

27

Servicethrough
Efficient
Systems&& Process
Process
Quality Quality
Servicethrough
Efficient
Systems●

Process Management System

30

Information Technology

31Standards& Advanced
RiskManagement
HighestHighest
Standards& Advanced
RiskManagement●

Risk Management

34

Business Continuity Planning

35

Transparent
Corporate
Culture& Foundationfor
forSharing
Sharing
Transparent
Corporate
Culture& Foundation●

Corporate Ethics

38

KEB Foundation

39

Financial Section

41

Organization Chart

184

Board of Directors & Managing Directors

185

Global Directory

186

Overseas Network

187

Domestic Network

189

Launched in January 1967, KEB has overthe past 40 years solidified its position athome and abroad as Korea’s premiercommercial bank.

1967-1988

KEB-Reflecting on

1989-2002

K o r e a ’ s   Global Banking History

40th
anniversary

2003-Present

Jan. 1967
Established as a government-owned foreign exchange
and international trade financing specialist bankNov. 1972
Launched Korea‘s first electronic deposit service,a first step to full electronic banking in Korea

Aug. 1975
Introduced first ATM(Automated Teller Machine)service in Korea

Apr. 1978
Launched first credit card(VISA) business in Korea,
introducing credit commercial transaction for
Korean society

Jan. 1981
Head office moved to newly
constructed headquarter building

Feb. 1985
Designated as official sponsor bank for 1986
Asian Games & 1988 Seoul Olympic GamesFoundation & Growth

Tr a n s f o r m a t i o n & A t t a c k i n g
Challenges

D r i v i n g A h e a d a s K o r e a ’s
Premier Bank

Foundation &Growth

1967-1988

F r o m F / X & I n t e r n a t i o n a l Tr a d e F i n a n c i n g S p e c i a l i s t B a n k t oInternational Commercial Bank (1967-1988)

1989-2002

Korea Exchange Bank (KEB) was established in 1967
as a government-owned foreign-exchange (F/X) andinternational trade financing specialist bank. In fulfilling
this founding mandate, we quickly acquired vast F/X andtrade finance knowhow and experience, while chalking
up an impressive record supporting the growth of Korean
industry through export/import transactions.
Through our active participation in global financial
markets, KEB also played a crucial role in inducing foreign
funds into Korea and thereby aiding in the modernizationof the domestic industrial base.

Later, to effectively respond to the changing
internal and external financial environment asa result of Korea’s rapid growth from the 1980s,
we realigned our operations and profile to aninternational commercial bank.
To this end, we broadened our domestic network,
and implemented bold strategies designed to
put the bank on a more solid and profit-oriented
footing. We also elevated our international
reputation presence through the expansion of ouroverseas branch network.

2003-Present

Dec. 1989
Privatized with the repeal of "Korea Exchange BankAct", a new start as a private commercial bankNov. 1990
Introduced first 365 days-a-year ATM service in Korea,
providing a better retail banking service

Mar. 1992
The first Korean bank to adopt SWIFT(Society for
Worldwide Interbank Financial Telecommunication)system for F/X and Export/Import business andintroduced automated F/X operations

Apr. 1994
KEB shares listed on Korea Stock ExchangeJul. 1998
Commerz Bank became a major shareholder withcapital investment of KRW350 billion

Aug. 2002"Yes Mortgage Loan" received "New Millennium Brand
Awards" given by Korea Times, proving our ability to
produce innovative products and services

Foundation & Growth

Tr a n s f o r m a t i o n & A t t a c k i n g
Challenges

D r i v i n g A h e a d a s K o r e a ’s
Premier Bank

In 1989, KEB was privatized with the repeal of “Korea
Exchange Bank Act”. While placing us on the same
competitive footing as other commercial banks, thisalso freed us from the limitations and obligationsof state ownership.
Since then, KEB has continued to solidify its standing
as one of the country’s premier commercial banks. We
broadened our capabilities in retail & corporate banking
and newly emerging card services to position KEB asa Korea’s leading bank.

Like other domestic banks, KEB was confronted
with the threats posed by the collapse of large
corporations following 1997 Asian financial crisis.

1967-1988

Unlike many other domestic banks, KEB survived
without public bailout money. Revenue from ourstrong core franchise along with self-directed
restructuring and the efforts of our staff enabled
KEB to overcome difficulties arising from crisis.

Transformation &Attacking
Challenges

1989-2002

From Bank Privatization to Overcoming Asian
Financial Crisis (1989-2002)

2003-Present

Oct. 2003
With capital investment of KRW1,383 billion,
Lone Star Funds became a new major shareholder,inducing a remarkable turnaround.

Mar. 2004
Merged with KEB Credit Service, resolving
the problems posted by the bursting of credit
card bubble in Korea

Dec. 2004
Provided CLS(Continuous Linked Settlement)
service for the settlement of real-time cross-borderF/X transactions as the Settlement Member for
CLS Bank International

Feb. 2005
Implemented NGBS(Next Generation Banking System),an advanced IT infrastructure establishment

Dec. 2005
Established "KEB Foundation" for KEB‘s charitable
and community activities as the first charitableorganization among Korean banking industry

Mar. 2007
First dividend declared since 1996, a very tangible
sign that KEB has once-and-for-all overcome
the extreme difficulties that burdened the bankfor the past 10 years

Foundation & Growth

Tr a n s f o r m a t i o n & A t t a c k i n g
Challenges

D r i v i n g A h e a d a s K o r e a ’s
Premier Bank

Since 2003, the men and women of KEB have manageda remarkable turnaround with the new capital from our
major shareholder, Lone Star Funds, and have a new spirit.
KEB successfully overcame threats arising from the
Korean credit card crisis and built the platform for quality
profit growth. With our new management, reorganization,and go-to-market clarity, KEB has driven ahead once
again as a Korea’s premier bank.

1967-1988

Building on unique franchise strengths and withemphasis on the quality of our businesses,
KEB continues “Smart & Profitable” growth.
Now, KEB has proven we are a healthy and strong
institution, with profitability, capital adequacy andportfolio quality in the best shape in our history.
Celebrating our 40th anniversary in 2007, KEB
will keep improving and evolving as a world-classbanking institution.

Driving Ahead
as Korea’sPremier Bank
4 0 Ye a r s B e h i n d U s a n d A B r i g h t F u t u r e A h e a d ( 2 0 0 3 ~ P r e s e n t )1989-2002

2003-Present

Vision

Smart & Profitable Growth

1967-1988- Trade-oriented Global Corporate Banking- Affluent Retail Banking- Versatile Card Solutions

Strategic
MarketingExcellence

1989-2002
EfficientUse ofCapital &PeopleAsset Quality

Servicing
Capability asa Competitive
WeaponPrepare the
FutureHealthy Capital

Smart &
Profitable
GrowthCost control"GlobalStandard" HR

Profitability

Leading
Reputation &HighStandards

2003-Present

10

Message from the CEOKEB follows a disciplined strategy to
pursue “safe and profitable growth” throughall parts of the financial cycle.

To our Shareholders

11

In the midst of the most volatile financial markets in recent memory, I am pleased to report the stable
and high quality performance of KEB in 2007. Your bank remains a healthy and sound financial
institution contributing to the success of our customers and the Korean economy.
I am proud of and grateful for the efforts of the talented men and women of KEB who havemade this performance possible.
KEB follows a disciplined strategy to pursue “safe and profitable growth” through all parts ofthe financial cycle. While this approach brought slower asset growth than our peers in the heady daysof the real-estate lending boom, we are now benefiting from the stability of a clean balance sheet andprofitable book of business. In 2007, KEB maintained industry-leading asset quality levels, healthylending margins, and expanding fee business across our business lines.
Overall net profits totaled KrW 961 billion, down 4% from 2006. Inside that bottom-line
figure, our results showed continued improvement of our normal business profitability (up 2% to KrW
937 billion) despite the challenging global financial market in the second half of the year. The net
impact of special gains and charges totaled just KrW 24 billion as both were substantially lower than inprevious years. While KEB continues to have significant unrealized gains in our special asset portfolio,
our business profits in 2007 represented the bank’s core earnings power.
Our business approach is based on allocating our resources – both people and capital – to thoseareas where KEB can meet our customers needs better than our peers and differentiate our bank fromour competition. In those areas, we strive to achieve appropriate returns for the risks we take and thecapital we deploy to conduct our business.
Our specialized capabilities allow us to win with sophisticated, trade-oriented commercial
banking customers and affluent retail customers. The complex and broad needs of these demanding
customers create the business opportunity for KEB to diversify our banking business.
Building on our core FX and trade services, we continued to expand our service and fee-based offerings
to our corporate and retail customers. While KEB’s net interest income grew just 3% last year in
the midst of a tight global funding environment, our successful response to our customers’ needs
contributed to strong growth in fee income (+21%), International earnings (+22%), Trust (+28%) andtrading profits (+19%).
We maintained healthy lending margins to preserve the appropriate returns on our risk capital
within each business line. KEB’s reported overall net interest margin (NIM) of 3.23% was the second
highest in our industry. The change in KEB’s reported NIM over the course of 2007 – down 21
bps versus 2006 – was due almost entirely to the “mix effect” of faster growth in lower-spread large
corporate and SME lending versus the higher-spread consumer lending lines. KEB staff worked hard to
overcome increased funding costs in the second half of the year to protect our overall returns.
Because of our disciplined approach, KEB was able to capture good growth opportunities in the 4th
quarter as liquidity management issues at some of our peers forced them to restrict some lending
activities. While maintaining consistent underwriting standards and pricing discipline, KEB recorded

12

Message from the CEO

Until we achieve the clarity and stability of a long-term
strategic shareholder, we will continue to make every effort toposition KEB for a promising future.
the best increase in total credits (+20.7%) in our industry. I believe that our performance in 2007 gives
us a good foundation for 2008. Like all institutions, KEB endeavored to achieve higher returns from
our investment portfolio, but we focused in areas we were confident that we understood. In areas wewere still learning, we put strict exposure limits on our investments so that we could gain experience
while mitigating the “tuition costs” inherent in our education process. As a result, the US mortgage
market crisis that has shaken many institutions in the global financial industry resulted in total losses ofjust KrW 4 billion (US$ 4 million) for KEB. At the same time, our investment portfolio earned KrW
34bn in 2007, up 224% compared with 2006 and outperformed our benchmarks.
With stable financial performance and a healthy capital base, KEB’s credit ratings have continued
their steady climb against the tide of rating downgrades in the global financial industry. As I report toyou today, KEB has earned long-term credit rating upgrades to “A2” and “A-” from international ratings
agencies Moody’s and Fitch, respectively.
Our domestic credit ratings remain “triple A.” With our strong and stable financial health,
KEB’s Board of Directors declared a KRW 700 per share dividend from 2007’s earnings. Our second
consecutive dividend following a 10-year absence from 1996, this step is consistent with our focus on
capital efficiency and our pledge to provide regular, ongoing dividend returns to shareholders. As weposition the bank for 2008 and beyond, we have retained sufficient surplus internal capital to support
all the growth in our business plan and the needs foreseen with the implementation of Basel II. Aftersetting aside funds for this dividend, KEB’s BIS capital adequacy ratio (Basel 1 basis) remains at a very
healthy 11.44%, with Tier 1 capital of 8.65% that is above the average of our peer banks.
Beyond the financial measures, KEB continued to invest in the improvement of ouroperational capabilities. We continued to upgrade and expand our product capabilities, our risk andcredit management systems, and our branch network both domestically and internationally. These
improvements translate directly into more competitive business capability.
We maintained our unbeatable reputation as “Best Trade Finance Bank” and “Best Foreign
Exchange Bank,” our traditional strengths, as recognized by Global Finance and Asiamoney. We werealso named “Best Cash Management Services Bank” by Asiamoney. Our investment banking support ofFila Korea’s acquisition of Fila Global Undertaking Finance was named “Deal of the Year” by IFR Asia.
Our efforts to establish new competitive advantage through KEB’s differentiated servicing capability
have begun to get traction. As we expanded the application of Six Sigma quality disciplines across ouroperations, KEB was recognized for our “Service Quality Innovation” by the Ministry of Commerce,

13

Industry and Energy (MOCIE). As we kicked off 2008, we launched our unique “KEB Service Quality
Guarantee” system. Through our emphasis on high standards of ethical management, we experienced
the lowest level of financial accidents among our peers, continuously fewer internal sanctions, and astrong reputation in the marketplace. The KEB Foundation, a flagship charitable foundation in the
Korean financial industry, has been applauded for meaningful benefits it and our staff have made to thecommunities where we do business, in Korea and overseas.
With solid fundamentals, good operating discipline, and many opportunities for near-term
improvement, we have confidence that 2008 will be another good year for KEB. We again expect toachieve net income of over KRW 1 trillion, with core business profitability growing between 5 and 10%
in what continues to be a very difficult market environment.
As we look to the future, by far the greatest issue facing KEB is achieving long-term strategic
clarity through the transition of our major shareholder. We operate in an intensely competitive banking
industry. Our domestic peers are large and well-capitalized. Foreign banks have made significant
acquisitions in Korea and are raising the level of competition. Impending regulatory policy changes will
break down the walls between traditional business areas and bring new competitors.
Our bank has operated for more than two years under the shadow of major shareholder change. While
our staff works diligently to care for our customers and improve the bank’s performance, the uncertainty
surrounding the long-term future of KEB continues to cloud our future. As time goes on, the strategic
issues that our bank must act upon become more urgent. The once distant implementation of theCapital Markets Consolidation Act is now imminently upon us. As time goes on, our competitors havemore clarity about their future and have more freedom to act. As time goes on, the strategic options
that KEB may have been able to seize disappear or are taken by others.
The sale of shares by our major shareholder to HSBC, a strong strategic shareholder by any
standard, offers KEB the opportunity to align with a major global banking institution. HSBC’s
strategy as major shareholder allows KEB – with our own overseas branch network – to retain its
identity as a leading Korean bank and simultaneously gain access to the resources, capabilities, expertiseand customers that can only come from being part of a leading global institution. KEB already hascapabilities that compare favorably with our peers in our market. In my view, this presents a great
opportunity for KEB’s future development. A stronger and more advanced KEB can bring significant
benefits to our customers, our staff, our shareholders, and the Korean financial system.
Until we achieve the clarity and stability of a long-term strategic shareholder, we will continue
to make every effort to position KEB for a promising future. Our management and staff will strive to
make KEB Korea’s best bank. We will attack new challenges with the same energy and creativity thathave made us successful so far.
We ask again for the continued support and encouragement of our shareholders. I wish you andyour families a happy, healthy, and prosperous 2008.

Richard F. Wacker
Chairman, President & CEO

Financial Highlights			2007 		2006

YoY

Balance Sheet
Total Assets

97,924.7

81,019.8+20.9%

Total Credits

58,722.0

48,637.3+20.7%

Corporate

41,394.0

31,858.4+29.9%

		Household

14,885.7

14,463.1

+2.9%

		

Credit Card

2,442.3

2,315.8+5.5%

Substandard & Below Ratio

0.61%

0.62%

-0.01%p

Delinquency Ratio

0.56%

0.77%

-0.21%p

Total Deposits

59,755.4

48,015.2+24.5%

Total Shareholders‘ Equity

6,650.8

6,379.2

+4.3%

		

		

Paid-in Capital

3,224.5

3,224.5-

BIS Ratio(Basel ⅠBasis)11.44%

12.45%-1.01%p

8.65%

9.37%

-0.72%p		TierⅠRatio

Income Statement
Net Interest Margin

3.23%

3.44%

-0.21%p

Income Before Provision

1,836.0

2,029.6-9.5%

Net Income

960.9

1,006.2-4.5%

Return On Asset (ROA)

1.29%

1.52%

-0.23%p

Return On Equity (ROE)

15.05%

16.28%-1.23%p(In billions of KRW)

2005

2006

2007

2005

48,637.3

43,475.5

97,924.7

Total Credits

81,019.8

Total Assets(In billions of KRW)

2006

58,722.0

In billions of KRW, %72,719.8

14

2007

15

Good Business Performance in the Midstof Severe Global Financial Volatility

Net Income(In billions of KRW)

(In billions of KRW)

2005

2006

2007

Substandard &  
Below Ratio(NPL Ratio)

2005

960.9

1,006.2

1,929.3

5,657.7

6,379.2

6,650.8

Total Shareholders‘ Equity

2006

2007

BIS Ratio (BaselⅠBasis)

0.90%

13.68%
12.45%

2005

0.62%

0.61%

2006

2007

11.44%

2005

2006

2007

> Global Corporate Bank
> International Group•   SME Business   
•   Large Corporate Business   •   F/X & Trade Finance   •   Investment Banking   •   C ustody & Fund Administration•   C ontinuous Linked Settlement   •   Multi-Currency Interbank Clearing   •   Overseas Operations   •   Multi-National Corporate Business

KEB‘s Global Corporate Bank (GCB) and International Group (IG) work seamlessly
to serve our corporate banking customers in Korea and around the globe.
GCB comprises our World Corporate Group, Corporate Group, Global Products
Department, and Capital Markets Department. KEB‘s World Corporate Groupmanages our relationship with our Korea-based large corporate customers,
while Corporate Group is dedicated to serving the needs of small & mediumsized enterprises (SMEs). • Our International Group supports the needsof these customers through the resources and activities of KEB‘s extensive
overseas network in 18 countries around the globe.

The Preferred
Global Banking Partner

18

Global Corporate BankF/X & Trade Finance
SME BusinessContinuous Linked
Settlement

Large Corporate Business
GlobalCorporate Bank

Investment Banking

SME Business−
Small and medium-sized companies continued torank as the largest customer group for the bank‘s lending
activities. Through focused customer-segmentation
marketing aimed at high-quality companies, KEB saw
consistent, steady growth in loan volume to SMEs in2007. The bank’s total credits to SMEs reached KRW
23.5 trillion at the end of 2007, expanding 23.1% overKRW 19.1 trillion at the end of 2006. Among total credits,
Korean Won denominated loans to SMEs stood at KRW
19.2 trillion, an increase of 30.1% over KRW 14.7 trillion
recorded a year earlier. This figure accounted for 47.6%of total Korean Won denominated loans made at the endof 2007, up from the 43.4% weighting for 2006, reflecting
the relative strength of the corporate banking market in2007 compared to the retail market.
We rely on our expertise and proven advantages
in the export & import finance businesses to develop clear
customer segmentation strategies for our SME lending
operations. In 2008, our new “KEB BizWin Loan” programs
targeting high-quality trade-oriented SMEs will reinforce
our “safe and profitable growth” approach toward this key
customer category. KEB‘s SME customer group consists
principally of high quality and internationally competitive
export manufacturers who have proven their resiliencethrough unfavorable domestic economic conditions. KEB
has the lowest relative exposure to economically sensitive
SOHO(Small Offices and Home Offices) domestic-onlybusinesses among Korean banks.
Large Corporate Business−Despite ever-intensifying competition withdomestic and foreign financial institutions, KEB showed
continued strong performance in growing our businesswith large corporate customers in 2007. The bank’s total
credits to large corporations were KRW 17.9 trillion at theend of 2007, expanding 40.1% over the KRW 12.8 trillion
posted at year-end 2006. Among total credits, Korean
Won-denominated loans to large corporations stood at
KRW 3.8 trillion, an increase of 50.9% compared to theprevious year.

Multi-Currency
Interbank Clearing

Custody & Fund Administration

Our growth was based on concentrated marketing efforts
against carefully targeted opportunities. In real-estate
project financing (P/F), we focused our relationshipmarketing efforts on prime companies among Korea’s
top 30 builders in order to fund apartment construction
projects in the major metropolitan development areas.
This brought the increase of some KRW 2 trillion won in
our loan assets.
With favorable industry conditions and rising orderbacklogs of the top domestic shipbuilders’, KEB extended
a total of US$316 million in loans to firms including
Hanjin Shipping, Hanjin Heavy Industries and EUKOR Car
Carriers. Our role as arranger of related syndicated loans
also helped us advance our investment banking capability,
a key area of future growth for us as we become a leadingbank in Asia.
To meet the growing foreign currency-related
demands of top multinationals like Samsung Electronics,
KEB developed new and differentiated products andservices, becoming the first Korean bank to commercialize‘Nego of A/C receivable denominated in diverse Foreign
Currencies’ for the Russian Ruble, the South African Rand
and the Mexican Peso. We also developed global factoringproducts that enabled Hynix Semiconductor’s overseas
subsidiary to convert export receivables into cash, services
our Korean competitors could not offer.
F/X & Trade Finance−
Boasting the broadest global branch networkand most extensive money exchange and trade finance
operations of any Korean bank, KEB continued its reign as
Korea’s unchallenged foreign exchange specialist bank. In
2007, we held onto our leading position in the domestic
F/X market for the 12th consecutive year with a share of
40% of total transactions handled by the nation’s seven
top commercial banks.
This success was repeated in the trade finance sector,
where we recorded industry-leading market shares of
29% each for both export financing and import financing.

19

In recognition of our continued strong performance inthese core business areas in 2007, KEB garnered kudos
from respected international financial publications. We
were named “Best Trade Finance Bank in Korea” (7thconsecutive year) and “Best Foreign Exchange Bankin Korea” (6th consecutive year) by Global Finance.
Asiamoney also selected KEB as “2007 Best Foreign
Currency Exchange Bank in Korea”(2nd consecutive year).
KEB is developing new services to strengthen
our leading market positions and stay ahead of thecompetition. In 2007, we developed and patented the“Easy-One” foreign currency service, which automaticallyconverts customers’ won-currency deposits into predesignated foreign-currency remittances without requiring
customers to come to the branch or go online.
Our broad range of convenient remittance products
include the “Global On-Line” service which lets customers
withdraw and deposit from their account whether at homeor abroad, an overseas remittance card service, and “RealTime Remittance” for sending remittances to foreign bankaccounts instantaneously.
KEB’s “One-Stop Import Hedge Service” allows
customers to issue Letters of Credit (L/Cs) and conclude
forward exchange contracts on the spot, alleviating thefinancial burden and F/X risks for customers transacting
import L/Cs.
As part of our efforts to continuously reduce
exporters’ and investors’ foreign exchange risks, KEB
continuously leads the market in introducing exchange
services in newly important currencies. Following 2007’s
introduction of Russian Ruble and South African Rand
currency transactions, KEB was first again to launch
Slovakian Koruna F/X business in Korea in January 2008.
We currently offer foreign currency transaction for 23
currencies and money exchange service for 37 currencies,
the most diversified in our industry. In addition, we engage
in transactions in more than 100 foreign currencies,
including 70 collection currencies, making us Korea’s
undisputed F/X leader.

Investment Banking  −With know-how that comes from 30 years ofpioneering the domestic investment banking (IB) field,
KEB provides a broad array of IB services including project
financing (PF), M&A advisory, real-estate development PF,
ship financing, SOC financing and others. Our impressive
results in 2007 included an award-winning leveraged
buyout. In March 2007, KEB acted as Mandated Arranger
in the US$300 million leveraged buyout (LBO) of Fila
Global by former subsidiary Fila Korea. Unique in many
respects, this deal is regarded as a blueprint for future
LBOs where the underlying asset is intellectual property
rights, and earned the bank IFR Asia’s “Deal of the Year”
award for 2007 in the “South Korean Loan Deal” category.
KEB successfully acted as lead-manager inarranging the KRW 800 billion capital investment in
a consortium headed by the Lippo Group to develop
the Woonbuk area of the Incheon Free Economic Zone
(IFEZ). We also achieved strong results in real-estatedevelopment operations, beating stiff competition fromfour other consortiums to win the final selection as privatecompany to provide PF for mixed-use development of the
Pangyo district of Seongnam City.
These successes have heightened recognitionof KEB’s formidable deal-structuring capabilities in theinvestment banking sector.

20

Custody & Fund Administration−
As Korea’s leading custodian bank, KEB’s custodyand fund administration services enjoy a broad customer
base in and outside of Korea, including institutional
investors, government entities and foreign investors.
In 2007, assets under custody totaled KRW 42 trillion,
and our high-quality fee-based capital market services
encompass custody service, ABS trustee & backup service,
and paying agency and escrow agency service. We aretaking aggressive steps to respond to changes in ouroperating environment brought on by enforcement of
Korea’s Capital Markets Integration Act and continued
asset management diversification. Through our cooperation
with our subsidiary KEB Investor Services, we are improving
the competitiveness of our custody services throughreinforced investor protection and teaming up to jointlyoffer institutional customers services that better meettheir needs and growing fiduciary duties.
Continuous Linked Settlement−
The Continuous Linked Settlement (CLS) system
is a cross-border electronic settlement system for foreignexchange transactions among global financial institutions.
Established in 2002, CLS enables both sides of an F/Xtransaction to be settled simultaneously, risk-free andin real time. Run by the New York-based CLS Bank, the
CLS system includes multilateral netting to minimize net
flows of currency among “CLS Settlement Members” forreduced cost and operational efficiency.
The shareholders of CLS Bank, of which KEB isone, consist of 70 of the world’s largest financial groups,
accounting for more than half the value of the world’s F/X
market. The system involves 57 CLS Settlement Members
and more than 2,400 Third Party financial institutions
around the world. In December 2004, KEB became a CLS
Settlement Member and Korean Won Liquidity Provider
for CLS Bank International, enabling us to extend thirdparty CLS services for other Korean bank and CLS Korean
Won nostro services to foreign CLS Settlement members.

In 2007, KEB accounted for an impressive 91% of Korea’s
total CLS volume, settling F/X deals via CLS for 11 out of
14 local banks. We also enjoy a commanding 75% shareof total CLS Korean Won Nostro agent services, providing
these to foreign CLS Settlement Members including BNP,
ING and SMBC.
Multi-Currency Interbank Clearing−
Another of KEB’s unique F/X services is Multicurrency
Interbank Clearing, which we have provided to 56 local
and 109 overseas banks since we started business in
1967. Last year, KEB processed a total of 2.4 million
interbank transfers, representing 95% of all inter-bankforeign currency transfers in Korea.
KEB has been upgrading our IT platform anddeveloping new products to keep pace with the growing
volume of SWIFT (Society for Worldwide Interbank
Financial Telecommunication) traffic in payments, tradefinance, treasury and securities year by year. As a result,
KEB’s interbank clearing service achieved a record high
93% Straight-Through Processing (STP) ratio in 2007. To
accommodate internet-based foreign currency transfers
and inquiries, KEB has been providing the I-vostro Service(www.eFIall.com) since 2005. I-vostro offers real-time
online interbank clearing services for local and foreignbanks.
Furthermore, in line with rising demand for
Korean Won settlement and government-driven Won
liberalization, KEB extends KRW-related services andregulatory advisory services to foreign banks.
KEB plans to include the Rubble, Zloty, Forint
and Peso among available clearing currencies in
response to Korea’s increased trade volume with Russia,
Poland, Hungary, Mexico, respectively. Leveraging KEB’s
demonstrated know-how, reliability and reputation in CLS
and interbank clearing services, we are positioning thebank to become the Asian clearing hub for Korean andoverseas banks.

International Group

Overseas Operations−
KEB’s overseas banking network spans 38
business offices in 18 countries worldwide, giving us thelargest global presence of any Korean bank. We earned
an operating profit of US$163 million in 2007 from theseoffshore operations, a solid 20% year-on-year increase.
We expanded our overseas branch network withthe opening new sub-branches in Cikarang industrial center
outside of Jakarta, Indonesia and in the Wangjing area
in northeastern Beijing where we launched retail banking
services targeted toward Korean nationals residing in that
district. We established a loan production office of our KEB
New York Financial Corp. in Atlanta, GA to better support
Korean corporate customers operating in the southeast
United States.
To maintain our current 20% annual growth inoverseas operations, KEB will continuously explore newopportunities to expand abroad. KEB’s global expansion
strategy is grounded in our 40 years of experience
operating on the international stage. We have the moststaff with international experience of any Korean bank.
We have developed banking systems and tools that arecommon and easily extendable to new markets. We
have an established operating model to grow safely andprofitably, while ensuring compliance with local market
laws and regulations. These factors give us substantial
advantages over our domestic peers.
Our geographic expansion follows the global
business expansion efforts of our customers. As Korean
corporations develop new markets for sales, project
investment, or manufacturing, KEB will advance besidethem into these markets to support their growth efforts. In
2008 we will extend our network into Russia, India, Chile,and the Czech Republic.
With a solid core business base, we can extend
our activities to local suppliers and trading partners of
our core customers. In this regard we are expanding our
network in China, Canada, Vietnam, and the US.
And with more experience in each market, we
can selectively extend our activities to local businesses
and retail customers. This is the goal of KEB’s initiative to21

establish a banking subsidiary in China where we haveoperated since 1992 when we were the first Korean bankto enter the market, and since when we have continued tooutperform our domestic rivals. We have set up a special
task force within the bank, “Global Expansion TFT,” tolead our extensive preparations to expand the volume oftransactions with select Chinese companies, as well as
to roll out differentiated retail banking services for massaffluent individual Chinese customers.
Multi-National Corporate Business−
Our position as Korea’s No. 1 F/X and trade financebank, our global branch network, our convenient onestop services, and our experience in international banking
have long made KEB the first choice of foreign-invested
enterprises (FIEs) in Korea. In 2007, KEB assisted in morethan 1,100 cases of foreign direct investment (FDI), or
31.3% of the total registered in Korea during the year.
KEB has a trained group of FDI Consultants toassist foreign companies investing in Korea. We provide
support for FDI reporting and business establishment, as
well as establishing financial management systems for FIEs
in Korea. Through our overseas network of 26 branches andsubsidiaries, KEB offers the parent companies of our FIE
customers in Korea seamless, integrated banking services.
KEB provides additional assistance to newly establishedcompanies through cooperative ties with many FDI-related
institutions including law firms, accountants, foreignchambers of commerce in Korea, foreign embassies, Korea
Trade-Investment Promotion Agency (KOTRA), and theMinistry of Commerce, Industry & Energy (MOCIE).
In 2007, KOTRA established “Global Korea” to help
Korean firms efficiently manage the process of investingoverseas. KEB dispatches our personnel to Global Korea toprovide consulting and regional information to companies
planning to expand abroad, and we link them with KEB’s
overseas banking network as they establish their overseas
operations.

> Retail Bank
> Card Bank•   Segmentation Marketing   •   Deposits   •   Household Lending   •   Private Banking   •   Bancassurance•   Sales of Investment Products

From our traditional deposit and loan products to our advanced private banking,bancassurance, investment product and wealth management services, KEB’s
Retail Bank demonstrates the wisdom of a quality-over-quantity approach tobanking. • To “get closer” to our retail customers and better grasp andserve their needs, KEB has refined relationship management and segment
marketing strategies that produced high-quality growth.

Responding Efficiently to
Diversified Individual Needs

24

Retail Bank
Deposits

Bancassurance

Household Lending
Retail Bank

Sales of Investment Products

Segmentation Marketing  
−
KEB avoids aggressive asset-accumulationcompetition in our retail banking operations. Rather,
we focus our energies on fostering close and enduring
relationships with our best customers. This quality-overquantity approach allows us to differentiate the KEB brandfrom our peers and provide unique, innovative deposit
products and asset management services tailored to thediverse and growing needs of our clients.
KEB has invested in new customer analysis
and CRM tools so that our branch and marketing staff
can focus our marketing activities on developing andretaining our core customer segments. We launched
new targeted marketing programs aimed at foreign VIPs,
medical professionals, and other groups. As a resultof these efforts, the bank’s customer base swelled byapproximately 443,000 new customers for a total of nearly
5.8 million, and around 8.7% increase in profits.
These approaches are helping our branch staff
identify the best products and services to retain andmigrate customers from lower-profit groups to high-profit(HP) customer groups. As we gather and disseminate
successful marketing cases and Best Practices across theorganization, we are seeing more consistent delivery of
products and services better tailored to customer needs.

Private Banking

Deposits  
−In 2007, as equity markets in Korea and the restof Asia enjoyed a bullish mood, Korean banking customers
progressively shifted their personal wealth to investment
products from traditional banking deposits. While KEB
participated in this shift through our investment products
sales activities, we also protected our funding position
by strengthening our deposit product competitiveness.
KEB rolled out special deposit programs commemorating
our 40th Anniversary, supporting our KEB Foundation,and other themes. We also locked up large deposits withcompetitive interest rates to ensure a stable liquidity
situation.
In the midst of intense market competition, KEB
succeeded in expanding our deposit base. We limited
the decline of demand deposits to just 1.5% year-onyear to KRW14.7 trillion at the end of 2007. Time deposits
increased significantly by 25.0% to KRW14.9 trillion at theend of 2007. As a result, total KRW deposits grew 10.3%
to KRW29.6 trillion at the end of 2007.
While we expect continued deposit pressure
in 2008, KEB aims to increase both the settlement andpayment accounts through intensified cross-selling,competitive interest rates, and marketing activities
targeting promising customer segments, such as foreign
VIP customers, so that we can further expand our funding
base.
Household Lending−
KEB’s household lending portfolio recorded amoderate increase of 3.1% to KRW 14.7 trillion at the endof 2007. The Korean government’s anti-speculation realestate policies significantly slowed the housing market
in 2007. In addition, KEB maintained our strict policies
against unprofitable mortgage loan pricing on “grouploans”, resulting in a 5.4% decline of Housing-relatedloans to KRW8.2 trillion at the end of 2007.

25

Personal loans expanded 16.4% to KRW 6.5 trillion in2007 as KEB attracted promising new loan customers,
intensified the cross-selling of these loans to high quality
customers. KEB’s wide array of loan products, such as“Leaders Loan” and “Yes Pro Loan” targeted at businessexecutives, doctors and other specialized professionals,
helped boost overall lending levels in 2007. We also rolled
out special products and services for foreign personnel ofmultinationals, executives of Foreign Invested Enterprises,
diplomats and others in Korea, growing populations thatare broadly underserved by the local banking system.
In the year ahead, KEB will focus on enhancing
profitability of loan operations through continued
segmentation marketing aimed at our target customer
groups, including selective premium class SOHO customers.
Improvements to our credit scoring and pricing systems
implemented in 2007 will ensure we are carefully
managing new risks and achieving the proper returns.
Private Banking−
KEB is developing a variety of sophisticatedservices to help VIP customers invest and manage theirassets more profitably and efficiently. In the area ofPrivate Banking (PB) products & services, we broaden
our customers’ asset portfolios with innovative stock,insurance and F/X-related investment instruments. In linewith Korea’s Capital Markets Consolidation Act, we offer
tax consultation, real-estate management and disposal
services, wills & inheritance consultation, Life Planbased financial planning and medical services, overseas
education & emigration services, and others.
Our objective is to make KEB the first choicepartner in Korea’s competitive PB market by constantly
expanding the scope and elevating the quality of ourcomprehensive and professional PB services. We
expanded our PB network in 2007, adding two new WealthManagement Centers (to a total of eight) in addition to the
48 specially designated PB Branches.
To promote an exclusive brand image for our “VVIP”

customer segment, KEB extends to these select individuals
an unparalleled level of attentive service and popular
benefits. We cultivate lasting brand loyalty through finearts performances and year end parties, excursions toJapan where we held an investment conference, andeven arranging such invitational events as mixers for thesons and daughters of VIP customers. Moreover, we aremaking maximum use of KEB’s strengths in the F/X field
and our overseas branch network to market our asset
management services to Koreans residing abroad.
Bancassurance−
KEB has completed its fourth full year of sellingbancassurance products, and maturing market conditions,customer focus on investment products, and increasing
competition resulted in flat profits at KRW 39.0 billion anda slight decline in market share, which slipped from 9.4%
in 2006 to 8.7% in 2007.
The bank continues to outperform based on thesize of our branch network, a testament to the appealof our product lineup (and new products launched inpartnership with insurers Mirae Asset, Dongbu Life andDaehan Fire).and the quality of our customer base.

26

Sales of Investment Products−
The credit crunch stemming from the subprime
crisis in the U.S. fueled ongoing volatility in the investment
product business. However, fundamental changes indomestic customers’ asset management trends and strong
growth rates in emerging markets, Korean stock markets
proved largely resilient until the end of 2007.
KEB’s sales of investment products enjoyedstrong growth during the year, with AUM climbing 52.8%
from KRW to KRW 7,231.5 billion in 2007. Profits from thesales of investment products grew 126.2% year-on-yearfrom KRW 66.3 billion to KRW 150.0 billion.
Adopting an “open architecture” strategy
to market the best performing third-party investment
products, KEB was able to offer customized portfolios thatbest meet our clients’ investment objectives and needs.
As of the end of 2007, KEB offered a total of 150 offshore
and 150 onshore investment funds from 35 separate fundhouses. We upgraded our fund-related systems during theyear, allowing us to introduced a “One passbook, multiple
funds” system and other conveniences for our customers
to transact with us and monitor the performance of

their investments. In addition, we revamped our WealthManagement System to improve the ability of our PBs
to give advisory support to customers, providing timely
market and fund information, as well as assistance inpicking individual investments and building portfolios.
The bank has invested in training, sales activity
monitoring systems, and compliance programs, including
mystery shopping, to ensure the highest level of salesrelated performance where we put the customers’ bestinterest first. In 2008 we expect continued volatility
in equity markets, and KEB will augment our team of
portfolio consultants and financial consultants to ensure
we offer the best possible support to customers innavigating uncertain markets.

Card Bank

2008 will mark the 30th anniversary of the launch of the
KEB Visa Card, the first credit card introduced to Korea.
KEB’s Card business continues to build on the long history
of innovation and customer recognition that have been
hallmarks of the KEB Card brand.
KEB’s Card Bank generated net profits of KRW
197 billion in 2007, down from KRW 218 billion in 2006
with the absence of one-time profits from the sales ofwritten off accounts. We maintained excellent asset
quality, reducing our one-month delinquency ratio by
0.62%p from 2.55% at the end of 2006 to 1.93% at yearend 2007.
Increased competition in the Card businessamong banks and independent card companies andregulatory intervention in the setting of merchant discountrates (MDR) for smaller merchants will continue tolimit profit growth in 2008. In this highly competitiveenvironment, KEB Card took important steps to build astronger business for the future.
The quality of KEB’s card customer is excellent,
the result of KEB’s ongoing efforts to target, attract
and retain premium customers. In particular, we place
top priority on developing card products best suited tocustomers’ needs, exploring untapped niche-productopportunities, and constantly upgrading our existing card
lineup. Offering Korea’s best Platinum card portfolio forthe past ten years, KEB’s “Premium Project” will further
raise the proportion of top-quality customers among our
total card customers. We will expand our current range of“Nobles” card series targeting high-income professionals,
including the highly successful “Medi-nobles” Platinum
card for doctors and pharmacists, as well as upgrade
our market-leading SKYPASS Visa card to the “NewSKYPASS” card.

27

During the past year, we developed more sophisticatedcustomer segmentation strategies for our Card Bank
operations. We developed diverse models and tools to
predict customer spending behavior to maximize theeffectiveness of marketing offers. We can identify “early
warning signs” of customer attrition and launch preemptive outbound marketing efforts to retain our best
customers. In a market where the number of consumers
is not growing and everyone has multiple cards, these
intelligent marketing approaches allow us to more
efficiently defend our portfolio, build customer loyalty, andminimize unproductive mass acquisition campaigns forincreasingly short-lived new card accounts. We continued
to maximize valuable synergies between our Card Bankand Retail Bank through cross-selling, as we’ve proventhat the best card customers are bank customers, and thebest bank customers carry KEB Cards.

> Process Management System> I n f o r m a t i o n Te c h n o l o g y•   E nhanced Service Quality through Process
Management & Six Sigma    •   e-Business  •   IT Infrastructure

Customers today expect not only competitive deposit and lending rates, butthey demand fast and reliable answers to their questions, simple and clear
transactions, and attentive responsiveness to solve their problems.
As management, we want to minimize the administrative burden on our staff sothat they can devote their attention to improving and deepening our business
relationships with our customers. KEB has made efficient operational systems
and processes a priority for several years, and was the first among Koreanbanks to implement a Process Management System (PMS) and Six Sigma
approaches in the key areas of our customer service operations to fulfill theseobjectives. • KEB has demonstrated the best quality customer service
practice and received “Service Quality Innovation” recognition from MOCIE.

Quality Service throughEfficient Systems & Process

30

Process Management System

Enhanced Service Quality through Process
Management & Six Sigma−
To improve service quality from the customer’s view
point and enhance work productivity, KEB was thefirst Korean bank to adopt a six sigma program. We
implemented disciplined process management initiatives
throughout our centralized servicing operations that
produce detailed measurements of the effectiveness of
our processes. Because these measures are available
online in real-time, we can quickly identify and resolve
problem areas to maintain high levels of service to ourcustomers and our branches.
In early 2008, we launched our unique “KEB
Service Quality Guarantee” system, a reflection of thecomplete confidence we have in our unrivalled level ofcustomer service quality. Under this new program, weoffer loan customers an “approval timing guarantee” anda “loan execution timing guarantee.” After submitting
their loan application, a customer will be notified of theloan approval decision within four hours. Loan funding isguaranteed to take place at the date and time specified by
the customer. We stand behind the guarantees with loaninterest rate discounts of 0.3% ~ 0.5% per annum.
Based on these and other initatives, KEB wasrecognized for “Service Quality Innovation” by the Ministryof Commerce, Industry and Energy (MOCIE). In addition,
KEB’s Customer Service Center was deemed the “Best Call
Center in Korea” in a survey of the Korean Service Quality
Index (KSQI) conducted by Korea Management Association
Consulting (KMAC).
Our focus on process efficiency and quality has
contributed to dramatic reduction in the workload ofbranch staff, freeing them for more productive customer
management activities. In addition, we’ve created abranch environment that is more welcoming and conduciveto the consultative and advisory interactions necessary forthe promotion of higher value-added business.
And efficient operating processes contribute tobetter control and compliance, and KEB has seen ouroperational losses and internal staff disciplinary measures
drop consistently over the past four years.

e-Business−In today’s world, an increasing large proportion ofbanking transactions are conducted outside the branch. We
continue to add new products and services to our e-banking
operations, developing advanced yet easy-to-use online
content in line with customers’ changing needs.
In 2007, we launched the innovative “In-House
Banking” service for corporate customers, helping to solidify
KEB’s leading position as a total “solution provider.” Afterinstalling KEB’s In-House Banking on their systems, ourcustomers can conduct inquiries, transfers, remittancesand other account transactions, cash management andfinancial management tasks, and establish direct linkages
their own ERP systems platforms. Unlike similar services
offered by other banks, KEB’s In-House Banking is a readymade solution designed for quick implementation andincorporating a broad product line, including F/X, import/
export, Global Cash Manangement, customizable internal
controls, and more.
In addition, we initiated the Alliance Service
in cooperation with the Bank of China (BOC) to provide
their customers real-time won-currency/foreign-currency
settlement. This service is available at the BOC’s threebranches in Korea and is based on KEB’s Vostro accountinfrastructure for real-time foreign-currency settlement andvirtual account infrastructure for won-currency settlement.
With the start of this service, BOC’s customers can now
make use of any branch, cash dispenser, or ATM of any
bank in Korea for deposits & withdrawals, while KEB is able
to provide real-time F/X and transfer services at any of ourbranches at home or abroad.

Information Technology

IT Infrastructure−
Information Technology is at the heart of thebank’s operating processes and decision systems, and
KEB invests heavily to ensure that our bank has the mostreliable and most effective systems environment tomanage our business and support our customers.
Our efforts have resulted in unique capabilities
for our bank. Since March 2007, KEB’s branches in Korea
and overseas began offering real-time foreign-currency
overseas remittance service, on our own and without
using the traditional SWIFT messages, establishing a newlevel of customer service and convenience. Thanks toinnovative efforts like these, KEB was voted “Best CashManagement Service Bank in Korea” for 2007 in a survey
conducted by Asiamoney magazine, giving us our third
consecutive top ranking.
We strengthened our competitive position in the
F/X and e-Business sectors. We upgraded our derivatives
systems for better product development capability andrisk management. We developed new pricing systems
for our business units to bring better consistency andeffectiveness of implementing our pricing strategies. We
also finalized upgrades of the KEB International Banking
System (KIBS) and Business Online, our corporate cash
management system.
To prepare for the implementation of BaselII requirements across the bank, we completed theimplementation of enhanced credit and risk management
systems. As part of KEB’s efforts to continuously strengtheninternal controls,we implemented a new Anti-Money
Laundering system and enhanced our integrated real-timetransaction audit system.

31

Most importantly, in February 2008, we successfullycompleted the consolidation and relocation of our two
separately operated Bank data center and Card data
centers to a state-of-the-art data center located in the
new Sangam Digital Media City (DMC) in Seoul. Throughthis major investment, we have created the best, mostreliable and secure data center in the Korean banking
industry, and at the same time established a more efficient
IT operating and data management environment.
KEB’s IT capabilities will continue to be a strategic
resource to improve customer service, staff productivity,and business competitiveness.

> Risk Management> Business Continuity Planning•   C apital Adequacy Framework   •   C redit Risk   •   M arket Risk   •   O perational Risk    •   I nterest Rate Risk
•   Liquidity Risk   •   B usiness Continuity PlanningWith the growth and increased complexity of global financial markets,
the Basel Committee of Bank of International Settlement has issued the New
Basel Capital Accord, or “Basel II,” with new requirements aimed at improving
the consistency of capital regulations internationally. • In accordance with
Basel II targets, KEB successfully executed an exhaustive bankwide effort toimplement internally the Foundation Internal Ratings Based Approach(IRB) andthe Advanced IRB in 2007. • In 2007, our Business Continuity Planning (BCP)
was implemented to build more robust total risk disaster response system,
enhance business reliability, and strengthen our capability for sustained growth.

Highest Standards &Advanced Risk Management

34

Risk Management

Capital Adequacy Framework−
In January 2007, KEB began calculating risk
weighted assets using the advanced approach of Basel IIand established a new capital adequacy framework.
The core feature of the new capital adequacy
framework is that banks separate quantifiable risks from
non-quantifiable risks, and select and manage material
risks. Quantifiable risks include credit risk, market risk,
operational risk, interest rate risk, credit concentration
risk, and strategic risk. Liquidity risk is a non-quantifiablerisk, but is classified as a material risk.
The Basel II advanced approach calls for the
Advanced Internal Ratings Based (A-IRB) approach indetermining credit risk, the Internal Model to measuremarket risk, and the Advanced Measurement Approach(AMA) for calculating operational risk, and sets theconfidence level at 99.9%. A capital buffer of at least 8%
of risk volume has also been set, and a correlation matrix
for integrating various risks volume has been introduced.
Credit Risk−
Since 2007, KEB has measured credit risk
using the A-IRB approach of Basel II; the risk volume isreflected in setting and managing risk limits. Credit risk
assessments are now much more sophisticated than in
2006, encompassing rating systems, probability of default(PD) calculations, and the Credit Scoring System (CSS).
The Risk Based Pricing System is established by
the risk data generated by the approach. Furthermore,since the latter half of 2007, KEB has utilized thisadvanced risk data to implement bank-wide risk-adjusted
performance management (RAPM) by individual business
unit. KEB has employed risk-adjusted return on capital(RAROC) as an index of RAPM in order to determine
targets and manage performances by division.

Market Risk−
KEB has implemented the Basel Committee’s
recommendation by refining our market risk internal
model. The risk volume measured by the model is reflected
in setting our risk-limit. Particularly since 2007, it has
been reflected in our RAROC index with targets set andperformances managed on a divisional basis as credit riskvolume has.
To better reflect exceptionally volatile market
environment in 2007, KEB modified the method ofgenerating interest rate scenarios and stress-testing
scenarios. To manage market risk, KEB monitors the risk
limit and daily back-testing results, which comes fromdaily P/L and 1-day Value at Risk (VaR) of the previous day.
In 2008, KEB plans to use the risk volume measured by theinternal model to calculate regulatory capital.
Operational Risk−
From 2007, KEB has implemented operationalrisk limits based on AMA methodologies. For internal
controls and measuring risk volume of operational risk, we
instituted Basel II AMA-based Control Self-Assessment
at our headquarters, domestic branches and overseas
operations in the first and second half of 2007. AMAbased loss data and scenarios are also used in measuring
AMA-based operational risk.
Beginning in 2008, KEB plans to integrate
operational risk with RAROC and strengthen internal
controls by forming a committee composed of directorsof operational risk, compliance, auditing, and financial
departments.

Business Continuity Planning

35

Interest Rate Risk−
KEB has fully developed and deployed a new
system for measuring interest rate risk in line with BaselII recommendations since 2007. Shifting from the partial
valuation method relying on simple duration gap analysis,
we now use full valuation incorporating current value of
assets & liabilities in measuring interest rate risk.
From 2008, we plan to set interest rate risk
limits based on risk volume measured by new methods.
Calculation of Earnings at Risk (EaR) indexes has begun,and EaR limits will also be added in 2008.

Business Continuity Planning−
KEB introduced an enhanced Business Continuity
Plan (BCP) in December 2006 in order to improve the bank’s
ability to prevent, respond to and recover from growing
threats to normal operation posed by strikes, terrorist
acts, computer malfunctions, typhoons, earthquakes andother disasters.
Our BCP encompasses procedures and plansthat will help us minimize damage from unforeseeable
disasters and enable the bank to continue operating. Risks
to the bank are ranked and weaknesses are analyzed
by experts deployed to inspect major sites performing
the functioning of the headquarters, and through selfassessment of our domestic branches and overseas
network (including subsidiaries).
We have devised a Contingency Plan identifying
major potential disasters by workplace and outlining whatsteps to take for before and after emergency situations
occur. We have categorized core activities for recoveryof operations in the event of business disruption into
five steps through Business Impact Analysis (BIA), andselected critical tasks among our 1-day Recovery Time
Objective (RTO) activities.
Should operations at a domestic branch be
disrupted, recovery will be organized by other branches
in the vicinity; if business is disrupted at KEB’s overseas
branches (including subsidiaries), plans are in place toutilize leasehold alternate worksites to restore operations.
In case of disruption of KEB’s headquarters, an alternate
worksite was established in another company facility justoutside Seoul.
KEB will hold annual BCP simulation tests aspart of our ongoing IT-based Disaster Recovery Systemtraining in order to reinforce customer confidence andbuild a stable foundation for continued growth by securingbusiness continuity even in case of disasters. Also, in thefirst half of 2008, we plan to create a separate customer
service call center system for our alternate worksites totake over in the event of disruption to our existing callcenter.

Liquidity Risk−
A daily report to monitor the bank’s liquidity
ratio (current assets to current liabilities) was introduced
in 2007. Additionally, a customer behavior model wasdeveloped for more advanced forecasting of asset &liability maturities. Finally, to ensure that KEB copes
effectively with any potential liquidity crisis with
rapid-response measures, we have created a Liquidity
Contingency Plan and continue to review and update it asnecessary.

> Corporate Ethics> KEB Foundation•   C orporate Ethics   •   K EB Foundation

KEB has a responsibility to its employees, customers and shareholders.
• We honor this commitment through internal controls to ensure thehighest standards of ethical and transparent management, an ombudsman
system, compliance officers and other programs that help to instill corporate
pride, earn public trust and enhance our reputation. • Through the KEB
Foundation, the Korean financial industry’s flagship charitable organization, KEB
volunteers perform a wide range of activities to assist society’s most needy
and neglected members, build homes for the homeless, support the arts, andprovide relief to those struck by disaster in communities where we operate,
both at home and overseas.

Transparent Corporate Culture& Foundation for Sharing

38

Corporate Ethics

KEB men and women understand that the reputation of
our bank depends on the integrity of our operations and ahigh standard of ethical behavior of our staff. To protect
the bank and our customers, employees, and shareholders,
KEB pursues transparency in business management
through a comprehensive internal control system.
In 2007, in line with efforts to improve internal oversightand compliance, we increased the number of Chief
Compliance Officers (CCOs) from 15 to 43. Drawn from thebank’s most senior and experienced managers, CCOs playa vital role in implementing KEB’s compliance program
through training, overseeing branch work processes,troubleshooting, and other tasks.
KEB is the first domestic bank to set up an independent
ombudsman system, the goal of which is to encourage
employees to identify and address problems or concerns.
Thanks to the full independence of the Ombudsman andthe confidentiality guaranteed to whistleblowers, thissystem provides a safe channel for KEB staff to raisequestions that will improve bank operations.

As a precaution against losses and increased reputation
risk arising from violations of Korea’s Fair Trade Act,KEB reinforced and relaunched a comprehensive Fair Trade
Compliance Program .
The success of the aforementioned initiatives is readily
apparent in the figures. In 2007, irregularities in ourbanking operations have decreased a 71.6% in number
and 80.0% in amount from the previous year. In fact,
not a single case was reported during the second halfof last year.
KEB takes a proactive stance on anti-money laundering(AML) efforts. This year, we launched our newly upgradedaAML Monitoring System, which has been underdevelopment for roughly one year, and to aggressively
manage AML Risk through reinforcement of our “KnowYour Customer” (KYC) system. We expect these steps
will give KEB the most advanced AML risk management
system in Korea.

KEB Foundation

39

To fulfill corporate social responsibility,
the KEB Foundation engages in a wide rangeof charitable activities.

In order to coordinate the bank’s social activities andmaximize their impact, KEB created the Korean banking
industry’s first non-profit foundation, the KEB Foundation,
in December 2005. Even before the Foundation’s
establishment, KEB was an active corporate member ofthe community through our scholarships, music festivals
and a range of other activities. But working with theFoundation, we are able to pursue these efforts in a more
systemic, sustained and professional manner.
In step with growing awareness and expectationsof corporate social responsibility, the KEB Sharing
Foundation engages in charitable activities to support theneedy and neglected members of our society, including
underprivileged children, child welfare facilities, and thosethe government defines as “Basic Livelihood Security
Recipients.” At the regional level, we assist low-income
families and students with scholarships, while also lendinga helping hand to international humanitarian causes.
Among these tasks, we have devoted particular energy tobuilding a social safety net by nurturing the future dreamsof youths in need, and to international relief work which,as Korea’s preeminent global bank since our inception in
1967, goes hand-in-hand with our global brand image.
Though only three years old, the KEB Foundation has
already achieved a great deal in fulfilling our social
responsibilities. Since 2005, we have disbursed a
total of KRW 4 billion won, much of this going to help
underprivileged youths, arrange Christmas benefits forHolt Int’l Children’s Services, and host various related
events, and to finance hiking and nature tours for children
at regional community centers to Korea’s famed Jiri andHalla mountains and Jeju Island.
Furthermore, we co-sponsor essay contests for youthheaded households with the Korea Welfare Foundation.
To foster the hopes, dreams and patriotic spirit of youthheaded households, KEB invites them to tour Goryeo
historical sites in China and Kyushu, Japan. KEB also
forms domestic and international one-to-one partnerships
for worthy causes, establishing cooperative ties withleading non-profit organizations such as World Vision andFood for the Hungry.

40

KEB Foundation

Through this approach the Foundation has arranged
1:1 relationships between KEB employees and 479
youngsters, with fixed-amount donations going eachmonth to where they will do the most good.

overseas study in Vietnam, Indonesia and the Philippines.
We provided 128 students from developing countries inSoutheast Asia with one-year scholarships in 2006.
This figure rose to 246 in 2007.

Over the past three years, KEB has donated KRW 1 billion
annually directly to roughly 160 low-income households aspart of our commitment to building a better social safety
net. During this same three years, we have also provided
monthly free meal to the homeless and the solitaryelderly. We made contributing to the operating expensesof hospitals providing free medical exams for foreignlaborers in Korea, and in the winter we distribute 20,000
pairs of earmuffs to foreign laborers through community
centers and designated KEB branches.

Other social welfare activities include inviting
underprivileged youths to musical and theatricalperformances, helping to enrich their lives with culture.
Some 600 bank employees to date have participated in
the KEB Foundation’s 1:1 partnership with the“Ten Angels of Love” movement, raising over KRW 140
million in donations.

The KEB Foundation has approximately 900 permanent
volunteers registered, including bank staff and family
members. Their sphere of activity includes building homes
for the needy in cooperation with Habitat Korea.
Providing scholarships for children of low-income families
has long been a staple among KEB’s charities, since 1989
to the present. Our scholarships in 2006 totaled KRW 90
million, then soared to KRW 176 million last year, and we
expect the scale to continue rising.
International relief assistance dovetails perfectly with
KEB’s outward-oriented image. Thus far, we have provided
support for disaster relief efforts following an earthquake
in Pakistan, a tsunami in Indonesia, and floods in Vietnam
and the Philippines. Through our branch office in Arbil,
Iraq, a country torn by war and disease, KEB has paid forchildren’s operations and medical treatment, giving themrenewed hope for life, and has provided scholarships for

To further the Foundation’s efforts, the bank itself
contributed KRW 2.0 billion to the Foundation in 2007,
double the amount of donations raised in 2006. Another
KRW 300 million in donations came from proceeds fromour non-profit “KEB Sharing Savings Account” product. In
these and other ways, KEB is actively leading the way inreturning a portion of our profits to society.
As the first philanthropic charity foundation of any
domestic banks, the KEB Foundation will continue to set
new standards for social contributions commensuratewith KEB’s stature and corporate image of KEB.

Financial Section

42

Management Discussion & Analysis

54

Independent Auditors’ Report (Non-Consolidated)

55

Non-Consolidated Balance Sheets

56

Non-Consolidated Statements of Income

58

Non-Consolidated Statements of Appropriations of Retained Earnings

59

Non-Consolidated Statement of Changes in Shareholders’ Equity60

Non-Consolidated Statements of Cash Flows

62

Notes to Non-Consolidated Financial Statements

120

Independent Accountants’ Review Report on Internal Accounting Control System

121

Independent Auditors’ Report (Consolidated)

122

Consolidated Balance Sheets

123

Consolidated Statements of Income

125

Consolidated Statements of Changes in Shareholders’ Equity

126

Consolidated Statements of Cash Flows

128

Notes to Consolidated Financial Statements

42

1.
Key Financial DataManagement Discussion & Analysis

In billions of KRW			2007 		2006

YoY

Operating Results			
Total Income
2,720.6
2,518.1+8.04%
		Net Interest Income
1,886.6
1,827.0+3.26%
		Fees & Commissions
581.2
479.4
+21.23%		
Non Interest Income
252.8
211.6
+19.47%
Total Expenses (G&A)
1,092.2
1,053.4+3.68%
Operating Income
1,628.4
1,464.7+11.18%Net Income
960.9
1,006.2-4.50%
Profitability Indices			Net Interest Margin (NIM)
3.23%
3.44%
-0.21%
Return on Assets
1.29%
1.52%
-0.23%p
Return on Equity
15.05%
16.28%-1.23%p
Balance Sheet Data at Year-End (inclg. Trust Account)				
97,924.7
81,019.8+20.87%
Total Assets
Total Credits
58,722.0
48,637.3+20.73%
Total Deposits
59,755.4
48,015.2+24.45%
Asset Quality			
NPL Ratio
0.61%
0.62%
-0.01%p
		
NPL Coverage Ratio
203.5%
206.0%-+2.5%p
Precautionary & Below Ratio
1.21%
1.47%
-0.26%p		Pre & Bel. Coverage Ratio
102.9%
86.4%+16.5%p
Delinquency Ratio
0.56%
0.77%
-0.21%p
Capital Adequacy			BIS Ratio (Basel Ⅰ Basis)11.44%
12.45%-1.01%p		Tier Ⅰ Ratio
8.65%
9.37%
-0.72%p		Tier Ⅱ Ratio
2.79%
3.08%
-0.29%p2.
Overview

The bank has added another year of strong financial results with net income of KRW 960.9 billion in 2007. As a result, the bank has generated
profits in the range of KRW 1 trillion for its third consecutive year. Under a management objective to maintain an efficient capital structure andconsistent and reliable dividend payments, the bank’s Board of Directors declared a dividend of KRW 700 per share for shareholders of record as ofthe end of 2007, a total of KRW 451.4 billion.
KEB’s capital position remained very strong after reflecting the dividend payout, with BIS capital ratio standing at 11.44%(Basel I basis).
Asset quality remained at an industry-leading level, as non-performing loan and delinquency ratios recorded 0.61% and 0.56%, respectively.

3.
Profitability1) Summary of Profitability−
KEB recorded net income of KRW 960.9 billion in 2007 in the midst of the recent severe global financial volatility. Although the bank’s net
income of 2007 declined slightly, KRW 45.3 billion, from 2006 on significantly lower special gains, improved normal business profitability and morediverse income sources contributed to maintain a solid business performance for the third consecutive year. Overall profitability remained strong with
ROA of 1.29% and ROE of 15.05% for 2007. KEB once again delivered strong profitability thanks to responsible loan asset growth, stable net interest
margin (NIM), and continuing leadership in the foreign exchange (F/X) and export/import markets. The bank also realized good growth in fee income
across all major business lines.

43

    

In billions of KRW			
FY2007 																				
4Q			
3Q			
2Q			
1Q
Bank Card
Bank Card
Bank Card
Bank Card
Bank Card
Net Interest Income
Fees & Commissions
Non Interest Income
Reported                                Adjusted
Total Income            Reported                               Adjusted
Total Expenses(-)
Operating Income
Reported                                 Adjusted
Impairment Loss, etc. (-)
Income before Provision Reported                                        Adjusted
Provision & Others (-)
Loan Loss Provision
Other Provision
Income before Tax   
Reported                                 Adjusted
Income Tax Expense (-)
  Reported                                      Adjusted
Net Income

1,886.6 1,442.5 444.1 501.2 385.4
581.2 726.3 -145.1 159.8 199.1
252.8 244.8
8.0 219.1 212.3
252.8 244.8
8.0 107.5 100.7
2,720.6 2,413.6 307.0 880.1 796.8
2,720.6 2,413.6 307.0 768.5 685.2
1,092.2 1,008.2
84.0 282.1 259.6
1,628.4 1,405.4 223.0 597.9 537.2
1,628.4 1,405.4 223.0 486.3 425.6-207.6 -197.0 -10.6 -128.7 -124.3
1,836.0 1,602.4 233.6 726.6 661.5
1,836.0 1,602.4 233.6 615.0 549.9
319.4 284.3
35.2 245.2 238.1
318.7 304.5
14.3 178.6 173.9-56.7 -74.2
17.5
48.4
47.0
1,516.6 1,318.1 198.5 481.5 423.5
1,516.6 1,318.1 198.5 369.9 311.9
555.6 555.6- 230.6 230.6
555.6 555.6- 119.0 119.0
960.9 762.5 198.5 250.9 192.9

115.8
-39.2
6.7
6.7
83.3
83.3
22.5
60.7
60.7
-4.4
65.1
65.1
7.1
4.7
1.4
58.0
58.0
58.0

454.5
133.4
44.2
44.2
632.0
632.0
294.4
337.6
337.6
-16.4
354.0
354.0
86.2
68.7
8.8
267.9
267.9
73.5
73.5
194.4

346.8
173.2
41.9
41.9
561.9
561.9
273.5
288.4
288.4
-13.3
301.7
301.7
77.3
65.9
3.2
224.5
224.5
73.5
73.5
151.0

107.7 475.3 363.9-39.8 150.9 186.2
2.3 -65.2 -64.1
2.3
46.4
47.5
70.1 560.9 486.0
70.1 672.5 597.6
20.9 226.0 207.5
49.2 334.9 278.5
48.2 446.5 390.1
-3.1
-1.1
-1.1
52.3 336.0 279.6
52.3 447.6 391.2
8.9 -102.6 -113.3
2.7
16.3
13.8
5.6 -128.1 -135.8
43.4 438.6 392.9
43.4 550.2 504.5- 161.4 161.4- 273.0 273.0
43.4 277.2 231.5

111.4
-35.4
-1.1
-1.1
75.0
75.0
18.5
56.4
56.4
56.4
56.4
10.7
2.4
7.6
45.7
45.7
45.7

455.6
137.2
54.7
54.7
647.5
647.5
289.6
358.0
358.0
-61.4
419.3
419.3
90.7
55.2
14.2
328.6
328.6
90.2
90.2
238.4

346.4
167.8
54.7
54.7
568.9
568.9
267.5
301.3
301.3
-58.2
359.5
359.5
82.2
50.8
11.4
277.3
277.3
90.2
90.2
187.1

FY2006Bank

Card

109.3 1,827.0 1,346.3 480.7-30.7 479.4 609.9 -130.4
0.1
85.1
44.7
40.4
0.1 211.6 171.2
40.4
78.7 2,391.6 2,000.9 390.7
78.7 2,518.1 2,127.4 390.7
22.0 1,053.4 966.2
87.1
56.6 1,338.2 1,034.7 303.6
56.6 1,464.7 1,161.2 303.6-3.2 -564.9 -560.7-4.2
59.8 1,903.1 1,595.3 307.7
59.8 2,029.6 1,721.8 307.7
8.5 435.8 343.6
92.2
4.4 182.2 160.9
21.3
2.8 197.8 131.1
66.7
51.3 1,506.7 1,251.7 215.6
51.3 1,593.8 1,378.2 215.6- 461.2 461.2- 587.7 587.7
51.3 1,006.2 790.6 215.6

Adjusted figures are provided to show the effect of the KASB(Korea Accounting Standards Board) accounting standard change (effective as of November, 2007) for the purpose of comparison.

Excluding special gains and charges, KEB’s normal business profit grew 1.8% to KRW 937 billion as the bank diversified sources of income tooffset higher provisions from loan growth and changes in regulatory reserve requirements. The effect of special items on profitability diminishedsignificantly in 2007 compared to 2006, as the bank registered KRW 322 billion less in special gains (from sales of debt/equity swapped investment
securities, etc.) and KRW 259 billion less in special charges.
In billions of KRW
Full Year

Reported Net Income

2007
961

-45

2006
1,006

Lower special gains
-322
182

Normal Business Profitability

FSS regulatory
reserve change
Special Gains
Normal Business Profitability
Special Charges
Tax +/- Nominal 27.5% Rate

504

937

Better Normal Profitability
+17

-61
-77
-20

Lower special charges+270• Hynix• Hyundai E&C• Others

920

-210
-157
-41
-9

• NTS Tax Assessment
FSS regulatory
reserve change

44Management Discussion & Analysis

Details of special gains & special charges

In billions of KRW		

FY 2007					

			
		
		
		
Special
Gains
		
		
		
		
		
		
SpecialCharges						Sale of Debt-for-Equity Positions		
Reversal of impairment loss		
Recoveries/Sale of NPLs		
Sale of CFEB Affiliate Shares		
Retrieval from Non-Performing Asset Fund		
Asset Recognition of Shares of VISA Inc.		
Others		Total		Special Income-related Bonuses		
Retroactive CBA Payments		
Regulatory Reserve Changes 		NTS Tax Assessment		
Bonus Recognition Timing		
KEBCS-related Lawsuit		
Others		Total		

4Q
80
7
30
26
39
182
11
61
27
25
14
138

3Q
67
7
39
113
11
61
-24
25
14
87

2Q
24
24

FY 2006

1Q
13
23
36
24
-24
-

7
26
33
3
24
27

171
210
89
17
17
504
22
10
157
210
9
408

2) Net Interest Income−
Interest revenues in 2007 showed a 13.0% increase compared to the previous year, primarily driven by an expansion in loan interest
revenue which rose 15.5% year-on-year with lending asset growth and disciplined profitability management. Interest revenue on securities declined
11.1% year-on-year due to the reduction of securities consistent with the bank’s business plan.
Interest expenses increased 23.8% year-on-year along with rising funding costs stemming from the tighter liquidity environmentand higher market interest rates. Net interest income, defined as interest income minus interest expense, increased 3.3% year-on-year in thechallenging funding markets.
In billions of KRW
FY 2007		Interest Revenue
Income on due from banks
Interest on securities
Interest income on loans
		 Bank
		 Card
OthersInterest Expenses
Interest on deposits
Interest on borrowings
Interest on debentures
OthersInsurance expenses for deposits &Contribution for Credit Guarantee Fund (-)
Other Interest Income
Net Interest Income
Bank
Card

				

4Q

3Q

2Q

FY 2006

YoY

1Q

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

1,132.5
23.7
99.4
1,001.5
854.5
146.9
7.9
593.9
355.1
108.4
118.3
12.1

1,027.1
15.0
95.2
910.7
774.3
136.4
6.2
536.1
321.1
107.5
97.4
10.1

985.4
15.3
93.7
869.7
730.9
138.8
6.7
485.2
299.2
93.0
84.6
8.4

933.8
12.1
85.6
830.7
693.9
136.8
5.4
451.3
276.1
78.4
89.2
7.6

3,609.9
42.6
420.3
3,127.3
2,538.6
588.7
19.7
1,669.6
1,003.4
294.2
349.3
22.7

13.0%
55.4%
-11.1%
15.5%
20.3%
-5.1%
33.2%
23.8%
24.7%
31.6%
11.5%
68.7%

126.4
0.8
1,886.6
1,442.5
444.1

34.8
-2.6
501.2
385.4
115.8

33.5
-3.0
454.5
346.8
107.7

29.7
0.1
470.6
359.2
111.4

28.4
1.6
455.6
346.4
109.3

112.6
-0.6
1,827.0
1,346.3
480.7

12.3%
F.
3.3%
7.1%
-7.6%

45

3) Net Interest Margin (NIM)−
KEB reported healthy and stable NIM of 3.23% on a cumulative basis despite difficult funding market conditions. By quarter, NIM slipped
in 3Q 2007 due to increasing funding costs in the midst of an intensified funding and liquidity environment. However, NIM saw a fourth-quarterrebound in line with recovering asset profitability
Unit : %Cumulative Basis2007 				
4Q
3Q
2Q
1Q

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

3.23
3.85
1.20
3.10
6.62
3.52

3.24
3.85
1.21
3.12
6.54
3.42

NIM-Cumulative Basis

3.32
3.93
1.30
3.19
6.53
3.34

2006
4Q
3.34
3.92
1.45
3.20
6.46
3.26

3Q

2Q

3.44
4.06
1.31
3.26
6.29
3.03

1Q

3.40
3.99
1.34
3.23
6.23
3.00

3.42
4.00
1.34
3.21
6.17
2.96

3.47
4.04
1.39
3.17
6.10
2.93

NIM-Quarterly Basis
Fourth-quarter rebound

3.44%

4Q‘ 06

3.34%

1Q‘ 07

3.32%

2Q‘ 07

3.24%

3Q‘ 07

3.57%

3.23%

3.34%

4Q‘ 07

4Q‘ 06

1Q‘ 07

3.29%

2Q‘ 07

3.06%
3Q‘ 07

3.19%

4Q‘ 074) Fees & Commissions−
Fees & commissions continued to grow as a core component of the bank’s total income. Gains from F/X transaction grew 7.5% year-onyear aided by determined efforts to expand transactions.
KRW currency-related fees & commissions recorded another year of rapid growth, rising 45.9% over 2006 owing to strong sales ofinvestment products and bancassurance. Foreign currency-related fees & commissions posted a more moderate increase of 6.3% year-on-year amid
efforts to expand export/import volume.
In billions of KRW
FY 2007					
		
4Q
3Q
2Q
1Q
Gains from FX Transaction
Fees & Commissions
		 KRW currency-relatedBank		 Foreign currency-related
		 Others
Subtotal
Card			Total			

250.3
475.9
277.5
137.8
60.6
726.3
-145.1
581.2

68.8
130.2
73.3
39.8
17.2
199.0
-39.2
159.8

58.9
114.3
68.3
32.1
13.9
173.2
-39.8
133.4

62.2
124.0
74.3
33.8
16.0
186.2
-35.4
150.9

FY 2006
60.5
107.3
61.6
32.2
13.5
167.8
-30.7
137.2

232.8
377.0
190.2
129.7
57.0
609.9
-130.4
479.4

YoY
7.5%
26.2%
45.9%
6.3%
6.3%
19.1%
U.
21.2%

46

Management Discussion & Analysis

5) Non-Interest Income−
The bank’s diverse sources of non-interest income such as operating trust account, merchant account, trading, and valuation equity
method on subsidiaries all showed healthy performances in 2007. Income from operating trust account and merchant account increased 27.6%
and 9.9%, respectively, year-on-year. Trading profit increased 18.8% over the year earlier. Valuation equity method on subsidiaries also grew by a
substantial 35.5%, reflecting their overall strong business performance.
‘Additional Tax Payment’ and ‘Corporate Tax Refund’– which were formerly included in ‘Others’ – have been reclassified from nonoperating expense items to corporate tax items in accordance with the Korea Accounting Standards Board (KASB) accounting standard change,
effective as of November 2007. Adjusted figures in the below table show the effect of the accounting change.
KRW 52.4 billion of special income was posted in 4Q2007 upon receipt of shares of Visa Inc. (2.7 million shares) in exchange for KEB’s
membership interest in Visa International in the restructuring process of Visa International becoming one of the subsidiary of a recently incorporated
Visa Inc.
In billions of KRW
FY 2007					
		
4Q
3Q
2Q
1Q
Operating Trust AccountMerchant AccountTrading Profit 		
Valuation equity method
Card sector		
NPL sales		
OthersOther		NTS item		
Tax refund
Non -Interest Income Reported(NTS Item)(Tax Refund)
Adjusted

32.7
18.2
93.2
54.6
8.0
5.0
41.0
252.8
252.8

9.5
4.3
22.4
12.1
6.7
9.2
43.3
112.2
-0.6
219.1
(+112.2)(-0.6)
107.5

7.9
4.9
16.5
14.3
2.3
-0.3
-1.3
44.2
44.2

7.7
4.7
30.0
17.3
-1.1
-8.1
-4.2
-112.20.6-65.2(-112.2)(+0.6)
46.4

FY 2006
7.6
4.2
24.4
11.0
0.1
4.2
3.2
54.7
54.7

YoY

25.7
16.5
78.5
40.3
1.1
47.7
1.7
-127.00.5
85.1(-127.0)(+0.5)
211.6

27.6%
9.9%
18.8%
35.5%
F.
-89.5%
F.
F.
U.
F.
19.5%

Adjusted figures show the effects when excluding ‘NTS item‘ and ‘Tax Refund‘.

6) G&A Expenses−
The bank succeeded in controlling growth in personnel expenses to a modest 0.9% year-on-year, with a moderate 8.5% growth in salaries
offset by a 20.3% decline in employee benefits due to decreased special bonus payments. One noteworthy point related to KEB’s Salaries accountis the change in accounting methodology for the timing of recognition of certain employee costs. As a result, Salaries account now shows quarterly
fluctuations. (Please refer to Appendix 1 for further details.)
Depreciation grew by a modest 3.0% due to investments in new branch openings and upgrading of the bank’s IT capabilities. KEB’s
cost-income ratio (CIR), defined as the ratio of total expenses to total income, slipped 3.9%p from 2006 to a moderate 40.1% in 2007. With thereclassification of “Additional Tax Payment” from non-operating expense to corporate tax item, this no longer has a distorting impact on CIR. (Pleaserefer to Appendix 1 for further details.)
In billions of KRW
FY 2007					

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

4Q
644.1
509.8
134.4
284.7
126.2
37.0
1,092.2
1,008.2
84.0

3Q
135.3
96.3
39.0
92.2
38.3
16.3
282.1
259.6
22.5

2Q
189.5
152.3
37.2
65.3
31.8
7.8
294.4
273.5
20.9

FY 2006

YoY

1Q
125.5
96.0
29.5
65.2
29.7
5.7
226.0
207.5
18.5

193.8
165.2
28.6
62.0
26.4
7.3
289.6
267.5
22.0

638.5
470.0
168.5
248.2
122.6
44.0
1,053.4
966.2
87.1

0.9%
8.5%
-20.3%
14.7%
3.0%-15.9%
3.7%
4.3%
-3.6%

47

7) Provisions, Tax Expenses, etc.
−
The bank’s loan loss provisioning (LLP) rose to KRW 318.7 billion in 2007 from KRW 182.2 billion in 2006. This increase was primarily the
result of the decision by the Financial Supervisory Service (FSS) in December 2007 to raise the minimum LLP requirement ratio for normal-classcorporate credits. In conjunction with this regulatory policy change, one-time additional LLP of KRW 69 billion was accumulated in 4Q 2007. (Pleaserefer to Appendix 2 for further details.) Another contributing factor was the exceptionally low provisioning figure for 2006 resulting from a KRW 75
billion special recovery.
Another regulatory policy change resulted in the addition of KRW 15 billion to ‘Other provisioning’ as the Korean regulator raised provision
requirements for open, unused credit lines in 4Q 2007. In addition, ‘Other provisioning’ reflected the reversal of KRW 127 billion related to thedisputed National Tax Service(NTS) tax assessment, which was recognized in 2006. (Please refer to Appendix 3 for further details). KRW 25.0 billion
was recorded retroactively in 'Other provisioning' account as of the end of 2007, in accordance with accounting practice upon notification of fines asa result of the first court ruling on the disputed KEBCS(KEB Credit Service Co. Ltd)-related trial in February 2008.
In billions of KRW
FY 2007					
		
4Q
3Q
2Q
1Q

FY 2006

Loan Loss Provisioning
318.7
178.6
68.7
16.3
55.2
<Bank>		
304.7
173.9
66.1
13.8
50.9
		
Corporate
275.6
160.8
60.4
10.6
43.9
		
Household
29.0
13.1
5.7
3.2
7.0
<Card>		
14.1
4.7
2.6
2.5
4.3
Other Provisioning, etc.
-56.7
48.4
8.8
-128.1
14.2
Retirement Allowance
57.3
18.1
8.6
9.3
21.3
Total 							- Reported
319.4
245.2
86.2
-102.6
90.7- Excluding NTS item
453.3
245.2
86.2
31.3
90.7

4.
Assets & Liabilities(Bank Account)

YoY

182.2
160.9
118.1
42.8
21.4
197.8
55.7

74.9%
89.4%
133.4%-32.2%-34.0%
F.
3.0%

435.7
301.8

-26.7%
50.2%

1) Assets−
Total assets at the end of 2007 were KRW 82.0 trillion, an 18.1% increase from KRW 69.4 trillion at the end of 2006. Thanks to disciplined
marketing efforts focused on profitable customer segmentation strategies, the bank achieved 19.1% growth in loans in 2007. Total loans &discounts stood at KRW 54.1 trillion at the end of 2007 compared to KRW 45.4 trillion at the end of 2006.
In line with management’s business plan to trim short-term, low-yield securities, KEB steadily reduced total securities throughout the year.
Securities stood at KRW 9.8 trillion at the end of 2007, down from KRW 10.5 trillion at the end of 2006. Rapid expansion continued in the bank’s
merchant banking assets, which rose 60.4% over 2006 amid growing commercial paper discount activity.
In billions of KRW			Cash & Due from Banks		
Securities
Loans & Discounts					Credit Card Receivables		
Other Asset		
Merchant Banking Accounts
Total Assets		2007.125,118.4
9,773.4
54,055.4
2,440.6
9,724.0
3,353.8
82,024.9

2007.093,299.4
10,445.5
53,013.0
2,245.7
10,778.0
2,323.5
79,859.5

2007.06
3,551.1
11,071.5
47,319.92,252.2
9,666.1
1,885.1
73,493.8

2007.03
4,067.2
10,182.6
46,097.2
2,229.3
7,781.6
2,424.8
70,553.5

2006.12
3,958.2
10,457.9
45,389.5
2,314.6
7,545.3
2,090.5
69,441.5

YoY
29.3%
-6.5%
19.1%
5.4%
28.9%
60.4%
18.1%

48

Management Discussion & Analysis

2) Liabilities−
Along with asset growth, KEB’s funding through deposit-taking, borrowings, and debenture issuance also showed a corresponding
increase. Deposits stood at KRW 44.4 trillion at the end of 2007, reflecting a gain of 15.4% year-on-year spurred by active marketing efforts to build
liquidity. Borrowings rose by 17.0% to KRW 8.9 trillion at the end of 2007. Funding through issuing debentures grew at a relatively higher pace of
35.6%, and outstanding of debentures stood at KRW 8.5 trillion at year-end.
In billions of KRW			Deposits
Borrowings
Debentures
Other Liabilities
Merchant Banking Accounts
Shareholders’ Equity
Liabilities & Shareholders’ Equity

2007.1244,431.0
8,858.1
8,547.9
11,390.2
2,147.0
6,650.8
82,024.9

2007.0940,674.6
10,306.4
7,542.2
12,334.6
2,383.0
6,618.6
79,859.5

2007.06
38,909.0
8,842.3
6,586.7
10,751.1
2,060.9
6,343.8
73,493.8

2007.0337,742.3
8,077.2
6,422.6
9,725.9
2,662.6
5,922.9
70,553.5

2006.12

YoY

38,489.7
7,568.5
6,305.5
9,054.0
1,644.5
6,379.2
69,441.5

15.4%
17.0%
35.6%
25.8%
30.6%
4.0%
18.1%

3) Shareholders’ Equity−
Total shareholders’ equity at the end of 2007 was KRW 6.7 trillion reflecting a 4.3% year-on-year increase. As retained earnings were
utilized for a 2006 dividend payout of KRW 645 billion (KRW 1,000 per share) in 1Q2007, the increase amount of retained earnings was less than
the amount of net income for 2007.
In billions of KRW			Paid-in Capital
Capital Surplus
Capital Adjustment (Unrealized gain on investment securities)
Retained Earnings
Total Shareholders’ Equity
Book value Per Share (BPS)

5.
Major Business
Activities

2007.123,224.5
0.9
1,107.1
2,318.2
6,650.8₩10,3132007.093,224.5
0.9
1,327.1
2,066.0
6,618.6₩10,263

2007.06
3,224.5
0.9
1,247.6
1,870.8
6,343.8₩9,8372007.033,224.5
0.9
1,102.6
1,594.8
5,922.8₩9,1842006.12

YoY

3,224.5
0.9
1,153.8
1,999.9
6,379.2₩9,892-46.7+318.3+271.6+₩4211) Korean Won Currency Loan−
Total KRW currency loans rose 18.7% to KRW 40.3 trillion at the end of 2007, more than doubling the 8.2% increase recorded in 2006.
Loans to small and medium-sized enterprises (SMEs) outpaced the overall growth rate, rising 30.1% year-on-year to KRW 19.2 trillion at the end of2007 as the bank focused on high-quality SME borrowers. Loans to large corporations expanded by KRW 1.3 trillion to KRW 3.8 trillion, reflecting
reduced direct financing activities by these companies in the more volatile capital markets environment.
Loans to households recorded KRW 14.7 trillion with a 3.1% year-on-year growth. High-quality individual loan growth has compensatedfor the slowdown in housing-related loans caused by government regulations aimed at curtailing real estate speculation.
Credit card receivables also showed a moderate increase of 5.4%.
In billions of KRW			Household		
Housing-related		
Personal loans
Corporate
		
SMEs
		
Large Corp.
Public & others
Subtotal 		Credit Card Receivables
Total 		2007.12
14,723.7
8,242.4
6,481.3
22,947.5
19,157.6
3,789.9
154.8
37,826.0
2,440.6
40,266.5

2007.09
14,447.2
8,452.9
5,994.4
21,117.5
17,851.2
3,266.3
151.7
35,716.5
2,245.7
37,962.2

2007.06
14,467.1
8,502.8
5,964.3
19,008.8
16,407.2
2,601.6
69.0
33,544.9
2,252.2
35,797.1

2007.03
14,396.2
8,728.7
5,667.4
17,664.8
15,354.5
2,310.3
72.1
32,133.0
2,229.3
34,362.3

2006.12
14,285.0
8,715.4
5,569.6
17,231.6
14,720.5
2,511.1
78.3
31,594.9
2,314.6
33,909.6

YoY
3.1%
-5.4%
16.4%
33.2%
30.1%
50.9%
97.7%
19.7%
5.4%
18.7%

49

2) Foreign Exchange (F/X) & Trade Finance−
KEB maintained its leading position in F/X and trade financing markets in 2007. In the F/X market, the bank covered 40% of transactions
conducted by Korea’s seven leading commercial banks. It also expanded its share of Korea’s total export volume by 2%p to 29% and retained its
29% share of import volume from the previous year.

40%
KEB
OthersFX Market Share(%)

6.
Asset Quality

29%
KEB
OthersExport Market Share(%)

29%
KEB
OthersImport Market Share(%)1) Asset Classification−
The bank maintained its industry-leading asset quality by adhering to disciplined growth and focusing on prime customers. As a result,it boasted a non-performing loan (NPL) ratio of only 0.61% at the end of 2007, improving slightly on the 0.62% figure recorded at the end of 2006.
The FSS-mandated increase in minimum provisioning ratio for corporate normal-class loans in 4Q 2007 followed enforcement of a similar regulatorychange in 4Q 2006. In keeping with these requirements, KEB maintained an NPL coverage ratio of 203.5% at the end of 2007. Current reserve levels
significantly exceed KEB’s estimated level of expected loss under the new Basel Capital Accord (Basel II).
In billions of KRW						

2007. 12 		
2007. 09		
2007. 06		2007. 03		2006. 12(EX. card)		
(EX. card)(EX. card)(EX. card)		
(EX. card)

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

58,009.8 55,631.7 52,657.3 50,474.9 50,315.6 48,129.9 49,033.7 46,877.4 47,923.8 45,698.9
351.9
317.8
501.7
465.0
362.1
322.5
473.7
430.0
414.1
365.0
242.3
242.3
182.2
182.2
168.8
168.8
195.6
195.6
181.9
181.9
43.0
18.7
46.8
21.7
42.2
16.9
55.0
24.9
56.5
21.0
75.0
69.2
47.5
43.1
53.1
48.6
66.9
62.1
61.0
54.7
58,722.0 56,279.7 53,435.5 51,186.9 50,941.8 48,686.7 49,824.9 47,590.0 48,637.3 46,321.5
0.61% 0.59% 0.52% 0.48% 0.52% 0.48% 0.64% 0.59% 0.62% 0.56%
1.21% 1.15% 1.46% 1.39% 1.23% 1.14% 1.59% 1.50% 1.47% 1.34%
733.0
668.4
606.1
544.0
586.7
522.9
624.2
555.8
616.8
540.4
203.5% 202.4% 219.2% 220.2% 222.2% 223.2% 196.6% 196.7% 206.0% 209.8%
102.9% 103.2% 77.9% 76.4% 93.7% 93.9% 78.9% 78.0% 86.4% 86.8%

50Management Discussion & Analysis2) Delinquency−
The bank’s delinquency ratio further improved to 0.56% at the end of 2007, down from 0.77% at the end of 2006. Disciplined credit
management has resulted in consistently lower new delinquency formation and sustained strong asset quality.
Reported Basis2007.12

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

2007.09

0.49%
0.34%
0.87%
0.04%
1.92%
1.88%
10.77%
0.56%

0.45%
0.36%
0.71%
0.09%
2.00%
1.96%
8.51%
0.52%

2007.06
0.29%
0.32%
0.43%
0.02%
1.98%
1.93%
8.38%
0.37%

2007.03
0.62%
0.50%
0.79%
0.48%
2.28%
2.22%
7.78%
0.70%

2006.12

YoY

0.62%
0.52%
0.74%
0.55%
3.66%
3.58%
10.08%
0.77%-0.13%p-0.18%p+0.12%p-0.51%p-1.74%p-1.70%p+0.69%p-0.22%p3) Strict Risk Exposure Management—Minimal Exposure to US Mortgage Assets−
Indicative of KEB’s strict risk exposure management is the bank’s minimal exposure to US mortgage assets amidst the recent turmoil inglobal financial markets caused by problems in the US subprime mortgage market.
The bank has no direct holdings of US mortgages or US mortgage-backed securities. Indirect exposure to sub/mid prime mortgages
through collateralized debt obligations (CDOs) was only U$1.3 million, which was just 1.9% of KEB’s total of U$63.0 million in CDO holdings at theend of 2007.
Details of exposures to Collateralized Debt Obligations(CDO)
Purchase
Credit Rating
Investment		 Maturity
Month					Apr-06
AAA (US Treasury)		
5.00 Mar-16
May-06AAA		
20.00 Apr-11
Mar-07AAA (Freddie Mac)		
20.00 Sep-15
Apr-07AAA		
18.00 Dec-14
Total			63.00 		Partial sales of CDO amount of USD 17million in Dec, ‘07
Net valuation loss of total CDO = USD 3.84 million as of Dec. 31, 2007
(Net valuation loss of Sub/Midprime = USD 1.10 million)

In millions of USD
Subprime + Midprime Ratio Valuation 		 Valuation Loss(amount)(Dec 31,07)		 CDO		 Sub/Mid
2.5% (0.12)		
4.87 		0.13		
0.01
None		
19.61 		0.39		
5.7%(1.14)		
16.68 		3.32		
1.09
None		
18.00 		-		1.9% (1.26)		
59.16 		3.84		
1.10

51

7.
Dividend & Capital
Adequacy

1) Dividend−
KEB declared a KRW 700 per share dividend, a total of KRW 451.4 billion, or 47% of 2007 earnings. The previous year dividend (2006) was
KRW 1,000 per share, KEB’s first dividend since 1996. The size of the dividend was decided after retaining sufficient capital to support expected2008 business growth and additional surplus capital cushions. The dividend also helps the bank to optimize its return on equity (ROE) and cost ofcapital.
2) BIS Capital Adequacy Ratio (Basel Ⅰ Basis)−
After setting aside funds for the dividend, KEB’s BIS capital adequacy ratio recorded 11.44%. The bank’s Tier I ratio stood at 8.65% andTier II ratio was 2.79% at the end of 2007. Tier I ratio remains above level of peer banks while Tier II ratio is smaller than peers.
In billions of KRW			
Tier Ⅰ		
Paid-in Capital
Capital surplus
Retained Earnings
Outside Shareholders‘ Equity
Hybrid Tier Ⅰ
Deferred Income Tax Debits (-)
Cost of Issuing New Shares (-)
Other Intangible Fixed Assets (-)
Loss on Valuation of Investment Securities (-)
Tier Ⅱ		
Loan Loss Reserve
45% of Gain on Valuation of Investment Securities
Subordinated Debts
Others (-)		
Total Qualifying Capital
Risk-Weighted Assets (incldg. Market Risk )BIS Ratio		Tier ⅠRatio
Tier Ⅱ Ratio

4Q 20075,231.8
3,224.5
0.9
2,355.8
1.5
250.0
-10.9
0.0
-81.1
-56.5
1,797.6
763.1
502.4
531.5
104.3
6,922.8
60,493.5
11.44%
8.65%
2.79%

3Q 20075,449.4
3,224.5
0.9
2,102.0
1.5
250.0
-9.6
0.0
-82.5
-37.4
1,855.8
689.6
591.5
574.7
96.4
7,208.8
57,838.5
12.46%
9.42%
3.04%

2Q 20075,249.8
3,224.5
0.9
1,905.6
1.4
250.0
-9.6
0.0
-89.6
-33.5
1,788.9
658.7
553.7
576.5
115.9
6,922.8
53,350.9
12.98%
9.84%
3.14%

1Q 20074,979.5
3,224.5
0.9
1,629.0
1.4
250.0
-9.4
-0.4
-88.3
-28.2
1,706.3
632.1
493.6
580.6
100.7
6,585.1
51,868.0
12.70%
9.60%
3.10%

4Q 2006
4,743.1
3,224.5
0.9
1,390.5
1.3
250.0
-8.4
-0.4
-82.3
-33.2
1,745.1
619.1
508.7
617.4
186.9
6,301.4
50,594.0
12.45%
9.37%
3.08%

YoY
10.3%
0.0%
0.0%
69.4%
13.5%
0.0%
30.9%
F.
-1.5%
70.5%
+3.0%
23.3%
-1.2%
-13.9%-44.2%
9.9%
19.6%-1.01%p-0.72%p-0.29%p52Management Discussion & Analysis

Appendix 1
Items affecting
cost/income ratio

Change in accounting methodology for timing of recognition of certain employee costs• Background- Certain employee costs, as reflected in the bank’s collective bargaining agreements (CBAs), are paid to the staff in lump sums at the
beginning of each half year performance period (January and July).
- Previously, these costs had been amortized over the six month period (or the full year) depending on the nature of the cost.
- As of 1Q‘07 these costs will be recognized at the time of payment, resulting in higher expense recognition in the first and third quartersof each year, (offset by lower expense recognition in the second and fourth quarters) than under the previous method.
• Related costs (pre-tax) per half year
Before
1Q

2Q
35.8

3Q

1H
32.9

4Q
34.2

68.7
2H

34.2

In billions of KRW
After
1Q

2Q
68.7

3Q
68.4

1H
-

4Q
68.4

2H
-

Impact		
1Q
2Q
68.7
+32.9
3Q
4Q
68.4
+34.2

1H
-32.9

0
2H

-34.2

0

Payment related to NTS tax assessment for ‘01-‘04• NTS Preliminary Assessment in 3Q‘06
Other Provision• Payments made : 4Q‘06 – KRW113.3bn
2Q‘07 – KRW148.9bn (KRW119.1bn affecting P/L)

including ’additional tax payment’ KRW112.2bn• Accounting standard revision by Korea Accounting Standards Board (KASB, Effective as of Nov 2007)
Before- ’Additional tax payment’ recognized as
non- operating expense- T hus, this reduced total income, and it affectedreported Cost/Income Ratio

After- Recognized as ’corporate tax’ item- Does not have impact on total income, does notaffect Cost/Income Ratio

Impact on reported Cost/Income ratio (Cumulative basis)				Reported			
Impact of NTS assessment		
Impact of expense accounting change		Normalized			

Appendix 2
FSS provision
requirement change
in 4Q‘07

4Q‘06
44.0%
2.2%p
41.8%

1Q‘07
44.7%
5.1%p
39.6%

2Q‘07

3Q‘07

42.7%
3.7%p
39.0%

4Q‘07

44.0%
2.5%p
1.8%p
39.7%

40.1%
40.1%

• BackgroundAs a precautionary measure for recent rapid growth in corporate loans, FSS decided to increase minimum LLP
requirement ratio for normal class corporate loans (Effective as of Dec 31, 2007)• Provision Accumulation Policy Change Summary
1. Minimum Provision Ratio Revision for normal class corporate credits
Unit: %
BeforeAfter				
		Manufacturing Construction
Real Estate
Wholesale						
NormalPrecautionary
Substandard
Doubtful
Estimated Loss

Hotel &
Restaurant

0.7
0.85
0.9
0.9
0.9
0.9
7						20						No change
50						100						Others0.85

53

2. Minimum LLP ratio impact on profit
In billions of KRW		Normal
LLP ratio(%)		
		
Credit
BeforeAfterConstruction, Real Estate,
Loans12,8300.7
Wholesale, Hotel & Restaurant
Unused credit
20,3580.7
Manufacturing and Others
Loans
28,9340.7
		Unused credit
72,943
0.7

Appendix 3
Net income impact by
NTS final notification of
tax assessment

Additional Provision
Accumulation
0.9
0.9
0.85
0.85

25.7
4.1
43.4
10.9

Progress after NTS ‘01-‘04 tax assessment							

In billions of KRW
3Q‘06

4Q‘06

2Q‘07

Other Provision (Balance)				
247
134
P/L - Transfer to ( ① )				
-247		
P/L - Transfer from ( ② )					
+113Corporate Tax Expense ( ③ ) 				
-113×27.5%

Deferred Income Tax Benefit/Expense ( ④ )				
Net Income Impact ( ①+②+③+④ )				

×27.5%

+68
-179

7*
+127
-112
×27.5%

-31
-31

-35
-20

* Related Yen Depo Swap withholding tax issue

Reclassified from ’Additional tax payment’ to ’Corporate tax’ itemin accordance with accounting standard change as of 4Q ‘07• 3Q‘06- A ccording to Korean Accounting Principles, companies are required to recognize the full liability of the preliminary
tax assessment in their financial statements regardless of the merits of the assessed items or the probability ofwinning appeals. KRW 247bn was reflected in Other Provision for disputed NTS ‘01-‘04 tax assessment.
• 4Q‘06- P ayment for disputed NTS tax assessment resulted in KRW 113bn partial reversal of Other Provision (booked 3Q‘06)
and recognition of Corporate Tax expense.
• 2Q‘07- NTS Final Notification of Tax Assessment received June 2007
■ Result of initial step of appeal process
Minor items accepted : KRW 39.9bn, total tax decreased			
KRW 12.5bn impacting P/LKEBCS LLR item rejected (represents KRW 215bn of total assessment)					
KEB has been under appeal process (National Tax Tribunal) since August 2007 and will pursue
				
all available legal appeals.
		■ All amounts due to NTS have been paid.
		
		

54

Independent Auditors’ Report(Non-Consolidated)-English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of
Korea Exchange Bank:−
We have audited the accompanying consolidated balance sheet of the bank accounts of Korea Exchange Bank (the “Bank”) and its
subsidiaries as of December 31, 2007, and the related consolidated statements of income, changes in shareholders’ equity and cash flows andfor the year ended December 31, 2007, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management.
Our responsibility is to express an opinion on these financial statements based on our audit. We have not audited the financial statements of
KEB Australia Ltd., Korea Exchange Bank of Canada, PT. Bank KEB Indonesia, Korea Exchange Bank (Deutschland) A. G., Banco KEB do Brasil S.A.,KEB NY Financial Corp. and KEB LA Financial Corp. whose statements reflect total assets constituting 2.79 percent of consolidated total assets
as of December 31, 2007 and total revenues constituting 1.84 percent of consolidated total revenues for the year then ended. Those statements
were audited by other auditors whose reports have been furnished to us, and our opinion, in so far as it relates to the amounts included for thoseentities, is based solely on the reports of such other auditors. The accompanying consolidated statements as of and for the year ended December
31, 2006, which are presented for comparative purposes, were audited by other auditors, whose report dated February 27, 2007 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit and other auditors’ report provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the 2007 financial statements referred to above present fairly, inall material respects, the financial position of the Bank and its subsidiaries as of December 31, 2007, and the results of their operations, thechanges in its shareholders’ equity and their cash flows for the year then ended, in conformity with generally accepted accounting principles in
the Republic of Korea.
Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial
statements are not intended to present the financial position, results of operations, cash flows and changes in shareholder’ equity in accordancewith accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures andpractices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in othercountries. Accordingly, this report and the accompanying financial statements are for use by those knowledgeable about Korean accounting
procedures and auditing standards and their application in practice.

Deloitte Anjin LLC
Seoul, Korea
March 11, 2008

Notice to Readers−This report is effective as of March 11, 2008, the auditors’ report date. Certain subsequent events or circumstances may have occurred
between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect theaccompanying financial statements and may result in modifications to the auditors’ report.

Non-Consolidated Balance Sheets-KOREA EXCHANGE BANK (BANKING ACCOUNT) as of December 31, 2007 and 2006

55

(In millions of won)

2007

2006

ASSETS₩Cash and due from banks (Notes 3, 18, 19, 24 and 29)
Securities (Notes 4, 17, 18, 19, 23 and 29)		
Loans (Notes 5, 6, 7, 17, 18, 19, 23 and 24)		
Tangible assets (Note 8)		Other assets (Notes 2, 9, 17 and 24)		
Merchant banking account assets (Notes 10 and 18)		
₩			

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

3,958,237
10,457,920
45,389,515
852,179
6,693,115
2,090,500
69,441,466

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:₩		 Deposits (Notes 11, 18, 19 and 24)
		 Borrowings (Notes 12, 18, 19 and 24)		
		 Other liabilities (Notes 2, 13, 15, 17, 18, 21 and 24)		
		 Merchant banking account liabilities (Note 14)		
				

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

38,489,731
13,874,026
9,054,037
1,644,507
63,062,301

SHAREHOLDERS’ EQUITY (Notes 15, 16, 17 and 21):
		 Common stock				 Capital surplus				 Capital adjustments		
		 Accumulated other comprehensive income		
		 Retained earnings		
				
₩
			

3,224,534		
940		
-		
1,107,113		
2,318,212		
6,650,799		
82,024,917 ₩

3,224,534
940
18,862
1,134,965
1,999,864
6,379,165
69,441,466

See accompanying notes to non-consolidated financial statements.

56

Non-Consolidated Statements of Income-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

(In millions of won, except per share amounts)

2007
OPERATING REVENUES:Interest income (Notes 2, 19 and 24):
		 Interest on due from banks
		 Interest on trading securities
		 Interest on available-for-sale securities
		 Interest on held-to-maturity securities
		 Interest on loans
		 Other interest income
			

₩

2006

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

42,57063,309254,470
102,529
3,127,303
19,701
3,609,882

Gain on valuation and disposal of securities (Note 4):
		 Gain on valuation of trading securities
		 Gain on disposal of trading securities
		 Reversal of impairment loss on available-for-sale securities
		 Reversal of impairment loss on held-to-maturity securities
		 Gain on disposal of available-for-sale securities			

405
91,77392,980139,421324,579

5,916
79,198287,859
19,253
293,140
685,366

Gain on valuation and disposal of loans:
		 Gain on disposal of loans (Note 5)

11,92047,487

Foreign exchange trading income
		 Gain on trading and valuation of derivatives (Notes 17 and 19)
		 Commission income (Notes 19 and 24)
		 Dividends income (Note 19)
		 Other operating revenue (Notes 10, 19 and 25)
		 Total operating revenues

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

885,480
2,212,459
440,686
3,891
103,371
7,988,622

OPERATING EXPENSES:Interest expenses (Notes 19 and 24):
		 Interest on deposits
		 Interest on borrowings
		 Other interest expenses
			

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

1,003,393
643,549
22,683
1,669,625

Loss on valuation and disposal of securities (Note 4):
		 Loss on valuation of trading securities
		 Loss on disposal of trading securities
		 Impairment loss on available-for-sale securities
		 Impairment loss on held-to-maturity securities
		 Loss on disposal of available-for-sale securities
			

6,515
62,17522,478
4,913
96,081

9,331
50,03957,107
204
2,619
119,300

Loss on valuation and disposal of loans:		 Provision for possible loan losses (Note 7)
		 Loss on disposal of loans (Notes 5 and 17)
			307,0427,247
314,289

174,597
7,219
181,816(Continued)

Non-Consolidated Statements of Income, continued-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

57

(In millions of won, except per share amounts)

Foreign exchange trading losses
Loss on trading and valuation of derivatives (Notes 12, 17 and 19)
Commission expenses (Notes 19 and 24)
General and administrative expenses (Notes 19, 24 and 26)
Other operating expenses (Notes 14 and 19)

2007₩

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

2006₩

612,446
2,199,236
194,244
1,111,293
384,055

Total operating expenses

7,351,021

6,472,015

OPERATING INCOME

1,411,646

1,516,607

NON-OPERATING INCOME (Notes 4 and 20)

139,041

97,934

NON-OPERATING EXPENSE (Note 20)

34,09820,748

INCOME BEFORE INCOME TAX

1,516,589

1,593,793

INCOME TAX EXPENSE (Note 21)555,644587,626

NET INCOME (Note 23)₩

960,945₩

1,006,167BASIC NET INCOME PER SHARE (In currency units) (Note 22)

₩

1,490

₩

1,560

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

₩

1,490

₩

1,558

See accompanying notes to non-consolidated financial statements.

58

Non-Consolidated Statements of Appropriations of Retained Earnings-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

(In millions of won)

2007
RETAINED EARNINGS BEFORE APPROPRIATIONS:
Beginning of the year
Adjustments using the equity method and others
Net income			₩

TRANSFER FROM VOLUNTARY RESERVES:Other reserve
APPROPRIATIONS:
Legal reserve (Note 17)
Other reserve
Dividends
		 (Cash dividends (Note 28)
		 Dividends per share (rate):		 ₩ 700 (14%) at 2007		 ₩ 1,000 (20%) at 2006)
			
UNAPPROPRIATED RETAINED EARNINGS TO BE CARRIEDFORWARD TO SUBSEQUENT YEAR
See accompanying notes to non-consolidated financial statements.

₩

2006
1,121,941
960,945
2,082,886₩

958,225(2)
1,006,167
1,964,390

-

1,409

96,100572
451,435

196,500
2,451
644,907548,107843,858

1,534,779₩

1,121,941

Non-Consolidated Statement of Changes in Shareholders’ Equity-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the year ended December 31, 2007

59

(In millions of won)

CapitalCapitalCapitalstock
surplusadjustments
				
				
As of January 1, 2007
Dividend
Balance after appropriations and adjustments
Changes in accounting estimation
Net income
Effect of exchange rate fluctuations
for overseas branches
Valuation of available-for-sale securities
Valuation of held-to-maturity securities
Unrealized gain on investment in affiliates
As of December 31, 2007

₩ 3,224,534
3,224,534
-

940
940
-

₩ 3,224,534

940

See accompanying notes to non-consolidated financial statements.

₩

₩

₩

₩

Accumulated Retained
otherearnings
comprehensive
incomeTotal

18,862
18,862(18,862)-₩ 1,134,965₩ 1,999,864₩ 6,379,165

1,134,965-(644,907)
1,354,957
960,945(644,907)
5,734,258(18,862)
960,945-(29,191)410
929₩ 1,107,113

2,310₩ 2,318,212

2,310(29,191)410
929₩ 6,650,799

60

Non-Consolidated Statements of Cash Flows-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

(In millions of won)

2007
CASH FLOWS FROM OPERATING ACTIVITIES:Net income
Adjustments to reconcile net income to net cash used in operating activities:
		 Loss on valuation of trading securities, net
		 Reversal of impairment loss on available-for-sale securities, net
		 Reversal of impairment loss on held-to-maturity securities, net
		 Gain on valuation of securities using the equity method, net
		 Provision for possible loan losses
		 Loss on disposal of tangible assets, net
		 Depreciation and amortization
		 Loss (gain) on valuation of financial derivatives, net
		 Provision for severance benefits
		 Compensation cost		 Reversal of allowance for other liabilities
		 Provision for other liabilities
		 Stock option compensation costs, net
		 Loss (gain) on foreign exchange trading, net
		 Others, net
			Changes in assets and liabilities resulting from operations:
		 Net decrease (increase) in trading securities
		 Net decrease in available-for-sale securities
		 Net decrease (increase) in held-to-maturity securities
		 Net increase in loans
		 Net decrease (increase) in accrued income
		 Net decrease (increase) in prepaid expenses
		 Net increase in financial derivatives assets
		 Net increase in accrued expenses
		 Net increase in unearned revenues
		 Net increase in accrued income tax
		 Payment of severance benefits
		 Decrease in transfer to National Pension Fund
		 Increase in deposit of insurance for severance benefits		 Net increase in financial derivatives liabilities
		 Net decrease in allowance for other liabilities
		 Exercise of stock option
		 Net decrease (increase) in deferred income tax assets
		 Net increase in deferred income tax liabilities			
Net cash used in operating activities(Continued)₩

2006
960,945₩

1,006,167

6,110(70,502)(54,637)
307,042987
126,362
4,267
57,34423,766(81,619)
5,417
187(2,634)
322,090

3,415(230,752)(19,049)(40,337)
174,597
1,703
122,633(26,480)
55,683
22,634
117,198
4,965(29,108)85,818242,920

867,057
548,042(319,704)(8,965,205)
47,923(644)(154,490)
1,617
26,881(15,835)
34(12,068)
33,288(14,844)(6,499)826
43,227(7,920,394)(6,637,359)(68,714)
1,899,402
463,998(4,630,050)(9,506)57,59634,344
7,397
223,003(9,077)
62(41,946)(267)
217,898(1,855,860)(606,773)

Non-Consolidated Statements of Cash Flows, continued-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

61

(In millions of won)

2007
CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease in securities using the equity method
Disposal of tangible assets
Disposal of real estate for non-business property
Purchase of tangible assets
Net increase in guarantee deposits paid
Purchase of intangible assets
Net increase in accounts receivable
Net decrease (increase) in other assets
Net increase in merchant banking account assets
Net increase in due from banks
Net cash used in investing activities

₩

2006
593
4,504
(126,756)(127,431)(28,625)(1,547,938)(5,812,762)(1,254,496)(352,517)(9,245,428)₩

28,6748,344
77(106,122)(22,064)
589,288(976,692)(1,071,602)(1,550,097)

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

5,953,672
1,289,602
2,195,106
8,155,296(644,907)
16,948,769

492,297
828,097394,361
477,687(122)
2,192,320

NET INCREASE IN CASH AND DUE FROM BANKS

1,065,982

35,450CASH AND DUE FROM BANKS, BEGINNING OF YEAR

2,623,579

2,588,129

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

₩

3,689,561₩

2,623,579

62

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

1.
GeneralKorea Exchange Bank (the “Bank“) was established on January 30, 1967 as a government-invested bank to engage in foreign exchange and thetrade finance business under the Korea Exchange Bank Act. On December 30, 1989, the Korea Exchange Bank Act was repealed and the Bank
was converted into a corporation under the Commercial Code of the Republic of Korea. On April 4, 1994, the Bank was listed on the Korean Stock
Exchange. The merger between the Bank and Korea Exchange Bank Credit Service Co., Ltd. (“KEBCS“) was finalized on February 28, 2004.
The Bank primarily provides commercial banking services, trust banking services, foreign exchange, merchant banking business throughthe merger with Korea International Merchant Bank, a domestic subsidiary of the Bank, and other related operations as permitted under the BankAct and other relevant laws and regulations in the Republic of Korea. The Bank operates through 338 branches (including 26 depositary offices)and 3 subsidiaries in Korea and 21 branches (including 3 depositary offices and 2 offices) and 8 subsidiaries in overseas as of December 31, 2007.
The Bank‘s shareholders as of December 31, 2007 are as follows:
Shareholders
LSF-KEB Holdings, SCA (*2)
Export-Import Bank of Korea
Bank of Korea
Euro-Pacific Growth Fund
OthersNumber of shares owned (*1) Ownership (%)
329,042,672
40,314,387
39,500,000
23,917,000
212,132,767
644,906,826

51.02
6.25
6.13
3.71
32.89
100.00(*1) As of December 31, 2007, the date of closing a shareholders‘ list(*2) S ince LSF-KEB Holdings, SCA disposed 87,707,328 shares at ₩13,600 per share through after-hour trade on June 26, 2007, the number of shares owned has been changed from416,750,000 shares (64.62% of ownership) to 329,042,672 shares (51.02% of ownership).

The Bank entered into a Memorandum of Understanding regarding the Share Subscription Agreement with Lone Star Fund IV on August 27, 2003.
On October 30, 2003, the Bank issued 268,750,000 shares of common stock to LSF-KEB Holdings, SCA at ₩4,000 per share (at less than its parvalue) in accordance with a resolution during an extraordinary shareholders‘ meeting on June 16, 2003. The balance below the par value wasrecognized as a discount on stock issued.
As of December 31, 2007, the total number of authorized shares of the Bank is 1,000 million (par value ₩5,000) while the paid-in capitalamounts to ₩3,224,534 million (with 644,906,826 shares of common stock outstanding with par value of ₩5,000).

2. 
Summary of significant
accounting policies

Basis of Non-consolidated Financial Statement Presentation
The Bank maintains its official accounting records in Korean Won and prepares statutory non-consolidated financial statements in the
Korean language (Hangul) in conformity with the accounting principles and banking accounting standards generally accepted in the Republic ofKorea. Certain accounting principles and banking accounting standards applied by the Bank that conform with financial accounting standards andaccounting principles in the Republic of Korea may not conform with generally accepted accounting principles and banking accounting practices
in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles
and practices. The accompanying financial statements have been condensed, restructured and translated into English (with certain expanded
descriptions) from the Korean language financial statements. Certain information included in the Korean language financial statements, but
not required for a fair presentation of the Bank‘s financial position, results of operations, changes in shareholders‘ equity or cash flows, is notpresented in the accompanying financial statements.
The significant accounting policies followed by the Bank in preparing the accompanying non-consolidated financial statements are
summarized below.
Interest Income Recognition
The Bank applies the accrual basis in recognizing interest income related to due from banks, loans and securities. Whereas, interest on
loans, whose principal or interest is past due at the balance sheet date or defaulted loans, not secured by guarantees from financial institutions orcollateral deposits, is recognized on a cash basis. As of December 31, 2007 and 2006, accrued interest income not recognized due to such criteria
amounted to ₩81,016 million and ₩70,069 million, respectively.
Classification of Securities
At acquisition, the Bank classifies securities into one of the following categories: trading, available-for-sale, held-to-maturity andsecurities accounted for using the equity method, depending on marketability, purpose of acquisition and ability to hold. Debt and equity securities
that are bought and held for the purpose of selling them in the near term and actively traded are classified as trading securities. Debt securities
with fixed and determinable payments and fixed maturity that the Bank has the positive intent and ability to hold to maturity are classified as heldto-maturity securities. Securities that should be accounted for under the equity method are classified as securities accounted for using the equity
method. Debt and equity securities not classified as the above are categorized as available-for-sale securities.
If the objective and ability to hold securities of the Bank change, available-for-sale securities can be reclassified to held-to-maturity
securities and held-to-maturity securities can be reclassified to available-for-sale securities. Whereas, if the Bank sells held-to-maturity securities
or exercises early redemption right of securities to issuer in the current year or the proceeding two years, and if it reclassifies held-to-maturity
securities to available-for-sale securities, all debt securities that are owned or purchased cannot be classified as held-to-maturity securities. On theother hand, trading securities cannot be recategorized to available-for-sale securities or held-to-maturity securities and vice versa. Nevertheless,trading securities are reclassified to available-for-sale securities only when the trading securities lose their marketability.

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

63

Valuation of Securities
1) Valuation of Trading Securities
Trading equity and debt securities are initially recognized at acquisition cost plus incidental expenses determined by the individual
moving average method (the specified identification method for debt securities). When the face value of trading debt securities differs fromtheir acquisition cost, the effective interest method is applied to amortize the difference over the remaining term of the securities. After initialrecognition, if the fair value of trading securities differs from the book value, trading securities are stated at fair value and the resulting valuation
gain or loss is included in current operations.
2) Valuation of Available-for-sale Securities
Available-for-sale securities are initially recognized at acquisition cost plus incidental expenses, determined by the individual moving
average method (the specified identification method for debt securities). The effective interest method is applied to amortize the difference
between the face value and the acquisition cost over the remaining term of the debt security. After initial recognition, available-for-sale securities
are stated at fair value, with the net unrealized gain or loss presented as gain or loss on valuation of available-for-sale securities in accumulated
other comprehensive income (loss), which is charged to current operations in a lump sum at the time of disposal or impairment recognition. Nonmarketable equity securities are stated at acquisition cost on the financial statements if the fair value of the securities is not reliably determinable.
If the fair value of equity securities (net asset fair value in case of non-marketable equity securities stated at acquisition cost) is below
the acquisition cost and the pervasive evidence of impairment exists, the carrying value is adjusted to fair value and the resulting valuation loss
is charged to current operations. If the collectible value of debt securities is below the amortized cost and the pervasive evidence of impairment
exists, the carrying value is adjusted to collectible value and the resulting valuation loss is charged to current operations. With respect to impaired
securities, any unrealized valuation gain or loss of securities previously included in accumulated other comprehensive income (loss) is reversed.
3) Valuation of Held-to-maturity Securities
Held-to-maturity securities are stated at acquisition cost plus incidental expenses, determined by the specific identification method.
When the face value of held-to-maturity securities differs from its acquisition cost, the effective interest method is applied to amortize thedifference over the remaining term of the securities. If collectible value is below the amortized cost and the pervasive evidence of impairment
exists, the carrying value is adjusted to collectible value and the resulting valuation loss is charged to current operations.
4) Valuation of Securities using the Equity Method
Equity securities held for investment in companies in which the Bank is able to exercise significant influence over the investees (inaccordance with the Banking Act, if the Bank holds more than 15 percent of the total issued shares, the Bank is considered being able to exercise
significant influence) are accounted for using the equity method. The Bank‘s share in net income or net loss of investees is included in current
operations. Changes in the retained earnings of investee are reflected in the retained earnings. Changes in the capital surplus, capital adjustments
or accumulated other comprehensive income (loss) of investee are reflected as gain or loss on valuation of securities using the equity method inaccumulated other comprehensive income (loss).
When the book value of equity securities using the equity method is less than zero due to the cumulative losses of the investees, theBank discontinues applying the equity method and does not provide for additional losses. If the investees subsequently report net income, the Bank
resumes applying the equity method only after its share of that net income equals the share of net losses not recognized during the period that theequity method was suspended.
In addition, any gain or loss from the disposal of equity securities of certain consolidated subsidiaries is accounted for as accumulated
other comprehensive income (loss) resulting from applying the equity method in the balance sheets if the subsidiaries are still consolidated evenafter the Bank disposes of a portion of equity securities.
5) Reversal of Impairment Loss on Available-for-sale Securities and Held-to-maturity Securities
If the reasons for impairment loss on available-for-sale securities no longer exist, the recovery is recorded in current operations under
non-operating income up to amount of the previously recognized impairment loss as reversal of impairment loss on available-for-sale securities andany excess is included in accumulated other comprehensive income as gain on valuation of available-for-sale securities. However, if the increases
in the fair value of the impaired securities are not regarded as the recovery of the impairment, the increases in the fair value are recorded asgain on valuation of available-for-sale securities in accumulated other comprehensive income. For non-marketable equity securities, which wereimpaired based on the net asset fair value, the recovery is recorded up to their acquisition cost.
For held-to-maturity securities, the recovery is recorded in current operations under non-operating income within the amount of amortizedcost that would have been recorded according to the original schedule if the impairment losses had not been recognized as reversal of impairment
loss on held-to-maturity securities.
6) Reclassification of Securities
When held-to-maturity securities are reclassified to available-for-sale securities, those securities are accounted for at fair value on thereclassification date and the difference between the fair value and book value is reported in accumulated other comprehensive income (loss) as gainor loss on valuation of available-for-sale securities. When available-for-sale securities are reclassified to held-to-maturity securities, gain or loss
on valuation of available-for-sale securities, which had been recorded until the reclassification date, continue to be included in accumulated othercomprehensive income (loss) and amortized using the effective interest rate method and the amortized amount is charged to interest income until
maturity. The difference between the fair value at the reclassification date and face value of the reclassified securities to held-to-maturity securities
is amortized using effective interest rate method and the amortized amount is charged to interest income. In addition, when certain trading securities
lose their marketability, such securities are reclassified as available-for-sale securities at fair market value as of reclassification date.

64

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

Transfer of Securities
When the realization, expiration or sale of the right to obtain the economic benefits arises and the control of securities is lost from thesale of the securities, the unrealized valuation gain or loss of securities included in accumulated other comprehensive income (loss) is added toor deducted from the gain or loss on disposal of securities. The gain or loss is the difference between the net proceeds receivable or received
and its carrying value. When securities are transferred without losing control of the securities, the transaction is recorded as secured borrowing
transaction.
Allowance for Possible Losses on Credits
According to the Korea Financial Accounting Standard Article 57 (Valuation of Receivables), allowance for bad debts shall be provided for
estimated uncollectible accounts on a reasonable and objective basis. Presently, the historical loss rate (based on mitigation or roll-rate analysis)
is one of the permitted reasonable and objective methods to estimate allowance for financial institutions. However, the Bank provides loan loss
provision pursuant to the Supervisory Regulation of the Banking Business, which requires providing more than minimum rate of loss provision foreach asset classification category.
The Bank applies the Forward Looking Criteria (“FLC“) for its loan classification for large corporate based on the credit rating todetermine allowance for loan losses. Under this method, the borrowers‘ future debt repayment capacity as well as their overall financial healthand management soundness are considered in developing the credit rating and the reserve for possible loan losses related to large corporate
customers. However, loan classification for the smaller corporate, household loans and credit card receivables is classified based on thedelinquency period, value of collateral and bankruptcy status only. Using such loan classification, the Bank classifies all credits into five categories
as normal, precautionary, substandard, doubtful, or estimated loss and provides the minimum rate of loss provision for each category balanceusing the prescribed minimum percentages of 0.85 percent (construction, real estate, wholesale & retail, hotel and restaurant industries are0.9%) or more, 7 percent or more, 20 percent or more, 50 percent or more and 100 percent, respectively. Households‘ loans categorized as normal,
precautionary, substandard and doubtful are 1 percent or more, 10 percent or more, 20 percent or more and 55 percent or more, respectively. Card
receivables as those categories are 1.5 percent or more, 15 percent or more, 20 percent or more and 60 percent or more, respectively.
The Bank additionally provided ₩59,363 million of loss provision for normal, as the minimum rate for normal has changed from 0.7
percent to 0.85~0.9 percent in 2007.
The Bank provides allowance for possible losses on confirmed acceptances and guarantees, unconfirmed acceptances and guarantees,
and endorsed notes based on the credit classification, minimum rate of loss provision prescribed by the Financial Supervisory Service and the credit
conversion factor based on the new standard of Bank for International Settlements Accord.
In addition, the Bank provides other allowances for the unused limit of credit card (including unused limit of credit card that have notbeen used at least once in recent one year) and unused loan commitments for corporate and retail loan customers considering the credit conversion
factor based on the new standard of Bank for International Settlements Accord and minimum rate of loss provision prescribed by the Financial
Supervisory Service.
Restructuring of Loans
The equity interest in the debtors, net of real estates and/or other assets received as full or partial satisfaction of the Bank‘s loans,collected through reorganization proceedings, court mediation or debt restructuring agreements of parties concerned, is recorded at fair value
at the time of the restructuring. In cases where the fair value of the assets received are less than the book value of the loan (book value before
allowances), the Bank offsets first the book value against allowances for loan losses and then recognizes provisions for loan losses. Impairment
losses for loans that were restructured in a troubled debt restructuring involving a modification of terms are computed by the difference between
the present value of future cash flows under debt restructuring agreements discounted at effective interest rates at the time when loans are
originated and the book value before allowances for loan losses. If the amount of allowances already established is less than the impairment
losses, the Bank establishes additional allowances for the difference. Otherwise, the Bank reverses the allowances for loan losses.
Deferred Loan Origination Fees and Costs
The Bank defers loan origination fees associated with originating loans and loan origination costs that have future economic benefits.
Loan balances are reported net of these loan origination fees and costs. The deferred loan origination fees and costs are amortized using theeffective interest method with the amortization recognized as adjustments to other interest income.
Valuation of Receivables and Payables at Present Value
Receivables and payables incurred through long-term installment transactions, long-term borrowing and lending transactions, and othersimilar transactions are stated at the present value of expected future cash flows, and the gain or loss on valuation of related receivables andpayables is reflected in current operations, unless the difference between nominal value and present value is immaterial. Present value discount or
premium is amortized using the effective interest rate method and credited or charged to interest income or interest expense.

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

65

Tangible Assets and Related Depreciation
Tangible assets are recorded at cost or production cost including incidental expenses. Routine maintenance and repairs are expensed as
incurred. Expenditures that result in the enhancement of the value or the extension of the useful lives of the facilities involved are capitalized asadditions to tangible assets.
Depreciation is computed by using the declining-balance method (Straight-line method for building and leasehold improvements) based on
the estimated useful lives of the assets as follows:

Tangible assets

Estimated useful life

Depreciation method

Buildings
Leasehold improvements
Equipment

40 years
5 years
4 years

Straight-line
Straight-line
Declining balance

Intangible Assets and Related Amortization
Intangible assets included in other assets are recorded at the production costs or purchase costs plus incidental expenses less discount
if any. Expenditures incurred in conjunction with the development of new products or technology and others, in which the elements of costs can be
individually identified and future benefits expected, are capitalized as development costs. Intangible assets are amortized using the straight-line
method over 5 years and presented after deducting amortized amount.
Valuation Allowance for Non-Business Use Property
Non-business use property included in fixed assets is recorded when the Bank acquires collateral by foreclosure on the mortgage forloans. Such assets are not depreciated. After foreclosure, the asset is carried at the lower of its carrying amount or fair value determined by its
estimated public auction price. As of December 31, 2007, the Bank does not have non-business use property.
Recognition of Impairment of Assets
When the book value of assets (other than securities and assets valued at present value) exceeds the collective value of the assets due toobsolescence, physical damage or a sharp decrease in market value and the difference is material, the book value are adjusted to collective value
in the balance sheet and the resulting impairment loss is charged to current operations. If the collective value of the assets increases in subsequent
years, the increase in value is credited to operations as gain until the collective value equals the book value of assets that would have been
determined had no impairment loss been recognized. The Bank assessed the collective value based on expected selling price or appraisal value.
Amortization of Discounts (Premiums) on Debentures
Discounts or premiums on debentures issued are amortized over the period from issuance to maturity using the effective interest rate
method. Amortization of discounts or premiums is recognized as interest expense on the debentures.
Securities under Resale or Repurchase Agreements
Securities purchased under resale agreements are recorded as loans, and securities sold under repurchase agreements are recorded as
borrowings when the Bank purchases or sells securities under such agreements.
Other Liability Reserve
A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one
or more uncertain future events not wholly within the control of the Bank is recognized as contingent liabilities when it is probable that an outflow ofresources embodying economic benefits required and the amount of the obligation can be measured with sufficient reliability. Where the effect of thetime value of money is material, the amount of the liabilities is the present value of the expenditures expected to be required to settle the obligation.
Accrued Severance Benefits
The accrued severance benefits that would be payable to assuming all eligible employees and directors were to resign are included in otherliabilities. The Bank has purchased severance benefits insurance, which meets the funding requirement for tax purposes, and made deposits with
Samsung Life Insurance Co., Ltd. and others. The deposit for severance benefit is presented as a deduction from the accrued severance benefits.
The estimated accrued severance benefits, which would be payable assuming all eligible employees and executives were to terminate
their employment, amounted to ₩263,806 million and ₩222,587 million as of December 31, 2007 and 2006, respectively.
Accounting for Derivative Instruments
The Bank accounts for derivative instruments pursuant to the Interpretations on Financial Accounting Standards 53-70 on accounting forderivative instruments. Derivative instruments are classified as used for trading activities or for hedging activities according to their transaction
purpose. All derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an asset or liability. If the derivative
instrument is not part of a transaction qualifying as a hedge, the adjustment to fair value is reflected in current operations.
The accounting for derivative transactions that are part of a qualified hedge based both on the purpose of the transaction and on
meeting the specified criteria for hedge accounting differs depending on whether the transaction is a fair value hedge or a cash flow hedge. Fairvalue hedge accounting is applied to a derivative instrument designated as hedging the exposure to changes in the fair value of an asset or aliability or a firm commitment (hedged item) that is attributable to a particular risk. The gain or loss both on the hedging derivative instruments
and on the hedged item attributable to the hedged risk is reflected in current operations. Cash flow hedge accounting is applied to a derivative
instrument designated as hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transactionthat is attributable to a particular risk. The effective portion of gain or loss on a derivative instrument designated as a cash flow hedge is recorded

66

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

as accumulated other comprehensive income (loss) and the ineffective portion is recorded in current operations. The effective portion of gain orloss recorded as accumulated other comprehensive income (loss) is reclassified to current earnings in the same period during which the hedged
forecasted transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gain orloss in accumulated other comprehensive income (loss) is added to or deducted from the asset or the liability.
Accounting for Share-based Payment
In accordance with the Statement of Korea Accounting Standards No.22 - Share-based Payment. and the Interpretations on Financial
Accounting Standards 39-35 - Accounting for Stock Options., in case of equity-settled share-based payment transactions, compensation expense
for stock option and stock option (capital adjustment) are recorded at fair value at the grant date through an agreement service period, whereas incase of cash-settled share-based payment transactions, compensation expense for stock option and accrued expenses are recorded at fair value
at the grant date through an agreement service period. The other liabilities (accrued expenses) by cash-settled share-based payment transactions
are assessed at fair value of the closing day or the final settlement day (assessed at intrinsic value for the portion occurred before December 31,2006). The changes in the fair value of accrued expenses after the grant date are reflected as compensation expense for stock option. In addition,
for share-based payment transactions in which the terms of the arrangement provide a choice for the Bank whether the Bank settles the transaction
in cash or by issuing equity instruments, the Bank is required to account for that transaction as a cash-settled share-based payment transaction if
the Bank has a present obligation to settle in cash, or as an equity-settled share-based payment transaction if no such obligation exists. In case of acash-settled share-based payment, compensation cost is recorded as capital adjustment (stock option), and in case of an equity-settled share-based
payment, compensation cost is recorded as other liabilities (accrued expenses).
Accounting for Trust Accounts
The Bank separately maintains the books of accounts and financial statements in connection with the trust operations (the trust accounts)
from those of the bank accounts in accordance with the Trust Business Act. When surplus funds are generated through the management of trust
assets, such funds are deposited with the Bank and are recorded as due to trust accounts of the bank accounts. Also, the borrowings from the bankaccount are recorded as due from trust accounts of the bank accounts. The Bank receives fees for operation and management of the trust businessand accounts for them as fees and commissions from trust accounts.
With respect to certain trust account products, the Bank guarantees the repayment of the principal of the trust accounts and, in certain
cases, a fixed rate of return. If income from such trust accounts is insufficient to pay the guaranteed amount, such a deficiency is satisfied by using
special reserves maintained in the trust accounts, offsetting trust fee payable to the bank accounts and receiving compensation contributions
from the bank accounts of the Bank. If the Bank pays compensating contributions to the guaranteed return trusts to cover such deficiencies, thesecontributions are reflected as operating expense of the bank accounts and as other income of the trust accounts. There are no compensating
contributions of the Bank for the year ended December 31, 2007.
Merchant Banking Accounts
As permitted by the Restructuring of Financial Institutions Act, the Bank may continue its merchant banking operations, including leasing
business, until the existing contracts acquired from Korea International Merchant Bank upon merger are terminated. Significant accounting policies
applied to the Bank‘s merchant banking operations are summarized as follows:
1) Revenue Recognition on Discounted Notes
Interest income on discounted notes is accrued over the term of the notes. Income from the sale of discounted notes is recognized at thedate of sale based on the difference between the purchase and sales prices of the notes, adjusted for interest earned during the holding period.
2) Cash Management Accounts (“CMA”)
The Bank recognizes interest income from CMA investments and interest expense from CMA deposits as other income and otherexpenses, respectively.
3) Lease Transactions
The Bank accounts for lease transactions as operating or financing leases, depending on the terms of the lease contracts. In general, noncancelable leases are recognized as financing leases when ownership transfers at expiration of the lease term, when a bargain purchase option
exists, or when the lease term exceeds the estimated economic life of the related asset.
Under the financing lease method, aggregate lease rentals are recorded as financing leases receivable, net of unearned interest, basedon the excess of rental revenue over the cost of the related assets. Unearned interest is recognized as interest income on financing leases using theeffective interest method over the lease term.
Income Tax Expense
Income tax expense is the amount currently payable for the period, additional income taxes or tax refunds for prior years(except for
retroactive adjustments of tax effect directly added or deducted to shareholders‘ equity) added to or deducted from the changes in deferred income
taxes. However, deferred income tax assets are recognized only if the future tax benefits from accumulated temporary differences and any tax
loss carryforwards are realizable. The difference between the amount currently payable for the period and income tax expense is accounted for asdeferred income tax assets or liabilities, which will be charged or credited to income tax expense in the period the related temporary difference
reverses in the future. Deferred income tax assets or liabilities are calculated based on the expected tax rate to be applied at the reversal period of
the related assets or liabilities. Tax payable and deferred income tax assets or liabilities regarding to certain items are charged or credited directly
to related components of shareholders‘ equity.

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 200667

Accounting for Foreign Currency Transactions and Translation
The Bank maintains its accounts in Korean Won. Transactions in foreign currencies are recorded in Korean Won based on the basic rateof exchange on the transaction date. The Korean Won equivalent of assets and liabilities denominated in foreign currencies are translated in thesefinancial statements based on the basic rate (₩938.20 and ₩929.60 to US$ 1.00 at December 31, 2007 and 2006, respectively) announced bySeoul Money Brokerage Service, Ltd. or cross rates for other currencies other than U.S. Dollars at the balance sheet dates. Translation gains andlosses are credited or charged to operations. Financial statements of overseas branches are translated based on the basic rate at balance
sheet dates.
Application of the Statement of Korea Accounting Standards
The Korea Accounting Standard Board (KASB) under the Korea Accounting Institute (KAI) issued the Statements of Korea AccountingStandards (SKAS) for achieving a set of Korean accounting standards that should be internationally acceptable and comparable based on SKAS
Act 92. The Bank adopted SKAS No.1 (Accounting Changes and Error Corrections) through SKAS No. 20 (Related Party Disclosures) (excluding No.
14) as of or before December 31, 2006, and SKAS No. 11 (Discontinued Operation) and SKAS No. 21 (Preparation and Presentation of Financial
Statements) through SKAS No. 25 (Consolidated Financial Statements) have been adopted since January 1, 2007.
1) Adoption of SKAS No. 21 (Preparation and Presentation of Financial Statements) and SKAS No. 24 (Preparation
and Presentation of Financial Statements [Financial Industry])
With the adoption of SKAS No. 21 (Preparation and Presentation of Financial Statements) and SKAS No. 24 (Preparation and Presentationof Financial Statements [Financial Industry]), the Bank included the statement of changes in shareholders‘ equity in the financial statements, andreclassified the components of the balance sheets as follows:
Classification

BeforeAfter

Assets- Cash and due from banks- Securities- Loans- Fixed assets- Other assets- Merchant banking account assets- Cash and due from banks- Securities- Loans- Tangible assets- Other assets (Include intangible assets previously under fixed assets)- Merchant banking account assets

Liabilities- Deposits- Borrowings- Debentures- Other liabilities- Merchant banking account liabilities- Deposits- Borrowings- (Note: Included in borrowings)- Other liabilities- Merchant banking account liabilities

Shareholders‘ Equity- Common stock- Common stock- Capital surplus- Capital surplus- Retained earnings- Capital adjustments- Capital adjustments- Accumulated other comprehensive income			 (Previously included in capital adjustments)		- Retained earnings
In addition, a discontinued operation is separately presented in the income statements and extraordinary items are no longer reported
separately. The Bank has reclassified the components of the income statements; such as, gains or losses relating to available-for-sale securities
and sale of loans that were presented under non-operating income (expenses) are currently presented under operating income (loss). The financial
statements for the prior period were restated for comparative purposes due to the application of SKAS No. 21 and No. 24. The restatement did notaffect the previously reported prior period‘s net income (as shown below) or shareholders‘ equity (Unit: In millions).
Classification
Operating revenues
Operating expenses
Operating income
Non-operating income
Non-operating expenses
Extraordinary gain
Income before income tax
Income tax expense
Net income
Basic net income per share (In currency units)
Diluted net income per share (In currency units)

Before₩₩₩₩7,340,883
6,402,621
983,262
734,143
217,147
12,063
1,467,321
461,154
1,006,167
1,560
1,558

After
₩

₩
₩
₩

7,988,622
6,472,015
1,516,607
97,934
20,7481,593,793
587,626
1,006,167
1,560
1,558

Effect₩₩₩₩647,739
69,394
578,345(636,209)(196,399)(12,063)
126,472
126,472-

68

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

In addition, the Bank has reclassified the components of the cash flows; such as, changes in available-for-sale securities, held-tomaturity securities and loans that were presented under cash flows from investing activities are currently presented under cash flows fromoperating activities. The accompanying non-consolidated statement of cash flows for the year ended December 31, 2006, which are presented forcomparative purposes, was restated due to the application of SKAS No. 21 and No. 24.
Classification
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increase in cash and due from banks
Cash and due from banks, beginning of year
Cash and due from banks, end of year

Before₩₩1,368,198(2,453,466)
2,192,320
1,107,052
3,051,009
4,158,061

After
₩

₩

(606,773)(1,550,097)
2,192,320
35,4502,588,129
2,623,579

Effect₩₩(1,974,971)
903,369(1,071,602)(462,880)(1,534,482)

2) Adoption of amended SKAS No. 2 (Interim Financial Reporting)
The Korea Accounting Standard Board (KASB) under the Korea Accounting Institute (KAI) amended SKAS No. 2 (Interim Financial
Reporting), which states that statements of cash flows and changes in shareholders‘ equity can be presented for year-to-date period of the current
fiscal year. Although the amended standard is effective from December 31, 2007, the Bank opted to early adopt the amended standard from January
1, 2007 as early application is permitted.
3) Adoption of the new accounting standards and transition provision
The prior period financial statements were neither restated nor the earnings per share adjusted to reflect the effect of the application of
SKAS No. 22 (Share-based Payment) and No. 23 (Earnings per Share), which is in accordance with the transition provision.
Reclassification
Certain accounts of the prior period were reclassified to conform to the current period‘s presentation for comparative purposes; however,such reclassifications had no effect on the previously reported prior period‘s net income or shareholders‘ equity of the Bank.

3.
Cash and due frombanks

( 1 ) Cash and due from banks as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account
Cash
Foreign currencies on handDue from banks in Won
Due from banks in foreign currencies

2007
₩

₩

972,061
357,266
2,433,120
1,355,944
5,118,391

2006
₩

₩

1,031,776
268,896
1,381,127
1,276,438
3,958,237( 2 ) Due from banks in Won as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account

Financial institution
Interest rate (%)
2007₩
Reserve deposit
The Bank of Korea
Due from banks on time deposits
Other banks
5.30~6.37		
Other due from banks
Other banks
0.10~2.20		
Other due from banks
Other financial institutions
1.25~2.00		
₩
			

2006
1,437,782 ₩
991,348		
3,145		845		2,433,120 ₩1,267,307
11,457102,363
1,381,127( 3 ) Due from banks in foreign currencies as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account
Financial institution
Interest rate (%)
2007₩
Reserve deposit
The Bank of Korea
Due from banks on time deposits
Overseas financial institutions
0.00~9.50		
Other due from banks
Overseas financial institutions
0.00~4.40		
Other due from banks
Domestic financial institutions
0.00~0.30		
Due from banks in otherbank-foreign currencies
Overseas financial institutions
3.25~3.75		
₩
				

2006
413,203 ₩394,602		
182,713		
1,323		

236,404
369,876
89,68021,791

364,103		
1,355,944 ₩

558,687
1,276,438

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

69

( 4 ) Restricted due from banks in Won and foreign currencies as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Due from banks in Won:
The Bank of Korea
Woori Bank
Samsung Securities Co., Ltd.
Kyobo Securities Co., Ltd.
National agricultural cooperative federation		Due from banks in foreign currencies:
The Bank of Korea
Wells Fargo
J.P. Morgan and others
		
		

2007
₩

₩

2006
1,437,782
611
1
174
1
1,438,569
413,20335,227448,430
1,886,999₩₩

Reason for restriction
1,267,307
5,223
1,764
599
1,274,893

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

236,404
1,394
21,791
259,589
1,534,482

Required under the BOK Act
Restricted deposits in relation to closing of US branch
Subscription related to derivatives( 5 ) Term structure of due from banks in Won and foreign currencies as of December 31, 2007 was as follows (Unit: In millions):
Classification
Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due more than five years

Due from banks

Due from banks in

Total

in Won₩foreign currencies₩
1,355,944₩

1,355,944₩₩

4.
Securities

2,432,510
610
2,433,120₩

3,788,454
610
3,789,064( 1 ) Securities as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Trading securities
Available-for-sale securities
Held-to-maturity securities
Securities using the equity method

2007
₩

₩

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

2006
₩

₩

1,265,890
7,063,769
1,753,559
374,702
10,457,920

70

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

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

₩₩

10,00055,743
256,567
30,961
353,271₩

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

Adjusted byeffective interest
rate method₩

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

Book value₩

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

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

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

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

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

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

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

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

793,074
1,109,822
16,665
140,686
9,996
1,312
2,071,555
9,320,066₩₩₩

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

71

Securities excluding securities using the equity method as of December 31, 2006 consisted of (Unit: In millions):
Classification
Face value
Acquisition		
cost (*)
			
Trading securities:
Equity securities
Beneficiary certificates
Government and public bonds
Finance bonds
Corporate bonds
Securities in foreign currency		Available-for-sale securities:
Equity securities
Equity investments
Beneficiary certificates
Government and public bonds
Finance bonds
Corporate bonds
Asset-backed securities
Other debt securities
Securities in foreign currency		Held-to-maturity securities:
Government and public bonds
Finance bonds
Corporate bonds
Asset-backed securities
Other debt securities
Securities in foreign currencies
		
		

₩

₩

10,000110,774
930,000
10,096
51,1281,111,998₩

163,875
10,000105,384
929,947
10,085
51,116
1,270,407

Adjusted byeffective interest
rate method₩

10,000105,598
928,901
9,816
51,116
1,105,431

Book value₩

160,483
10,093
105,433
928,803
9,959
51,1191,265,890

14,774
761,972
2,005,000
1,135,000
312,000
87,636
596,728
4,913,110

820,471
9,459
14,774
766,1112,000,541
1,152,543
312,024
87,636596,228
5,759,787

14,774
733,817
1,984,206
1,124,561
241,717
40,373592,705
4,732,153

2,269,598
9,458
14,774746,406
1,989,966
1,130,549
249,049
60,360593,609
7,063,769

505,838
285,000
448,772
30,0001,687
480,324
1,751,621
7,776,729

501,278
288,379
454,951
29,994
1,674
486,406
1,762,682
8,792,876

502,927
285,666
451,104
17,157
1,674
482,188
1,740,716
7,578,300

502,927
285,666
451,104
30,0001,674
482,188
1,753,559
10,083,218

₩

₩

₩

(*) Acquisition costs of trading securities are the book value before valuation.

The difference of trading securities between the fair value and the adjusted cost using the effective interest rate method (acquisition cost for
stocks) was recorded as gain on valuation of trading securities amounting to ₩405 million and ₩5,916 million and loss on valuation of trading
securities amounting to ₩6,515 million and ₩9,331 million for the years ended December 31, 2007 and 2006, respectively.
The fair values of trading and available-for-sale debt securities were assessed by applying the average of base prices as of December 31,
2007, provided by Korea Bond Pricing & KR Co. (KBP), KIS Pricing Inc. and National Information & Credit Evaluation Inc. (NICE).
The fair value of available-for-sale non-marketable equity securities such as SK Networks Co., Ltd. and 20 others, and the restrictedavailable-for-sale marketable equity securities such as Hyundai Engineering and Construction Co., Ltd. and 7 others was reliably measured byan independent appraisal institute using reasonable judgment. The fair value was determined based on more than one valuation models such as
Discounted Cash Flow (DCF) Model, Imputed Market Value (IMV) Model, Discounted Free Cash Flow to Equity (FCFE) Model, Dividend Discount (DD)
Model and Risk Adjusted Discounted Cash Flow (RADCF) Model depending on the equity securities. In order to assess the fair value of stocks, thefinancial statements for 5 years are estimated based on past operating result. Also, assuming the same operation is continued during the estimatedperiod, the model is applied using the estimated financial statements from 2007 to 2011. Operating income and expenses are reasonably estimatedbased on the past result, the future plan and the expected market condition, and for non-operating income and expenses, gain or loss from irregulartransactions such as gain or loss on disposition of tangible assets are excluded. For the equity investment of association, net assets are calculated
deducting total liabilities from the present value of assets of each equity investment.

72

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 3 ) D iscretionary investing contract assets included in beneficiary certificate of trading securities as of December 31,
2007 and 2006 consisted of (Unit: In millions):
Classification
Short-term financial instruments
StocksOthersTotal assets
Total liabilities
Net assets value

2007
₩

₩

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

2006
₩

₩

429
9,665
7
10,101
8
10,093( 4 ) T he book value of non-marketable stocks and equity investments among available-for-sale securities, whichwere not valuated at fair value as of December 31, 2007 and 2006, was as follows (Unit: In millions):<As of December 31, 2007>
Company
Stocks:Samsung Life
Alpha Dome City
KAMCO
KCB
Hallyu-Wood
M Cieta Development (*)
BLADEX
C & Woobang ENC
Others		
Equity investments:
Consolidated Fund for Impaired Loans
Others				

Amounts₩₩

32,939
7,200
6,330
3,000
1,200
1,125
921
733
1,100
54,54836,6801
36,681
91,229(*) The company name was changed from M Ciety Development to M Cieta Development.

<As of December 31, 2006>
Company
Stocks:Samsung Life
KAMCO
KCB
Kyobo Investment Trust Management
Realty Advisors Korea, Ltd.
M Ciety Development
BLADEX
KOCES
C & Woobang ENC
Hallyu-Wood
Korea Finance Security
Booyoung Finance
Others		
Equity investments:
Daegu Venture Fund Association
Others				

Amounts₩₩

32,939
6,330
3,000
2,700
1,000
1,000
912
897
733
600
588
500
2,085
53,284500
3503
53,787

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 200673

( 5 ) T he impairment loss and the reversal of impairment loss on available-for-sale securities for the years ended
December 31, 2007 and 2006 were as follows (Unit: In millions):

Classification
Equity securities
Equity investments
Corporate bonds
Asset-backed securities
Beneficiary certificates2007		

2006

Impairment₩
6,891

Impairment₩
20,981₩

15,58722,478

Reversal₩
1,364
36,680139
54,797₩
92,980₩689
35,437
57,107

Reversal₩
230,228
5,928
50,896807₩
287,859( 6 ) T he impairment loss and the reversal of impairment loss on held-to-maturity securities for the years ended
December 31, 2007 and 2006 were as follows (Unit: In millions):

Classification
Asset-backed securities

2007		

2006

Impairment₩

Impairment
₩
204

-

Reversal₩-

Reversal₩
19,253( 7 ) Loaned securities included in securities as of December 31, 2007 and 2006 were as follows (Unit: In millions):

Classification

2007

Securities in foreign currencies₩

2006
12,701₩( 8 ) Securities provided as collateral as of December 31, 2007 were as follows (Unit: In millions):
Provided to
Korea securities depository & others
BOK
BOK
BOK
BOK
OthersCollateral amount₩
807,415₩330,000
369,000
900,000
450,000
235,200
3,091,615

Book value₩
800,711
326,919368,319885,982449,382
222,351₩
3,053,664

Provided forSale to RP to customer
Settlement of difference
Daily overdraft
Borrowings from BOK
Sale to RP to BOK
Derivatives settlement

In addition, securities that are possible to be discounted by BOK amounted to ₩495,502 million as of December 31, 2007.

11,723

74

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 9 ) Securities using the equity method
1) Securities using the equity method as of December 31, 2007 and 2006 were summarized as follows (Unit: sharesin thousand, in millions):<December 31, 2007>
Company

No. of shares

Ownership (%)

Domestic stocks:
KEB Capital Inc. (KEBC)
14,97699.3
KEB Futures Co., Ltd. (KEBF)
3,000
100.0
KEB Fund Services Co., Ltd. (KEBIS) (*)
510
100.0
Lippo Incheon Development Co., Ltd.
388
2.7
Realty Advisors Korea, Ltd.
200
14.3
				
Foreign stocks:
K.E.B. of Canada (KEBOC)
334
100.0
KEB Australia Ltd. (KEBA)
55,000100.0
K.E.B Deutschland A.G. (KEBDAG)
20
100.0
PT. Bank KEB Indonesia (KEBI)1
99.0
Banco KEB do Brasil S.A (KEBB)
33,726100.0
KEB NY Financial Corp. (NYFinco)
0.1
100.0
KEB LA Financial Corp. (LAFinco)
0.1
100.0
KEB USA International Corp. (USAI)
0.1
100.0
				
				

Acquisition cost Net asset value₩₩

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

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

Book value₩₩

98,43928,115
2,550
1,830
1,000
131,934
88,14231,50551,49079,756
16,26924,78025,257
4,236
321,435
453,369(*) T he investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.

<December 31, 2006>
Company

No. of shares

Ownership (%)

Domestic stocks:
KEBC
14,976
99.3
KEBF
3,000
100.0
MP&T (*1)
170
38.1
KEBIS (*2)
510
100.0
				
Foreign stocks:
KEBOC
334
100.0
KEBA
55,000100.0
KEBDAG
20
100.0
KEBI
1
99.0
KEBB
33,726
100.0
NYFinco0.1
100.0
LAFinco
0.1
100.0
USAI
0.1
100.0
				
				

Acquisition cost Net asset value₩₩

74,881
15,000850
2,550
93,281
26,75940,396
21,872
23,814
13,475
18,592
18,592
2,324
165,824
259,105₩₩

85,88322,8062,550
111,239
62,74624,005
43,16070,79912,421
23,555
22,954
3,510
263,150
374,389

Book value₩₩

85,91723,0852,550
111,552
62,74624,005
43,16070,79912,421
23,555
22,954
3,510
263,150
374,702(*1) The bankruptcy procedure was completed in prior fiscal year.
(*2) T he investment securities were excluded from the application of equity method because the assets were less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

752) The valuation of securities using the equity method for the years ended December 31, 2007 and 2006 was asfollows (Unit: In millions):<December 31, 2007>
Company

Acquisition Book value Increase
cost
before(Decrease)		valuation
Dividend
				
				
KEBC
KEBF
KEBIS (*1)
Lippo Incheon Development Co., Ltd
Realty Advisors Korea, Ltd.(*2)
KEBOC
KEBA
KEBDAGKEBIKEBBNYFinCoLAFinCo
USAI₩ 74,881₩ 85,917

15,000
2,550
1,939
1,000
31,96145,257
24,718
23,11916,452
18,764
18,7642,346₩ 276,751

23,0852,550
1,000
62,74624,005
43,16070,79912,421
23,555
22,9543,510₩ 375,702

₩

₩

1,939
(593)
1,346

Foreign
Equity in
Retained
exchange earnings
earnings
trading			income			(loss)			
12,1982,888
5,615(2,064)
2,744
218
212
32
₩ 21,843₩₩ 12,681
5,030
(109)
13,1984,612
3,308
11,021
1,104
1,007
2,091
694
₩ 54,637₩₩

Valuation of Book value
securities afterusing the valuation
equitymethod
-

₩

₩

(159)
(159)

₩ 98,439
28,115
2,550
1,830
1,000
88,14231,50551,49079,756
16,26924,78025,2574,236₩ 453,369(*1) T he investment securities were excluded from the application of equity method because the assets were less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.
(*2) Reclassified from available-for-sale securities to securities using equity method in this period<December 31, 2006>
Company

Acquisition Book value Increase
cost
before(Decrease)		valuation Dividend
				
				

Foreign
Equity in
Retained
exchange earnings
earnings
trading			income			(loss)			

KEBC
KEBF
MP&T (*1)
KEBIS (*2)
KEBOC
KEBA
KEBDAGKEBIKEBBCFEB (*3)
NYFinCoLAFinCo
USAI(4,617)
(217)
755
(114)
61
(2,020)(1,934)(262)₩ (8,348)₩ 74,881₩ 78,682

15,000850
2,550
26,75940,396
21,872
23,814
13,475
6,037
18,592
18,5922,324₩ 265,142

20,6402,550
58,226
21,49839,59859,00911,441
4,243
24,54723,4873,179₩ 347,100(510)(4,243)₩ (4,753)
₩

₩

6,869
2,445
9,137
2,724
3,317
11,904
919
1,028
1,401
593
₩ 40,337₩₩₩

Valuation of Book value
securities afterusing the valuation
equitymethod
-

₩

₩

366
366

₩ 85,917
23,0852,550
62,74624,005
43,16070,79912,421
23,555
22,9543,510₩ 374,702(*1) The bankruptcy procedure was completed in prior fiscal year.
(*2) T he investment securities were excluded from the application of equity method because the assets were less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.
(*3) It was disposed during the first quarter of 2006.

76

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

3) Elimination of Unrealized Profit from Inter-company Transactions
Material unrealized profit from inter-company transactions is eliminated when equity investments were valued. Unrealized gain fromlease transaction of inter-company transaction amounted to ₩762 million and ₩547 million as of December 31, 2007 and 2006, respectively.
4) Summary of Financial Information in Affiliates
The summary of financial information in affiliates using the equity method as of and for the period ended December 31, 2007,was asfollows (Unit: In millions):
Classification
Total assets
Total liabilities
Operation revenue
Net income

KEBC₩ 810,237

KEBOC₩ 821,187

KEBA₩ 385,014

KEBDAG₩ 425,832

KEBI₩ 256,993

Others₩ 996,355

Total₩3,695,618

711,243
58,79912,676733,045
51,794
13,198353,510
22,2594,611

374,342
26,711
3,307

176,431
24,742
11,148830,241
63,714
5,845

3,178,812
248,019
50,785

Unaudited financial statements as of December 31, 2007 were used for the application of the equity method. The significant events fromthe closing dates of the investees to that of the Bank were properly reflected in applying the equity method. There was no material exception as aresult of analytical review, such as analysis of major accounts to assess reliability of those financial statements.
( 10 ) T he portfolio of securities excluding securities using the equity method, by industry, as of December 31, 2007
and 2006 was as follows (Unit: In millions):

By industry type2007		

2006

AmountAmountPercentage (%)

Percentage (%)

Trading securities:₩
Government and government-invested public companies
Financial institutions		
Manufacturing		
Others		₩		332,237
7,505
32,15022,003393,895

84.35 ₩
1.90		
8.16		
5.59		
100.00 ₩1,081,573
31,452
88,86164,004
1,265,890

85.44
2.48
7.02
5.06
100.00Available-for-sale securities:₩
Government and government-invested public companies
Financial institutions
Manufacturing		
Others		₩		

1,478,732
2,689,884
1,384,049
1,301,951
6,854,616

21.57 ₩
39.24		20.19		19.00		100.00 ₩1,999,922
2,354,538
1,375,869
1,333,440
7,063,769

28.31
33.33
19.48
18.88
100.00

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

1,142,419
871,220
20,37537,541
2,071,555

55.15 ₩
42.06		0.98		
1.81		
100.00 ₩833,641
815,925
29,691
74,302
1,753,559

47.54
46.53
1.69
4.24
100.00Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 200677

( 11 ) T he portfolio of securities excluding securities using the equity method, by security type, as of December 31, 2007
and 2006 was as follows (Unit: In millions):

By security type2007		

2006

AmountAmountTrading securities:₩
StocksFixed rate bonds		
Floating rate bonds		
Beneficiary certificates₩		Available-for-sale securities:₩
StocksFixed rate bonds		
Floating rate bonds
Subordinated bonds		
Beneficiary certificates		
Others₩		
Held-to-maturity securities:₩
Fixed rate bonds
Floating rate bonds		
Subordinated bonds
Others₩		

Percentage (%)

Percentage (%)

45,402
301,530
37,2339,730
393,895

11.53 ₩
76.55		9.45		
2.47		
100.00 ₩160,483
1,044,194
51,12010,093
1,265,890

12.68
82.48
4.04
0.80
100.002,271,799
2,385,862
1,299,720
761,313
135,9226,854,616

33.14 ₩
34.81		18.96		11.11		
-		1.98		
100.00 ₩2,269,598
2,956,296
1,045,740
707,543
14,77469,818
7,063,769

32.13
41.85
14.80
10.02
0.21
0.99
100.001,461,909
50,854
558,073719
2,071,555

70.57 ₩
2.45		
26.94		0.04		
100.00 ₩1,022,541
107,584
623,434
1,753,559

58.31
6.14
35.55
100.00( 12 ) T he portfolio of securities excluding securities using the equity method, by country, as of December 31, 2007 and2006 was as follows (Unit: In millions):

By country type2007		

2006

AmountAmountPercentage (%)

Percentage (%)

Trading securities:
₩
Korea
Japan
Hong Kong (China)		
₩		

393,895
393,895

100.00 ₩-		-		
100.00 ₩1,258,056
6,311
1,523
1,265,890

99.38
0.50
0.12
100.00Available-for-sale securities:₩
Korea
Cayman Islands
USA		
Hong Kong (China)		
UK		
Others		₩		6,731,325
38,61363,0625,852
2,802
12,962
6,854,616

98.20 ₩
0.56		
0.92		
0.09		
0.04		
0.19		
100.00 ₩6,968,729
42,081
28,153
12,166
10,111
2,529
7,063,769

98.65
0.60
0.40
0.17
0.14
0.04
100.00

Held-to-maturity securities:
Korea		Singapore		
Philippines		
Hong Kong (China)		
₩		

2,054,854
11,5845,081
36
2,071,555

99.19 ₩
0.56		
0.25		
0.00		
100.00 ₩1,743,419
7,801
2,303
36
1,753,559

99.42
0.45
0.13
0.00
100.0

78

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 13 ) Term structure of securities except for stocks and equity investments in available-for-sale and held-to-maturity
securities as of December 31, 2007 was as follows (Unit: In millions):
Classification

Due in 1 year
or less		

Due after 1
year through5 years

Government and public bonds
Finance bonds
Foreign government bonds
Corporate bonds
Beneficiary certificates
Asset-backed securities
Others₩₩₩683,892
1,385,126
11,584
278,043
9,730
113,4621,313
2,483,150₩

897,229
1,843,384
525,509
187,755
3,453,877

Due after 5
years through10 years₩₩

68854,250
5,081
50,17820,215
929,792

More than
10 years
₩

₩

Total

125
66,153
66,278₩₩

1,581,189
4,082,760
16,790853,730
9,730
321,432
67,466
6,933,097( 14 ) S tructured securities relating to stock and interest rate and credit risk as of December 31, 2007 and 2006 were as
follows (Unit: In millions):<December 31, 2007>
Classification

Won

Foreign currencies

Structured notes relating to stock:₩- ₩Convertible bonds (available-for-sale securities) (*)
Convertible bonds (loans)
24,820			
24,820
Structured notes relating to interest rate:		Long-term government bond floating rates notes (CMT)		 (available-for-sale securities)
239,252
Long-term government bond floating rates notes (CMT)		 (held-to-maturity securities)
40,144
			
279,396
Structured notes relating to credit risk:
Synthetic CDO₩
304,216 ₩
			

Total
-

₩

24,82024,820-239,252-

40,144
279,396

18,39818,398₩18,398322,614(*) The Bank has two convertible bonds in foreign currencies with par value of ₩8,206 million and the book value was nil after reduction.

<December 31, 2006>
Classification

Won

Foreign currencies

Structured notes relating to stock:₩- ₩Convertible bonds (available-for-sale securities) (*)
Convertible bonds (loans)
448
			
448
Structured notes relating to interest rate:		Long-term government bond floating rates notes (CMT)		 (available-for-sale securities)
539,247
Long-term government bond floating rates notes
		 (CMT) (held-to-maturity securities)
90,407
			629,654₩
630,102 ₩			
(*) The Bank has two convertible bonds in foreign currencies with par value of ₩8,206 million and the book value was nil after reduction.

Total
-

₩

448
448

-

539,247-

90,407
629,654
630,102₩

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 200679

( 15 ) C hanges in accumulated other comprehensive income (loss) of available-for-sale securities for the year ended
December 31, 2007 were as follows (Unit: In millions):
Classification
Beginning		₩Equity securities
Debt securities		₩

Increase
Disposal(decrease)		

1,129,927 ₩(10,118)		
1,119,809 ₩

26,892 ₩(29,011)		
(2,119) ₩Deferredincome tax(43,244) ₩5,099		
(38,145) ₩Ending4,497 ₩
6,576		11,073 ₩1,118,072(27,454)
1,090,618( 16 ) C hanges in accumulated other comprehensive loss of held-to-maturity securities for the year ended December
31, 2007 were as follows (Unit: In millions):
Classification
Beginning		Debt securities₩

Increase
Disposal(decrease)		
(773)

₩

566

₩

Deferredincome tax-

Ending
(156)

₩

(363)

₩

( 17 ) C hanges in accumulated other comprehensive income of securities using the equity method for the year ended
December 31, 2007 were as follows (Unit: In millions):
Classification
Beginning		Securities using the equity method₩

Increase
Disposal(decrease)		
15,929

₩

1,282

₩

Deferredincome tax-₩

Ending(353)₩

16,858( 18 ) Acquisition of stocks of Visa Inc.
The Bank acquired 2,719 thousand shares of Visa Inc. at the IPO on October 1, 2007. The Bank estimated the fair value of the stocks using
the financial statements. The Bank has recognized the fair value of the stocks of ₩53,604 million as income related to available-for-sales.

5.
Loans

( 1 ) Loans as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Call loans
Domestic import usance bill
Credit card receivables
Bills bought in foreign currencies
Bills bought in Won
Bonds purchased under repurchase agreements
Loans in Won
Loans in foreign currencies
Factoring receivables
Advances for customers
Privately placed bonds

2007₩

Less: Allowance for possible loan losses
Deferred loan origination fees and costs₩

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

2006
₩

₩

1,940,225
1,370,534
2,314,637
3,050,344
715,063
200,000
30,954,080
3,962,101
300,160
12,351
1,198,641
46,018,136(614,102)(14,519)
45,389,515

80

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 2 ) Loans in Won and loans in foreign currencies as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification

2007

Loans in Won:
Commercial
Working capital loans:			 Bank overdrafts
			 General purpose loans
			 Trade notes discounted
			 Others						
Loans with government funds (operating)		
Facilities loans:			 General purpose loans
			 Others						
Loans with government funds (equipment)				Households
Bank overdrafts
		
General purpose loans
		
Others				
Loans for installment credit			
Public sector and others
Bank overdrafts
		
General purpose loans
		
Others				
Total loans in Won			
Loans in foreign currencies:
Loans on deeds in foreign currency		Inter-bank loans
		
OthersTotal loans in foreign currencies			
				

₩

₩

2006

164,568
14,709,059
2,125,876
3,015,487
20,014,990
80,1701,341,913
323,359
1,665,272
481,256
22,241,688
25
14,134,895
588,483
14,723,403
285
5,297
146,823
2,649
154,769
37,120,145
2,417,071
177,370
2,885,534
5,479,975
42,600,120

132,798
10,418,151
2,010,795
2,649,265
15,211,009
98,612₩

521,527
325,415
846,942434,215
16,590,778
27
13,672,860
611,757
14,284,644
339
4,691
71,534
2,094
78,31930,954,080
2,289,814
98,082
1,574,205
3,962,101
34,916,181₩( 3 ) L oans in Won and loans in foreign currencies, classified by borrower type, as of December 31, 2007 and 2006 wereas follows (Unit: In millions):<December 31, 2007>
By borrower type

Loans in Won

		₩
Large corporations
Small and medium corporations (*1)
Households
Others₩3,642,676
18,599,012
14,723,688
154,769
37,120,145

Loans in foreignTotal

currencies (*2)₩
5,394,479₩

1,650,780
7,045,259₩₩

Percentage (%)
9,037,155
20,249,792
14,723,688
154,769
44,165,404

20.46
45.85
33.34
0.35
100.00(*1) Small and medium corporations are prescribed in Article 2 of the Minor Enterprise Basic Act.
(*2) Domestic import usance bill is included and inter-bank loans in foreign currencies amounting to ₩177,370 million are excluded in loans in foreign currencies.

<December 31, 2006>
By borrower type

Loans in Won

		₩
Large corporations
Small and medium corporations (*1)
Households
Others₩2,468,610
14,122,168
14,284,983
78,31930,954,080

Loans in foreignTotal

currencies (*2)₩
3,562,925₩

1,671,628
5,234,553₩₩

Percentage (%)
6,031,535
15,793,796
14,284,983
78,31936,188,633(*1) Small and medium corporations are prescribed in Article 2 of the Minor Enterprise Basic Act.
(*2) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩98,082 million are excluded in loans in foreign currencies.

16.67
43.64
39.47
0.22
100.00Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

81

( 4 ) L oans in foreign currencies classified by borrower’s country as of December 31, 2007 and 2006 were as follows(Unit: In thousands of U.S. dollars, in millions of Won):<December 31, 2007>
By country
Korea
Canada
USA
Japan
China
OthersLoans in
U.S. dollars (*1)

Translation
into Won (*2)

US$

₩

US$

5,175,213
688,009446,314367,831
127,545
704,424
7,509,336

Percentage (%)

4,855,384
645,490418,732
345,099
119,663
660,891
7,045,259

₩

68.92
9.16
5.94
4.90
1.70
9.38
100.00(*1) Foreign currencies other than U.S. dollars are converted into U.S. dollars at the rate at the balance sheet date.
(*2) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩177,370 million are excluded in loans in foreign currencies.

<December 31, 2006>
By country
Korea
Japan
Indonesia
China
Thailand
OthersLoans in
U.S. dollars (*1)

Translation
into Won (*2)

US$

₩

US$

4,132,493
301,590
46,13565,426
15,4001,069,930
5,630,974

Percentage (%)

3,841,565
280,358
42,88760,82014,316994,6075,234,553

₩

73.39
5.36
0.82
1.16
0.27
19.00
100.00(*1) Foreign currencies other than U.S. dollars are converted into U.S. dollars at the rate of the balance sheet date.
(*2) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩98,082 million are excluded in loans in foreign currencies.

( 5 ) Loans classified by industry as of December 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
By industry type
Loans in Won
		
Corporations:
Manufacturing
Finance and insurance
Telecommunications
Service
Construction
OthersHouseholds
Public sector and others
Loans of overseas branches
		

₩

₩

22,241,688
8,101,371
624,551
36,081
5,197,444
3,090,027
5,192,214
14,723,688
154,769
37,120,145

Loans in foreign
currencies (*)₩₩

3,734,099
2,593,343
80,193
7
483,782
90,926
485,848
3,311,160
7,045,259

Total
₩

₩

Percentage (%)
25,975,787
10,694,714
704,744
36,0885,681,226
3,180,953
5,678,062
14,723,688
154,769
3,311,160
44,165,404

58.81
24.22
1.60
0.08
12.86
7.20
12.86
33.34
0.35
7.50
100.00(*) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩177,370 million are excluded in loans in foreign currencies.

<December 31, 2006>
By borrower type

Loans in Won

		₩
Corporations:
Manufacturing
Finance and insurance
Telecommunications
Service
Construction
OthersHouseholds
Public sector and others
Loans of overseas branches		₩16,590,778
6,765,094
271,889
3,765,448
2,320,9783,467,369
14,284,983
78,31930,954,080

Loans in foreignTotal

currencies (*)₩
3,392,513₩

2,148,708
136,877
23,376536,638
88,696458,218
1,842,040
5,234,553₩₩

Percentage (%)
19,983,291
8,913,802
408,766
23,3764,302,086
2,409,674
3,925,587
14,284,983
78,3191,842,040
36,188,633(*) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩98,082 million are excluded in loans in foreign currencies.

55.22
24.63
1.13
0.06
11.89
6.66
10.85
39.47
0.22
5.09
100.0082

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 6 ) Loans to financial institutions as of December 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
Classification

Loans in Won

		
₩
Bank
Other financial institutions
Overseas financial institutions₩

12,000612,551624,551

Loans in foreign
currencies (*)₩
80,193₩80,193

Call loans₩₩

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

Total
₩

₩

Percentage (%)
1,517,959
692,744
1,142,268
3,352,971

45.27
20.66
34.07
100.00(*) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩177,370 million are excluded in loans in foreign currencies.

<December 31, 2006>
Classification
Loans in Won
		Bank
Other financial institutions
Overseas financial institutions₩₩

12,000259,889
271,889

Loans in foreign
currencies (*)
₩

₩

2,231
134,646
136,877

Call loans₩₩

813,377
1,126,848
1,940,225

Total
₩

₩

Percentage (%)
827,608
394,535
1,126,848
2,348,991

35.23
16.80
47.97
100.00(*) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩98,082 million are excluded in loans in foreign currencies.

( 7 ) T he classification of asset quality for loans as of December 31, 2007 and 2006 was summarized as follows (Unit:
In millions):<December 31, 2007>
Classification
Call loans
Credit card receivables
Bills bought in foreign currencies (*1)
Loans in Won (*2)
Loans in foreign currencies (*3)
Interbank loans in foreign currencies
Factoring receivables
Advances for customers (*4)
Privately placed bonds (*5)
Other accounts (*6)

Normal
₩ 2,648,227

Precautionary Substandard Doubtful
₩
- ₩
- ₩
2,376,605
34,03424,0673,543,588
32
7,965
1,501
37,270,341
247,837
193,592
9,239
6,944,075
55,01437,733
6,227
177,370
310,786
366
2,622
1,190
10
798,096
245
173
1,331
86
1,634
1,138
₩ 54,070,785 ₩ 339,870 ₩ 242,287 ₩
42,182Estimated loss
₩
-

Total
₩ 2,648,227

5,847
65,133
464
1,804
1,665
74,9132,440,553
3,553,086
37,786,142
7,043,513
177,370
310,786
5,992
798,5145,854₩ 54,770,037₩(*1) L ocal L/C bills bought in Won amounting to ₩17,352 million and Local L/C bills bought in foreign currencies amounting to ₩91,896 million among bills bought in Won are
included in bills bought in foreign currencies.
(*2) C ommercial bills purchased amounting to ₩705,779 million among bills bought in Won are included in bills bought in foreign currencies, and present value discount amounting
to ₩39,782 million is deducted.
(*3) D omestic import usance bill is included and interbank loans in foreign currencies amounting to ₩177,370 million are excluded in loans in foreign currencies. Present value
discount amounting to ₩1,746 million is deducted.
(*4) Present value discount amounting to ₩726 million is deducted on advances for customers.
(*5) Present value discount amounting to ₩99 million is deducted on privately placed bonds.
(*6) O ther accounts consisted of account receivable (transfer-in bills bought in foreign currencies) amounting to ₩959 million, suspense payments in relation with loans amounting₩3,583 million and securities (commercial paper) amounting to ₩1,312 million.

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

83

<December 31, 2006>
Classification
Call loans
Credit card receivables
Bills bought in foreign currencies (*1)
Bond purchased under repurchased agreement
Loans in Won (*2)
Loans in foreign currencies (*3)
Interbank loans in foreign currencies
Factoring receivables
Advances for customers
Privately placed bonds
Other accounts (*4)

Normal₩ 1,940,225
2,223,715
3,116,443
200,000
31,121,575
5,125,417
98,082300,160
7,331
1,198,641
2,081₩45,333,670

Precautionary Substandard Doubtful
₩
- ₩
- ₩
49,13435,513
225
7,892
255,730
116,584
10,65046,294
52,662
9,338
179
3,526
169
1,111
908
₩ 351,731 ₩ 181,775 ₩
56,409Estimated loss
₩
-

Total
₩ 1,940,225

6,275
46,702
842
1,315
2,352
57,4862,314,637
3,124,560
200,000
31,551,241
5,234,553
98,082300,160
12,351
1,198,641
6,621₩45,981,071₩(*1) L ocal L/C bills bought in Won amounting to ₩24,254 million and Local L/C bills bought in foreign currencies amounting to ₩49,962 million among bills bought in Won are
included in bills bought in foreign currencies.
(*2) Commercial bills purchased amounting to ₩640,847 million among bills bought in Won are included in loans in Won, and present value discount amounting to ₩43,686 million is deducted.
(*3) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩98,082 million are excluded in loans in foreign currencies.
(*4) O ther accounts consisted of account receivable (transfer-in bills bought in foreign currencies) amounting to ₩2,051 million, suspense payments in relation with loans amounting₩2,896 million and securities (commercial paper) amounting to ₩1,674 million.

( 8 ) The term structure of loans as of December 31, 2007 was as follows (Unit: In millions):
Classification
Loans in Won
		₩
27,549,129
Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due after five years₩

2,119,829
2,363,429
1,317,970
3,769,788
37,120,145

Loans in foreign
currencies (*)₩
5,011,018₩

339,767
259,303
723,097
712,074
7,045,259

₩

₩

Total
32,560,147
2,459,596
2,622,732
2,041,067
4,481,862
44,165,404(*) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩177,370 million are excluded in loans in foreign currencies.

( 9 ) T he changes in deferred loan origination fees and costs for the year ended December 31, 2007 were as follows (Unit:
In millions):

Deferred loan origination fees and costs

Beginning balance Addition₩
14,519 ₩39,012

Deduction₩(21,739)

Ending balance₩
31,792( 10 ) Disposal of loans
The Bank disposed loans amounting to ₩157,149 million, ₩121,121 million and ₩17,101 million of principal to Tong-yang Financial
Service Co., Ltd. and KEB 15th SPC, respectively, and recognized gain on disposal of loans of ₩6,520 million and loss on disposal of loans of₩6,887 million and ₩360 million, respectively, for the year ended December 31, 2007 (see Note 17).

6.
Restructured loans( 1 ) T he loans that were restructured because of workouts plan and others for the year ended December 31, 2007 wereas follows (Unit: In millions):
Classification
Restructuring loans		₩
243,554
Workout plan
Corporate reorganization		
Rationalization of industry		₩Present value (*)₩

69,699		
140,518		
453,771 ₩Ending balance ofpresent value discounts₩-

243,554
61,540		
99,055		
404,149 ₩

8,159
41,46349,622(*) A
 s the present value is calculated with fair value at the restructuring date, if there is no fair value, the present value of total future cash receipts under the restructuring plans is
discounted using interest rates of 6.41 percent to 13.46 percent. Also, the present value discount is calculated using effective interest rate method.

84

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 2 ) C hanges in the present value discounts relating to the outstanding restructured loans for the year ended December
31, 2007 were as follows (Unit: In millions):		Classification
Amount (*1)
		Loans:
Court receivership
Others		
Accounts receivable:
Court receivership
Others				Present value discounts
Beginning
Addition
Deductionbalance			

4,142
122,214
126,356₩₩

14,977
20,62435,601
161,957₩₩

908
42,77943,687
2,079
4,450
6,529
50,216

₩

₩

59
6,013
6,072

(375)
(7,032)(7,407)

₩

711
1,738
2,449
8,521

Endingbalance (*2)(656)
(1,052)(1,708)(9,115)₩592
41,76042,352

₩

2,134
5,136
7,270
49,622₩(*1) These only include restructured loans discounted at present value.
(*2) The present value discount is presented as allowance of possible loan losses.

7.
Allowance for possible
loan losses( 1 ) The allowance for possible loan losses as of December 31, 2007 and 2006 was summarized as follows (Unit: In millions):<December 31, 2007>
Classification
Loans:
Credit card loans
Bills bought in foreign currencies
Loans in Won
Loans in foreign currencies
Factoring receivables
Advances for customers
Privately placed bonds
		
Other accounts
Allowance for possible loan losses
Present value discounts
Allowance for possible loan losses on balance sheet

Normal
₩₩35,64930,121
344,949
63,118
2,641
3
6,784
483,26511483,276
41,463524,739

Precautionary Substandard Doubtful
₩

₩

7,943
2
19,2485,609
487
1733,306
7
33,313
3,745
37,058₩₩

3,903
39,9678,130
238
35
52,273327
52,6004,396
56,996₩₩

15,062
751
4,703
4,551
5
25,072569
25,64125,641

Estimated loss

Total

5,847
65,133464
1,804
73,248
1,665
74,91318
74,931₩

Estimated loss

Total

6,275
46,702842
1,315
55,1342,352
57,48657,486₩₩₩₩64,501
34,777474,000
81,872
2,641
2,537
6,836
667,164
2,579
669,743
49,622
719,365<December 31, 2006>
Classification
Loans:
Credit card loans
Bills bought in foreign currencies
Loans in Won
Loans in foreign currencies
Factoring receivables
Advances for customers
Privately placed bonds
		
Other accounts
Allowance for possible loan losses
Present value discounts
Allowance for possible loan losses on balance sheet

Normal
₩₩33,356
21,815
260,397
39,923
2,101
51
8,390
366,03315
366,048
47,229413,277

Precautionary Substandard₩₩

13,44443
28,5956,983
13
49,07817
49,0952,079
51,174₩₩

3,867
28,61021,023705
54,205223
54,428366
54,794

Doubtful₩₩

23,3086,973
6,094
36,375454
36,829542
37,371₩₩₩

76,38325,725371,277
74,865
2,101
2,084
8,390
560,825
3,061
563,886
50,216614,102

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 200685

( 2 ) T he changes in allowance for possible loan losses for the years ended December 31, 2007 and 2006 were as follows(Unit: In millions):
Classification

2007₩

Beginning balance
Provision for possible loan losses
Loans written-off
Repurchase of loan and others
Translation adjustments of overseas
Changes in present value discounts
Ending balance

614,102
307,042(355,682)
153,328
1,169(594)
719,365

₩

2006
₩

₩

566,995
174,597(331,704)
214,402(4,160)(6,028)614,102( 3 ) T he allowance for possible loan losses compared to total loans, net of present value discount, was summarized
as follows (Unit: In millions):
Classification
Loans (*1)
Allowance for possible loan losses (*2)
Percentage (%)

December 31, 2007₩
51,944,440
669,743
1.29

December 31, 2006₩
43,742,764
563,886
1.29

December 31, 2005₩
39,734,412
510,751
1.29(*1) Call loans, bonds purchased under repurchase agreements and interbank loans in foreign currencies are excluded.
(*2) Present value discounts are excluded.

8.
Tangible assets( 1 ) Tangible assets as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification

2007₩
Tangible assets
Less: accumulated depreciation		
₩2006
1,606,470 ₩(729,606)		
876,864 ₩1,560,388(708,209)
852,179( 2 ) Tangible assets as of December 31, 2007 and 2006 consisted of (Unit: In millions):<December 31, 2007>
Classification
Acquisition cost		Land
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress₩₩

377,328
513,696
100,562595,223
19,661
1,606,470<December 31, 2006>
Classification
Acquisition cost		Land
Buildings
Leasehold improvements
Equipment and vehicles₩₩

378,997503,267
87,828590,296
1,560,388

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

Accumulated
depreciation₩₩(157,674)(55,582)(494,953)(708,209)

Book value₩₩

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

Book value₩₩

378,997345,593
32,246
95,343852,179

86

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 3 ) The changes in book value of tangible assets for the year ended December 31, 2007 were as follows (Unit: In millions):
Classification

Beginning₩
378,997345,593
32,246
95,343₩852,179Land
Buildings
Leasehold improvements
Equipment and vehicles
Construction in progress

Acquisition₩
214

Disposal₩(1,883)

16,324
14,08976,46819,661
126,756(2,819)(374)(415)(5,491)₩₩

Depreciation₩(13,405)(12,005)(71,170)₩(96,580)

Ending₩377,328
345,693
33,956100,226
19,661₩
876,864( 4 ) T he published value of the land was ₩696,977 million and ₩631,805 million as of December 31, 2007 and 2006,
respectively, based on the Laws on Disclosure of Land Price and Valuation of Land.
( 5 ) Tangible assets, which have been insured as of December 31, 2007 and 2006, were as follows (Unit: In millions):
Type of insurance

Asset insured

Insured balance Insurance company₩
336,657 Hyundai Marine Fire
Buildings
Leasehold improvements		
31,522		 Insurance Co., Ltd. and others
Equipment and vehicles		
72,889₩441,068		Property composite

9.
Other assets( 1 ) Other assets as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Guarantee deposits paid
Accounts receivable
Accrued income (see Note 2)
Prepaid expenses
Deferred income tax assets (see Note 21)
Derivatives assets (see Note 17)
Intangible assets
Sundry assets

2007₩

621,251
5,927,168
295,210
8,912
786,839
80,151
1,127,556
8,847,087

₩

2006
₩

₩

493,820
4,381,017
343,133
8,268
826
630,499
81,592753,960
6,693,115( 2 ) Intangible assets as of December 31, 2007 and 2006 consisted of (Unit: In millions):<December 31, 2007>
Classification
Acquisition cost		₩
Development expenditures
Others (*)		
₩Accumulated
amortization

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

<December 31, 2006>
Classification
Acquisition cost		₩
Development expenditures
Others (*)		
₩(*) The effect of exchange rate fluctuation is included.

Accumulated
amortization

150,646 ₩
4,836		155,482 ₩Book value(70,171) ₩(3,719)		
(73,890) ₩80,475
1,117
81,592

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

87

( 3 ) The changes in intangible assets for the year ended December 31, 2007 were as follows (Unit: In millions):
Classification
Beginning
Acquisition
Amortization				₩
Development expenditures
Others		₩80,475 ₩1,117		81,592 ₩28,625 ₩-		
28,625 ₩Change in foreign
currencies(29,603) ₩(179)		
(29,782) ₩Ending- ₩(284)		
(284) ₩

79,497654
80,151( 4 ) Sundry assets as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Suspense payments in Won
Suspense payments in foreign currencies
Articles of consumption
Deposited money
Cash sending to other banks
Domestic exchange settlement debits
Bills unsettled
Others

2007
₩

₩

10.
Merchant banking
account assets

54,547
2,595
4,231
19,682
1,002,749
42,625
1,127
1,127,556

2006
₩

₩

39,184759
3,193
18,187300
644,466
46,965906
753,960( 1 ) Merchant banking accounts assets as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification
Loans
Cash Management Accounts
Trading securities
Financing lease receivables
Other assets
Allowance for possible loan losses

2007
₩

₩

1,307,870
141,662
1,911,254
4,556
244(11,825)
3,353,761

2006
₩

₩

1,867,128
107,410
124,5535,820
189(14,600)
2,090,500( 2 ) Loans
Classification

2007₩
Bills discounted
Factoring receivables		₩

1,307,870 ₩-		
1,307,870 ₩Discount interest rate of short-term bill (%)
Gain on valuation of bill discounted

4.73~8.01		
- ₩

₩

2006
1,834,491
32,637
1,867,128
4.60~6.95
354

The merchant banking division of the Bank provides discounting of short-term bills maturing in one year or less at the interest rate of 4.73
~ 8.01 percent per annum. In addition, certain bills discounted are under swap contracts in order to hedge risks from changes in interest rates andexchange rates. Gain or loss on valuation of bills discounted hasn‘t been recognized for the year ended December 31, 2007.
( 3 ) Cash Management Accounts
Cash management accounts (“CMA“) comprise customers‘ deposits maturing in 180 days or less which are invested in securities
approximating the value of such deposits. The income from the investments, less management fees, is distributed to the accounts on the contract
maturity date. If the deposit is withdrawn before maturity, distribution is based on a rate computed daily. CMA assets as of December 31, 2007 and2006 were as follows (Unit: In millions):
Classification

2007₩
Bills discounted
Securities		
₩

2006
2,927 ₩
138,735		
141,662 ₩

107,410
107,410

88

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 4 ) Trading securities of December 31, 2007 and 2006 consisted of (Unit: In millions):<December 31, 2007>
Classification
Face value
Adjusted value (*)
			₩
December 31, 2007
December 31, 2006		

1,923,900 ₩
125,000		

Fair value(Book value)

1,912,130 ₩
124,558		

1,911,254
124,553(*) Accrued interest is reflected.

( 5 ) Financing Lease Receivables
Financial lease receivables in Won and foreign currencies, and the estimated future lease payments in aggregate to be received on
financing leases as of December 31, 2007 were as follows (Unit: In millions):
Classification

Amounts₩
Due in less than one year
Due from one to two years		Due after two years		
₩

651
651
3,254
4,556

( 6 ) Asset Quality Classification and Related Allowance for Loan Losses
The asset quality classification and allowance for possible loan losses of the accounts in the merchant banking division of the Bank as ofDecember 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
Classification
NormalPrecautionary Substandard Doubtful
Estimated
Total									loss																													Loans (*1)
Financial leases (*2)

₩ 1,310,797₩-		₩1,310,797		 ₩- ₩4,556		4,556 ₩

- ₩
-		
- ₩

- ₩
-		
- ₩

Allowance forpossible loan
and leaselosses (*3)- ₩ 1,310,797 ₩-		
4,556		
- ₩ 1,315,353 ₩

11,142683
11,825(*1) Including bills discounted in CMA account.
(*2) These balances represent loan amount after deduction of present value discounted.
(*3) These balances include present value discounts.

<December 31, 2006>
Classification
NormalPrecautionary Substandard Doubtful
Estimated
Total
					
loss		
														
₩ 1,974,538
Loans (*1)
Financial leases (*2)		
614₩ 1,975,152

₩
₩

- ₩
5,159		5,159 ₩

- ₩
-		
- ₩

- ₩
-		
- ₩

Allowance forpossible loan
and leaselosses (*3)- ₩ 1,974,538 ₩-		
5,773		
- ₩ 1,980,311 ₩

13,822778
14,600(*1) Including bills discounted in CMA account.
(*2) These balances represent loan lease amount after deduction of present value discounted.
(*3) These balances include present value discounts.

( 7 ) O ther assets included in the merchant banking assets as of December 31, 2007 and 2006 were as follows (Unit:
In millions):
Classification
Accrued income

2007
₩

244

2006
₩

189

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 200689

( 8 ) O perating income of merchant banking accounts for the years ended December 31, 2007 and 2006 was as follows(Unit: In millions):
Classification

2007₩

Interest revenues
Commission revenues
Reversal of allowance for possible loan losses
Other revenues

128,948
281
2,775
6,824
138,828₩

11.
Deposits

2006₩

72,728274
4,666
77,668₩( 1 ) Deposits as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification

2007

2006
18,176,330 ₩
20,683,185		
5,571,476		
44,430,991 ₩₩Demand deposits
Time deposits		
Negotiable certificates of deposits		
₩18,380,737
16,137,336
3,971,658
38,489,731( 2 ) Details of deposits as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification

2007

Demand deposits in Won:
Checking deposits
Passbook deposits
Temporary deposits
Public fund deposits
General savings deposits		
Demand deposits in foreign currencies:
Checking deposits
Passbook deposits
Temporary deposits		Time deposits in Won:
Time deposits
Installment savings deposits
Long-term savings for households
		Time deposits in foreign currencies:
Time deposits
Notice deposits
Others		
Mutual installment savings
Negotiable certificates of deposits
		

2006
224,068
1,276,736
878,238
38,522
12,253,108
14,670,672₩₩

231,408
1,329,049
1,203,870
39,186
12,084,537
14,888,050₩

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

1,015,228
2,460,888
16,571
3,492,687

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

9,396,547
1,233,238
1,138,051
11,767,836

5,716,899
26,5786,473
5,749,950
104,169
5,571,476
44,430,991

4,176,222
6,662
6,032
4,188,916
180,584
3,971,658
38,489,731₩( 3 ) Deposits with financial institutions as of December 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
ClassificationBank		
Demand deposits:
Demand deposits in Won
Demand deposits in foreign currencies
Time deposits:
Savings deposits in Won
Savings deposits in foreign currencies
Negotiable certificates of deposits
		

₩

₩

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

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

Foreign financial Total
institution
₩

₩

7,492
122,861
67,430197,783₩₩

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

90Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

<December 31, 2006>
ClassificationBank		
Demand deposits:
Demand deposits in Won
Demand deposits in foreign currencies
Time deposits:
Savings deposits in Won
Savings deposits in foreign currencies
Negotiable certificates of deposits
		

₩

₩

Other financial
institution
62,811
388,212451,023₩₩

Foreign financial Total
institution

537,629
5,732
1,368,611
210,291
2,282,801
4,405,064

1,834
170,717₩₩

28,350200,901₩₩

602,274
564,661
1,396,961
210,291
2,282,801
5,056,988( 4 ) Term structure of deposits as of December 31, 2007 was as follows (Unit: In millions):
Classification
Deposits in Won				

Deposits inforeigncurrencies

Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due after five years

₩

₩

₩

12.
Borrowings

28,177,856
346,163
706,550
108,242
265,096
29,603,907₩

Negotiablecertificates ofdeposits

9,250,344
4,438
821
5
9,255,608

₩

₩

Total

5,524,314
47,162
5,571,476₩₩

42,952,514
397,763
707,371108,247
265,096
44,430,991( 1 ) Borrowings as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Call money
Bills soldBonds sold under repurchase agreements
Borrowings
Due to BOK in foreign currencies
Debentures
Less: Discount on debentures2007₩

808,582
64,009444,762
7,540,748
8,585,641(37,788)
17,405,954

₩

2006
₩

₩

456,983
138,727
397,246
6,572,361
3,182
6,318,929(13,402)
13,874,026( 2 ) Call money as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account

Lender2007

2006

Call money in Won
Financial institution in Korea and others
4.75 ~ 5.24 ₩Call money in foreign currencies Foreign financial institution and others
4.84 ~ 5.70		
			 ₩

Annual interest rate (%)

39,700 ₩768,882		
808,582 ₩12,000444,983
456,983( 3 ) B ills sold, bonds sold under repurchase agreements and due to BOK in foreign currencies as of December 31,
2007 and 2006 consisted of the following (Unit: In millions):
Account
LenderAnnual interest rate (%) 2007
Bills soldGeneral customer
3.00 ~ 5.80 ₩Bonds sold under repurchase agreements General customer and others
3.30 ~ 6.90		
Due to BOK in foreign currencies
BOK
-		
			 ₩

2006
64,009 ₩444,762		-		
508,771 ₩

138,727
397,246
3,182
539,155

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

91

( 4 ) Borrowings as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account

LenderAnnual interest rate (%)

2007

Borrowings in Won:
Borrowings from the BOK
BOK3.25 ₩
Borrowings from the Korean
Ministry of Finance and1.50 ~ 5.00				 government		 Economy, and others
Borrowings from banking institutions Industrial Bank of Korea and others
0.00 ~ 5.40		
Other borrowings
Small Business Corporation and others
2.00 ~ 5.20		
							Borrowings in foreign currencies:
Refinance
Korea Exim Bank
5.18 ~ 5.60		
Short term borrowing in foreign Foreign financial institution
0.98 ~ 5.95		
		 currencies
Middle and long term
SMBC and others
4.82 ~ 5.74		
		 borrowing in foreign currencies
Borrowings from banks for sub-loan Industrial Bank of Korea
2.35 ~ 2.55		
Other borrowings
Foreign financial institution
2.71 ~ 9.25		
													 ₩

2006641,864 ₩282,046		

1,029,714
257,198

268,194		
397,618		
1,589,722		

222,028
464,367
1,973,307

541,341		
3,318,227		

395,080
2,326,698

737,634		

706,516751		
1,353,073		
5,951,026		
7,540,748 ₩

2,113
1,168,647
4,599,054
6,572,361( 5 ) I n the normal course of funding activities, the Bank provided securities as collateral for borrowings from the Bank of
Korea and other financial institutions as of December 31, 2007 (see Note 4).
( 6 ) Debentures
1) Debentures as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account

Annual interest rate (%)

2007

Debentures in Won:
Finance debentures
4.88 ~ 6.70 ₩Subordinated financing debentures
4.90 ~ 6.75		
Hybrid debentures
8.50		
				
Discounts on debentures							
Debentures in foreign currencies:
Finance debentures
2.77 ~ 5.87		
Subordinated financing debentures
5.00		
				
Discounts on debentures			
				
			 ₩

2006
6,780,000 ₩
694,513		
250,000		
7,724,513		
(34,065)		
7,690,448		

4,400,000
1,292,554
250,000
5,942,554(9,940)5,932,614

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

106,307
270,068
376,375(3,462)372,9136,305,527

92

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

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

Expiration dateFeb. 19, 2002
Apr. 11, 2002
Apr. 16, 2002
Jun. 04, 2002
Jan. 17, 2005
Feb. 02, 2005
Feb. 03, 2005
Feb. 24, 2005
Mar. 14, 2005
Mar. 15, 2005
Mar. 16, 2005
Apr. 06, 2005
Apr. 14, 2005
Apr. 20, 2005
Apr. 27, 2005
Apr. 29, 2005
May 17, 2005
May 18, 2005
Aug. 03, 2005
Aug. 04, 2005
Aug. 12, 2005
Aug. 16, 2005
Aug. 31, 2005
Sep. 02, 2005
Sep. 06, 2005
Oct. 06, 2005
Oct. 26, 2005
Nov. 09, 2005
Nov. 11, 2005
Nov. 15, 2005
Nov. 15, 2005
Nov. 16, 2005
Nov. 17, 2005
Nov. 18, 2005
Nov. 21, 2005
Nov. 23, 2005
Nov. 24, 2005
Nov. 25, 2005
Nov. 28, 2005
Dec. 01, 2005
Dec. 02, 2005
Dec. 05, 2005
Dec. 06, 2005
Dec. 08, 2005
Dec. 13, 2005
Dec. 13, 2005
Dec. 14, 2005
Dec. 14, 2005
Dec. 19, 2005

Feb. 19, 2007
Apr. 11, 2007
Apr. 16, 2007
Jun. 04, 2007
Jan. 17, 2007
Feb. 02, 2007
Feb. 03, 2007
Feb. 24, 2007
Mar. 14, 2007
Mar. 15, 2007
Mar. 16, 2007
Apr. 06, 2007
Apr. 14, 2007
Apr. 20, 2007
Apr. 27, 2007
Apr. 29, 2007
May 17, 2007
May 18, 2007
Aug. 03, 2007
Aug. 04, 2007
Aug. 12, 2007
Aug. 16, 2007
Aug. 31, 2007
Mar. 02, 2007
Sep. 06, 2007
Apr. 06, 2007
Oct. 26, 2008
Nov. 09, 2007
May 11, 2007
May 15, 2007
Nov. 15, 2007
Nov. 16, 2007
Nov. 17, 2007
Nov. 18, 2007
Nov. 21, 2007
Nov. 23, 2007
May 24, 2007
Nov. 25, 2007
May 28, 2007
Dec. 01, 2007
Dec. 02, 2007
Dec. 05, 2007
Jun. 06, 2007
Dec. 08, 2007
Dec. 13, 2007
Jun. 13, 2007
Dec. 14, 2007
Jun. 14, 2007
Dec. 19, 2007

Annual interest rate (%)

2007

7.22 ₩
7.60		
7.60		
7.20		
3.93		
4.25		
4.23		
4.34		
4.23		
4.18		
4.16		
4.07		
4.05		
3.97		
3.96		
3.92		
3.86		
3.86		
4.40		
4.37		
4.40		
4.35		
4.35		
4.17		
4.29		
4.84		
5.32		
5.30		
5.10		
5.08		
5.32		
5.35		
5.30		
5.30		
5.30		
5.22		
5.00		
5.18		
5.00		
5.24		
5.26		
5.31		
5.14		
5.36		
5.18		
5.07		
5.14		
5.03		
5.14		

2006
- ₩
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
50,000		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		

50,00010,00020,00050,00010,00050,00050,00050,00050,00050,00050,00050,00050,00050,00050,000100,000
50,00050,00050,00030,00040,00040,00050,00030,00050,00050,00050,00050,00020,00010,00040,00050,00010,00050,00050,00040,00010,00040,00050,00050,00050,00020,00050,00050,00040,00010,00040,00010,00030,000Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

Issued date

Expiration date

Dec. 19, 2005
Dec. 20, 2005
Dec. 23, 2005
Dec. 26, 2005
Dec. 27, 2005
Dec. 28, 2005
Dec. 28, 2005
Dec. 29, 2005
Jan. 03, 2006
Jan. 03, 2006
Jan. 04, 2006
Jan. 09, 2006
Jan. 11, 2006
Jan. 12, 2006
Jan. 13, 2006
Jan. 16, 2006
Jan. 17, 2006
Feb. 08, 2006
Apr. 04, 2006
Apr. 04, 2006
Apr. 05, 2006
Apr. 06, 2006
Apr. 06, 2006
Apr. 10, 2006
Apr. 11, 2006
Apr. 11, 2006
Apr. 12, 2006
Apr. 12, 2006
Apr. 14, 2006
Apr. 18, 2006
Apr. 19, 2006
Apr. 25, 2006
Apr. 27, 2006
Apr. 28, 2006
May. 02, 2006
May. 03, 2006
May. 03, 2006
May. 08, 2006
May. 11, 2006
May. 11, 2006
May. 12, 2006
May. 16, 2006
May. 17, 2006
May. 19, 2006
Jul. 04, 2006
Jul. 05, 2006
Jul. 06, 2006
Jul. 19, 2006
Jul. 26, 2006
Nov. 17, 2006
Dec. 04, 2006

Jun. 19, 2007
Dec. 20, 2007
Dec. 23, 2007
Dec. 26, 2007
Dec. 27, 2007
Dec. 28, 2007
Jun. 28, 2007
Dec. 29, 2007
Jul. 03, 2007
Jan. 03, 2008
Jan. 04, 2008
Jul. 09, 2007
Jan. 11, 2008
Jul. 12, 2007
Jan. 13, 2008
Jul. 16, 2007
Jul. 17, 2007
Feb. 08, 2008
Apr. 04, 2008
Oct. 04, 2007
Apr. 05, 2008
Oct. 06, 2007
Apr. 06, 2007
Oct. 10, 2007
Apr. 11, 2008
Oct. 11, 2007
Apr. 12, 2008
Oct. 12, 2007
Apr. 14, 2007
Oct. 18, 2007
Apr. 19, 2008
Apr. 25, 2008
Oct. 27, 2007
Oct. 28, 2007
Nov. 02, 2007
May. 03, 2008
Nov. 03, 2007
May. 08, 2008
May. 11, 2008
Nov. 11, 2007
May. 12, 2008
May. 16, 2008
May. 17, 2008
May. 19, 2008
Jul. 04, 2008
Jul. 05, 2008
Jul. 06, 2008
Jul. 19, 2008
Jan. 26, 2008
Nov. 17, 2009
Dec. 04, 2008

Annual interest rate (%)

2007

5.01 ₩
5.10		
5.16		
5.18		
5.18		
5.17		
5.00		
5.22		
5.08		
5.27		
5.18		
5.01		
5.20		
4.94		
5.10		
4.92		
4.95		
5.06		
5.04		
4.91		
5.03		
4.89		
4.73		
4.88		
5.01		
4.87		
5.00		
4.87		
4.77		
4.94		
5.07		
5.01		
4.87		
4.84		
4.85		
4.96		
4.87		
4.93		
4.91		
4.83		
4.91		
4.94		
4.91		
4.88		
5.05		
5.02		
5.00		
5.03		
4.99		
4.89		
4.94		

93

2006
- ₩
-		
-		
-		
-		
-		
-		
-		
30,000		
40,000		-		
50,000		-		
50,000		-		-		
50,000		
30,000		-		
50,000		-		-		
20,000		-		
40,000		
-		
-		
-		
50,000		
50,000		
-		
-		
-		
10,000		-		
50,000		
30,000		-		
50,000		
50,000		
50,000		
50,000		
50,000		
50,000		
50,000		
50,000		
50,000		
50,000		
10,000		

20,00050,00020,00050,00050,00040,00010,00050,00020,00030,00040,00010,00050,00010,00050,00010,00010,00050,00030,00020,00050,00020,00030,00050,00020,00010,00040,00010,00050,00010,00050,00050,00030,00050,00030,00010,00020,00050,00030,00020,00050,00050,00050,00050,00050,00050,00050,00050,00050,00050,00010,00094

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

Issued date

Expiration date

Dec. 06, 2006
Dec. 06, 2006
Dec. 08, 2006
Dec. 11, 2006
Dec. 12, 2006
Dec. 13, 2006
Dec. 14, 2006
Dec. 15, 2006
Dec. 19, 2006
Dec. 20, 2006
Dec. 20, 2006
Dec. 21, 2006
Dec. 28, 2006
Jan. 09, 2007
Jan. 10, 2007
Jan. 11, 2007
Jan. 16, 2007
Jan. 17, 2007
Jan. 18, 2007
Jan. 18, 2007
Jan. 19, 2007
Jan. 25, 2007
Jan. 25, 2007
Feb. 05, 2007
Feb. 06, 2007
Feb. 06, 2007
Feb. 09, 2007
Feb. 14, 2007
Feb. 14, 2007
Feb. 15, 2007
Feb. 15, 2007
Feb. 16, 2007
Feb. 23, 2007
Feb. 28, 2007
Mar. 02, 2007
Mar. 09, 2007
Mar. 12, 2007
Mar. 15, 2007
Mar. 15, 2007
Mar. 16, 2007
Mar. 23, 2007
Mar. 27, 2007
Mar. 27, 2007
Mar. 29, 2007
Apr. 03, 2007
Apr. 18, 2007
Apr. 19, 2007
Apr. 24, 2007
May. 02, 2007
May. 03, 2007
May. 08, 2007

Dec. 06, 2008
Dec. 06, 2009
Dec. 08, 2008
Dec. 11, 2009
Dec. 12, 2008
Dec. 13, 2008
Dec. 14, 2008
Dec. 15, 2008
Dec. 19, 2008
Dec. 20, 2007
Dec. 20, 2008
Dec. 21, 2007
Dec. 28, 2007
Jan. 09, 2009
Jan. 10, 2010
Jan. 11, 2010
Jan. 16, 2008
Jan. 17, 2009
Jan. 18, 2009
Jan. 18, 2010
Jan. 19, 2009
Jan. 25, 2009
Jan. 25, 2010
Feb. 05, 2010
Feb. 06, 2008
Aug. 06, 2008
Feb. 09, 2010
Feb. 14, 2008
Aug. 14, 2008
Feb. 15, 2008
Aug. 15, 2008
Aug. 16, 2008
Aug. 23, 2008
Feb. 28, 2010
Mar. 02, 2008
Mar. 09, 2008
Mar. 12, 2008
Mar. 15, 2008
Mar. 15, 2009
Mar. 16, 2009
Sep. 23, 2008
Mar. 27, 2008
Mar. 27, 2009
Sep. 29, 2008
Apr. 03, 2009
Oct. 18, 2008
Oct. 19, 2008
Oct. 24, 2008
May. 02, 2009
Nov. 03, 2008
May. 08, 2008

Annual interest rate (%)

2007

4.92 ₩
4.98		
4.89		
5.00		
4.96		
4.95		
4.97		
4.99		
5.00		
4.95		
5.02		
4.96		
4.83		
5.07		
5.10		
5.09		
5.09		
5.15		
5.17		
5.20		
5.16		
5.20		
5.23		
5.23		
5.10		
5.14		
5.14		
5.09		
5.11		
5.05		
5.06		
5.05		
5.03		
5.05		
5.03		
5.00		
5.03		
5.03		
5.06		
5.05		
5.02		
5.01		
5.03		
5.02		
5.05		
5.11		
5.10		
5.15		
5.24		
5.20		
5.18		

2006
10,000 ₩40,000		
30,000		
50,000		
50,000		
50,000		
50,000		
120,000		
50,000		-		
20,000		-		-		
50,000		
50,000		
50,000		
40,000		
50,000		
20,000		
30,000		
50,000		
20,000		
30,000		
50,000		
10,000		
30,000		
50,000		
40,000		
10,000		
30,000		
60,000		
20,000		
10,000		
30,000		
10,000		
40,000		
30,000		
30,000		
20,000		
50,000		
70,000		
20,000		
30,000		
10,000		
50,000		
10,000		
20,000		
20,000		
50,000		
30,000		
10,000		

10,00040,00030,00050,00050,00050,00050,000120,000
50,00030,00020,00090,00050,000-Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

Issued date

Expiration dateMay. 08, 2007
May. 09, 2007
May. 14, 2007
May. 14, 2007
May. 15, 2007
May. 15, 2007
May. 16, 2007
May. 17, 2007
May. 21, 2007
May. 21, 2007
May. 23, 2007
May. 29, 2007
May. 30, 2007
Jun. 01, 2007
Jun. 05, 2007
Jun. 13, 2007
Jun. 15, 2007
Jun. 18, 2007
Jun. 26, 2007
Jun. 28, 2007
Jul. 10, 2007
Jul. 11, 2007
Jul. 16, 2007
Jul. 16, 2007
Jul. 18, 2007
Jul. 19, 2007
Jul. 24, 2007
Jul. 24, 2007
Jul. 25, 2007
Jul. 26, 2007
Jul. 26, 2007
Jul. 30, 2007
Jul. 31, 2007
Jul. 31, 2007
Aug. 01, 2007
Aug. 03, 2007
Aug. 03, 2007
Aug. 08, 2007
Aug. 09, 2007
Aug. 14, 2007
Aug. 23, 2007
Aug. 24, 2007
Aug. 28, 2007
Aug. 29, 2007
Sep. 10, 2007
Sep. 20, 2007
Sep. 27, 2007
Oct. 2, 2007
Oct. 9, 2007
Oct. 9, 2007
Oct. 10, 2007

May. 08, 2009
May. 09, 2009
May. 14, 2008
May. 14, 2010
May. 15, 2008
May. 15, 2009
May. 16, 2010
May. 17, 2010
May. 21, 2009
May. 21, 2010
May. 23, 2010
May. 29, 2008
May. 30, 2010
Jun. 01, 2010
Jun. 05, 2009
Jun. 13, 2010
Dec. 15, 2008
Jun. 18, 2009
Jun. 26, 2009
Jun. 28, 2010
Jul. 10, 2009
Jul. 11, 2009
Jul. 16. 2008
Jan. 16, 2009
Jul. 18, 2008
Jan. 19, 2009
Jan. 24, 2009
Jul. 24, 2010
Jul. 25, 2010
Jan. 26, 2009
Jul. 26, 2009
Jul. 30, 2010
Jul. 31, 2009
Jul. 31, 2010
Aug. 01, 2009
Aug. 03, 2009
Aug. 03, 2010
Feb. 08, 2009
Aug. 09, 2009
Aug. 14, 2010
Aug. 23, 2010
Aug. 24, 2010
Aug. 28, 2008
Aug. 29, 2008
Sep. 10, 2010
Sep. 20, 2008
Sep. 27, 2008
Apr. 2, 2009
Oct. 9, 2008
Apr. 9, 2009
Oct. 10, 2010

Annual interest rate (%)

2007

5.24 ₩
5.27		
5.22		
5.32		
5.24		
5.28		
5.35		
5.36		
5.33		
5.39		
5.38		
5.22		
5.36		
5.37		
5.28		
5.49		
5.35		
5.39		
5.40		
5.44		
5.50		
5.50		
5.40		
5.40		
5.41		
5.53		
5.52		
5.60		
5.61		
5.51		
5.55		
5.53		
5.48		
5.53		
5.45		
5.44		
5.48		
5.32		
5.57		
5.58		
5.65		
5.67		
5.50		
5.50		
5.77		
5.64		
5.65		
5.77		
5.65		
5.77		
5.93		

95

2006
10,000 ₩20,000		
10,000		
40,000		
10,000		
20,000		
50,000		
50,000		
20,000		
30,000		
100,000		
50,000		
50,000		
50,000		
50,000		
50,000		
50,000		
30,000		
50,000		
50,000		
50,000		
50,000		
40,000		
10,000		
40,000		
50,000		
30,000		
20,000		
50,000		
40,000		
10,000		
30,000		
20,000		
30,000		
20,000		
40,000		
10,000		
10,000		
40,000		
10,000		
30,000		
50,000		
10,000		
10,000		
200,000		
50,000		
50,000		
50,000		
10,000		
20,000		
200,000		

-96

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

Issued date

Expiration date
Annual interest rate (%) 2007
Oct. 11, 2007
Oct. 11, 2008
5.65 ₩
Oct. 11, 2007
Apr. 11, 20095.78		
Oct. 12, 2007
Apr. 12, 20095.80		
Oct. 16, 2007
Apr. 16, 20095.81		
Oct. 17, 2007
Apr. 17, 20095.80		
Oct. 18, 2007
Oct. 18, 20095.84		
Oct. 18, 2007
Oct. 18, 20105.91		
Oct. 23, 2007
Oct. 23, 20105.84		
Oct. 24, 2007
Oct. 24, 2008
5.65		
Oct. 24, 2007
Oct. 24, 20095.78		
Oct. 25, 2007
Oct. 25, 2008
5.65		
Oct. 26, 2007
Apr. 26, 20095.74		
Oct. 29, 2007
Oct. 29, 2010
5.69		
Oct. 29, 2007
Apr. 29, 20095.76		
Oct. 30, 2007
Oct. 30, 20085.70		
Oct. 30, 2007
Apr. 30, 20095.76		
Nov. 02, 2007
Nov. 02, 20095.86		
Nov. 05, 2007
Nov. 05, 2008
5.72		
Nov. 06, 2007
Nov. 06, 2008
5.72		
Nov. 08, 2007
Nov. 08, 20105.88		
Nov. 14, 2007
Nov. 14, 20105.94		
Nov. 23, 2007
Nov. 23, 20106.22		
Nov. 26, 2007
Nov. 26, 20106.25		
Nov. 30, 2007
Nov. 30, 2010
6.63		
Dec. 05, 2007
Dec. 05, 2010
6.70		
Dec. 17, 2007
Dec. 17, 2008
6.33		
				 ₩

2006
24,000 ₩26,000		
50,000140,000		
50,000		
30,000		
70,000		
10,000		
10,000		
40,000		
40,000		
20,000		
40,000		
30,000		
190,000		
30,000		
40,000		
50,000		
10,000		
200,000		
50,000		
70,000		
260,000		
170,000		
140,000		
110,000		
6,780,000 ₩

4,400,000

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

973) Finance debentures issued in foreign currencies as of December 31, 2007 and 2006 consisted of (Unit: In
thousands of U.S. dollars, in millions of Won):
First underwriter
Issued date
Expiration date			Annual interest
rate (%)

2007

2006

- ₩
22,310
BNP Paribas, HSBC
Dec. 23, 2005
Dec. 23, 2007
- ₩							
(US$24,000)
BNP Paribas, HSBC
Dec. 23, 2005
Dec. 23, 2008
4.89		
45,034		
44,621
					(US$48,000)		
(US$48,000)
BNP Paribas
Mar. 13, 2006
Mar. 12, 2007
-		-		39,376							
(US$42,358)
DBS (*1)
Jan. 25, 2007
Jan. 25, 2008
2.77		
32,447							(US$34,585)
Feb. 16, 2007
Feb. 19, 2008
4.65		
18,760		
BOA (*2)
					(US$19,999)
HSBC (*3)
Mar. 14, 2007
Mar. 14, 2008
4.48		
46,901		
					(US$49,998)
CalyonJul. 20, 2007
Jul. 20, 2012
5.51		
281,460		
					 (US$300,000)
NAB (*4)
Oct. 15, 2007
Oct. 15, 20095.87		
24,052		
					(US$25,640)
MIZUHO
Oct. 29, 2007
Oct. 29, 20095.21		
46,910							(US$50,000)
MIZUHO
Oct. 30, 2007
Oct. 30, 20095.20		
18,764							(US$20,000)
NAB (*5)
Nov. 05, 2007
Nov. 05, 2008
4.40		
45,699							(US$48,716)
NAB (*6)
Nov. 07, 2007
Nov. 07, 2008
4.49		
19,242
					(US$20,512)
579,269 ₩106,307				 ₩
				(US$617,450)		 (US$114,358)(*1) Issued in Singapore dollar (SGD) amounting to SGD 50 million(*2) Issued in Hong Kong dollar (HKD) amounting to HKD 156 million(*3) Issued in Hong Kong dollar (HKD) amounting to HKD 390 million(*4) Issued in Hong Kong dollar (HKD) amounting to HKD 200 million(*5) Issued in Hong Kong dollar (HKD) amounting to HKD 380 million(*6) Issued in Hong Kong dollar (HKD) amounting to HKD 160 million4) Subordinated debentures as of December 31, 2007 and 2006 were as follows (Unit: In thousands of U.S.
dollars, in millions of Won):
First underwriter
Issued date
Expiration date			Annual interest
rate (%)

2007

2006

Debentures in Won:
- ₩50
General saleFeb. 28, 2000
Feb. 28, 2005
- ₩General sale
May. 28, 2001
Feb. 28, 2007
-		2,009		400,000
General saleNov. 28, 2001
Feb. 28, 2007-		-		
200,000
General sale
Oct. 28, 2002
Jan. 28, 2008
6.75		
200,000		
200,000
General saleMar. 28, 2003
Dec. 28, 2008
5.80		
242,504		
242,504
Underwriting sale (*1)
Oct. 21, 2004
Oct. 21, 20145.10		
170,000		
170,000
General sale (*1)
Nov. 28, 2004
Nov. 28, 20144.90		
80,000		
80,000						
694,513		
1,292,554
Debentures in foreign currencies:
CITI group & HSBC (*1,*2)
Jun. 10, 2005
Jun. 10, 2015
5.00		
281,859		
270,068						 (US$300,426)		 (US$290,521)
976,372 ₩
1,562,622					 ₩(*1) After 5 years from issuance date, the optional early redemption right is able to be exercised by the Bank.
(*2) The first underwriters

In addition, certain subordinated debentures are under swap contracts in order to hedge risks from changes in interest rates andexchange rates. Loss on valuation of derivatives amounting to ₩9,293 million was accounted for in connection to such contracts for the year ended
December 31, 2007.

98

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 7 ) As of December 31, 2007, Hybrid Tier 1 bond was as follows (Unit: In millions):
Classification
Issued period (*2)
		Hybrid debentures 1st (*1)

Annual interest
rate (%) (*3)

May 28, 2003 ~May 28, 2033

Balance8.50

250,000₩(*1) After 5 years from issuance date, call option can be exercised under the authorization of the Governor of the Financial Supervisory Service.
(*2) After expiration, the bond can be extended under the same terms.
(*3) After 10 years from issuance date, the interest rate increases to 10.0%.

( 8 ) Term structure of borrowings as of December 31, 2007 was as follows (Unit: In millions):
Classification

Borrowing inWon

Due in less than one year
Due from one to two years
Due from two to three years
Due from three to five years
Due after five years

₩

₩

13.
Other liabilities

683,495
57,12689,789203,734
555,578
1,589,722

Borrowing in
Debentures inforeign currencies Won₩₩

5,897,658
10,80542,563
5,951,026₩₩

Debentures in
Total
foreign currencies

3,238,513
1,626,000
2,360,000
500,000
7,724,513₩₩

208,083
89,726
281,460
281,859
861,128₩₩

10,027,749
1,783,657
2,492,352
485,194
1,337,437
16,126,389( 1 ) Other liabilities as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Accounts payable (see Note 17)
Accrued expenses (see Note 17)
Unearned revenues
Guarantee money received
Accrued payable foreign exchange
Deferred income tax liabilities (see Note 21)
Derivatives instruments liabilities (see Note 17)
Due to trust accounts
Accrued severance benefits
Less: Funds converted to National Pension
Less: Due to retirement insurance
Liability reserve for acceptances and guarantees
Liability reserve for unused credit limit
Allowance for other liabilities (see Note 17)
Sundry liabilities

2007
₩

₩

6,225,943
718,028
83,812
136,849
337,041
176,823805,025
718,049
263,806(740)(184,171)55,179179,282
107,764
1,767,519
11,390,209

2006
₩

₩

4,675,485
674,865
56,931
165,136
292,898
144,159
771,737
414,391
222,587(774)(172,103)
40,617
161,519
205,689
1,400,900
9,054,037( 2 ) Accrued severance benefits
The changes in accrued severance benefits for the years ended December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification
Beginning
Provision
Payment (*)
Foreign currencies translation

2007₩

Funds Converted to National Pension
Due from Retirement Insurance₩

222,587
57,344(16,262)137
263,806(740)(184,171)
78,8952006₩₩(*) The payment of severance benefits amounting to ₩427 million for the year ended December 31, 2007 is accounted as accounts payable.

As of December 31, 2007, parts of severance benefits were contributed to pension funds of Samsung Life Insurance Co., Ltd.

176,136
55,683(9,077)(155)
222,587(774)(172,103)
49,710Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 200699

( 3 ) Liability reserve for acceptances and guarantees
1) Acceptances and guarantees as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification

2007

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

2006
2,253
719
70,6581,650,183
1,723,813

₩

₩

1,034
975
64,555623,525
690,089₩

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

242,972
98,727
18,592
1,675,618
2,035,909

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

3,533,844
14,734
3,548,578
63,486
6,338,062₩

2) The classification of asset quality for acceptances and guarantees and liability reserve for acceptancesand guarantees as of December 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
Classification
NormalPrecautionary Substandard Doubtful
Estimated
Total
					
loss		
														
₩ 5,292,158 ₩Confirmed acceptances
Unconfirmed acceptances		 4,698,171		
Bills endorsed		
62,165		
₩10,052,494 ₩

7,485 ₩
3,159		
-		10,644 ₩- ₩2,521		
-		2,521 ₩

748 ₩
35		
-		
783 ₩

Liability
reserve for
acceptancesand guarantees

147 ₩ 5,300,538 ₩77		 4,703,963		
-		62,165		
224 ₩10,066,666 ₩<December 31, 2006>
Classification
NormalPrecautionary Substandard Doubtful
Estimated
Total
					
loss		
														Confirmed acceptances
Unconfirmed acceptances
Bills endorsed₩ 2,665,155
3,468,206
63,486₩ 6,196,847

57,22474,532₩ 131,756
₩

₩

₩

5,825
5,825

₩

₩

91
4
95

₩

₩

3,528
11
3,539

46,1348,516
529
55,179Liability
reserve for
acceptancesand guarantees₩ 2,725,998₩

3,548,578
63,486₩ 6,338,062₩

32,3097,864
444
40,6173) Acceptances and guarantees, by industry, except for the portion of overseas branches as of December 31,
2007 and 2006 were as follows (Unit: In millions):

By industry
Manufacturing
Wholesale/retail
Construction
Finance
Telecommunication
Others2007		

2006

Balance₩
3,244,398

Balance₩
1,352,630

Confirmed acceptance and guarantees in overseas branches₩

Percentage (%)

64.07
577,458
11.40
640,51912.65
284,271
5.61
12,7180.25
304,836
6.02
5,064,200
100.00236,338		
5,300,538		 ₩425,829292,256
210,253
15,507
281,896
2,578,371
147,627
2,725,998

Percentage (%)
52.46
16.52
11.33
8.15
0.60
10.94
100.00100

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

4) Confirmed acceptances and guarantees in foreign currencies, by country, as of December 31, 2007 and 2006
were as follows (Unit: In thousands of U.S. Dollars, in millions of Won):<December 31, 2007>
By country

Confirmed acceptances Translationand guarantees in
into Won
foreign currencies (*)

Korea
TaipeiFranceUSA
Singapore
OthersUS$US$3,370,918
75,633
69,25248,80640,480207,238
3,812,327

Percentage (%)

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

₩

₩

88.42
1.98
1.82
1.28
1.06
5.44
100.00(*) Foreign currencies other than U.S. dollars were converted into U.S. dollars at the basic rates of exchange at balance sheet dates.

<December 31, 2006>
By country

Confirmed acceptances Translationand guarantees in
into Won
foreign currencies (*)

Korea
FranceGermany
UK
USA
Japan
OthersUS$US$1,868,255
51,35040,50821,14077,087
27,156
104,597
2,190,093₩₩

Percentage (%)

1,736,730
47,73537,656
19,652
71,66025,244
97,232
2,035,909

85.30
2.34
1.85
0.97
3.52
1.24
4.78
100.00(*) Foreign currencies other than U.S. dollars were converted into U.S. dollars at the basic rates of exchange at balance sheet dates.

5) The percentage of liability reserve for acceptances and guarantees as of December 31, 2007, 2006 and 2005
was as follows (Unit: In millions):
Classification

Acceptances andguarantees₩
Dec. 31, 2007
Dec. 31, 2006		
Dec. 31, 2005		

Liability reserve

10,066,666 ₩
6,338,062		
5,710,324		

Percentage (%)

55,17940,61740,593

0.55
0.64
0.71

( 4 ) Liability reserve for unused credit limit
The Bank accrued reserve for estimated potential losses on unused credit limit considering the credit conversion factor based on the newstandard of the Bank for International Settlements Accord by applying the same methodology that was used to determine the allowance for loan
losses since 2005. The calculation of liability reserve for unused credit limit as of December 31, 2007 and 2006 was as follows (Unit: In millions):<December 31, 2007>
Classification
Limit (a)Balance (b)						Allowance (c) = Liability reserve(a-b) x credit
for unused
conversion factor credit limit (d)15,508,197 ₩2,006,812 ₩
6,750,429 ₩
65,471,645
25,102,582
9,762,067
3,405,898
1,429,844
398,239
133,939
83,246
10,139₩ 84,519,679 ₩ 28,622,484 ₩ 16,920,874		
Merchant Banking Account (*2)								Liability reserve for unused credit limit							 ₩Card loans
Loans to enterprise (*1)
Loans to household
Loans to public and others(*1) Unused credit limit of merchant banking account was included.
(*2) It was included in other liabilities of merchant banking account (see Note 14).

₩106,962
85,093
3,982
86
196,123(16,841)
179,282

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

<December 31, 2006>
Classification
Limit (a)Balance (b)
			
			

101

Allowance (c) = Liability reserve(a-b) x credit
for unused
conversion factor credit limit (d)14,831,100 ₩1,911,563 ₩6,459,424 ₩
55,145,872
18,377,572
8,646,210
2,922,734
1,165,632
358,421
14,955
7,332
1,525₩ 72,914,661 ₩ 21,462,099 ₩ 15,465,580		
Merchant Banking Account (*2)								Liability reserve for unused credit limit							 ₩Card loans
Loans to enterprise (*1)
Loans to household
Loans to public and others₩

102,003
65,831
3,584
11
171,429(9,910)161,519(*1) Unused credit limit of merchant banking account was included.
(*2) It was included in other liabilities of merchant banking account.

( 5 ) Allowance for other liabilities
Allowance for other liabilities as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Reserve for tax probe (see Note 17)
Reserve for money-back point & yes-point
Reserve for litigation (see Note 17)
Reserve for employees‘ accident (*1)
Compensation to customers related to Won & Yen swap (see Note 17)
Provision for severance and early retirement benefits (*2)
Others (*3)

2007
₩

₩

21,20351,999600
17,741
12,172
4,049
107,764

2006₩₩

133,953
20,32522,074
3,950
25,387
205,689(*1) Provision was made for 2 suspense payment, which occurred in connection with employees‘ illegal act such as embezzlement.
(*2) The Bank reserved the provision for severance and early retirement benefits for voluntary retirees who have worked for more than 15 years and are more than 40 years old.
(*3) T he Bank reversed the allowance for other liabilities amounting to ₩18,149 million as it won the lawsuit of a claim for refund of disposal deposit of Hanbo Steel. The Bank also
reversed the allowance amounting to ₩3,218 million as escrow deposit of KP Chemical Co., Ltd.

( 6 ) Sundry liabilities
Sundry liabilities as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Suspense receipt
Withholding taxes
Agency business accounts
AgencyCredit control deposits
Guarantee deposits for securities subscription
Domestic exchange settlements credits
Domestic remittance payable
Others

2007
₩

₩

14.
Merchant banking
account liabilities

250,355
31,32993,251820,170
2,150
14,999536,596
16,896
1,773
1,767,519

2006
₩

₩

112,009
28,00680,582
461,139
1,700
17,592
692,3165,459
2,097
1,400,900( 1 ) Merchant banking accounts liabilities as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification

2007₩
Deposits
Other liabilities		
₩2006
2,121,888 ₩
25,076		
2,146,964 ₩

1,625,156
19,351
1,644,507

102

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 2 ) Deposits as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification

Annual interest rate (%) 2007
Notes payable (*)
3.00 ~ 5.20 ₩Due to CMA
4.70 ~ 4.89		
		 ₩

2006
1,965,862 ₩
156,026		
2,121,888 ₩

1,495,588
129,568
1,625,156(*) Notes payable matures within a maximum of one year from issue date and bears interest at variable rates according to market conditions and note terms.

( 3 ) Other liabilities as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification
Accrued expenses
Unearned income
Liability reserve

2007
₩

₩

1,009
7,226
16,841
25,076

2006
₩

1,131
8,310
9,910
19,351₩( 4 ) O perating expenses of merchant banking accounts for the years ended December 31, 2007 and 2006 were as follows(Unit: In millions):
Classification
Interest expenses
Transfer to reserve for bad debts
Transfer to other liability reserve
Other operating expenses

2007
₩

₩

15.
Shareholders’equity116,075
6,932
976
123,983

2006₩

65,861
7,570
6,194
79,625₩( 1 ) Capital stock
Capital stock as of December 31, 2007 and 2006 was as follows (Unit: in Won, shares):Classification

2007

Shares authorized		₩Per share
Shares issued		₩Common stock2006
1,000,000,000		
5,000 ₩
644,906,826		
3,224,534 million ₩1,000,000,000
5,000
644,906,826
3,224,534 million( 2 ) Capital surplus
The amount of capital surplus as of December 31, 2007 and 2006 was transferred from stock option (accounted for as capital adjustment)
since it lapsed as it was not exercised.
( 3 ) Capital adjustments
Changes in capital adjustments for the year ended December 31, 2007 were as follows (Unit: In millions):

Stock option

Beginning
Increase₩
18,862 ₩EndingDecrease (*)
5,417 ₩
(24,279) ₩-(*) Represents exercise of stock option amounting to ₩6,499 million for the year ended December 31, 2007 and reclassification to accrued expenses amounting to ₩17,780 million.

In accordance with SKAS No.22, Share-Based Payment, the stock compensation costs, which had been recorded in capital adjustment
was reclassified as other liabilities since the Bank had settled stock option by cash payment in the last two years and was assessed at fair value(intrinsic value for stock option granted before December 31, 2006). As a result, stock compensation costs were decreased by ₩285 million for theyear ended December 31, 2007.

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

103

( 4 ) Accumulated other comprehensive income
The changes in accumulated other comprehensive income for the year ended December 31, 2007 were as follows (Unit: In millions):
Classification
Beginning
Changes
Disposal				Gain (loss) on valuation of available-for-sale securities ₩Gain (loss) on valuation of held-to-maturity securities
Unrealized gain on investment in affiliates₩

1,119,809(773)
15,9291,134,965₩₩(2,119)
566
1,282
(271)

₩

₩

Deferredincome tax(38,145)(38,145)₩₩

11,073(156)(353)
10,564Ending₩₩

1,090,618(363)
16,858
1,107,113( 5 ) Statements of comprehensive income
Comprehensive income consists of all changes in equity during a period from transactions and other events except those resulting frominvestments by owners and distributions to owners. Comprehensive income for year ended December 31, 2007 was as follows (Unit: In millions):
2007₩

Classification
Net income
Effect of exchange rate fluctuation
Other comprehensive income:Gain on valuation of available-for-sale securities
Gain on valuation of held-to-maturity securities
Unrealized gain on investment in affiliates
Less: Effect of income tax
Comprehensive income₩

960,945
2,310(40,264)
566
1,282
10,564935,403( 6 ) Retained earnings
Retained earnings as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification
Legal reserve (*1)
Other reserves (*2)
Unappropriated retained earnings

2007
₩

₩

196,500
38,8262,082,886
2,318,212

2006
₩

₩

35,474
1,964,390
1,999,864(*1) T he Korean Banking Law requires a bank to appropriate at least 10 percent of net income after income tax to legal reserve, until such reserve equals 100 percent of its paid-in
capital. This reserve is not available for payment of cash dividends; however, it can be used to reduce deficit or be transferred to capital.
(*2) R elevant Japanese regulations require the Bank‘s overseas branches located in Japan to appropriate a minimum of 10 percent of annual income after income tax as a legal
reserve, until such reserve equals ￥2,000 million. This reserve is not available for the payment of cash dividends and may be utilized upon liquidation of the Japanese branches.
In addition, Singapore and Hanoi branches‘ statutory reserves are included in other statutory reserves.

104

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 200616.
Share-based payment( 1 ) The details of the stock options as of December 31, 2007 were as follows (Unit: share, in Won):
Grant dateMar. 13, 2001
Mar. 30, 2002 (*)
Aug. 26, 2002
Mar. 31, 2003 (*)
Sep. 04, 2003 (*)
Sep. 16, 2003
Feb. 13, 2004
Mar. 07, 2005
Jun. 29, 2005
Mar. 07, 2006
Aug. 01, 2006
Mar. 08, 2007
Mar. 29, 2007
Mar. 29, 2007
Aug. 10, 2007

Stock option
granted
547,000
32,020725,000
101,401
53,369120,000
2,390,000
1,355,000
200,000
400,000
200,000
1,090,000
100,000
530,000
380,000
8,223,790

Stock option Stock option
expired to date exercised(24,015)(421,850)(120,000)(567,770)(338,525)(63,230)(100,850)(35,000)(72,510)(1,743,750)

Stock option
outstanding(547,000)(220,150)(972,760)(178,515)(15,880)(1,934,305)

8,005
83,000101,401
53,369849,470
837,960
120,890299,150
165,000
1,017,490
100,000
530,000
380,000
4,545,735

Exercise
price₩

Exercise period

5,000
70,7156,300
13,266
15,533
5,000
7,000
8,800
9,000
13,30011,90013,90014,50014,50013,900Mar. 14, 2004~Mar. 13, 2007
Mar. 31, 2005~Mar. 30, 2008
Aug. 27, 2005~Aug. 26, 2008
Apr. 01, 2006~Mar. 31, 2009
Sep. 05, 2006~Sep. 04, 2009
Sep. 17, 2006~Sep. 16, 2009
Feb. 14, 2006~Feb. 13, 2009
Mar. 08, 2007~Mar. 07, 2010
Jun. 30, 2007~Jun. 29, 2010
Mar. 08, 2008~Mar. 07, 2011
Aug. 02, 2008~Aug. 01, 2011
Mar. 09, 2009~Mar. 08, 2012
Mar. 30, 2009~Mar. 29, 2012
Mar. 30, 2009~Mar. 29, 2012
Aug. 11, 2009~Aug. 10, 2012(*) Granted from KEBCS prior to the merger with the Bank. Exercise price per share and the shares outstanding were adjusted based on the merger ratio.
	When the stock options are exercised, the Bank has the option to settle either through issuance of new shares or treasury stock, or through payment of cash equivalent to thedifference between the market price and the exercise price. The number of exercisable stock option is determined in accordance with the management performance and thecalculation criteria of the number of exercisable shares.

( 2 ) Assumption to value stock compensation cost as of December 31, 2007 was as follows (Unit: In Won):
Grant date

Risk freerate (%)
		Mar. 30, 2002 (*1)
Aug. 26, 2002
Mar. 31, 2003 (*1)
Sep. 04, 2003 (*1)
Sep. 16, 2003
Feb. 13, 2004
Mar. 07, 2005
Jun. 29, 2005
Mar. 07, 2006
Aug. 01, 2006
Mar. 08, 2007 (*2)
Mar. 29, 2007 (*2)
Mar. 29, 2007 (*2)
Aug. 10, 2007 (*2)

5.64
5.66
5.68
5.69
5.69
5.67
5.71
5.72
5.74
5.75
5.76
5.76
5.76
5.77

Expected
Volatility of
Expected
exercise
the underlying dividend
period (year) stock price (%) rate (%)
3
6
3
3
6
5
5
5
5
5
5
5
5
5

28.92
26.61
29.38
29.49
29.33
29.85
31.69
31.33
29.98
30.74
37.41
37.74
37.74
39.51

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

Exercised
price₩

70,7156,300
13,266
15,533
5,000
7,000
8,800
9,000
13,30011,90013,90014,50014,50013,900Intrinsic
value (*2)
₩

8.360
1.394
9,660
7,600
5,860
5,660
1,360
2,760
5,823
5,668
5,668
6,310

(*1) Granted from KEBCS prior to the merger with the Bank. Exercise price per share and the shares outstanding were adjusted based on the merger ratio.
(*2) T he intrinsic value of compensation cost granted before December 31, 2006 is the difference between the market price and the exercise price in accordance with SKAS
Interpretations 39-35 - Accounting for Stock Options, and the intrinsic value of compensation cost granted after January 1, 2007 is fair value in accordance with SKAS No.22 Share-Based Payment.

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

17.
Contingencies
and commitments

105( 1 ) Derivatives
The notional amounts outstanding for derivative contracts as of December 31, 2007 and 2006 were as follows (Unit: In millions):

Type (*)
Currency:
Currency forwards
Currency futures
Currency swaps
Currency options purchased
Currency options sold		Interest rate:
Interest rate futures
Interest rate swaps
Interest rate options purchased
Interest rate options sold		
Index:
Stock index futures
Stock index purchased
Stock index sold				2007			Trading
Hedge
Total

2006
Trading

Hedge₩42,684,356

₩

Total

-

₩42,684,356₩31,817,720

2,799,874
6,640,534
6,477,700
8,762,723
67,365,187

740,966
6,101,202
2,115,263
3,890,146
44,665,297-₩31,817,720

2,799,874
6,640,534
6,477,700
8,762,723
67,365,187
779,425
26,064,128
26,843,553

426,881426,881

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

561,752
16,772,450
185,920
185,920
17,706,042

599,195
599,195

561,752
17,371,645
185,920
185,920
18,305,237

2,178
37,204
92,389131,771₩94,340,511

426,881

2,178
37,204
92,389131,771₩94,767,392

40,162
1,919
356,710
398,791₩62,770,130

599,195

40,162
1,919
356,710
398,791₩63,369,325

₩

₩

₩

740,966
6,101,202
2,115,263
3,890,146
44,665,297(*) F or transaction between Won and foreign currencies, unsettled amount of transaction is presented using the basic foreign exchange rate based on the contract amount in foreign
currencies. For transaction between foreign currencies and foreign currencies, unsettled amount is presented using the basic foreign exchange rate based on foreign currencies
purchased at balance sheet dates.

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

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

P/L						Trading		Hedging		
Total
Gain onLoss onGain onLoss onGain onLoss onvaluation valuation valuation valuation valuation valuation

B/S
AssetsLiabilities₩ 373,915₩ 340,937

56,97048,29821,417500,600

51,191
12,54036,603441,271-

147,109147,109

212,952
212,952

3,617
3,617
₩ 651,326

1,336
34
1,370
₩ 655,593₩₩-₩ 373,915₩ 340,937₩ 377,600₩ 375,544

56,97048,29821,417500,600

51,191
12,54036,603441,271

154,324
75,422607,346

78,804
94,368548,716

9,569
9,569

3,452
3,452

156,678
156,678

216,404
216,404

178,479
178,479

233,678
233,678

9,569

3,452

3,617
3,617
₩ 660,895

1,336
34
1,370
₩ 659,045

1,014
1,014
₩ 786,839

22,631
22,631₩ 805,025₩₩

The Bank uses various derivative instruments for its trading activities, including interest rate and foreign exchange swaps, futures,
forwards and options, to manage the interest rate characteristics of certain assets or liabilities and to economically hedge against the effects offluctuations in interest rates or foreign exchange rates.
The Bank holds derivative instruments accounted for as fair value hedges applied to securities, debentures and bills discounted ofmerchant banking. The Bank recognized ₩3,452 million of gains on valuation of derivatives of available-for-sale securities, and ₩276 million and₩9,293 million of losses on valuation of derivatives of available-for-sale securities and finance debentures in foreign currencies, respectively,
for the year ended December 31, 2007. In addition, the interest rate swap covers the fair value changes of the hedged items resulted from thefluctuation in interest rate and foreign exchange rate.

106

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

The details of derivatives and the valuation of derivatives for the year ended December 31, 2006 were as follows (Unit: In millions):<December 31, 2006>

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

P/L						Trading		Hedging		
Total
Gain onLoss onGain onLoss onGain onLoss onvaluation valuation valuation valuation valuation valuation

B/S
AssetsLiabilities₩ 40,979₩ 54,193

80,643
5,633
127,255

33,173
14,187
101,553-

10,3283,102
13,43021,931
21,9319,514
9,514₩ 150,199

873
873₩ 124,357₩₩-₩ 40,979₩ 54,193₩ 263,377₩ 407,093

80,643
5,633
127,255

33,173
14,187
101,553

251,873
21,406536,656

127,406
25,424559,923

694
694

631
631

11,022
3,102
14,12422,562
22,562

90,6693,102
93,771

119,285
119,285

694

631

9,514
9,514
₩ 15,893

873
873₩ 124,988

72
72₩ 630,499

92,52992,529₩ 771,737₩₩

The Bank holds derivative instruments accounted for as fair value hedges applied to securities, debentures and notes discounted inmerchant banking assets, and the interest rate swap covers the fair value changes of the hedged items resulted from the fluctuation in interest rate
and foreign exchange rate. The Bank recognized ₩802 million, ₩492 million and ₩12 million of gains on valuation of derivatives of securities
debentures and deposits, respectively, and ₩731 million of losses on valuation of derivatives of securities and recorded as gain or loss on
valuation of derivatives, which were included in gain or loss on trading and valuation of derivatives for the year ended December 31, 2006. Also,
gain on valuation of derivatives of loans to hedge interest rate amounting to ₩354 million was recognized as other income of operating income of
merchant banking accounts and reflected in current operation.
( 2 ) T he credit default swap sold for revenue, for example fee revenue, as of December 31, 2007, was as follows (Unit: In thousands of USD, in thousands of CAD):
Type

Contract

Maturity

Par value

CDS
CDS (Unfunded Synthetic CDO)
Synthetic CDO

Apr. 02, 2007
Apr. 18, 2007
May 30, 2006

Apr. 02, 2010
Dec. 30, 2014
Apr. 28, 2011

CAD
USD
USD

12,50018,00020,000

When the Bank sells the credit default swap above, it‘s possible to suffer a loss depending on swap commitment, if a credit event statedon commitment occurs, such as dishonor of reference entities.
( 3 ) T he Bank holds written-off loans, of which the claim for borrowers and guarantors have not been terminated,amounting to ₩1,167,728 million and ₩1,467,531 million as of December 31, 2007 and 2006, respectively.
( 4 ) E ndorsed notes with collateral amount to ₩62,165 million and ₩63,486 million as of December 31, 2007 and 2006,
respectively. Endorsed notes without collateral held at the merchant banking account amount to ₩8,095,294
million and ₩4,839,947 million as of December 31, 2007 and 2006, respectively.
( 5 ) T h e B a n k i s o b l i g e d t o r e p u r c h a s e s o m e o f t h e l o a n s p r e v i o u s l y s o l d t o t h e K o r e a A s s e t M a n a g e m e n t
Corporation (“KAMCO”) under certain conditions including the following:- When it is considered impossible to collect the loans and interest due to delay in repayment of loans and interest over six months.
- When it is considered impossible to collect the loans and interest due to the abrogation of court-receivership process and thecancellation of mediation.
As of December 31, 2007, KAMCO and other loan purchasers may exercise the resale option for loans amounting to ₩1,940 million. An
additional loss or profit may occur, depending on the loan classification on valuation of loans or final arrangement on loans when KAMCO and otherloan purchasers exercise their repurchase agreement.

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

107

( 6 ) Loans sold to asset backed securitization (ABS) (Unit : In millions)Classification
Date
Value of loans
Sale price				
KEB 5th Securitization Specialty Co., Ltd. (*2)
KEB 6th Securitization Specialty Co., Ltd. (*3)
KEB 7th Securitization Specialty Co., Ltd. (*4)
KEB 8th Securitization Specialty Co., Ltd. (*5)
KEB 9th Securitization Specialty Co., Ltd. (*6)
KEB 10th Securitization Specialty Co., Ltd. (*7)
KEB 11th Securitization Specialty Co., Ltd. (*8)
KEB 12th Securitization Specialty Co., Ltd.
KEB 13th Securitization Specialty Co., Ltd.
KEB 14th Securitization Specialty Co., Ltd.
KEB 15th Securitization Specialty Co., Ltd. (*9)₩
Feb. 01, 2001
May 25, 2001		
Oct. 30, 2001		
Nov. 12, 2003		
May 14, 2004		
Aug. 10, 2004		
Apr. 30, 2005		
Nov. 14, 2005		
May 08, 2006		
Nov. 10, 2006		
Jun. 20, 2007		

589,175 ₩
998,923		
163,750		
155,391		
206,442		
147,464		
207,886		
178,587		
121,173		
92,087		
121,121		

Subordinateddebentures (*1)

- ₩
-		
-		
-		
-		
-		
-		
136,000		
92,000		
74,000		
90,000		

66,00045,00036,00044,000(*1) The subordinated debentures are included in sale price.
(*2) After redemption of the subordinated bonds on March 27, 2007, the 5th SPC had liquidation registered on September 5, 2007.
(*3) After redemption of the subordinated bonds on March 20, 2006, the 6th SPC had liquidation registered on October 27, 2006.
(*4) After redemption of the subordinated bonds on March 9, 2006, the 7th SPC had liquidation registered on October 27, 2006.
(*5) After redemption of the subordinated bonds on January 16, 2006, the 8th SPC had liquidation registered on October 30, 2006.
(*6) After redemption of the subordinated bonds on January 19, 2006, the 9th SPC had liquidation registered on October 23, 2007.
(*7) After redemption of the subordinated bonds on January 19, 2006, the 10th SPC had liquidation registered on October 31, 2007.
(*8) After redemption of the subordinated bonds on January 19, 2006, the 11th SPC had liquidation registered on October 31, 2007.
(*9) The losses on disposal of loans have been recognized amounting to ₩6,887 million (see Note 5).

( 7 ) The Bank has pending litigation as plaintiff or defendant in various legal actions arising from the normal courseof operation. The aggregate amounts of these claims brought by and against the Bank were approximately₩352,345 million (1,405 cases) and ₩102,514 million (132 cases), respectively, as of December 31, 2007. The
Bank recognized ₩51,999 million of provisions related to these lawsuits (see Note 13). The Bank believes thatthe outcome of these matters will not have a material impact to the Bank’s financial position or operations.
 T he Bank was fined ₩25 billion for a violation of the securities exchange act related to affiliation with Korea
Exchange Bank Credit Service Co. Ltd on February 1, 2008. The Bank appealed to the court immediately and thelitigation is pending.
( 8 ) Tax probe
The Bank was under tax probe by the National Tax Service (“NTS“) from January 25 to August 31, 2006 for the fiscal years from 2001 to
2004, and was informed of a pre-taxation notice on October 12, 2006 as a result of the tax probe.
The Bank has reserved ₩133,953 million as other provision as of December 31, 2006 according to SKAS No.17 ‘Provisions, Contingent
Liabilities and Contingent Assets‘ regardless of the tax payment amount to be confirmed after legal process such as confirmed-taxation notice,appeal to tax tribunal and others (see Note 13).
As the tax reconciliation partially reflects the Bank‘s appeal in pre-taxation judgment on the pre-taxation notice above, the Bank reversed theallowance for other liability amounting to ₩127,091 million out of ₩133,953 million less the amount related to Won-Yen swap of ₩6,862 million.
In addition, NTS notified the Bank and its customers of the tax on interest income on Won & Yen swap from 2003 to 2005. The
Bank compensated its customers with the condition of entrusting tax appeal procedures. The amount of compensation to customers, meeting
compensation requisite and reported is ₩10,879 million as of December 31, 2007. The Bank totally accounted it as an allowance for otherliabilities (see Note 13). The Bank has obligation to pay when a customer requires compensation, meeting the requisite hereafter; however, theamount is not accounted as an allowance of other liabilities since it cannot be reliably estimated as of December 31, 2007.
( 9 ) Credit to work-out companies
As of December 31, 2007, the Bank‘s outstanding loans and guarantees to the companies under workout programs amounted to₩907,723 million. Actual losses on the above loans and guarantees may differ from the allowances for such losses provided by the Bank.
( 10 ) Debt to equity swap of Hynix Semiconductor Inc.
The Bank‘s outstanding loans (including acceptances and guarantees) and available-for-sale securities convertible to equity securities
with respect to Hynix Semiconductor Inc. (“Hynix“) as of December 31, 2007 amount to ₩190,872 million and ₩933,171 million, respectively. As of
December 31, 2007, the Bank‘s loans for Hynix are classified as normal. Joint control procedure for Hynix Semiconductor Inc was completed on Jul.
12, 2005. Also, the Bank‘s 37,742 thousand shares of Hynix are restricted for sale until December 31, 2007 and the gain on valuation of availablefor-sale securities amounting to ₩498,367 million is accounted as other comprehensive income as of December 31, 2007.

108

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 11 ) Debt to equity swap of Hyundai Engineering & Construction Co., Ltd.
As of December 31, 2007, the Bank has loans (including acceptances and guarantees) of ₩312,702 million and available-for-salesecurities of ₩961,961 million with respect to Hyundai Engineering & Construction Co., Ltd. and the Bank‘s loans for Hyundai Engineering &Construction Co., Ltd. are classified as normal.
The Bank has 13,778 thousand shares of Hyundai Engineering & Construction Co., Ltd., which are restricted for sale until completionof M&A of Hyundai Engineering & Construction Co., Ltd. With regards to these securities, the gain on valuation of available-for-sale securities
amounting to ₩514,621 million is accounted as other comprehensive income as of December 31, 2007.
( 12 ) Commitments related to credit card business
The Bank has entered into trademark license (membership) agreements with Master Card International Incorporated in 1993, VISAInternational Service Association in 1988 and JCB International Service Association in 1997. The Bank pays and receives certain amounts of fees
and commissions in connection to the income and expense incurred pertaining to these agreements.
The Bank has entered into credit card affinity agreements with KDB Capital. Under the agreements, the Bank gives an allocation of thefee income related to the credit card affinities.
( 13 ) I ndemnification obligations regarding the share subscription agreement by and between the Bank and the LSFKEB Holdings, SCA
The Bank shall indemnify LSF-KEB Holdings, SCA for all purchaser losses (*1) and pay for damages resulting from any breach by the Bankof any of the Bank‘s covenants (*2) in the Share Subscription Agreement. The Bank‘s indemnification obligations are as follows:
Duration of indemnification obligations are as follows:- Purchaser losses, excluding those mentioned below, may be indemnified until 18 months from the Closing Date (*3).
- Purchaser losses arising as a result of fraud or intentional misrepresentation by the Bank may be indemnified at the Closing Date andcontinue to be in full force and effective until three years from the Closing Date.
- Purchaser losses related to tax matters may be indemnified at the Closing Date and continue to be in full force effective until five
years from the Closing Date.
The Bank‘s indemnification obligations expire after the duration periods stated above. However, if the Bank receives written claims fromLone Star before the expiration of the durations, regardless of the durations stated above, the Bank‘s indemnification obligations continue to be inforce and effective until the related matter are brought to satisfactory settlement.
The Bank has no indemnification obligation for claims less than ₩100 million. The Bank‘s indemnification obligation applies to claims
exceeding ₩15,000 million cumulative, and only losses exceeding ₩10,000 million may be indemnified.
The total amount of indemnification obligations cannot exceed the LSF-KEB Holdings, SCA‘s investments in the Bank.
(*1) P urchase losses means the amount of any and all losses, costs, liabilities, damages, judgments, settlements and expenses that arise out of any breach by the Bank of any of
the Bank‘s representations and warranties contained in the Share Subscription Agreement or any breach by the Bank of any of the Bank‘s covenants or agreements in the Share
Subscription Agreement.
(*2) Covenant means the conditions set forth in the Share Subscription Agreement that the Bank shall comply with the share subscription until the Closing Date.
(*3) Closing Date means the date that the new shares come into effect, and falls on October 31, 2003.

( 14 ) The equity linked special incentive
On July 15, 2005, December 21, 2006 and December 12, 2007, the Bank granted the equity linked special incentive to employees for the
purpose of motivation to improve long-term performance. Above incentive is one time incentive which is linked with the Bank‘s stock price and net
asset per share, and can be eligible for the incentive for three years after two years from the effective date. The Bank recognized ₩23,766 million
as compensation expense for the accomplishment over the long period related to above bonus and ₩17,385 million is recognized as long-termpayable. The number of shares decreased due to early retirement was 38 thousand shares and 2,583 thousand shares of these were exercised and₩37,914 million was paid for the year ended December 31, 2007.
( 15 ) The dormant deposit
The Bank has recognized the dormant accounts which have no transaction for 5 years since the date of last transaction as income. The Bank
has no legal obligation to pay for them which have been recognized as income. In accordance with the custom practice of the banking industry and byconsideration of the bank‘s public responsibility; however, the Bank grants the account for refund in case a customer requires.
In addition, the special act about on transfer of dormant accounts, which enables the dormant deposit recognized as income since 2003
less than the amount the Presidential decree limits - the decree, limits the amount of translation of the dormant accounts to ₩300 thousand peran account, was announced and effected during this period, - to freely be transferred the dormant account if there is an active account in the same
Bank or the other financial company institution, was pronounced on August 3, 2007. The Bank recognized dormant deposit to be transferred to otherbanks based on the Act amounting to ₩13,611 million as expenses.

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

18.
Assets and liabilities
denominated inforeign currencies

109

Significant assets and liabilities denominated in foreign currencies as of December 31, 2007 and 2006 were as follows (Unit: In thousands of U.S.
dollars, in millions of Won):

Classification
Assets:Cash and due from bank:
		 Foreign currencies
		 Due from banks in foreign currencies
Securities:
		 Trading securities
		 Available-for-sale securities
		 Held-to-maturity securities
		 Securities using the equity method
Loans:
		 Call loans
		 Domestic import usance bill
		 Credit card receivables
		 Bills bought in foreign currencies
		 Bills bought in Won
		 Loans in foreign currencies
		 Factoring receivables
		 Private placed bonds
		 (Reserve for bad debts)
Other assets:
		 Lease assets (financial lease receivable)			Liabilities:
Deposits:
		 Demand deposits in foreign currencies
		 Savings deposits in foreign currencies
Borrowings:
		 Borrowings in foreign currencies
		 Due to BOK in foreign currencies
		 Call money in foreign currencies
		 Bonds in foreign currencies
Other liabilities:
		 Accrued expenses in foreign currencies			2007		
USD
Translation
Equivalent (*)
into Won

US$

380,800
1,445,261₩

357,266
1,355,944

2006
USD
Equivalent (*)

Translation
into Won

US$₩

289,260
1,373,105

268,896
1,276,438

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

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

63,418667,518
518,704
283,080

58,953
620,525
482,188263,150

2,236,439
1,857,444
2,004
3,670,686
97,9495,840,945
191,876
8,559(47,930)

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

2,087,162
1,474,327
1,727
3,281,351
79,836
4,262,157
175,032
116,321(48,102)

1,940,225
1,370,534
1,605
3,050,344
74,216
3,962,101
162,710
108,132(44,716)

4,556
16,490,781

5,550
US$ 14,630,446₩

3,505,658
5,749,950

US$

₩

4,856
US$ 17,577,042

₩

US$

₩

3,736,579
6,128,704
6,343,025
819,529
917,851359,242
US$ 18,304,930₩

3,757,194
4,506,148

5,951,026
768,882
861,128

4,947,347
3,423
478,682
404,878

337,041
17,173,685

315,080
US$ 14,412,752

5,159
13,600,460

3,492,687
4,188,916
4,599,054
3,182
444,983
376,375₩

292,898
13,398,095(*) Foreign currencies other than U.S. dollars were converted into U.S. dollars at the basic rates of exchange at balance sheet dates.

19.
Operating revenue
and expenses( 1 ) Interest revenue and expenses
The average balance of the interest bearing assets and liabilities, and the related interest revenue and expenses as of and for the years
ended December 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
Classification
Average balance		Interest
revenue/expense

Rate of interest (%)

Interest revenue :₩Due from banks (*1)(*2)
Securities 		
Loans		
₩		

1,510,866 ₩
7,681,849		
49,683,702		
58,876,417 ₩

66,138373,840
3,612,561
4,052,539

4.38
4.87
7.27
6.89

Interest expense:₩
Deposits
Borrowings		₩		

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

3.21
4.71
3.66

(*1) Excluding the average balance of reserve deposits with BOK(*2) Excluding the average balance of stocks and beneficiary certificates110

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

<December 31, 2006>
Classification
Average balance		Interest
revenue/expense

Rate of interest (%)

Interest revenue:₩
Due from banks (*1)
Securities (*2)		
Loans 		
₩		1,052,497 ₩
8,680,702		
43,086,310		
52,819,509 ₩

42,570420,308
3,127,303
3,590,181

4.04
4.84
7.26
6.80

Interest expense:₩
Deposits
Borrowings		₩		36,421,333 ₩
13,981,882		
50,403,215 ₩1,003,393
643,549
1,646,942

2.75
4.60
3.27

(*1) Excluding the average balance of reserve deposits with BOK(*2) Excluding the average balance of stocks and beneficiary certificate( 2 ) Gain and loss on trading and valuation of derivatives
Details of gain and loss on trading and valuation of derivatives for the years ended December 31, 2007 and 2006 were as follows (Unit: In million):
Classification

2007

2006

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

1,946,887 ₩
664,347		
2,611,234 ₩2,060,260
152,199
2,212,459

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

1,931,309 ₩
668,614		
2,599,923 ₩

2,073,517
125,719
2,199,236( 3 ) Commission income and expenses
Details of commission income and expenses for the years ended December 31, 2007 and 2006 were as follows (Unit: In million):
Classification

2007

Commission income:₩Commission received
Guarantee fees received		
Other commission received		₩		Commission expenses:₩
Commission paid
Other commission paid		
₩
		

2006
525,532 ₩
20,100		
933		
546,565 ₩421,982
18,541
163
440,686

60,601 ₩
155,117		
215,718 ₩

59,387
134,857
194,244( 4 ) Dividend income
Details of dividend income for the years ended December 31, 2007 and 2006 were as follows (Unit: In million)
Classification

2007₩
Dividend income from trading securities
Dividend income from available-for-sale securities		
₩

2006
2,620 ₩
4,493		7,113 ₩

1,975
1,916
3,891

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

111

( 5 ) Other operating revenue and expenses
Details of other operating revenue and expenses for the years ended December 31, 2007 and 2006 were as follows (Unit: In million):
Classification
Other operating revenue:
Profit on operating trust accountReversal of allowance for other liabilities
Operating income of merchant banking accounts
		
Other operating expenses:
Fund contributions
Provision for allowance for acceptances and guarantees
Provision for unused credit limit
Provision for other liabilities
Operating expenses of merchant banking accounts
Others
		

2007
₩

₩
₩

₩

2006
32,81881,619138,828
253,265₩

126,409
14,47818,006
123,983
282,876₩₩₩

25,703
77,668103,371
112,579
60
74,453
117,198
79,625140
384,055( 6 ) General and administrative expenses
General and administrative expenses for the years ended December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification
Salaries
Expenses for fringe benefits
Retirement allowances
Honorary retirement
Operating expense
Depreciation
Amortization
Taxes
RentalEntertainment
Advertising

2007
₩

₩

20.
Non-operating
income and expenses

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

2006
₩

₩

470,017
166,886
55,683
2,245
170,956
98,101
24,53244,01336,458
7,848
34,554
1,111,293

Non-operating income and expenses for the years ended December 31, 2007 and 2006 consisted of (In millions):
Classification
Non-operating income:Gain on disposal of tangible assets
Rental income
Gain on securities using the equity method
Others		
Non-operating expenses:
Loss on disposal of tangible assets
Loss on securities using the equity method
Others
		

2007
₩

₩
₩

₩

2006
2,302
2,186
54,74679,807139,041

₩

3,289
109
30,70034,098

₩

₩

₩

1,932
2,067
40,33753,59897,934
3,635
17,113
20,748

112

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

21.
Income tax expense( 1 ) Components of income tax expense
The components of income tax expense for the years ended December 31, 2007 and 2006 were summarized as follows (Unit: In millions):
Classification

2007

Income tax currently payable
Change in deferred taxes due to temporary differences
Change in deferred taxes due to loss carry forward
Effect of income tax
Income tax directly applied to shareholders‘ equity
Income tax expense in overseas branch
Income tax expense₩(*) The ending balance of deferred income tax liabilities due to temporary differences

2006

468,063
62,623
530,686
10,564
14,394555,644₩

176,823
114,200
62,623The beginning balance of deferred income tax liabilities due to temporary differences
Change in deferred taxes due to temporary differences

363,237(25,156)
134,410472,491
108,3776,758
587,626

143,967
169,123(25,156)

There is difference of ₩29,767 million between the ending balance of deferred taxes liabilities in 2006 amounting to ₩143,967 million
and the beginning balance in 2007 amounting to ₩114,200 million due to temporary differences. It is recognized as the beginning balance ofdeferred taxes liabilities in 2007 due to the result of tax probe in 2007 which required to recognize deferred tax effects of temporary differences as
the beginning balance of deferred tax liabilities.
( 2 ) The income tax on income before income tax and reconciling items
The income tax on income before income tax and reconciling items for the years ended December 31, 2007 and 2006 were as follows(Units: In millions):
Classification
Income before income tax ( ① )Burden of taxation (Current applicable rate : 27.5%)
Reconciliation items:
Non-taxable income (₩4,560 million and ₩4,992 million in 2007 and 2006, respectively)
Non deducted expense (₩74,444 million and ₩77,551 million in 2007 and 2006, respectively)
Tax credits
Additional payment (refund) of income taxes
Income tax expense in overseas branch
Sum of reconciliation items
Income tax expense ( ② )Effective tax rate ( ②÷① )2007₩

1,516,589
417,049(1,254)
20,472(6,559)111,542
14,394
138,595
555,64436.64%

2006₩

1,593,793
438,280(1,373)
21,326(3,837)
126,472
6,758
149,346
587,626
36.87%

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

113

( 3 ) C hanges in cumulative temporary differences for the years ended December 31, 2007 and 2006, and deferred income
tax assets (liabilities) as of December 31, 2007 and 2006 are as follows (Unit: In millions):(Deductible temporary differences)
Accrued income
Gains or losses related		 to derivatives
Gain from assets contributed
Unearned dividend from SPC (*3)
Gains or losses on valuation
		 of trading securities
Gains or losses on valuation
		 of held-to-maturity securities
Allowance for other liability (*4)
Liability reserve for guarantees
Deferred loan organization fees		 and costs
Compensation expense for		 stock option
Long term accrued expenses
Convertible to equity securities
Other payables
Others			(Accumulated othercomprehensive income) (*5)
Gain on disposal of available		 for-sale securities
Loss on valuation of held-to		 -maturity securities
Unrealized gain on investment
		 in affiliates						Taxable (deductible) temporary differences
Beginning Deduction Addition
Endingbalance (*1)			
balance

Deferred income tax assets (liabilities) (*2)
Beginning Deduction Addition
Endingbalance (*1)			
balance₩ (98,076)₩ (98,076)₩(84,406)		 ₩ (84,406)₩ (26,971)₩ (26,971)₩ (23,212)₩ (23,212)

33,752
49,408-

1,382,811-

1,308,339
13,9509,781(40,720)
63,358
9,781

9,282
13,587-

380,273-359,793
3,836-(11,198)
17,423-

207,159

215,242

75,99268,01856,96959,192

20,89818,67524,781
377,118
40,61725,366377,118
40,617

16,396
303,887
55,17915,811
303,887
55,1796,815
103,707
11,1706,976
103,707
11,1704,509
76,694
15,174

4,348
76,694
15,174

9,745

9,745

33,23933,239

2,680

2,680

9,141

9,141

18,66031,532
288,664
160,502
1,143,862

18,66031,532
12,92164,5802,080,516

17,78017,385
7,131
17,162
63,681
1,855,496

17,78017,385282,874
17,162
159,603
918,951

5,132
8,671
79,383
44,138314,563

5,132
8,671
3,553
17,760572,143

4,890
4,781
1,961
4,720
17,512500,697

4,890
4,781
77,791
4,720
43,890243,117(1,544,565)(1,544,565)(1,504,301)(1,504,301)(424,755)(424,755)(413,683)(413,683)

1,067

1,067

501

501

293

293

138

138

(21,970)(21,970)(1,565,468) (1,565,468)₩(421,606) ₩ 515,048(23,253)(1,527,053)₩ 328,443(23,253)(6,042)(6,042)(1,527,053)(430,504)(430,504)₩(608,102) ₩(115,941) ₩ 141,639(6,395)(419,940)₩ 80,757(6,395)(419,940)₩(176,823)(*1) T he difference of retention amounting to ₩(6,331) million [₩(1,741) million of the effect of deferred income tax] in the final income tax report for the year ended December
31, 2006, and the difference of retention amounting to ₩108,244 million (₩29,767 million of the effect of deferred income tax) in the income tax report for the year ended
December 31, 2007 were adjusted.
(*2) T he tax rate used for calculating deferred income tax assets and liabilities is expected tax rate applied to the period for which temporary differences are reversed based on
settled tax rate at the balance date.
(*3) U nearned dividend from SPC consists of deferred tax assets as taxable items in terms of taxation. As result of the tax probe, however, it was regarded as suspense receivable on
related party; thus, it‘s possible to be taxable based on the provision of rejection of unfair act and calculation when the Bank deducts income tax by it.
(*4) T he allowance for other liabilities recognized due to acquisition of KEB Credit Service Ltd. amounting to ₩25,000 million will be excluded from expense and will not be able
to deduct future‘s taxable income because it‘s reported as permanent difference. The Bank didn‘t recognize it as deferred income tax assets as it fails to meet requirement ofdeferred tax assets recognition.
(*5) Deferred income tax assets and liabilities due to other accumulated comprehensive income are added or deducted directly from other accumulated comprehensive income.

( 4 ) There was no temporary difference due to deferred income tax liabilities as of December 31, 2007.
( 5 ) There was no carry-forward deficit as of December 31, 2007.
( 6 ) Accrued income tax and receivables of prior year’s income tax before offsetting (Unit: In millions):
Classification

2007₩
Refund of prior year‘s income tax before offsetting
Accrued income tax before offsetting		
Offset refund of prior year‘s income tax (overseas)		
₩Offset accrued income tax

2006
207,371 ₩
356,838		
101		
149,568 ₩

139,920
363,751
115
223,946

114

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

22.
Earnings per share( 1 ) Basic net income per share
Basic income per share is calculated for common stock by dividing net income available to common shareholders by the weighted average
number of outstanding common stock. The basic net income per share for the years ended December 31, 2007 and 2006 was as follows (Unit: In Won):
Classification

2007₩
Net income
Weighted average number of common shares		₩
Basic net income per share2006
960,944,014,839 ₩
644,906,826		
1,490 ₩

1,006,167,352,466
644,906,826
1,560

Both the weighted average number of outstanding common stock and the number of outstanding common stock are same because there
is no change on the number of outstanding common stock for the years ended December 31, 2007 and 2006.
( 2 ) Diluted net income per share
Diluted net income per share for the years ended December 31, 2007 and 2006 represent diluted net income divided by the number ofcommon shares and diluted securities. Diluted net income per share for the years ended December 31, 2007 and 2006 was computed as follows(Unit: In Won):
Classification
Net income(+) Expense by stock option
Diluted net income ( ① )Weighted average number of common shares
Number of diluted securities (*)
Weighted average number of common shares outstanding and diluted securities ( ② )Diluted net income per share ( ①÷② )

2007
₩

₩

960,944,014,839
960,944,014,839
644,906,826
644,906,826
1,490

2006
₩

₩

1,006,167,352,466
51,593,823
1,006,218,946,289
644,906,826
980,257
645,887,083
1,558(*) The number of shares in relation with stock option is calculated using treasury stock method.

Since the Bank transferred stock option included in other accumulated comprehensive income to accrued expense as of December 31, 2007
and did not have diluted securities, the basic net income per share and diluted net income per share were the same (see Note 15).

23.
Segment information( 1 ) Operating segments
1) General information of operating segments
The Bank‘s operating segments were as follows:
Classification

Operation

Consumer
Corporate
Foreign
Credit card
OthersConsumer banking
Corporate banking
International financial business
Credit card operation
Treasury operation of investment in securities (including derivatives), management and others2) A s of and for the year ended December 31, 2007 and 2006, financial information on the Bank’s operating
segments was as follows (Unit: In millions):

Classification

Consumer
Corporate
Foreign
Credit card
Others2007			OperatingLoans (*1)
Securities (*2)
income before 		provision		

2006
OperatingLoans (*1)
income before
provision

846,539628,218
62,223
233,680
65,337₩ 1,835,997₩₩₩20,059,106
26,799,966
4,758,937
2,441,329
2,055,068₩56,114,406

1,923,741
657,570
2,652
9,100,726₩11,684,689₩

784,630
579,204
74,357
307,731
277,432₩ 2,023,354₩18,542,654
22,001,286
3,378,907
2,315,623
1,646,794₩47,885,264(*1) Allowance for possible loan losses and deferred loan organization fees and costs are not deducted, and loans of merchant banking accounts are included.
(*2) Trading securities of merchant banking accounts are included.

Securities (*2)

130,136541,996
1,787
9,935,554₩10,582,473₩

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

1153) Adjustment of income before liability reserve
Details of adjustment of income before liability reserve for the years ended December 31, 2007 and 2006 were as follows (Unit: In millions):
2007₩

Classification
Operating income before provision
Liability reserve (*)
Accrued severance benefits
Income tax expense
Net income

1,835,997(262,064)(57,344)(555,644)
960,945₩2006₩

2,023,354(373,878)(55,683)(587,626)
1,006,167₩(*) Liability reserves for acceptances and guarantees, unused credit limit and others (including merchant banking accounts) are included.

( 2 ) Geographical segments
1) General information of geographical segments
The Bank operates domestic bank for local residents and overseas bank for Korean residents abroad and overseas companies.
2) As of and for the year ended December 31, 2007 and 2006, financial information on the Bank’s geographicalsegments was as follows (Unit: In millions):

Classification
Operating revenue
Operation income
Loans (*1)
Securities (*2)

2007			

2006

Domestic₩ 8,399,872

Overseas₩ 362,795

Total₩ 8,762,667

1,328,924
51,355,405
11,321,822

82,722
4,759,001
362,867

1,411,646
56,114,406
11,684,689

Domestic₩ 7,716,619
1,448,411
44,508,588
10,319,932

Overseas₩ 272,003
68,196
3,376,676
262,541

Total₩ 7,988,622
1,516,607
47,885,264
10,582,473(*1) Allowance for possible loan losses and deferred loan organization fees and costs are not deducted, and loans of merchant banking accounts are included.
(*2) Trading securities of merchant banking accounts are included.

24.
Related party
transactions( 1 ) The subsidiaries of the Bank as of December 31, 2007 were as follows:
Company

Relation

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

Parent company
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary

116

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

( 2 ) S ignificant balances made in the normal course of business with related parties as of December 31, 2007 and2006 are summarized as follows (Unit: In millions):<December 31, 2007>
Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAG KEBI
Trust								Assets:Due from banks in foreign		 currencies
Loans in Won
Loans in foreign currencies (*)
Allowance for possible
		 loan losses
Other assets
			Liabilities:
Deposits in Won
Deposits in Foreign		 currencies
Borrowings in foreign		 currencies
Other liabilities			

51,30033,472₩ 1,322-₩ 2,777-₩ 2,818
249,484(1,111)
139₩ 83,800

(340)
1
₩ 983

₩ 2,777624
830
7₩252,926 ₩118,584 ₩ 13,710

₩

145

₩

₩

35

₩

-

₩

-

₩ 57,265

₩

-

-

3,562

-

-

889

3,345
₩ 3,490342₩ 3,939-

59,867₩ 59,867

54,926618₩ 56,433₩₩

60,489₩284
13,419

-

Other
Total
subsidiaries

-

₩

₩

-

(1,451)
3,475
5,076₩333,621 ₩806,401

₩

-

₩

₩

455

330,146--₩ 64,466
51,300687,010

₩

180

1,245

6,151

9,384
13,262
64
108,751377₩ 9,903		₩108,751 ₩ 14,884

137,439
113,497₩257,267(*) including call loan in foreign currencies<December 31, 2006>
Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAGKEBI
Trust								Assets:Due from banks in foreign		 currencies
Loans in Won
Loans in foreign currencies (*)
Allowance for possible
		 loan losses
Other assets
			Liabilities:
Deposits in Won
Deposits in Foreign		 currencies
Borrowings in foreign		 currencies
Other liabilities			

₩

72,40029,276

₩

-

₩

849
-

₩ 10,056

421₩137,851 ₩ 79,496

(385)
259
₩ 101,550 ₩

-

₩

849

151

47

₩

-

₩

₩

127,795₩-₩ 5,60373,472

₩

-

₩

256
25,471

₩

Other
Total
subsidiaries

-

₩

(401)
2,681
3,499
₩171,868 ₩517,463
₩

(16)
138
₩ 25,849

₩

-

-

₩

-

₩

169,187-₩ 16,764
72,400425,201

₩

198

2,794

3,666

-

-

253

46

-

1,930

8,689

2,763
₩ 5,7082₩ 3,715-

23,492₩ 23,492

66,52921,063₩ 87,845

16,009₩ 16,055

86,631₩ 86,631

17,504838₩ 20,272

107,525
127,306₩243,718(*) including call loan in foreign currencies₩

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

117

( 3 ) S ignificant transactions with related parties for the years ended December 31, 2007 and 2006 were as follows(Unit: In millions):<December 31, 2007>
Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAGKEBI
Trust								Revenue:
Interest revenues in Won
Interest revenues in		 foreign currencies
Commission income in Won
Commission income in		 foreign currencies
Other revenue
			Expenses:
Interest expenses in Won
Interest expenses in		 foreign currencies
Commission expense in Won
Commission expense in		 foreign currencies
Written-off of bad debts
Other expenses
			₩ 5,954

₩

-

₩

-

₩

-

₩

-

₩

-

₩

Other
Total
subsidiaries--₩ 5,954

1,912
-

175

7
-

8,580
-

3,682
-

1,377
-

2

16,971-

32,529177

1,023₩ 8,889

₩

175

₩

36
43

₩ 8,580

2,718₩ 6,400₩ 1,377

10,833₩ 10,835

26
535₩ 17,532

2,780
12,391₩ 53,831

101

₩

1

₩

-

₩

-

₩ 2,407₩-₩ 2,509

₩

-

₩

-

₩

-

116
569

65
-

1,495
-

5,045
-

979
-

-

1,244
-

8,944
569

305
1,262
₩ 1,668

100
36
822

65

₩ 1,495101₩ 5,146(16)
60₩ 1,023₩ 2,407581₩ 1,825

201
289
1,939
₩ 14,451₩₩<December 31, 2006>
Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAG KEBI
Trust								Revenue:
Interest revenues in Won
Interest revenues in		 foreign currencies
Commission income
Other revenue
			Expenses:
Interest expenses in		 foreign currencies
Commission expense in Won
Commission expense in		 foreign currencies
Written-off of bad debts
Other expenses
			

₩

₩

-

1,163
₩ 1,163

₩

₩

690
690

₩

-

₩ 3,562

₩

₩

91
91

2,298
145
₩ 6,005

3,806
2,996
₩ 6,8022,100₩ 2,100

8
-

₩

43
-

₩ 3,721
-

₩

8

59
2,481
₩ 2,583284₩ 4,005

₩

₩

-

₩

₩

-

615
16
57
688

₩

142

₩

₩

2
162
306

577

₩

223
(25)
775

₩

₩

Other
Total
subsidiaries--₩ 3,704

9,548₩ 9,5487,877
10₩ 7,887

17,335
3,008
9,855₩ 33,902-₩ 1,096-₩ 6,173577

2,238₩ 2,238₩ 1,096

507
50
4,776
₩ 12,083₩( 4 ) The key management compensations for the year ended December 31, 2007 were as follows (Unit: In millions):
Classification

Compensations₩
Short-term employee benefits
Employee benefits after resignation		
Stock option		
₩
		

7,027
1,904
4,969
13,900The key management includes the directors, the executives and the officers who have authorities and responsibilities for decision-making of thebusiness plan, operations and control over the Bank.

118

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

25.
Operation performanceof trust accounts( 1 ) T he significant financial information relating to trust accounts for the years ended December 31, 2007 and 2006
was as follows (Unit: In millions):
Classification

2007

2006

Revenue:₩
Trust fees and commissions received from trust accounts
Commission from pre-payment		₩		

32,818 ₩37		
32,855 ₩25,70337
25,740

Expense:Interest on borrowings from trust accounts

34,29918,296₩₩( 2 ) A s of December 31, 2007, the Bank is not obligated to pay difference between book value and fair value of trust
account, and the trust accounts for which the Bank provided the guarantees for a fixed rate of return and/or the
repayment of principal consisted of following (Unit: In millions):
Classification
Trust accounts guaranteeing the repayment of principal:
Installment trust
Household trust
Old age pension trust
Corporate trust
Personal pension trust
Retirement trust
New personal pension trust
New old age pension trust
Pension trust		Trust accounts guaranteeing a fixed rate of return and the repayment of principal:
Unspecified monetary trust
Development money trust
		
		

26.
Computationof value addedBook value
₩

₩

583
2,603
7,820
166
254,415
721,001
34,852
12,01997,113
1,130,572
76
7,953
8,029
1,138,601

₩

₩

559
2,534
7,484
160
253,012719,124
34,747
11,316
97,021
1,125,957
73
36
109
1,126,066

Accounts required for computation of value added for the years ended December 31, 2007 and 2006 consist of the following (Unit: In millions):
Accounts
Salaries
Retirement allowances
Expenses for fringe benefit
Rent
Depreciation
Amortization
Taxes and dues

2007
₩

₩

27.
Financialinformation of
the fourth quarter(unaudited)

Fair value509,754
57,344
134,363
47,92396,58029,78237,020912,766

2006₩₩

470,01755,683
166,886
36,458
98,101
24,53244,013895,690

The Bank is required to report interim financial statement but it doesn‘t report the financial statement of last quarter. The Bank‘s summary financial
information for the last quarter ended December 31, 2007 and 2006 were as follows (Unit: In millions except per share amounts):

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

4thQ in 2007₩

2,831,677
250,905
389
389

4thQ in 2006₩

1,918,769
25,9864040

Notes to Non-Consolidated Financial Statements-KOREA EXCHANGE BANK (BANKING ACCOUNT) for the years ended December 31, 2007 and 2006

28.
Dividends

119( 1 ) T he calculation of dividends as of December 31, 2007 and 2006 was as follows (Unit: shares, In millions except
per share amounts):
2007

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

2006
700 (14%) ₩644,906,826		
451,435		

1,000 (20%)
644,906,826
644,907( 2 ) The calculation of dividend payout ratio as of December 31, 2007 and 2006 was as follows (Unit: In millions):
Classification

2007₩
Dividends
Net income		Dividend payout ratio (%)		

2006
451,435 ₩
960,945		
46.98		

644,907
1,006,167
64.10

The calculation of dividend yield ratio as of December 31, 2007 and 2006 was as follows (Unit: In currency units):
Classification

2007₩
Dividends per share
Closing price		
Dividend yield ratio (%)		

29.
Cash flows

2006
700 ₩
14,500		
4.83		

1,000
12,850
7.78( 1 ) C ash in statements of cash flows consists of cash, due from bank (excluding restricted due from bank),
receivables and preferred stock with 3 months or less of maturity and securities under agreement to repurchasewith 3 months or less of maturity. Cash flows from operating activities are presented by the indirect method.
In addition, the Bank has reclassified the components of the cash flows; such as, changes in available-for-sale securities, held-to-maturity securities
and loans that were presented under cash flows from investing activities are currently presented under cash flows from operating activities.
( 2 ) T he cash and due from banks in the statements of cash flows for the years ended December 31, 2007 and 2006
were as follows (Unit : In millions)Classification
Cash and due from banks
Add: securities

2007₩

Less: restricted due from bank₩

5,118,391
458,169
5,576,560(1,886,999)
3,689,561

2006
₩

₩

3,958,237
199,824
4,158,061(1,534,482)
2,623,579( 3 ) S ignificant transactions not involving cash inflows and outflows for the years ended December 31, 2007 and 2006
were as follows (Unit : In millions):
Classification
Decrease of loans from write-offs of loans
Decrease of gain on valuation of available-for-sale securities
Change on unsettled spot transactions
Transferring of accrued expenses in stock option

2007₩

373,091(29,191)
5,439,166
17,7802006₩

332,886(286,505)
883,864-

120

Independent Accountants’ Review Report on Internal
Accounting Control System (“IACS”)-English Translation of a Report Originally Issued in Korean

To the Representative Director of
Korea Exchange Bank:−
We have reviewed the accompanying report on the management‘s assessment of IACS (the “Management‘s Report“) of Korea ExchangeBank (the “Bank“) as of December 31, 2007. The Management‘s Report, and the design and operation of IACS are the responsibility of the Bank‘smanagement. Our responsibility is to review the Management‘s Report and issue a review report based on our procedures. The Bank‘s management
stated in the accompanying Management‘s Report that “based on the assessment of the IACS as of December 31, 2007, the Bank‘s IACS has been
appropriately designed and is operating effectively as of December 31, 2007, in all material respects, in accordance with the IACS framework
established by the Korean Listed Companies Association.“
We conducted our review in accordance with the IACS Review Standards established by the Korean Institute of Certified Public
Accountants. Those standards require that we plan and perform a review, the objective of which is to obtain a lower level of assurance than an
audit, of the Management‘s Report in all material respects. A review includes obtaining an understanding of the Bank‘s IACS and making inquiries
regarding the Management‘s Report and, when deemed necessary, performing a limited inspection of underlying documents and other limited
procedures.
The Bank‘s IACS represents internal accounting policies and a system to manage and operate such policies to provide reasonableassurance regarding the reliability of financial statements prepared, in accordance with accounting principles generally accepted in the Republicof Korea, for the purpose of preparing and disclosing reliable accounting information. Because of its inherent limitations, IACS may not preventor detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness of IACS to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.
Based on our review, nothing has come to our attention that causes us to believe that the Management‘s Report referred to above is not
fairly stated, in all material respects, in accordance with of the IACS Framework established by the Korean Listed Companies Association.
Our review is based on the Bank‘s IACS as of December 31, 2007, and we did not review its IACS subsequent to December 31, 2007. This report has
been prepared pursuant to the Acts on External Audit for Stock Companies in the Republic of Korea and may not be appropriate for other purposesor for other users.

Deloitte Anjin LLC
Seoul, Korea
March 11, 2008

121

Independent Auditors’ Report(Consolidated)-English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of
Korea Exchange Bank:−
We have audited the accompanying consolidated balance sheet of the bank accounts of Korea Exchange Bank (the “Bank”) and its
subsidiaries as of December 31, 2007, and the related consolidated statements of income, changes in shareholders’ equity and cash flows and forthe year ended December 31, 2007, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management.
Our responsibility is to express an opinion on these financial statements based on our audit. We have not audited the financial statements of KEB
Australia Ltd., Korea Exchange Bank of Canada, PT. Bank KEB Indonesia, Korea Exchange Bank (Deutschland) A. G., Banco KEB do Brasil S.A., KEB
NY Financial Corp. and KEB LA Financial Corp. whose statements reflect total assets constituting 2.79 percent of consolidated total assets as ofDecember 31, 2007 and total revenues constituting 1.84 percent of consolidated total revenues for the year then ended. Those statements wereaudited by other auditors whose reports have been furnished to us, and our opinion, in so far as it relates to the amounts included for those entities,
is based solely on the reports of such other auditors. The accompanying consolidated statements as of and for the year ended December 31, 2006,
which are presented for comparative purposes, were audited by other auditors, whose report dated February 27, 2007 expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit and other auditors’ report provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the 2007 financial statements referred to above present fairly, in allmaterial respects, the financial position of the Bank and its subsidiaries as of December 31, 2007, and the results of their operations, the changes
in its shareholders’ equity and their cash flows for the year then ended, in conformity with generally accepted accounting principles in the Republicof Korea.
Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial
statements are not intended to present the financial position, results of operations, cash flows and changes in shareholder’ equity in accordancewith accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices
utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.
Accordingly, this report and the accompanying financial statements are for use by those knowledgeable about Korean accounting procedures andauditing standards and their application in practice.

Deloitte Anjin LLC
Seoul, Korea
March 11, 2008

Notice to Readers−	This report is effective as of March 11, 2008, the auditors’ report date. Certain subsequent events or circumstances may have occurred
between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect theaccompanying financial statements and may result in modifications to the auditors’ report.

122

Consolidated Balance Sheets-KOREA EXCHANGE BANK AND SUBSIDIARIES as of December 31, 2007 and 2006

(In millions of won)

2007
ASSETSCash and due from banks (Notes 4, 17, 24 and 27)
Securities (Notes 5, 16 and 17)
Loans (Notes 6, 7, 8, 16, 17, 18, 23 and 24)
Tangible assets (Note 9)
Other assets (Notes 3, 10, 16, 21 and 24)
			
LIABILITIES AND SHAREHOLDERS‘ EQUITY
LIABILITIES:		 Deposits (Notes 11, 17 and 24)
		 Borrowings (Notes 12, 17 and 24)
		 Other liabilities (Notes 3, 13, 14, 16, 17 and 24)
			SHAREHOLDERS‘ EQUITY (Notes 14, 15 and 16):
		 Common stock		 Capital adjustments
		 Accumulated other comprehensive income
		 Retained earnings
		 Minority interests						
See accompanying notes to consolidated financial statements.

₩

₩

₩

₩

2006
5,650,475
12,128,017
57,344,247
909,889
8,903,538
84,936,166₩

48,671,354
18,149,233
11,439,716
78,260,303₩

3,224,534
1,094,064
2,355,777
1,488
6,675,863
84,936,166₩₩

4,227,646
10,978,756
48,645,510
890,968
6,739,653
71,482,533

41,803,940
14,188,853
9,085,694
65,078,487

3,224,534
18,862
1,122,961
2,036,379
1,310
6,404,046
71,482,533

Consolidated Statements of Income-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

123

(In millions of won, except per share amounts)

2007
OPERATING REVENUES:Interest income (Notes 19 and 24):
		 Interest on due from banks
		 Interest on trading securities
		 Interest on available-for-sale securities
		 Interest on held-to-maturity securities
		 Interest on loans
		 Other interest income
			

₩

2006

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

49,733
94,662
262,890
105,149
3,278,637
26,017
3,817,088

Gain on valuation and disposal of securities (Note 5):
		 Gain on valuation of trading securities
		 Gain on disposal of trading securities
		 Reversal of impairment loss on available-for-sale securities
		 Reversal of impairment loss on held-to-maturity securities
		 Gain on disposal of available-for-sale securities
			

3,980
97,61392,980141,394
335,9676,650
85,152287,859
19,253
293,220
692,134

Gain on valuation and disposal of loans:
		 Gain on disposal of loans (Note 6)

18,43947,487

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

897,163
2,219,293
462,293
4,502
16,157
8,156,117

OPERATING EXPENSES:Interest expenses (Notes 19 and 24):
		 Interest on deposits
		 Interest on borrowings
		 Other interest expenses
			

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

1,113,830
648,107
20,4391,782,376

Loss on valuation and disposal of securities (Note 5):
		 Loss on valuation of trading securities
		 Loss on disposal of trading securities
		 Impairment loss on available-for-sale securities
		 Impairment loss on held-to-maturity securities
		 Loss on disposal of available-for-sale securities			

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

10,89454,746
57,107204
2,619
125,570

Loss on valuation and disposal of loans:		 Provision for possible loan losses (Note 8)
		 Loss on disposal of loans (Notes 6 and 16)
			304,777
7,246
312,023

181,715
7,219
188,934

Foreign exchange trading income
Gain on trading and valuation of derivatives (Notes 16 and 18)
Commission income (Notes 18 and 24)
Dividends income (Note 18)
Other operating revenue (Notes 18 and 24)
Total operating revenues(Continued)

124

Consolidated Statements of Income, continued-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

(In millions of won, except per share amounts)

Foreign exchange trading losses
		 Loss on trading and valuation of derivatives (Notes 12, 16 and 18)
		 Commission expenses (Notes 18 and 24)
		 General and administrative expenses (Notes 18 and 25)
		 Other operating expenses (Note 18)
		 Total operating expenses

2007₩

OPERATING INCOME

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

2006₩

619,182
2,207,480
197,838
1,142,461
316,217
6,580,058

1,486,242

1,576,059

NON-OPERATING INCOME (Notes 5 and 20)

86,82858,612

NON-OPERATING EXPENSE (Notes 5 and 20)

36,45927,074

INCOME BEFORE INCOME TAX

1,536,611

1,607,597

INCOME TAX EXPENSE (Note 21)575,468

601,020NET INCOME (Note 22)₩
Controlling company interests, gain
Minority interests, gain						

960,945 ₩198		
961,143		

1,006,414
163
1,006,577

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

₩

1,490

₩

1,561

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

₩

1,490

₩

1,558

See accompanying notes to consolidated financial statements.

Consolidated Statement of Changes in Shareholders’ Equity-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

125

(In millions of won)

CapitalCapitalCapitalstock
surplusadjustments
				
				

Accumulated Retained
otherearnings
comprehensive
incomeMinority
interests

January 1, 2006
₩ 3,224,534
Net income
Loss on foreign exchange trading
Amortization of discount on capital stock
Stock options
Valuation of available-for-sale securities
Valuation of held-to-maturity securities
Capital adjustment on investment in
subsidiaries (KEBC)
Others
December 31, 2006
₩ 3,224,534₩₩

January 1, 2007
₩ 3,224,534 ₩Dividend
Net income
Loss (gain) on foreign exchange trading
Stock options
Valuation of available-for-sale securities
Valuation of held-to-maturity securities
Capital adjustment on investment in
subsidiaries (KEBC)
Others
December 31, 2007
₩3,224,534		 ₩See accompanying notes to consolidated financial statements.

Total

(316)
-

₩ (309,894)
324,854
3,902-₩ 1,408,452(285,389)(102)₩ 1,358,864
1,006,414(3,795)(324,854)
-

₩

1,146
163
(1)
2
-

₩ 5,683,102
1,006,577(4,112)
3,902(285,387)
(102)

316
-

18,862₩ 1,122,961

(316)
66
₩2,036,379		 ₩

1,310

66
₩ 6,404,046

18,862(18,862)-₩ 1,122,961		₩2,036,379(644,907)
960,945
2,310(29,307)
410
-

1,310
198
(19)
(1)
-

₩ 6,404,046(644,907)
961,143
3,732(18,862)(29,308)
410

1,488

(391)
₩6,675,863

1,441(1,441)
-

₩
₩

₩

-

₩ 1,094,064

1,441
(391)
₩ 2,355,777

₩

₩

126

Consolidated Statements of Cash Flows-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

(In millions of won)

2007
CASH FLOWS FROM OPERATING ACTIVITIES:Net income
Adjustments to reconcile net income to net cash used in operating activities:
		 Loss on valuation of trading securities, net
		 Reversal of impairment loss on available-for-sale securities, net
		 Reversal of impairment loss on held-to-maturity securities, net
		 Gain on valuation of securities using the equity method, net
		 Provision for possible loan losses
		 Loss on disposal of tangible assets, net
		 Depreciation and amortization
		 Loss (gain) on valuation of financial derivatives, net
		 Provision for severance benefits
		 Compensation cost		 Reversal of allowance for other liabilities
		 Provision for other liabilities
		 Stock option compensation costs, net
		 Loss (gain) on foreign exchange trading, net
		 Others, net
			Changes in assets and liabilities resulting from operations:
		 Net increase in trading securities
		 Net decrease in available-for-sale securities
		 Net decrease (increase) in held-to-maturity securities
		 Net increase in loans
		 Net decrease (increase) in accrued income
		 Net decrease (increase) in prepaid expenses
		 Net decrease (increase) in financial derivatives assets
		 Net increase in accrued expenses
		 Net increase in unearned revenues
		 Payment of severance benefits
		 Decrease in transfer to National Pension Fund
		 Increase in deposit of insurance for severance benefits		 Net increase (decrease) in financial derivatives liabilities
		 Net decrease in allowance for other liabilities
		 Net decrease in accrued expenses (exercise of stock option)
		 Net decrease (increase) in deferred income tax assets
		 Net increase in deferred income tax liabilities			
Net cash used in operating activities(Continued)₩

2006
961,143₩

1,006,577

8,305(70,502)(585)
304,777
1,963
137,331
4,407
58,137
23,766(79,004)
5,417
20,743
6,818
421,573

4,244(230,752)(19,049)(593)
181,715
7,479
123,130(26,407)
56,32922,634
119,625
4,965(38,337)
85,247290,230(1,090,574)
545,580(266,823)(8,996,483)
41,370(75)(154,031)
2,260
26,137(16,170)33(12,060)
33,012(17,741)(6,499)(2,582)45,220(9,869,426)(164,848)
1,911,289
451,208(5,926,999)(13,456)
56,004
17,17335,761
13,217(9,517)
62(41,953)(6,148)108,039
107,866(3,462,302)(8,486,710)(2,165,495)

Consolidated Statements of Cash Flows, continued-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

127

(In millions of won)

2007
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of securities using the equity method
Disposal of tangible assets
Disposal of real estate for non-business property
Acquisition of securities using the equity method
Purchase of tangible assets
Net increase in guarantee deposits paid
Purchase of intangible assets
Net decrease (increase) in accounts receivable
Net decrease (increase) in other assets
Net increase in due from banks
Net cash used in investing activities

₩

2006
7,028
(4,000)(134,659)(127,952)(29,064)(1,548,684)(5,813,785)(348,820)(7,999,936)₩

28,9658,344
73(117,277)(11,693)(22,553)
69,300524,641(1,073,762)(593,962)

CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
Net increase in borrowings
Net increase in debentures
Net increase in other liabilities
Decrease of stock option
Dividend (Note 26)
Net cash provided by financing activities

6,879,826
1,552,539
2,361,784
7,669,758(644,907)
17,819,000

1,077,941
1,022,442
449,741
269,592(122)
2,819,594

NET INCREASE IN CASH AND DUE FROM BANKS

1,332,354

60,137

CASH AND DUE FROM BANKS, BEGINNING OF YEAR

2,884,434

2,824,297

CASH AND DUE FROM BANKS, END OF YEAR (Note 27)
See accompanying notes to consolidated financial statements.

₩

4,216,788₩

2,884,434

128

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

1.
GeneralKorea Exchange Bank (the ”Bank”) was established on January 30, 1967 as a government-invested bank to engage in foreign exchange and thetrade finance business under the Korea Exchange Bank Act. On December 30, 1989, the Korea Exchange Bank Act was repealed and the Bank
was converted into a corporation under the Commercial Code of the Republic of Korea. On April 4, 1994, the Bank was listed on the Korean Stock
Exchange. The merger between the Bank and Korea Exchange Bank Credit Service Co., Ltd. (”KEBCS”) was finalized on February 28, 2004.
The Bank primarily provides commercial banking services, trust banking services, foreign exchange, merchant banking business throughthe merger with Korea International Merchant Bank, a domestic subsidiary of the Bank, and other related operations as permitted under the BankAct and other relevant laws and regulations in the Republic of Korea. The Bank operates through 338 branches (including 26 depositary offices) and 3
subsidiaries in Korea and 21 branches (including 3 depositary offices and 2 offices) and 8 subsidiaries in overseas as of December 31, 2007.
The Bank‘s shareholders as of December 31, 2007 are as follows:
Number of shares owned (*1) Ownership (%)

Shareholders
LSF-KEB Holdings, SCA (*2)
Export-Import Bank of Korea
Bank of Korea
Euro-Pacific Growth Fund
Others329,042,672
40,314,387
39,500,000
23,917,000
212,132,767
644,906,826

51.02
6.25
6.13
3.71
32.89
100.00(*1) As of December 31, 2007 - the date of closing a shareholders‘ list(*2) S ince LSF-KEB Holdings, SCA disposed 87,707,328 shares at ₩13,600 per share through after-hour trade on June 26, 2007, the number of shares owned has been changed from416,750,000 shares (64.62% of ownership) to 329,042,672 shares (51.02% of ownership).

The Bank entered into a Memorandum of Understanding regarding the Share Subscription Agreement with Lone Star Fund IV on August 27, 2003.
On October 30, 2003, the Bank issued 268,750,000 shares of common stock to LSF-KEB Holdings, SCA at ₩4,000 per share (at less than its parvalue) in accordance with a resolution during an extraordinary shareholders‘ meeting on September 16, 2003. The balance below the par value wasrecognized as a discount on stock issued.
As of December 31, 2007, the total number of authorized shares of the Bank is 1,000 million (par value ₩5,000) while the paid-in capitalamounts to ₩3,224,534 million (with 644,906,826 shares of common stock outstanding with par value of ₩5,000)

2.
Scope of consolidationand equity method
accounting

The consolidated financial statements are based on the financial statements of the KEB (including merchant banking accounts), its trust accounts
and subsidiaries. Subsidiaries included in the consolidation and accounted for using the equity method as of December 31, 2007 were as follows:
Subsidiaries
Closing date		

No. of shares(unit: thousand)

Percentage ofownership (%)

Business

Consolidated (Domestic):
KEB Capital Inc. (“KEBC“)
March 31
14,97699.30 Leasing and Installment Financing
KEB Futures Co., Ltd. (“KEBF“)
March 313,000
100.00 Brokerage services for futures transactions
Consolidated (Oversea):
Korea Exchange Bank of Canada (“KEBOC“)
December 31334
100.00 Banking service
KEB Australia Ltd. (“KEBA“)
December 31
55,000100.00 Commercial banking business and foreign						 exchange operation
Korea Exchange Bank (Deutschland) A.G. (“KEBDAG“)
December 31
20
100.00 Banking service
PT. Bank KEB Indonesia (“KEBI“)
December 31
199.00 Banking service
Banco KEB do Brasil S. A. (“KEBB“)
December 31
33,726100.00 Banking service.
KEB NY Financial Corp. (“KEBNYFINCO“)
December 31
0.1
100.00 Commercial banking business and foreign							 exchange operation
KEB LA Financial Corp. (“KEBLAFINCO“)
December 31
0.1
100.00 Commercial banking business and foreign							 exchange operation
Accounted for using the equity method:
Lippo Incheon Development Co., Ltd.
December 31388
2.70 Developing Woonbook Leisure Complex
KEB USA Int‘l Corp. (*1)
December 31
0.1
100.00 Remitting US dollars of the bank(*1) T he investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

129

Subsidiaries included in the consolidation and accounted for using the equity method as of December 31, 2006 were as follows:
Subsidiaries
Closing dateNo. of shares			Percentage ofownership (%)

Business

Consolidated (Domestic):
KEB Capital Inc. (“KEBC“)
March 31
14,97699.30 Leasing and Installment Financing
KEB Futures Co., Ltd. (“KEBF“)
March 313,000
100.00 Brokerage services for futures							 transactions
Consolidated (Oversea):
Korea Exchange Bank of Canada (“KEBOC“)
December 31334
100.00 Banking service.
KEB Australia Ltd. (“KEBA“)
December 31
55,000100.00 Commercial banking business and foreign							 exchange operation
Korea Exchange Bank (Deutschland) A.G. ( “KEBDAG“)
December 31
20
100.00 Banking service
PT. Bank KEB Indonesia (“KEBI“)
December 31
199.00 Banking service
Banco KEB do Brasil S. A. (“KEBB“)
December 31
33,726100.00 Banking service
KEB NY Financial Corp. (“KEBNYFINCO“)
December 31
0.1
100.00 Commercial banking business and foreign							 exchange operation
KEB LA Financial Corp. (“KEBLAFINCO“)
December 31
0.1
100.00 Commercial banking business and foreign							 exchange operation
Accounted for using the equity method:
KEB USA Int‘l Corp. (*1)
December 31
0.1
100.00 Remitting US dollars of the bank(*1) The investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.

SUBSIDIARIES
TRUST ACCOUNTS
Certain trust accounts whose principal or fixed rate of return is guaranteed by the Bank are included in the consolidated financial
statements in accordance with the accounting guidelines of the Financial Supervisory Commission in the Republic of Korea. The trust accounts as ofDecember 31, 2007 and 2006 were as follows (Unit: In millions):
2007		
2006
Total assets
OperatingTotal assets		revenue		₩Consolidated
Not consolidated		
₩1,126,066 ₩
15,348,911		
16,474,977 ₩

66,081 ₩
767,476		
833,557 ₩Operatingrevenue

1,028,696 ₩
10,856,183		
11,884,879 ₩

57,714
460,813518,527

KEB Capital Co., Ltd. (“KEBC”)
KEBC was incorporated on September 11, 1989 to engage in leasing industrial equipment and registered in Korea Securities Dealers
Automated Quotation (“KOSDAQ“) on January 15, 1995. As KEBC continued to experience negative capital until March 31, 2001, its registration
with KOSDAQ was canceled by KOSDAQ Committee on July 11, 2001 and withdrawn from KOSDAQ market on August 24, 2001. As of December
31, 2007, 99.3% of the total shares of KEBC are owned by the Bank.
KEBC implemented a 14-to-1 capital reduction on the shares owned by the Bank and reduced its capital by means of a 7-to-1 capital
reduction, or execution of stock selling option at ₩800 per share on the shares owned by other individual shareholders and the employee stock
ownership association as of November 9, 2001, for the purpose of debt restructuring due to the work-out process, based on the resolution at theshareholders‘ meeting on October 13, 2001. This capital reduction resulted in a gain on capital reduction of ₩34,725 million which was used torecover negative capital.
In addition, on November 9, 2001, KEBC issued 14,805 thousand shares of common stock for cash at par value to the Bank, in accordancewith the resolution of the board of directors on October 26, 2001. The proceeds of the new stock issuance were used for the repayment ofborrowings amounting to ₩74,024 million from the Bank. As of December 31, 2007, the total paid-in-capital amounts to ₩75,400 million.
KEB Futures Co., Ltd. (“KEBF”)
KEBF was incorporated on September 24, 1997 as an integrated futures brokerage of the Bank. In 1998, KEBF was granted a futures
trading license for overseas markets and domestic operations from the Ministry of Economy and Finance. The Bank retains 100% equity ownershipas of December 31, 2007, and the total paid-in-capital amounts to ₩15,000 million.

130

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

KEB Australia Ltd. (“KEBA”)
KEBA was established in Sydney, Australia on July 6, 1986 to provide financial services to Korean companies and residents in Sydney andthe surrounding area. The Bank retains 100% equity ownership as of December 31, 2007, and the total paid-in-capital of KEBA amounts to AUD
55,000 thousand.
Korea Exchange Bank of Canada (“KEBOC”)
KEBOC was established in Toronto, Canada on October 6, 1981 to provide financial services to Korean companies and residents in Toronto
and the surrounding area. The Bank retains 100% equity ownership as of December 31, 2007 and the total paid-in-capital of KEBOC amounts to
CAD 33,400 thousand.
PT. Bank KEB Indonesia (“KEBI”)
KEBI was established in Jakarta, Indonesia on November 5, 1990 to provide financial services to Korean companies and residents in
Jakarta and the surrounding area. KEBI changed the firm name from PT. Korea Exchange Bank Danamon to PT. Bank KEB Indonesia in 2006. The
Bank retains 99% equity ownership as of December 31, 2007, and the total paid-in-capital of KEBI amounts to IDR 150,000 million.
Korea Exchange Bank of Deutschland AG (“KEBDAG”)
KEBDAG was established in Frankfurt, Germany on December 29, 1992 to provide financial services to Korean companies and residents
in Frankfurt and the surrounding area. The Bank retains 100% equity ownership as of December 31, 2007 and the total paid-in-capital of KEBDAG
amounts to EUR 15,339 thousand.
KEB NY Financial Corp. (“KEBNYFINCO”)
KEBNYF was established in New York, USA on April 8. 2004 to provide financial services to Korean companies and residents in New Yorkand the surrounding area. The Bank retains 100% equity ownership as of December 31, 2007, and the total paid-in-capital of KEBNYFINCO amounts
to USD 1.
KEB LA Financial Corp. (“KEBLAFINCO”)
KEBLAF was established in Los Angeles, USA on April 8, 2004 to provide financial services to Korean companies and residents in Los
Angeles and the surrounding area. The Bank retains 100% equity ownership as of December 31, 2007, and the total-in-capital of KEBLAFINCO
amounts to USD 1.
A summary of significant financial data of the Bank‘s subsidiaries, included in the balance sheets as of December 31, 2007 and 2006, andincome statements for the years ended December 31, 2007 and 2006 are as follows (Unit: In millions):
2007
Subsidiaries
Total assets
Capital stock			
Trust accounts
KEB Capital Inc.
KEB Futures Co., Ltd.
Korea Exchange Bank of Canada
KEB Australia Ltd.
Korea Exchange Bank (Deutschland) A.G.
PT. Bank KEB Indonesia
Banco KEB do Brasil S. A.
KEB NY Financial Corp.
KEB LA Financial Corp.

₩

1,126,066
810,237
105,867
821,187
385,014425,832
256,993
47,988
238,740
196,425₩

75,40015,00031,96145,257
21,187
14,985
17,898-

2006
Subsidiaries
Total assets
Capital stock			
Trust accounts
KEB Capital Inc.
KEB Futures Co., Ltd.
Korea Exchange Bank of Canada
KEB Australia Ltd.
Korea Exchange Bank (Deutschland) A.G.
PT. Bank KEB Indonesia
Banco KEB do Brasil S. A.
KEB NY Financial Corp.
KEB LA Financial Corp.

₩

1,028,696
450,886
92,649565,342
187,245
381,427
201,405
23,253
115,179
119,134₩

75,40015,00026,75940,396
18,74815,435
14,660-Shareholders’equity₩18,381
98,99327,80088,14231,50551,49080,562
16,26924,78025,257

Shareholders’equity₩18,77286,47822,80662,74624,005
43,161
71,49912,421
23,555
22,954

Operatingrevenue₩

66,08158,79920,552
51,794
22,25926,711
24,742
6,276
17,376
16,649Operatingrevenue₩

57,71435,30013,04936,115
13,44319,89927,534
3,742
11,5938,703

Net income₩

12,676
4,994
13,198
4,611
3,307
11,148
1,103
1,008
2,091

Net income
₩

6,230
2,167
9,137
2,724
3,316
11,997
920
1,028
1,401

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

3.
Summary of significant
accounting policies

131

Basis of Consolidated Financial Statement Presentation
The Bank and its subsidiaries maintain their official accounting records in Korean Won (only domestic subsidiaries) and prepare
statutory consolidated financial statements in the Korean language (Hangul) in conformity with the accounting principles and banking accounting
standards generally accepted in the Republic of Korea. Certain accounting principles and banking accounting standards applied by the Bank and its
subsidiaries that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally
accepted accounting principles and banking accounting practices in other countries. Accordingly, these consolidated financial statements areintended for use by those who are informed about Korean accounting principles and practices. The accompanying consolidated financial statements
have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language consolidated
financial statements. Certain information included in the Korean language consolidated financial statements, but not required for a fair presentationof the Bank and its subsidiaries‘ financial position, results of operations, changes in shareholders‘ equity or cash flows, is not presented in theaccompanying consolidated financial statements.
The significant accounting policies followed by the Bank and its subsidiaries in preparing the accompanying consolidated financial
statements are summarized below.
Basis of Consolidated Financial Statements Preparation
1) Offset of Investments and Equity Accounts of Subsidiaries
Investments in subsidiaries and equity accounts of subsidiaries were eliminated at the date when the Bank obtained control over thesubsidiaries. The differences between the amounts of investment and the equity accounts are recorded as goodwill or negative goodwill, whichis amortized or reversed using the straight-line method over five years. If additional shares are purchased after acquiring control, the difference
between the additional acquisition cost and the portion of net assets acquired is credited or charged to capital surplus. If the acquisition date does
not agree with the year-end balance sheet date of the subsidiary, the closest closing date to the acquisition date is regarded as acquisition date.
2) Inter-company Transactions and Balances
All inter-company transactions are eliminated in the consolidated financial statements.
3) Disposition of Subsidiaries’ Shares
If a subsidiary of the Bank is still subject to the scope of consolidation even after certain portions of shares are disposed to minority
interests, gain/loss on disposal of investment securities is recognized as capital surplus. If a subsidiary of the Bank is subject to the equity method
due to the disposition of securities, the investment account is recorded at net assets of subsidiaries at the time of disposition, net of unamortized
goodwill or negative goodwill in the consolidated financial statements.
4) Equity Method
For investments in affiliates accounted for using the equity method, the difference between acquisition cost and net assets acquired at
the acquisition date is added to or deducted from the carrying amount of investments and is amortized in equal annual amounts for five years fromthe year incurred. Changes in the Bank‘s portion of net assets of affiliates accounted for using the equity method are added to or deducted from thecarrying amount of investments.
5) Balance Sheet Date for the Consolidated Financial Statements
Balance sheet date for the consolidated financial statements is the closing date of the Bank, the parent company. The accounts of consolidated
subsidiaries whose fiscal years are different from that of the Bank have been adjusted to reflect balances as of the closing date of the Bank.
6) Special Reserve in Trust Accounts
A special reserve provided for possible future losses on certain trust accounts under the arrangement of guaranteed fixed rate of return
and/or repayment of the principal each year is included in retained earnings in the consolidated financial statements.
7) Minority Interests
Non-controlling, outside ownership interests in a subsidiary‘s shareholders‘ equity are presented as minority interests. Gain (loss)
attributable to minority interests is disclosed on the face of the income statement.
Accounting Policies of the Consolidated Entities
The relevant laws and regulations applied to the consolidated entities are as follows:
EntityRelevant laws and regulations

The Bank
Trust accounts
KEB Capital Inc.
KEB Futures Co., Ltd.
Korea Exchange Bank of Canada
KEB Australia Ltd.
Korea Exchange Bank (Deutschland) A.G.
PT. Bank KEB Indonesia
Banco KEB do Brasil S. A.
KEB NY Financial Corp.
KEB LA Financial Corp.

Accounting standards of the banking industry & the General Banking act
Trust Business Act
Regulation on Supervision of Specialized Credit Financial Business Law
Supervisory guidelines on futures trading
Financial accounting standards in Canada
Financial accounting standards in Australia
Financial accounting standards in Deutschland
Financial accounting standards in Indonesia
Financial accounting standards in Brazil
Financial accounting standards in U.S.A.
Financial accounting standards in U.S.A.

132

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

Interest Income Recognition
The Bank and its subsidiaries apply the accrual basis in recognizing interest income related to due from banks, loans and securities.
Whereas, interest on loans, whose principal or interest is past due at the balance sheet date or defaulted loans, not secured by guarantees
from financial institutions or collateral deposits, is recognized on a cash basis. As of December 31, 2007 and 2006, accrued interest income notrecognized due to such criteria amounted to ₩81,296 million and ₩70,334 million, respectively.
Classification of Securities
At acquisition, the Bank and its subsidiaries classify securities into one of the following categories: trading, available-for-sale, held-tomaturity and securities accounted for using the equity method, depending on marketability, purpose of acquisition and ability to hold. Debt andequity securities that are bought and held for the purpose of selling them in the near term and actively traded are classified as trading securities.
Debt securities with fixed and determinable payments and fixed maturity that the Bank and its subsidiaries have the positive intent and ability
to hold to maturity are classified as held-to-maturity securities. Securities that should be accounted for under the equity method are classified
as securities accounted for using the equity method. Debt and equity securities not classified as the above are categorized as available-for-salesecurities.
If the objective and ability to hold securities of the Bank and its subsidiaries change, available-for-sale securities can be reclassified to heldto-maturity securities and held-to-maturity securities can be reclassified to available-for-sale securities. Whereas, if the Bank and its subsidiaries sellheld-to-maturity securities or exercise early redemption right of securities to issuer in the current year or the proceeding two years, and if it reclassifies
held-to-maturity securities to available-for-sale securities, all debt securities that are owned or purchased cannot be classified as held-to-maturity
securities. On the other hand, trading securities cannot be recategorized to available-for-sale securities or held-to-maturity securities and vice versa.
Nevertheless, trading securities are reclassified to available-for-sale securities only when the trading securities lose their marketability.
Valuation of Securities
1) Valuation of Trading Securities
Trading equity and debt securities are initially recognized at acquisition cost plus incidental expenses determined by the individual
moving average method (the specified identification method for debt securities). When the face value of trading debt securities differs fromtheir acquisition cost, the effective interest method is applied to amortize the difference over the remaining term of the securities. After initialrecognition, if the fair value of trading securities differs from the book value, trading securities are stated at fair value and the resulting valuation
gain or loss is included in current operations.
2) Valuation of Available-for-sale Securities
Available-for-sale securities are initially recognized at acquisition cost plus incidental expenses, determined by the individual moving
average method (the specified identification method for debt securities). The effective interest method is applied to amortize the difference
between the face value and the acquisition cost over the remaining term of the debt security. After initial recognition, available-for-sale securities
are stated at fair value, with the net unrealized gain or loss presented as gain or loss on valuation of available-for-sale securities in accumulated
other comprehensive income (loss), which is charged to current operations in a lump sum at the time of disposal or impairment recognition. Nonmarketable equity securities are stated at acquisition cost on the financial statements if the fair value of the securities is not reliably determinable.
If the fair value of equity securities (net asset fair value in case of non-marketable equity securities stated at acquisition cost) is below
the acquisition cost and the pervasive evidence of impairment exists, the carrying value is adjusted to fair value and the resulting valuation loss
is charged to current operations. If the collectible value of debt securities is below the amortized cost and the pervasive evidence of impairment
exists, the carrying value is adjusted to collectible value and the resulting valuation loss is charged to current operations. With respect to impaired
securities, any unrealized valuation gain or loss of securities previously included in accumulated other comprehensive income (loss) is reversed.
3) Valuation of Held-to-maturity Securities
Held-to-maturity securities are stated at acquisition cost plus incidental expenses, determined by the specific identification method.
When the face value of held-to-maturity securities differs from its acquisition cost, the effective interest method is applied to amortize thedifference over the remaining term of the securities. If collectible value is below the amortized cost and the pervasive evidence of impairment
exists, the carrying value is adjusted to collectible value and the resulting valuation loss is charged to current operations.
4) Valuation of Securities using the Equity Method
Equity securities held for investment in companies in which the Bank and its subsidiaries are able to exercise significant influence overthe investees (in accordance with the Banking Act, if the Bank holds more than 15 percent of the total issued shares, the Bank is considered being
able to exercise significant influence) are accounted for using the equity method. The Bank‘s share in net income or net loss of investees is includedin current operations. Changes in the retained earnings of investee are reflected in the retained earnings. Changes in the capital surplus, capitaladjustments or accumulated other comprehensive income (loss) of investee are reflected as gain or loss on valuation of securities using the equity
method in accumulated other comprehensive income (loss).
When the book value of equity securities using the equity method is less than zero due to the cumulative losses of the investees, the Bankand its subsidiaries discontinue applying the equity method and does not provide for additional losses. If the investee subsequently reports net
income, the Bank and its subsidiaries resume applying the equity method only after their share of that net income equals the share of net losses notrecognized during the period that the equity method was suspended.
In addition, any gain or loss from the disposal of equity securities of certain consolidated subsidiaries is accounted for as accumulated
other comprehensive income (loss) resulting from applying the equity method in the balance sheets if the subsidiaries are still consolidated evenafter the Bank disposes of a portion of equity securities.

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

133

5) Reversal of Impairment Loss on Available-for-sale Securities and Held-to-maturity Securities
If the reasons for impairment loss on available-for-sale securities no longer exist, the recovery is recorded in current operations under
non-operating income up to amount of the previously recognized impairment loss as reversal of impairment loss on available-for-sale securities andany excess is included in accumulated other comprehensive income as gain on valuation of available-for-sale securities. However, if the increases
in the fair value of the impaired securities are not regarded as the recovery of the impairment, the increases in the fair value are recorded asgain on valuation of available-for-sale securities in accumulated other comprehensive income. For non-marketable equity securities, which wereimpaired based on the net asset fair value, the recovery is recorded up to their acquisition cost.
For held-to-maturity securities, the recovery is recorded in current operations under non-operating income within the amount of amortizedcost that would have been recorded according to the original schedule if the impairment losses had not been recognized as reversal of impairment
loss on held-to-maturity securities.
6) Reclassification of Securities
When held-to-maturity securities are reclassified to available-for-sale securities, those securities are accounted for at fair value on thereclassification date and the difference between the fair value and book value is reported in accumulated other comprehensive income (loss) as gainor loss on valuation of available-for-sale securities. When available-for-sale securities are reclassified to held-to-maturity securities, gain or loss
on valuation of available-for-sale securities, which had been recorded until the reclassification date, continue to be included in accumulated othercomprehensive income (loss) and amortized using the effective interest rate method and the amortized amount is charged to interest income until
maturity. The difference between the fair value at the reclassification date and face value of the reclassified securities to held-to-maturity securities
is amortized using effective interest rate method and the amortized amount is charged to interest income. In addition, when certain trading securities
lose their marketability, such securities are reclassified as available-for-sale securities at fair market value as of reclassification date.
Transfer of Securities
When the realization, expiration or sale of the right to obtain the economic benefits arises and the control of securities is lost from thesale of the securities, the unrealized valuation gain or loss of securities included in accumulated other comprehensive income (loss) is added toor deducted from the gain or loss on disposal of securities. The gain or loss is the difference between the net proceeds receivable or received
and its carrying value. When securities are transferred without losing control of the securities, the transaction is recorded as secured borrowing
transaction.
Allowance for Possible Losses on Credits
According to the Korea Financial Accounting Standard Article 57 (Valuation of Receivables), allowance for bad debts shall be provided for
estimated uncollectible accounts on a reasonable and objective basis. Presently, the historical loss rate (based on mitigation or roll-rate analysis)
is one of the permitted reasonable and objective methods to estimate allowance for financial institutions. However, the Bank and its subsidiaries
provide loan loss provision pursuant to the Supervisory Regulation of the Banking Business, which requires providing more than minimum rate ofloss provision for each asset classification category.
The Bank additionally provided ₩59,363 million of loss provision for normal, as the minimum rate for normal has changed from 0.7
percent to 0.85~0.9 percent in 2007.
The Bank and its subsidiaries apply the Forward Looking Criteria (“FLC”) for their loan classification for large corporate based on thecredit rating to determine allowance for loan losses. Under this method, the borrowers‘ future debt repayment capacity as well as their overall
financial health and management soundness are considered in developing the credit rating and the reserve for possible loan losses related tolarge corporate customers. However, loan classification for the smaller corporate, household loans and credit card receivables is classified basedon the delinquency period, value of collateral and bankruptcy status only. Using such loan classification, the Bank and its subsidiaries classify all
credits into five categories as normal, precautionary, substandard, doubtful, or estimated loss and provides the minimum rate of loss provision
for each category balance using the prescribed minimum percentages of 0.85 percent (construction, real estate, wholesale & retail, hotel andrestaurant industries are 0.9%) or more, 7 percent or more, 20 percent or more, 50 percent or more and 100 percent, respectively. Households‘ loans
categorized as normal, precautionary, substandard and doubtful are 1 percent or more, 10 percent or more, 20 percent or more and 55 percent or
more, respectively. Card receivables as those categories are 1.5 percent or more, 15 percent or more, 20 percent or more and 60 percent
or more, respectively.
The Bank and its subsidiaries provide allowance for possible losses on confirmed acceptances and guarantees, unconfirmed acceptancesand guarantees, and endorsed notes based on the credit classification, minimum rate of loss provision prescribed by the Financial Supervisory
Service and the credit conversion factor based on the new standard of Bank for International Settlements Accord.
In addition, the Bank and its subsidiaries provide other allowances for the unused limit of credit card (including unused limit of credit cardthat have not been used at least once in recent one year) and unused loan commitments for corporate and retail loan customers considering thecredit conversion factor based on the new standard of Bank for International Settlements Accord and minimum rate of loss provision prescribed by
the Financial Supervisory Service.
Restructuring of Loans
The equity interest in the debtors, net of real estates and/or other assets received as full or partial satisfaction of the Bank‘s andsubsidiaries‘ loans, collected through reorganization proceedings, court mediation or debt restructuring agreements of parties concerned, isrecorded at fair value at the time of the restructuring. In cases where the fair value of the assets received is less than the book value of the loan
(book value before allowances), the Bank and its subsidiaries offset first the book value against allowances for loan losses and then recognizes
provisions for loan losses. Impairment losses for loans that were restructured in a troubled debt restructuring involving a modification of terms arecomputed by the difference between the present value of future cash flows under debt restructuring agreements discounted at effective interest
rates at the time when loans are originated and the book value before allowances for loan losses. If the amount of allowances already established
is less than the impairment losses, the Bank and its subsidiaries establish additional allowances for the difference. Otherwise, the Bank and its

134

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

subsidiaries reverse the allowances for loan losses.
Deferred Loan Origination Fees and Costs
The Bank and its subsidiaries defer loan origination fees associated with originating loans and loan origination costs that have future
economic benefits. Loan balances are reported net of these loan origination fees and costs. The deferred loan origination fees and costs areamortized using the effective interest method with the amortization recognized as adjustments to other interest income.
Valuation of Receivables and Payables at Present Value
Receivables and payables incurred through long-term installment transactions, long-term borrowing and lending transactions, and othersimilar transactions are stated at the present value of expected future cash flows, and the gain or loss on valuation of related receivables andpayables is reflected in current operations, unless the difference between nominal value and present value is immaterial. Present value discount or
premium is amortized using the effective interest rate method and credited or charged to interest income or interest expense.
Tangible Assets and Related Depreciation
Tangible assets are recorded at cost or production cost including incidental expenses. Routine maintenance and repairs are expensed as
incurred. Expenditures that result in the enhancement of the value or the extension of the useful lives of the facilities involved are capitalized asadditions to tangible assets.
Depreciation is computed by using the declining-balance method (straight-line method for building and leasehold improvements) based on
the estimated useful lives of the assets as follows:
Tangible assets

Estimated useful life

Depreciation method

Construction
Leasehold improvements
Equipment

40 years
3~10 years
3~20 years

Straight-line
Straight-line
Declining balance

Intangible Assets and Related Amortization
Intangible assets included in other assets are recorded at the production costs or purchase costs plus incidental expenses less discount
if any. Expenditures incurred in conjunction with the development of new products or technology and others, in which the elements of costs can be
individually identified and future benefits expected, are capitalized as development costs. Intangible assets are amortized using the straight-line
method over 5 years and presented after deducting amortized amount.
Valuation Allowance for Non-Business Use Property
Non-business use property included in fixed assets is recorded when the Bank and its subsidiaries acquire collateral by foreclosure on themortgage for loans. Such assets are not depreciated. After foreclosure, the asset is carried at the lower of its carrying amount or fair value determinedby its estimated public auction price. As of December 31, 2007, the Bank and its subsidiaries do not have non-business use property.
Recognition of Impairment of Assets
When the book value of assets (other than securities and assets valued at present value) exceeds the collective value of the assets due toobsolescence, physical damage or a sharp decrease in market value and the difference is material, the book value are adjusted to collective value
in the balance sheet and the resulting impairment loss is charged to current operations. If the collective value of the assets increases in subsequent
years, the increase in value is credited to operations as gain until the collective value equals the book value of assets that would have been
determined had no impairment loss been recognized. The Bank and its subsidiaries assess the collective value based on expected selling price orappraisal value.
Amortization of Discounts (Premiums) on Debentures
Discounts or premiums on debentures issued are amortized over the period from issuance to maturity using the effective interest rate
method. Amortization of discounts or premiums is recognized as interest expense on the debentures.
Securities under Resale or Repurchase Agreements
Securities purchased under resale agreements are recorded as loans, and securities sold under repurchase agreements are recorded as
borrowings when the Bank and its subsidiaries purchase or sell securities under such agreements.
Other Liability Reserve
A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of
one or more uncertain future events not wholly within the control of the Bank and its subsidiaries are recognized as contingent liabilities when it
is probable that an outflow of resources embodying economic benefits required and the amount of the obligation can be measured with sufficientreliability. Where the effect of the time value of money is material, the amount of the liabilities is the present value of the expenditures expected tobe required to settle the obligation.

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

135

Accrued Severance Benefits
The accrued severance benefits that would be payable to assuming all eligible employees and directors were to resign are included inother liabilities. The Bank and its domestic subsidiaries has purchased severance benefits insurance, which meets the funding requirement for tax
purposes, and made deposits with Samsung Life Insurance Co., Ltd. and others. The deposit for severance benefit is presented as a deduction fromthe accrued severance benefits.
The estimated accrued severance benefits, which would be payable assuming all eligible employees and executives were to terminate
their employment, amounted to ₩265,369 million and ₩223,694 million as of December 31, 2007 and 2006, respectively. In addition, theseverance benefits paid actually for the years ended December 31, 2007 and 2006 are ₩16,170 million and ₩9,517 million, respectively.
Accounting for Derivative Instruments
The Bank and its subsidiaries account for derivative instruments pursuant to the Interpretations on Financial Accounting Standards 53-70
on accounting for derivative instruments. Derivative instruments are classified as used for trading activities or for hedging activities according totheir transaction purpose. All derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an asset or liability. If
the derivative instrument is not part of a transaction qualifying as a hedge, the adjustment to fair value is reflected in current operations.
The accounting for derivative transactions that are part of a qualified hedge based both on the purpose of the transaction and on
meeting the specified criteria for hedge accounting differs depending on whether the transaction is a fair value hedge or a cash flow hedge. Fairvalue hedge accounting is applied to a derivative instrument designated as hedging the exposure to changes in the fair value of an asset or aliability or a firm commitment (hedged item) that is attributable to a particular risk. The gain or loss both on the hedging derivative instruments
and on the hedged item attributable to the hedged risk is reflected in current operations. Cash flow hedge accounting is applied to a derivative
instrument designated as hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transactionthat is attributable to a particular risk. The effective portion of gain or loss on a derivative instrument designated as a cash flow hedge is recorded
as accumulated other comprehensive income (loss) and the ineffective portion is recorded in current operations. The effective portion of gain orloss recorded as accumulated other comprehensive income (loss) is reclassified to current earnings in the same period during which the hedged
forecasted transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gain orloss in accumulated other comprehensive income (loss) is added to or deducted from the asset or the liability.
Accounting for Share-based Payment
In accordance with the Statement of Korea Accounting Standards No.22 - Share-based Payment. and the Interpretations on Financial
Accounting Standards 39-35 - Accounting for Stock Options., in case of equity-settled share-based payment transactions, compensation expense
for stock option and stock option (capital adjustment) are recorded at fair value at the grant date through an agreement service period, whereas incase of cash-settled share-based payment transactions, compensation expense for stock option and accrued expenses are recorded at fair value
at the grant date through an agreement service period. The other liabilities (accrued expenses) by cash-settled share-based payment transactions
are assessed at fair value of the closing day or the final settlement day (assessed at intrinsic value for the portion occurred before December 31,2006). The changes in the fair value of accrued expenses after the grant date are reflected as compensation expense for stock option. In addition,
for share-based payment transactions in which the terms of the arrangement provide a choice for the Bank whether the Bank settles the transaction
in cash or by issuing equity instruments, the Bank is required to account for that transaction as a cash-settled share-based payment transaction if
the Bank has a present obligation to settle in cash, or as an equity-settled share-based payment transaction if no such obligation exists. In case of acash-settled share-based payment, compensation cost is recorded as capital adjustment (stock option), and in case of an equity-settled share-based
payment, compensation cost is recorded as other liabilities (accrued expenses).
Accounting for Trust Accounts
The Bank separately maintains the books of accounts and financial statements in connection with the trust operations (the trust accounts)
from those of the bank accounts in accordance with the Trust Business Act. When surplus funds are generated through the management of trust
assets, such funds are deposited with the Bank and are recorded as due to trust accounts of the bank accounts. Also, the borrowings from the bankaccount are recorded as due from trust accounts of the bank accounts. The Bank receives fees for operation and management of the trust businessand accounts for them as fees and commissions from trust accounts.
With respect to certain trust account products, the Bank guarantees the repayment of the principal of the trust accounts and, in certain
cases, a fixed rate of return. If income from such trust accounts is insufficient to pay the guaranteed amount, such a deficiency is satisfied by using
special reserves maintained in the trust accounts, offsetting trust fee payable to the bank accounts and receiving compensation contributions
from the bank accounts of the Bank. If the Bank pays compensating contributions to the guaranteed return trusts to cover such deficiencies, thesecontributions are reflected as operating expense of the bank accounts and as other income of the trust accounts. There are no compensating
contributions of the Bank for the year ended December 31, 2007.
Merchant Banking Accounts
As permitted by the Restructuring of Financial Institutions Act, the Bank may continue its merchant banking operations, including leasing
business, until the existing contracts acquired from Korea International Merchant Bank upon merger are terminated. Significant accounting policies
applied to the Bank‘s merchant banking operations are summarized as follows:
1) Revenue Recognition on Discounted Notes
Interest income on discounted notes is accrued over the term of the notes. Income from the sale of discounted notes is recognized at thedate of sale based on the difference between the purchase and sales prices of the notes, adjusted for interest earned during the holding period.

136

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

2) Cash Management Accounts (“CMA”)
The Bank recognizes interest income from CMA investments and interest expense from CMA deposits as other income and otherexpenses, respectively.
3) Lease Transactions
The Bank accounts for lease transactions as operating or financing leases, depending on the terms of the lease contracts. In general, noncancelable leases are recognized as financing leases when ownership transfers at expiration of the lease term, when a bargain purchase option
exists, or when the lease term exceeds the estimated economic life of the related asset.
Under the financing lease method, aggregate lease rentals are recorded as financing leases receivable, net of unearned interest, based on theexcess of rental revenue over the cost of the related assets. Unearned interest is recognized as interest income on financing leases using theeffective interest method over the lease term.
Income Tax Expense
Income tax expense is the amount currently payable for the period, additional income taxes or tax refunds for prior years(except for
retroactive adjustments of tax effect directly added or deducted to shareholders‘ equity) added to or deducted from the changes in deferred income
taxes. However, deferred income tax assets are recognized only if the future tax benefits from accumulated temporary differences and any tax
loss carryforwards are realizable. The difference between the amount currently payable for the period and income tax expense is accounted for asdeferred income tax assets or liabilities, which will be charged or credited to income tax expense in the period the related temporary difference
reverses in the future. Deferred income tax assets or liabilities are calculated based on the expected tax rate to be applied at the reversal period of
the related assets or liabilities. Tax payable and deferred income tax assets or liabilities regarding to certain items are charged or credited directly
to related components of shareholders‘ equity.
Accounting for Foreign Currency Transactions and Translation
The Bank and its domestic subsidiaries maintain its accounts in Korean Won. Transactions in foreign currencies are recorded in Korean
Won based on the basic rate of exchange on the transaction date. The Korean Won equivalent of assets and liabilities denominated in foreign
currencies are translated in these financial statements based on the basic rate (₩938.20 and ₩929.60 to US$ 1.00 at December 31, 2007 and2006, respectively) announced by Seoul Money Brokerage Service, Ltd. or cross rates for other currencies other than U.S. Dollars at the balance
sheet dates. Translation gains and losses are credited or charged to operations. Financial statements of overseas branches are translated based on
the basic rate at balance sheet dates.
Application of the Statement of Korea Accounting Standards
The Korea Accounting Standard Board (KASB) under the Korea Accounting Institute (KAI) issued the Statements of Korea AccountingStandards (SKAS) for achieving a set of Korean accounting standards that should be internationally acceptable and comparable based on SKAS
Act 92. The Bank adopted SKAS No.1 (Accounting Changes and Error Corrections) through SKAS No. 20 (Related Party Disclosures) (excluding No.
14) as of or before December 31, 2006, and SKAS No. 11 (Discontinued Operation) and SKAS No. 21 (Preparation and Presentation of Financial
Statements) through SKAS No. 25 (Consolidated Financial Statements) have been adopted since January 1, 2007.
	1) Adoption of SKAS No. 21 (Preparation and Presentation of Financial Statements) and SKAS No. 24 (Preparation
and Presentation of Financial Statements [Financial Industry])
With the adoption of SKAS No. 21 (Preparation and Presentation of Financial Statements) and SKAS No. 24 (Preparation and Presentationof Financial Statements [Financial Industry]), the Bank included the statement of changes in shareholders‘ equity in the financial statements, andreclassified the components of the balance sheets as follows:
Classification
Assets

Before- Cash and due from banks- Securities- Loans- Fixed assets- Other assets
Liabilities- Deposits- Borrowings- Debentures- Other liabilities
Shareholders‘ Equity- Common stock- Capital surplus- Retained earnings- Capital adjustments- Minority interests
		

After
- Cash and due from banks- Securities- Loans- Tangible assets- Other assets (Include intangible assets previously under fixed assets)- Deposits- Borrowings- (Note: Included in borrowings)- Other liabilities- Common stock- Capital surplus- Capital adjustments- Accumulated other comprehensive income (Previously included in capital adjustments)- Retained earnings- Minority interests

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

137

In addition, a discontinued operation is separately presented in the income statements and extraordinary items are no longer reported
separately. The Bank and its subsidiaries have reclassified the components of the income statements; such as, gains or losses relating to availablefor-sale securities and sale of loans that were presented under non-operating income (expenses) are currently presented under operating income(loss). The financial statements for the prior period were restated for comparative purposes due to the application of SKAS No. 21 and No. 24. The
restatement did not affect the previously reported prior period‘s net income (as shown below) or shareholders‘ equity (Unit: In millions).
Classification
Operating revenues
Operating expenses
Operating income
Non-operating income
Non-operating expenses
Extraordinary gain
Income before income tax
Income tax expense
Net income
Basic net income per share (In currency units)
Diluted net income per share (In currency units)

Before₩₩₩₩7,508,297
6,510,663
997,634
695,896
223,473
12,063
1,482,120
475,543
1,006,577
1,561
1,558

After
₩

₩
₩
₩

8,156,117
6,580,058
1,576,059
58,612
27,074
1,607,597
601,020
1,006,577
1,561
1,558

Effect₩₩₩₩647,820
69,395
578,425(637,284)(196,399)(12,063)
125,477
125,477-

In addition, the Bank and its subsidiaries have reclassified the components of the cash flows; such as, changes in available-for-salesecurities, held-to-maturity securities and loans that were presented under cash flows from investing activities are currently presented under cash
flows from operating activities. The accompanying non-consolidated statement of cash flows for the year ended December 31, 2006, which ispresented for comparative purposes, was restated due to the application of SKAS No. 21 and No. 24.
Classification

BeforeCash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increase in cash and due from banks
Cash and due from banks, beginning of year
Cash and due from banks, end of year

₩

₩

After
1,096,231(2,781,926)
2,819,594
1,133,899
3,293,571
4,427,470₩₩

Effect(2,165,495)(593,962)
2,819,594
60,1372,824,297
2,884,434₩₩(3,261,726)
2,187,964(1,073,762)(469,274)(1,543,036)

2) Adoption of the new accounting standards and transition provision
The prior period financial statements were neither restated nor the earnings per share adjusted to reflect the effect of the application of
SKAS No. 22 (Share-based Payment) and No. 23 (Earnings per Share), which is in accordance with the transition provision.
Reclassification
Certain accounts of the prior period were reclassified to conform to the current period‘s presentation for comparative purposes; however,such reclassifications had no effect on either the previously reported prior period‘s net income or shareholders‘ equity of the Bank and its
subsidiaries.

4.
Cash and due frombanks

( 1 ) Cash and due from banks as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account

2007

CashForeign currencies on handDue from banks in Won
Due from banks in foreign currencies₩

2006
972,061
360,496
2,694,677
1,623,241
5,650,475₩

1,031,776
271,383
1,463,783
1,460,704
4,227,646₩₩( 2 ) Due from banks in Won as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account

Financial institution

Interest rate (%)

Reserve deposit
The Bank of Korea
Due from banks on time deposits
Other banks
5.30~6.37
Other due from banks
Other banks
0.00~2.20
Other due from banks
Other financial institutions
1.25~5.17
			

2007
₩

₩

2006
1,437,782
1,179,153
3,145
74,5972,694,677₩₩

1,267,307
14,865
11,460170,151
1,463,783

138

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 3 ) Due from banks in foreign currencies as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account

Financial institution

Interest rate (%)

Reserve deposit
The Bank of Korea
Due from banks on time deposits
Domestic financial institutions
1.19~5.53
Due from banks on time deposits
Overseas financial institutions
0.00~9.50
Other due from banks
Overseas financial institutions
0.00~1.62
Other due from banks
Domestic financial institutions
0.00~11.6
Due from banks in otherbank-foreign currencies
Overseas financial institutions
3.25~3.75
				

2007
₩

₩

2006
418,825
131,093459,388
312,976
300,959
1,623,241₩₩

236,404
141,090
388,161
5,028
131,334
558,687
1,460,704( 4 ) Restricted due from banks in Won and foreign currencies as of December 31, 2007 and 2006 consisted of (Unit: In millions):

Classification

2007

Due from banks in Won:
The Bank of Korea and others
Woori Bank and others
Due from banks in foreign currencies:
The Bank of Korea and others
J.P. Morgan and others		2006
1,437,782
949₩

418,825
34,3001,891,856₩

1,267,307
12,028₩236,404
27,297
1,543,036₩

The due from bank of Korea and others is deposited based on the Banking Act or other acts. Other due from banks in Won are escrowdeposits related to sales of stocks of Ssangyong Corporation, S&T Daewoo Co. Ltd and Daerim Corporation, and guarantee deposits fromderivatives transaction. In addition, other due from banks in foreign currencies is guarantee deposits from derivatives transaction and deposited by
Banco KEB do Brasil S.A. for agriculture supporting loan based on related Act.
( 5 ) Term structure of due from banks in Won and foreign currencies as of December 31, 2007 was as follows (Unit: In millions):
Classification

Due from banks
in WonDue in less than one year
Due from one to three years
Due more than three years

₩

₩

5.
Securities

2,694,067
610
2,694,677

Due from banks inforeign currencies
₩

₩

Total

1,623,241
1,623,241₩₩

4,317,308
610
4,317,918( 1 ) Securities as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Trading securities
Available-for-sale securities
Held-to-maturity securities
Securities using the equity method

2007
₩

₩

3,108,987
6,874,425
2,130,989
13,616
12,128,017

2006
₩

₩

2,025,546
7,081,276
1,865,874
6,060
10,978,756

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

139

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

₩₩

10,000193,754
687,479
101,828
2,063,900
3,056,961₩

65,426
10,000
192,972
686,171
101,5142,041,798
9,280
3,107,161

Adjusted byeffective interest
rate method₩

10,000
193,152
686,443
101,520
2,050,966
3,042,081

Book value₩

64,8309,730
192,253
681,241
101,6642,049,989
9,280
3,108,987

750,398
2,754,136
125
698,724
405,514
87,636
4,696,533

858,976
62,9662,000
758,451
2,748,857
125
699,357
401,232
87,636
5,619,600

734,205
2,741,545
125
693,956
299,844
60,3604,530,035

2,283,243
69,305
2,078
733,476
2,719,522
125
689,086
311,436
66,154
6,874,425

803,482
1,153,877
24,796140,356
10,0001,323
2,133,834
9,887,328

802,775
1,162,000
23,430141,706
9,989
1,312
2,141,212
10,867,973

800,738
1,153,424
24,402
140,675
9,996
1,312
2,130,547
9,702,663

800,737
1,153,856
24,402
140,686
9,996
1,312
2,130,989
12,114,401

₩

₩

₩

140

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

Securities excluding securities using the equity method as of December 31, 2006 consisted of (Unit: In millions):
Classification
Face value
Acquisition		
cost (*)
			
Trading securities:
Equity securities
Beneficiary certificates
Government and public bonds
Finance bonds
Corporate bonds
Commercial papers
Other debt securities
Securities in foreign currencies
		
Available-for-sale securities:
Equity securities
Equity investments
Beneficiary certificates
Government and public bonds
Finance bonds
Corporate bonds
Asset-backed securities
Other debt securities
Securities in foreign currencies		Held-to-maturity securities:
Government and public bonds
Finance bonds
Foreign government bonds
Corporate bonds
Asset-backed securities
Other debt securities
		
		

₩

₩

10,000222,733
1,332,517
102,036
125,000
51,128
1,843,414₩

178,883
10,000217,433
1,328,846
101,042
124,558
18,364
51,1162,030,242

Adjusted byeffective interest
rate method₩

10,000217,647
1,327,800
100,773
124,558
51,116
1,831,894

Book value₩

175,941
10,093
217,295
1,327,089
101,097
124,553
18,35951,1192,025,546

14,774
761,972
2,005,435
1,135,000
312,000
87,636
601,525
4,918,342

831,350
9,459
15,774
766,1112,000,976
1,152,543
312,024
87,636
601,025
5,776,898

14,774
733,817
1,984,213
1,124,561
241,717
40,373
593,5734,733,028

2,279,973
9,458
15,800746,406
1,990,407
1,130,549
249,049
60,360599,274
7,081,276

516,278285,611448,772
30,0001,687
581,069
1,863,417
8,625,173

512,418
288,990454,951
29,994
1,674
589,226
1,877,253
9,684,393

513,155
286,278
451,104
17,157
1,674
583,663
1,853,031
8,417,953

513,155
286,278
451,104
30,0001,674
583,663
1,865,874
10,972,696

₩

₩

₩

(*) Acquisition costs of trading securities are the book value before valuation.

The difference of trading securities between the fair value and the adjusted cost using the effective interest rate method (acquisition
cost for stocks) was recorded as gain on valuation of trading securities amounting to ₩3,980 million and ₩6,650 million, and loss on valuation of
trading securities amounting to ₩12,285 million and ₩10,894 million for the years ended December 31, 2007 and 2006, respectively.
The fair values of trading and available-for-sale debt securities were assessed by applying the average of base prices as of December 31,
2007, provided by Korea Bond Pricing & KR Co. (KBP), KIS Pricing Inc. and National Information & Credit Evaluation Inc. (NICE).
The fair value of available-for-sale non-marketable equity securities such as SK Networks Co., Ltd. and 20 others, and the restrictedavailable-for-sale marketable equity securities such as Hyundai Engineering and Construction Co., Ltd. and 7 others was reliably measured byan independent appraisal institute using reasonable judgment. The fair value was determined based on more than one valuation models such as
Discounted Cash Flow (DCF) Model, Imputed Market Value (IMV) Model, Discounted Free Cash Flow to Equity (FCFE) Model, Dividend Discount (DD)
Model and Risk Adjusted Discounted Cash Flow (RADCF) Model depending on the equity securities. In order to assess the fair value of stocks, thefinancial statements for 5 years are estimated based on past operating result. Also, assuming the same operation is continued during the estimatedperiod, the model is applied using the estimated financial statements from 2007 to 2011. Operating income and expenses are reasonably estimatedbased on the past result, the future plan and the expected market condition, and for non-operating income and expenses, gain or loss from irregulartransactions such as gain or loss on disposition of tangible assets are excluded. For the equity investment of association, net assets are calculated
deducting total liabilities from the present value of assets of each equity investment.

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

141

( 3 ) D iscretionary investing contract assets included in beneficiary certificate of trading securities as of December 31,
2007 and 2006 consisted of (Unit: In millions):
Classification

2007

Short-term financial instruments
StocksOthersTotal assets
Total liabilities
Net assets value

₩

₩

2006
2,385
7,312
45
9,742
12
9,730

₩

₩

429
9,665
7
10,101
8
10,093( 4 ) T he book value of non-marketable stocks and equity investments among available-for-sale securities, which were
not valuated at fair value as of December 31, 2007 and 2006, was as follows (Unit: In millions):<As of December 31, 2007>
Company
Stocks:Samsung Life
Alpha Dome City
KAMCO
KCB
KRX
Hallyu-Wood
M Cieta Development (*)
BLADEX
C & Woobang ENC
Others		
Equity investments:
Consolidated Fund for Impaired Loans
Others				

Amounts₩₩

32,939
7,200
6,330
3,000
3,000
1,200
1,125
921
733
1,802
58,25036,6801
36,681
94,931(*) The company name was changed from M Ciety Development to M Cieta Development.

<As of December 31, 2006>
Company
Stocks:Samsung Life
KAMCO
KCB
KRX
Kyobo Investment Trust Management
Realty Advisors Korea
M Cieta Development
BLADEX
KOCES
C & Woobang ENC
Hallyu-Wood
Korea Finance Security
Booyoung Finance
Others		
Equity investments:
Daegu Venture Fund Association
Others				

Amounts₩₩

32,939
6,330
3,000
3,000
2,700
1,000
1,000
912
897
733
600
588
500
2,085
56,284500
3503
56,787

142

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 5 ) T he impairment loss and the reversal of impairment loss on available-for-sale securities for the years ended December
31, 2007 and 2006 were as follows (Unit: In millions):
2007		
Impairment
Reversal

Classification
Equity securities
Equity investments
Corporate bonds
Asset-backed securities
Beneficiary certificates

6,891
15,58722,478

₩

₩

₩

₩

2006
Impairment
1,364
36,680139
54,797
92,980₩₩

Reversal

20,981689
35,437
57,107₩₩230,228
5,928
50,896807
287,859( 6 ) T he impairment loss and the reversal of impairment loss on held-to-maturity securities for the years ended December
31, 2007 and 2006 were as follows (Unit: In millions):

Classification2007		
Impairment
ReversalAsset-backed securities

₩

-

₩

2006
Impairment-

Reversal
204₩₩

19,253( 7 ) Loaned securities included in securities as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification

2007₩

Securities in foreign currencies

12,701

2006₩

11,723( 8 ) Securities provided as collateral as of December 31, 2007 were as follows (Unit: In millions):
Provided toCollateral amount

Korea securities depository & others
₩
BOK
BOK
BOK
BOK
Futures Corporations, Securities Corporation, Banks
KRX
Brazilian money brokerage service
Deutsche Bundes Bank₩

807,415330,000
369,000
900,000
450,000
254,100
7,664
4,220
691
3,123,090

Book value

Provided for
800,711
326,919368,319885,982449,382
241,251
7,664
4,220
691
3,085,139₩₩

Sale to RP to customer
Settlement of difference
Daily overdraft
Borrowings from BOK
Sale to RP to BOK
Derivatives settlement
Derivatives settlement
Collateral
Borrowings from Deutsche Bundes Bank

In addition, securities that are possible to be discounted by BOK amounted to ₩495,502 million as of December 31, 2007.
( 9 ) Securities using the equity method
1) Securities using the equity method as of December 31, 2007 and 2006 were summarized as follows (Unit: sharesin thousand, in millions):<December 31, 2007>
Company
KEB Fund Services Co., Ltd. (KEBFS) (*1)

No. of shares

510
Lippo Incheon Development Co., Ltd.
388
Realty Advisors Korea, Ltd. (*1 & 2)200
KEB USA International Corp. (USAI)
0.1
HTIC2 Corporate Restructuring Association (*3)
0.04
		Ownership (%)
100.0
2.7
14.3
100.0
20.0

Acquisition cost Net asset value
₩

₩

2,550
1,939
1,000
2,346
4,000
11,835

₩

₩

5,101
1,830
575
4,236
4,000
15,742

Book value
₩

₩

2,550
1,830
1,000
4,236
4,000
13,616(*1) T he investment securities were excluded from the application of equity method because the assets are less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.
(*2) Reclassified from available-for-sale securities to securities using equity method in this period.
(*3) It hasn‘t started business.

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

<December 31, 2006>
Company

No. of shares

Ownership (%)

143

Acquisition cost Net asset value

MP&T (*1)
170
38.1 ₩KEBFS (*2)
510
100.0
USAI
0.1
100.0
			 ₩

850
2,550
2,324
5,724

2,550
3,510
6,060

₩

₩

Book value
2,550
3,510
6,060

₩

₩

(*1) The bankruptcy procedure was completed in prior fiscal year.
(*2) T he investment securities were excluded from the application of equity method because the assets were less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.

2) The valuation of securities using the equity method for the years ended December 31, 2007 and 2006 was asfollows (Unit: In millions):<December 31, 2007>
Company

Acquisition Book value Increase
cost
before(Decrease)		valuation Dividend
				
				

Foreign
Equity in
Retained
exchange earnings
earnings
trading			income			(loss)			

₩ 2,550KEBFS (*1)
Realty Advisors Korea, Ltd. (*1 & 2)
1,000
Lippo Incheon Development Co., Ltd.
1,939
USAI
2,346
HTIC2 Corporate restructuringassociation (*3)
4,000
₩ 11,835
		

₩

₩

₩

2,550
1,000
3,510
7,060

₩

₩

1,939
4,000
5,939

₩

32
32

₩

₩

(109)
694
585

Valuation of Book value
securities afterusing the valuation
equitymethod
-

₩

-

₩

₩

₩

-

₩

2,550
1,000
1,830
4,236

-

4,000
₩ 13,616(*1) T he investment securities were excluded from the application of equity method because the assets were less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.
(*2) Reclassified from available-for-sale securities to securities using equity method in this period.
(*3) It hasn‘t started business.

<December 31, 2006>
Company

Acquisition Book value Increase
cost
before(Decrease)		valuation Dividend
				
				

Foreign
Equity in
Retained
exchange earnings
earnings
trading			income			(loss)			

KEBFS (*1)
MP&T (*2)
CFEB (*3)
USAI
		

₩

2,550
850
6,037
2,324
₩ 11,761
₩

₩

₩

2,550
4,243
3,179
9,972

(4,243)₩ (4,243)
₩

₩

(262)
(262)

₩

₩

593
593

₩

₩

Valuation of Book value
securities afterusing the valuation
equitymethod
-

-

₩

₩

₩

₩

2,550
3,510
6,060

(*1) T he investment securities were excluded from the application of equity method because the assets were less than ₩7,000 million as of the end of prior year and the change ininvestment arising from this company was considered insignificant.
(*2) The bankruptcy procedure was completed in prior fiscal year.
(*3) It was disposed during the first quarter of 2006.

3) Summary of Financial Information in Affiliates
The summary of financial information in affiliates using the equity method as of and for the period ended December 31, 2007 was asfollows (Unit: In millions):
Classification
Total assets
Total liabilities
Operation revenue
Net income (loss)

Lippo Incheon

USAI

Development Co., Ltd.
₩403,047₩

335,275(4,045)

Total
4,289
52
2,862
694

₩

407,336
335,327
2,862(3,351)

Unaudited financial statements as of December 31, 2007 were used for the application of the equity method. The significant events fromthe closing dates of the investees to that of the Bank and its subsidiaries were properly reflected in applying the equity method. There was nomaterial exception as a result of analytical review, such as analysis of major accounts to assess reliability of those financial statements.

144

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 10 ) T he portfolio of securities excluding securities using the equity method, by industry, as of December 31, 2007 and2006 was as follows (Unit: In millions):

By industry typeTrading securities:
Government and government-invested public companies
Financial institutions
Manufacturing
Others		
Available-for-sale securities:
Government and government-invested public companies
Financial institutions
Manufacturing
Others		
Held-to-maturity securities:
Government and government-invested public companies
Financial institutions
Manufacturing
Others				2007		
AmountPercentage (%)₩₩

933,689
1,900,392
87,888187,018
3,108,987

30.02
61.13
2.83
6.02
100.001,478,732
2,692,883
1,394,371
1,308,439
6,874,425

21.51
39.18
20.28
19.03
100.002006
Amount₩1,157,820
54.33
915,25442.95
20,3750.96
37,5401.76
2,130,989
100.0012,114,401		 ₩Percentage (%)

1,365,384
423,953
128,946
107,2632,025,546

67.41
20.93
6.36
5.30
100.002,005,588
2,357,979
1,377,840
1,339,869
7,081,276

28.32
33.30
19.46
18.92
100.00843,869
918,01229,691
74,302
1,865,874
10,972,696

45.23
49.20
1.59
3.98
100.00( 11 ) T he portfolio of securities excluding securities using the equity method, by security type, as of December 31, 2007
and 2006 was as follows (Unit: In millions):

By security typeTrading securities:
StocksFixed rate bonds
Floating rate bonds
Beneficiary certificates		Available-for-sale securities:
StocksFixed rate bonds
Floating rate bonds
Subordinated bonds
Beneficiary certificates
Others		
Held-to-maturity securities:
Fixed rate bonds
Floating rate bonds
Subordinated bonds
Others				2007		
AmountPercentage (%)₩₩

64,8302,997,194
37,2339,730
3,108,987

2.09
96.40
1.20
0.31
100.002,282,779
2,392,612
1,299,720
761,313
2,078
135,923
6,874,425

33.21
34.80
18.91
11.07
0.03
1.98
100.002006
Amount
₩1,513,606
71.03
58,591
2.75
558,073
26.19
719
0.03
2,130,989
100.0012,114,401		 ₩Percentage (%)

175,941
1,788,392
51,12010,0932,025,546

8.69
88.29
2.52
0.50
100.002,279,973
2,956,737
1,051,405
707,543
15,80069,8187,081,276

32.20
41.75
14.85
9.99
0.22
0.99
100.001,134,856
107,584
623,434
1,865,874
10,972,696

60.82
5.77
33.41
100.00Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006145

( 12 ) T he portfolio of securities excluding securities using the equity method, by country, as of December 31, 2007 and2006 was as follows (Unit: In millions):
2007
AmountBy country typeTrading securities:
Korea
Japan
Hong Kong (China)
		Available-for-sale securities:
Korea
Cayman Islands
USA
Hong Kong (China)
UK
Others		
Held-to-maturity securities:
Korea
Singapore
Philippines
Hong Kong (China)
Germany
BrazilOthers				₩₩Percentage (%)

3,108,987
3,108,987

100.00100.006,751,134
38,61363,061
5,852
2,803
12,962
6,874,425

98.20
0.56
0.92
0.09
0.04
0.19
100.002006
Amount₩2,105,327
98.80
11,583
0.54
5,081
0.24
36
0.00
691
0.03
8,271
0.39
2,130,989
100.0012,114,401		 ₩Percentage (%)

2,017,711
6,311
1,524
2,025,546

99.61
0.31
0.08
100.006,980,129
42,081
28,153
12,166
10,111
8,636
7,081,276

98.57
0.59
0.40
0.18
0.14
0.12
100.001,796,589
7,801
2,303
36
612
58,533
1,865,874
10,972,696

96.29
0.42
0.12
0.00
0.03
3.14
100.00( 13 ) Term structure of securities except for stocks and equity investments in available-for-sale and held-to-maturity
securities as of December 31, 2007 was as follows (Unit: In millions):
Classification

Due in 1 year
or less		

Due after 1
year through5 years

Government and public bonds
Finance bonds
Foreign government bonds
Corporate bonds
Beneficiary certificates
Asset-backed securities
Commercial papers
Others₩₩₩686,100
1,575,422
19,321
329,345
9,730
113,4632,049,989
10,592
4,793,962₩

1,008,528
2,124,947
551,913
187,755
3,873,143

Due after 5
years through10 years₩₩

31,838854,250
5,081
50,17820,214
961,561More than
10 years
₩

₩

125
2,078
66,15468,357

Total

₩

₩

1,726,466
4,554,619
24,527
931,436
11,808321,432
2,049,989
76,746
9,697,023

146

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 14 ) S tructured securities relating to stock and interest rate and credit risk as of December 31, 2007 and 2006 were as
follows (Unit: In millions):<December 31, 2007>
Classification

Won

Structured notes relating to stock:
Convertible bonds (available-for-sale securities) (*)
Convertible bonds (loans)			Structured notes relating to interest rate:Long-term government bond floating rates notes (CMT)		 (available-for-sale securities)
Long-term government bond floating rates notes
		 (CMT) (held-to-maturity securities)			Structured notes relating to credit risk:
Synthetic CDO
			Foreign currencies
14,35524,82039,175₩-₩

14,35524,82039,175₩239,252-

239,252

40,144
279,396-

40,144
279,396318,571₩

Total

18,39818,398₩18,398336,969₩(*) The Bank has two convertible bonds in foreign currencies with par value of ₩8,206 million and the book value was nil after reduction.

<December 31, 2006>
Classification

Won

Structured notes relating to stock:
Convertible bonds (available-for-sale securities) (*)
Convertible bonds (loans)			Structured notes relating to interest rate:Long-term government bond floating rates notes (CMT)		 (available-for-sale securities)
Long-term government bond floating rates notes (CMT)		 (held-to-maturity securities)						Foreign currencies
448
448
-

₩

₩

Total
-

₩

448
448

₩

539,247-

539,247

90,407
629,654
630,102-90,407
629,654
630,102₩₩(*) The Bank has two convertible bonds in foreign currencies with par value of ₩8,206 million and the book value was nil after reduction.

( 15 ) C hanges in accumulated other comprehensive income (loss) of available-for-sale securities for the year ended
December 31, 2007 were as follows (Unit: In millions):
Classification
Beginning		Equity securities₩
Debt securities		₩

Increase
Disposal(decrease)		

1,133,852 ₩(10,118)		
1,123,734 ₩

26,733 ₩(29,011)		
(2,278) ₩Deferredincome tax(43,244) ₩5,099		
(38,145) ₩Ending4,540 ₩
6,576		11,116 ₩1,121,881(27,454)
1,094,427( 16 ) C hanges in accumulated other comprehensive loss of held-to-maturity securities for the year ended December 31,
2007 were as follows (Unit: In millions):
Classification
Beginning		Debt securities₩

Increase
Disposal(decrease)		
(773)

₩

566

₩

Deferredincome tax-₩

Ending
(156)

₩

(363)

( 17 ) Acquisition of stocks of Visa Inc.
• The Bank acquired 2,719 thousand shares of Visa Inc. from its IPO on October 1, 2007. The Bank estimated the fair value of the stocks using
the financial statements. The Bank has recognized the fair value of the stocks of ₩53,604 million as income related to available-for-sales.

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

6.
Loans

147

( 1 ) Loans as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification

2007₩

Call loans
Domestic import usance bill
Credit card receivables
Bills bought in foreign currencies
Bills bought in Won
Bonds purchased under repurchase agreements
Loans in Won
Loans in foreign currencies
Factoring receivables
Advances for customers
Privately placed bonds

2,387,891
1,742,654
2,440,553
3,525,118
2,110,881
37,824,623
6,887,316
310,786
6,719
893,194
58,129,735(753,696)(31,792)
57,344,247

Less: Allowance for possible loan losses (see Note 18)
Deferred loan origination fees and costs
₩

2006
₩

1,866,601
1,370,534
2,314,636
3,107,091
2,711,888
200,000
31,420,021
4,806,748
300,160
12,351
1,198,641
49,308,671(648,642)(14,519)
48,645,510₩( 2 ) Loans in Won and loans in foreign currencies as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification

2007

Loans in Won:
Commercial
Households
Loans for installment credit
Public sector and others
Total loans in Won
Loans in foreign currencies :Loans on deeds in foreign currency
Inter-bank loans in foreign currency (*)
OthersTotal loans in foreign currencies		

2006
22,780,182
14,869,384
285
174,772
37,824,623₩

2,417,071
4,470,245
6,887,316
44,711,939₩

16,875,994
14,442,955
22,75378,31931,420,021₩

2,289,814
98,082
2,418,852
4,806,748
36,226,769₩(*) It was totally deducted by intercompany elimination.

( 3 ) L oans in Won and loans in foreign currencies, classified by borrower type, as of December 31, 2007 and 2006 were as
follows (Unit: In millions):<December 31, 2007>
By borrower type

Loans in Won

		₩
Commercial
Households		
Public sector and others		
₩

Loans in foreignTotal

currencies (*1)₩
8,156,356₩

22,780,182
14,869,669		
174,772		
37,824,623 ₩

430,126		
43,488		
8,629,970 ₩Percentage (%)
30,936,538
15,299,795
218,260
46,454,593

66.60
32.93
0.47
100.00(*1) Domestic import usance bill is included in loans in foreign currencies.

<December 31, 2006>
By borrower type

Loans in Won

		
Commercial₩
Households		
Public sector and others		
₩

Loans in foreign

Total

Percentage (%)

currencies (*1)
16,875,994 ₩
14,465,708		
78,319		
31,420,021 ₩

5,703,156 ₩285,274		
90,770		
6,079,200 ₩

22,579,150
14,750,982
169,089
37,499,221(*1) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩98,082 million are excluded in loans in foreign currencies.

60.21
39.34
0.45
100.00148

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 4 ) L oans in foreign currencies classified by borrower’s country as of December 31, 2007 and 2006 were as follows(Unit: In thousands of U.S. dollars, in millions of Won):<December 31, 2007>
By country
Korea
Canada
USA
Japan
China
OthersLoans inTranslation

U.S. dollars (*1)

into Won (*2)

US$

₩

US$

5,586,116
688,009446,314367,831
127,545
1,982,619
9,198,434

Percentage (%)
5,240,894
645,490418,732
345,099
119,663
1,860,092
8,629,970

₩

60.73
7.48
4.85
4.00
1.39
21.55
100.00(*1) Foreign currencies other than U.S. dollars are converted into U.S. dollars at the rate at the balance sheet date.
(*2) Domestic import usance bill is included in loans in foreign currencies.

<December 31, 2006>
By country
Korea
Japan
Indonesia
OthersLoans inTranslation

U.S. dollars (*1)

into Won (*2)

US$

₩

US$

4,299,676
301,590
61,791
1,876,530
6,539,587

Percentage (%)
3,996,979
280,358
57,441
1,744,422
6,079,200

₩

65.75
4.61
0.94
28.70
100.00(*1) Foreign currencies other than U.S. dollars are converted into U.S. dollars at the rate of the balance sheet date.
(*2) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩98,082 million are excluded in loans in foreign currencies( 5 ) Loans classified by industry as of December 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
By industry type

Loans in Won

		₩
Corporations:
Manufacturing
Finance and insurance
Telecommunications
Service
Construction
OthersHouseholds
Public sector and others		
Loans of overseas branches		₩22,780,182
8,400,049
632,657
36,081
5,210,933
3,308,248
5,192,214
14,869,669
174,772
37,824,623
37,824,623

Loans in foreignTotal

currencies (*1)₩
4,845,196₩

3,019,377
24,613307
1,173,387
97,643529,869
430,126
43,4885,318,810
3,311,160
8,629,970₩₩

Percentage (%)
27,625,378
11,419,426
657,270
36,3886,384,320
3,405,891
5,722,083
15,299,795
218,260
43,143,433
3,311,160
46,454,593

59.47
24.59
1.41
0.08
13.74
7.33
12.32
32.93
0.47
92.87
7.13
100.00(*1) Domestic import usance bill is included in loans in foreign currencies.

<December 31, 2006>
By industry type

Loans in Won

		₩
Corporations:
Manufacturing
Finance and insurance
Telecommunications
Service
Construction
OthersHouseholds
Public sector and others		
Loans of overseas branches		₩16,875,994
6,862,719
199,491
3,768,835
2,425,366
3,619,583
14,465,708
78,31931,420,021
31,420,021

Loans in foreignTotal

currencies (*1)₩
3,861,116₩

2,414,581
87,35523,465
778,641
93,697463,377
285,274
90,7704,237,160
1,842,040
6,079,200₩₩

Percentage (%)
20,737,110
9,277,300
286,846
23,465
4,547,476
2,519,063
4,082,960
14,750,982
160,089
35,657,181
1,842,040
37,499,221(*1) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩98,082 million are excluded in loans in foreign currencies

55.30
24.74
0.76
0.06
12.13
6.72
10.89
39.34
0.45
95.09
4.91
100.00Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

149

( 6 ) Loans to financial institutions as of December 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
Classification

Loans in Won

		
₩
Bank
Other financial institutions		
Overseas financial institutions		
₩

Loans in foreign

Call loans

Total

Percentage (%)

currencies (*1)
12,000 ₩612,551		-		
624,551 ₩- ₩81,882		
-		
81,882 ₩1,090,624 ₩-		
1,297,267		
2,387,891 ₩

1,102,624
694,433
1,297,267
3,094,324

35.64
22.44
41.92
100.00(*1) Domestic import usance bill is included in loans in foreign currencies.

<December 31, 2006>
Classification

Loans in Won

		
Bank
₩
Other financial institutions		
Overseas financial institutions		
₩

Loans in foreign

Call loans

Total

Percentage (%)

currencies (*1)
12,000 ₩259,889		-		
271,889 ₩

2,231 ₩
135,109		-		
137,340 ₩813,597 ₩-		
1,053,004		
1,866,601 ₩

827,828
394,998
1,053,004
2,275,830

36.37
17.36
46.27
100.00(*1) Domestic import usance bill is included in loans in foreign currencies.

( 7 ) T he classification of asset quality for loans as of December 31, 2007 and 2006 was summarized as follows (Unit:
In millions):<December 31, 2007>
Classification

NormalPrecautionary Substandard Doubtful

Call loans
Credit card receivables
Bills bought in foreign currencies (*1)
Loans in Won (*2)
Loans in foreign currencies (*3)
Factoring receivables
Advances for customers (*4)
Privately placed bonds (*5)
Other accounts (*6)

₩ 2,387,891
2,376,605
3,624,868
39,264,157
8,520,466
310,786366
892,677
1,331₩57,379,147₩₩

34,03432
250,931
60,3672,622
245
86
348,317

₩

₩

7,965
195,997
38,785
1,190
173
1,636
245,746₩₩

24,067
1,501
10,238
6,559
10
1,138
43,513

Estimated loss
₩

₩

5,847
65,151
2,047
1,805
1,671
76,521

Total₩ 2,387,891
2,440,553
3,634,366
39,786,474
8,628,224
310,786
5,993
893,095
5,862₩58,093,244(*1) L ocal L/C bills bought in Won amounting to ₩17,352 million and Local L/C bills bought in foreign currencies amounting to ₩91,896 million among bills bought in Won are
included in bills bought in foreign currencies.
(*2) C ommercial bills purchased amounting to ₩2,001,633 million among bills bought in Won are included in bills bought in foreign currencies, and present value discount amounting
to ₩39,782 million is deducted.
(*3) Domestic import usance bill is included in foreign currencies. Present value discount amounting to ₩1,746 million is deducted.
(*4) Present value discount amounting to ₩726 million is deducted on advances for customers.
(*5) Present value discount amounting to ₩99 million is deducted on privately placed bonds.
(*6) O ther accounts consisted of account receivable (transfer-in bills bought in foreign currencies) amounting to ₩959 million, suspense payments in relation with loans amounting₩3,591 million and securities (commercial paper) amounting to ₩1,312 million.

<December 31, 2006>
Classification

NormalPrecautionary

Call loans
Credit card receivables
Bills bought in foreign currencies (*1)
Bond purchased under repurchased agreement
Loans in Won (*2)
Loans in foreign currencies (*3)
Interbank loans in foreign currencies
Factoring receivables
Advances for customers
Privately placed bonds
Other accounts (*4)

₩ 1,866,601
2,223,714
3,189,339
200,000
33,564,948
5,951,549
98,082300,160
7,331
1,198,641
2,081₩48,602,446₩₩

49,134339
257,418
58,005179
169
365,244

Substandard Doubtful
₩

₩

7,892
117,583
54,9313,526
1,111
185,043₩₩

35,513
10,937
12,087908
59,445

Estimated loss
₩

₩

6,275
46,858
2,628
1,315
2,355
59,431

Total₩ 1,866,601
2,314,636
3,197,570
200,000
33,997,744
6,079,200
98,082300,160
12,351
1,198,641
6,624₩49,271,609(*1) L ocal L/C bills bought in Won amounting to ₩24,254 million and Local L/C bills bought in foreign currencies amounting to ₩66,225 million among bills bought in Won are
included in bills bought in foreign currencies.
(*2) C ommercial bills purchased amounting to ₩2,621,409 million among bills bought in Won are included in bills bought in foreign currencies, and present value discount amounting
to ₩43,686 million is deducted.
(*3) Domestic import usance bill is included and interbank loans in foreign currencies amounting to ₩98,082 million are excluded in loans in foreign currencies.
(*4) O ther accounts consisted of account receivable (transfer-in bills bought in foreign currencies) amounting to ₩2,051 million, suspense payments in relation with loans amounting₩2,899 million and securities (commercial paper) amounting to ₩1,674 million.

150

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 8 ) The term structure of loans as of December 31, 2007 was as follows (Unit: In millions):
Classification

Loans in Won

		₩
Due in less than one year
Due from one to three years		Due after three years		
₩

Loans in foreign
currencies (*)

27,940,186 ₩4,743,567		
5,140,870		
37,824,623 ₩Total

5,561,737 ₩
1,177,465		
1,890,768		
8,629,970 ₩

33,501,923
5,921,032
7,031,638
46,454,593(*) Domestic import usance bill is included in foreign currencies.

( 9 ) T he changes in deferred loan origination fees and costs for the year ended December 31, 2007 were as follows(Unit: In millions):
Beginning balance Addition₩
14,519 ₩39,012

Deferred loan origination fees and costs

Deduction₩(21,739)

Ending balance₩
31,792( 10 ) Disposal of loans• The Bank disposed loans amounting to ₩157,149 million, ₩121,121 million and ₩17,101 million of principal to Tong-yang Financial
Service Co., Ltd. and KEB 15th SPC, respectively, and recognized gain on disposal of loans of ₩6,520 million and loss on disposal of loans of₩6,887 million and ₩360 million, respectively, for the year ended December 31, 2007 (see Note 16).

7.
Restructuredloans( 1 ) T he loans that were restructured because of workouts plan and others for the year ended December 31, 2007
were as follows (Unit: In millions):
Classification

Restructuring loans		₩
Workout plan

Present value (*)

243,554 ₩
69,699		
140,518		
453,771 ₩Corporate reorganization		
Rationalization of industry		
₩Ending balance ofpresent value discounts₩-

243,554
61,540		
99,055		
404,149 ₩

8,159
41,46349,622(*) A
 s the present value is calculated with fair value at the restructuring date, if there is no fair value, the present value of total future cash receipts under the restructuring plans is
discounted using interest rates of 6.41 percent to 13.46 percent. Also, the present value discount is calculated using effective interest rate method.

( 2 ) C hanges in the present value discounts relating to the outstanding restructured loans for the year ended December
31, 2007 were as follows (Unit: In millions):		Classification

Present value discounts

Amount (*1)

		Loans:
Court receivership
Others		
Accounts receivable:
Court receivership
Others				₩₩

Beginning

Addition

Deductionbalance			
4,142
122,214
126,356
14,977
20,62435,601
161,957(*1) These only include restructured loans discounted at present value.
(*2) The present value discount is presented as allowance of possible loan losses.

₩

₩

908
42,77943,687
2,079
4,450
6,529
50,216

₩

₩

59
6,013
6,072
711
1,738
2,449
8,521

₩

₩

Endingbalance (*2)(375)
(7,032)(7,407)(656)(1,052)(1,708)(9,115)₩₩592
41,76042,352
2,134
5,136
7,270
49,622

151

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

8.
Allowance forpossible loan
losses( 1 ) T he allowance for possible loan losses as of December 31, 2007 and 2006 was summarized as follows (Unit: In
millions):<December 31, 2007>
Classification
Loans:
Credit card loans
Bills bought in foreign currencies
Loans in Won
Loans in foreign currencies
Factoring receivables
Advances for customers
Privately placed bonds
		
Other accounts
Allowance for possible loan losses
Present value discounts
Allowance for possible loan losses on balance sheet

Normal
₩₩35,64930,524362,865
74,954
2,641
3
6,784
513,420
11
513,431
41,463554,894

Precautionary Substandard
₩

₩

7,943
2
19,2796,323
487
1734,051
7
34,0583,745
37,803₩₩

3,903
40,6208,305
238
35
53,101327
53,4284,396
57,824

Doubtful₩₩

15,062
751
5,452
4,881
5
26,151569
26,72026,720Estimated loss

Total

5,847
65,151
1,963
1,805
74,766
1,671
76,43718
76,455₩₩₩₩64,50135,180493,367
96,426
2,641
2,538
6,836
701,489
2,585
704,074
49,622753,696<December 31, 2006>
Classification
Loans :
Credit card loans
Bills bought in foreign currencies
Loans in Won
Loans in foreign currencies
Factoring receivables
Advances for customers
Privately placed bonds
		
Other accounts
Allowance for possible loan losses
Present value discounts
Allowance for possible loan losses on balance sheet

Normal
₩₩33,356
22,510281,373
47,936
2,101
51
8,390
395,71715
395,732
47,229442,961

Precautionary Substandard Doubtful₩₩

13,44449
28,6148,109
1350,2291750,246
2,079
52,325₩₩

3,867
28,80921,375705
54,756
223
54,979366
55,345₩₩23,308
7,187
7,089
37,584454
38,038542
38,580Estimated loss Total
6,275
46,8582,628
1,315
57,0762,355
59,431
59,431₩₩₩₩

76,383
26,426392,841
87,137
2,101
2,084
8,390
595,362
3,064
598,426
50,216648,642( 2 ) T he changes in allowance for possible loan losses for the years ended December 31, 2007 and 2006 were as follows(Unit: In millions):
Classification

2007

Beginning balance
Provision for possible loan losses
Loans written-off
Repurchase of loan and others
Translation adjustments of overseas
Changes in present value discounts
Ending balance

₩

₩

2006
648,642304,777(355,998)
155,0291,840(594)
753,696₩₩

598,422
181,715(338,835)
218,052(4,684)(6,028)648,642( 3 ) T he allowance for possible loan losses compared to total loans, net of present value discount, was summarized asfollows (Unit: In millions):
Classification
Loans
Allowance for possible loan losses
Percentage (%)

December 31, 2007₩
55,705,353
704,074
1.26(*1) Call loans, bonds purchased under repurchase agreements and interbank loans in foreign currencies are excluded.
(*2) Present value discounts are excluded.

December 31, 2006₩
47,106,926
598,426
1.27

December 31, 2005₩
43,486,483
598,422
1.40

152

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

9.
Tangible assets( 1 ) Tangible assets as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification

2007₩
Tangible assets
Less: accumulated depreciation		
₩2006
1,666,440 ₩(756,551)		
909,889 ₩

1,623,937(732,969)
890,968( 2 ) Tangible assets as of December 31, 2007 and 2006 consisted of (Unit: In millions):<December 31, 2007>
Classification
Acquisition cost		LandConstruction
Leasehold improvements
Equipment and vehicles
Construction in progress

Accumulated
depreciation

377,328
513,696
104,236
651,519
19,661
1,666,440₩₩<December 31, 2006>
Classification
Acquisition cost		LandConstruction
Leasehold improvements
Equipment and vehicles₩₩(168,003)(68,611)(519,937)(756,551)

Accumulated
depreciation

379,224
503,585
90,746650,382
1,623,937₩₩

Book value₩₩

377,328
345,693
35,625131,582
19,661
909,889₩₩

Book value(157,962)(57,335)(517,672)(732,969)

379,224
345,623
33,411
132,710
890,968₩₩( 3 ) T he changes in book value of tangible assets for the year ended December 31, 2007 were as follows (Unit: In millions):
Classification
Beginning
Acquisition
Disposal
Depreciation Change in					foreign					currencies

EndingLand
Construction
Leasehold improvements
Equipment and vehicles
Construction in progress

₩

₩

₩

379,224
345,623
33,411
132,710
890,968₩₩

214
16,325
14,793
83,666
19,661
134,659(2,154)(2,857)(374)(3,606)(8,991)₩₩(13,405)(12,319)(81,581)₩ (107,305)
₩

₩

₩

44
7
114
393
558

₩

377,328
345,693
35,625131,582
19,661
909,889( 4 ) T he published value of the land was ₩696,977 million and ₩631,805 million as of December 31, 2007 and 2006,
respectively, based on the Laws on Disclosure of Land Price and Valuation of Land.
( 5 ) Tangible assets, which have been insured as of December 31, 2007 were as follows (Unit: In millions):
Type of insurance
Property composite

Asset insured

Insured balance Insurance company₩
Construction
Leasehold improvements		
Equipment and vehicles				₩

336,657 Hyundai Marine Fire Insurance
34,437		 Co., Ltd. and others
84,071
455,165

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

10.
Other assets

153( 1 ) Other assets as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification

2007

Guarantee deposits paid
Accounts receivable
Accrued income
Prepaid expenses
Deferred income tax assets (see Note 21)
Derivatives assets (see Note 16)
Intangible assets
Sundry assets₩

2006
624,768
5,931,028
320,582
10,81910,948786,570
81,0591,137,764
8,903,538₩

496,816
4,384,131
361,952
10,7448,366
630,829
82,300764,515
6,739,653₩₩( 2 ) Intangible assets as of December 31, 2007 and 2006 consisted of (Unit: In millions):<December 31, 2007>
Classification
Acquisition cost		
Development expenditures₩
Others (*)		
₩Accumulated
amortization

180,973 ₩
4,866		185,839 ₩Book value(100,702) ₩(4,078)		
(104,780) ₩80,271
788
81,059(*) The effect of exchange rate fluctuation is included.

<December 31, 2006>
Classification
Acquisition cost		
Development expenditures₩
Others (*)		
₩Accumulated
amortization

152,348 ₩5,396		157,744 ₩Book value(71,339) ₩(4,105)		
(75,444) ₩81,0091,291
82,300(*) The effect of exchange rate fluctuation is included.

( 3 ) The changes in intangible assets for the year ended December 31, 2007 were as follows (Unit: In millions):
Change in foreign
currencies

Classification
Beginning
Acquisition
Amortization				
Development expenditures₩
Others		₩

81,009 ₩1,291		82,300 ₩29,035 ₩29		
29,064 ₩(29,773) ₩(253)		
(30,026) ₩Ending- ₩(279)		
(279) ₩

80,271
788
81,059( 4 ) Sundry assets as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Suspense payments in Won
Suspense payments in foreign currencies
Deposited money
Cash sending to other banks
Domestic exchange settlement debits
Bills unsettled
Unsettled inter-office transaction
Others

2007
₩

₩

11.
Deposits

54,547
3,259
4,231
19,682
1,002,749
42,633
10,663
1,137,764

2006
₩

₩

39,178119
3,193
18,187300
644,466
46,917
12,155764,515( 1 ) Deposits as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Demand deposits
Time deposits
Negotiable certificates of deposits

2007
₩

₩

21,751,581
21,329,740
5,590,033
48,671,354

2006
₩

₩

20,286,701
17,543,485
3,973,754
41,803,940

154

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 2 ) Details of deposits as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification

2007

Demand deposits:
Demand deposits in Won
Demand deposits in foreign currencies
		Time deposits:
Time deposits in Won
Time deposits in foreign currencies
Mutual installment savings		
Negotiable certificates of deposits		

2006
17,949,291
3,802,290
21,751,581₩

14,829,065
6,396,506
104,169
21,329,740
5,590,033
48,671,354₩

16,566,943
3,719,758
20,286,701₩

12,759,759
4,603,142
180,584
17,543,485
3,973,754
41,803,940₩( 3 ) Deposits with financial institutions as of December 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
ClassificationBank		
Demand deposits:
Demand deposits in Won
Demand deposits in foreign currencies
Time deposits:
Savings deposits in Won
Savings deposits in foreign currencies
Negotiable certificates of deposits
		

₩

₩

Other financial
institution
2,196,375
395,004
90,000204,849
2,886,228<December 31, 2006>
ClassificationBank		
Demand deposits:
Demand deposits in Won
Demand deposits in foreign currencies
Time deposits:
Savings deposits in Won
Savings deposits in foreign currencies
Negotiable certificates of deposits
		

₩

₩

₩

₩

Foreign financial Total
institution

1,353,455
14,8303,780,311
133,619
165,625
5,447,840

Other financial
institution
614,720
388,3811,003,101₩₩

46,306
123,755₩

67,430237,491₩₩₩

3,596,136
533,589
3,937,741
133,619
370,474
8,571,559

Foreign financial Total
institution

1,254,034
13,677
1,368,611
210,291
2,282,801
5,129,414

29,551
171,235₩

28,350229,136₩₩₩

1,898,305
573,293
1,396,961
210,291
2,282,801
6,361,651( 4 ) Term structure of deposits as of December 31, 2007 was as follows (Unit: In millions):
Classification
Deposits in Won				

Deposits inforeigncurrencies

Due in less than one year
Due from one to three years
Due after three years

₩

₩

₩

12.
Borrowings

31,063,505
1,113,065
705,955
32,882,525₩

Negotiablecertificates ofdeposits

10,096,102
67,48335,211
10,198,796₩₩

5,541,060
48,759214
5,590,033

Total

₩

₩

46,700,667
1,229,307
741,380
48,671,354( 1 ) Borrowings as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification

2007

Call money
Bills soldBonds sold under repurchase agreements
Borrowings
Due to BOK in foreign currencies
Debentures
Less: Discount on debentures

₩

₩

2006
854,566
64,009444,762
7,968,927
8,855,629(38,660)
18,149,233₩₩

466,060
138,730
397,246
6,774,507
3,182
6,422,825(13,697)
14,188,853

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

155

( 2 ) Call money as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account

LenderAnnual interest rates (%)

2007

Call money in Won
Financial institution in Korea and others
4.75 ~ 5.24 ₩Call money in foreign currencies
Foreign financial institution and others
4.50 ~ 5.70 ₩
			 ₩

2006
39,700814,866
854,566₩₩₩

12,000454,060
466,060( 3 ) B ills sold, bonds sold under repurchase agreements and due to BOK in foreign currencies as of December 31, 2007
and 2006 consisted of the following (Unit: In millions):
Account

LenderAnnual interest rates (%)

2007

Bills soldGeneral customer
3.00 ~ 5.80 ₩Bonds sold under repurchase agreements General customer and others
3.30 ~ 6.90
Due to BOK in foreign currencies
BOK
-		
			 ₩

2006
64,009 ₩444,762		-		
508,771 ₩

138,730
397,246
3,182
539,158( 4 ) Borrowings as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account

LenderAnnual interest rates (%)

2007

Borrowings in Won:
Borrowings from the BOK
BOK3.25 ₩
Borrowings from the Korean
Ministry of Finance and Economy,
1.50 ~ 5.00				 government		 and others
Borrowings from banking
Industrial Bank of Korea and others
0.00 ~ 5.40		
		 institutions
Other borrowings
Small Business Corporation and others
2.00 ~ 5.20		
							Borrowings in foreign currencies:
Refinance
Korea Exim Bank and others
5.18 ~ 5.60		
Short term borrowing in foreign Foreign financial institution
0.98 ~ 11.10		
		 currencies
Middle and long term borrowing SMBC and others
4.82 ~ 5.74		
		 in foreign currencies
Borrowings from banks for sub-loan Industrial Bank of Korea and others
2.35 ~ 2.55		
Other borrowings
Foreign financial institution
2.71 ~ 9.25		
													 ₩

2006641,864 ₩282,046		

1,029,714
257,198

268,194		

272,028

571,118		
1,763,222		

534,690
2,093,630

541,341		
3,588,669		

395,080
2,385,952

847,961		

726,023

1,589		1,226,145		
6,205,705		
7,968,927 ₩

5,075
1,168,747
4,680,877
6,774,507( 5 ) I n the normal course of funding activities, the Bank provided securities as collateral for borrowings from the Bank of
Korea and other financial institutions as of December 31, 2007 (see Note 5).
( 6 ) Debentures
1) Debentures as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Account

Annual interest rate (%)

2007

Debentures in Won:
Finance debentures
4.88 ~ 6.70 ₩Subordinated financing debentures
4.90 ~ 6.75		
Hybrid debentures
8.50		
				
Discounts on debentures							
Debentures in foreign currencies:
Finance debentures
277 ~ 6.55		
Subordinated financing debentures
5.00		
				
Discounts on debentures			
				
			 ₩

2006
7,010,000 ₩
694,513		
250,000		
7,954,513		
(34,752)		
7,919,761		

4,470,000
1,292,554
250,000
6,012,554(10,235)
6,002,319

619,257		
281,859		
901,116		
(3,908)		
897,208		
8,816,969 ₩

140,203
270,068
410,271(3,462)406,8096,409,128

156

		

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

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

Expiration dateFeb. 19, 2002
Apr. 11, 2002
Apr. 16, 2002
Jun. 04, 2002
Jan. 17, 2005
Feb. 02, 2005
Feb. 03, 2005
Feb. 24, 2005
Mar. 14, 2005
Mar. 15, 2005
Mar. 16, 2005
Apr. 06, 2005
Apr. 14, 2005
Apr. 20, 2005
Apr. 27, 2005
Apr. 29, 2005
May 17, 2005
May 18, 2005
Aug. 03, 2005
Aug. 04, 2005
Aug. 12, 2005
Aug. 16, 2005
Aug. 31, 2005
Sep. 02, 2005
Sep. 06, 2005
Oct. 06, 2005
Oct. 26, 2005
Nov. 09, 2005
Nov. 11, 2005
Nov. 15, 2005
Nov. 15, 2005
Nov. 16, 2005
Nov. 17, 2005
Nov. 18, 2005
Nov. 21, 2005
Nov. 23, 2005
Nov. 24, 2005
Nov. 25, 2005
Nov. 28, 2005
Dec. 01, 2005
Dec. 02, 2005
Dec. 05, 2005
Dec. 06, 2005
Dec. 08, 2005
Dec. 13, 2005
Dec. 13, 2005
Dec. 14, 2005
Dec. 14, 2005
Dec. 19, 2005

Feb. 19, 2007
Apr. 11, 2007
Apr. 16, 2007
Jun. 04, 2007
Jan. 17, 2007
Feb. 02, 2007
Feb. 03, 2007
Feb. 24, 2007
Mar. 14, 2007
Mar. 15, 2007
Mar. 16, 2007
Apr. 06, 2007
Apr. 14, 2007
Apr. 20, 2007
Apr. 27, 2007
Apr. 29, 2007
May 17, 2007
May 18, 2007
Aug. 03, 2007
Aug. 04, 2007
Aug. 12, 2007
Aug. 16, 2007
Aug. 31, 2007
Mar. 02, 2007
Sep. 06, 2007
Apr. 06, 2007
Oct. 26, 2008
Nov. 09, 2007
May 11, 2007
May 15, 2007
Nov. 15, 2007
Nov. 16, 2007
Nov. 17, 2007
Nov. 18, 2007
Nov. 21, 2007
Nov. 23, 2007
May 24, 2007
Nov. 25, 2007
May 28, 2007
Dec. 01, 2007
Dec. 02, 2007
Dec. 05, 2007
Jun. 06, 2007
Dec. 08, 2007
Dec. 13, 2007
Jun. 13, 2007
Dec. 14, 2007
Jun. 14, 2007
Dec. 19, 2007

Annual interest rates (%)

2007

7.22 ₩
7.60		
7.60		
7.20		
3.93		
4.25		
4.23		
4.34		
4.23		
4.18		
4.16		
4.07		
4.05		
3.97		
3.96		
3.92		
3.86		
3.86		
4.40		
4.37		
4.40		
4.35		
4.35		
4.17		
4.29		
4.84		
5.32		
5.30		
5.10		
5.08		
5.32		
5.35		
5.30		
5.30		
5.30		
5.22		
5.00		
5.18		
5.00		
5.24		
5.26		
5.31		
5.14		
5.36		
5.18		
5.07		
5.14		
5.03		
5.14		

2006
- ₩
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
50,000		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		
-		

50,00010,00020,00050,00010,00050,00050,00050,00050,00050,00050,00050,00050,00050,00050,000100,000
50,00050,00050,00030,00040,00040,00050,00030,00050,00050,00050,00050,00020,00010,00040,00050,00010,00050,00050,00040,00010,00040,00050,00050,00050,00020,00050,00050,00040,00010,00040,00010,00030,000Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

Issued date

Expiration date

Dec. 19, 2005
Dec. 20, 2005
Dec. 23, 2005
Dec. 26, 2005
Dec. 27, 2005
Dec. 28, 2005
Dec. 28, 2005
Dec. 29, 2005
Jan. 03, 2006
Jan. 03, 2006
Jan. 04, 2006
Jan. 09, 2006
Jan. 11, 2006
Jan. 12, 2006
Jan. 13, 2006
Jan. 16, 2006
Jan. 17, 2006
Feb. 08, 2006
Apr. 04, 2006
Apr. 04, 2006
Apr. 05, 2006
Apr. 06, 2006
Apr. 06, 2006
Apr. 10, 2006
Apr. 11, 2006
Apr. 11, 2006
Apr. 12, 2006
Apr. 12, 2006
Apr. 14, 2006
Apr. 18, 2006
Apr. 19, 2006
Apr. 25, 2006
Apr. 27, 2006
Apr. 28, 2006
May 02, 2006
May 03, 2006
May 03, 2006
May 08, 2006
May 11, 2006
May 11, 2006
May 12, 2006
May 16, 2006
May 17, 2006
May 19, 2006
Jul. 04, 2006
Jul. 05, 2006
Jul. 06, 2006
Jul. 19, 2006
Jul. 26, 2006
Nov. 13, 2006
Nov. 17, 2006

Jun. 19, 2007
Dec. 20, 2007
Dec. 23, 2007
Dec. 26, 2007
Dec. 27, 2007
Dec. 28, 2007
Jun. 28, 2007
Dec. 29, 2007
Jul. 03, 2007
Jan. 03, 2008
Jan. 04, 2008
Jul. 09, 2007
Jan. 11, 2008
Jul. 12, 2007
Jan. 13, 2008
Jul. 16, 2007
Jul. 17, 2007
Feb. 08, 2008
Apr. 04, 2008
Oct. 04, 2007
Apr. 05, 2008
Oct. 06, 2007
Apr. 06, 2007
Oct. 10, 2007
Apr. 11, 2008
Oct. 11, 2007
Apr. 12, 2008
Oct. 12, 2007
Apr. 14, 2007
Oct. 18, 2007
Apr. 19, 2008
Apr. 25, 2008
Oct. 27, 2007
Oct. 28, 2007
Nov. 02, 2007
May. 03, 2008
Nov. 03, 2007
May 08, 2008
May 11, 2008
Nov. 11, 2007
May 12, 2008
May 16, 2008
May 17, 2008
May 19, 2008
Jul. 04, 2008
Jul. 05, 2008
Jul. 06, 2008
Jul. 19, 2008
Jan. 26, 2008
Nov. 13, 2009
Nov. 17, 2009

Annual interest rates (%)

2007

5.01 ₩
5.10		
5.16		
5.18		
5.18		
5.17		
5.00		
5.22		
5.08		
5.27		
5.18		
5.01		
5.20		
4.94		
5.10		
4.92		
4.95		
5.06		
5.04		
4.91		
5.03		
4.89		
4.73		
4.88		
5.01		
4.87		
5.00		
4.87		
4.77		
4.94		
5.07		
5.01		
4.87		
4.84		
4.85		
4.96		
4.87		
4.93		
4.91		
4.83		
4.91		
4.94		
4.91		
4.88		
5.05		
5.02		
5.00		
5.03		
4.99		
5.03		
4.89		

157

2006
- ₩
-		
-		
-		
-		
-		
-		
-		
-		
30,000		
40,000		-		
50,000		-		
50,000		-		-		
50,000		
30,000		-		
50,000		
-		
-		
-		
20,000		-		
40,000		
-		
-		
-		
50,000		
50,000		
-		
-		
-		
10,000		-		
50,000		
30,000		-		
50,000		
50,000		
50,000		
50,000		
50,000		
50,000		
50,00050,000		
50,000		
50,000		
50,000		

20,00050,00020,00050,00050,00040,00010,00050,00020,00030,00040,00010,00050,00010,00050,00010,00010,00050,00030,00020,00050,00020,00030,00050,00020,00010,00040,00010,00050,00010,00050,00050,00030,00050,00030,00010,00020,00050,00030,00020,00050,00050,00050,00050,00050,00050,00050,00050,00050,00050,00050,000158

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

Issued date

Expiration date

Dec. 04, 2006
Dec. 06, 2006
Dec. 06, 2006
Dec. 08, 2006
Dec. 11, 2006
Dec. 12, 2006
Dec. 13, 2006
Dec. 14, 2006
Dec. 15, 2006
Dec. 18, 2006
Dec. 19, 2006
Dec. 20, 2006
Dec. 20, 2006
Dec. 21, 2006
Dec. 28, 2006
Jan. 09, 2007
Jan. 10, 2007
Jan. 11, 2007
Jan. 16, 2007
Jan. 17, 2007
Jan. 18, 2007
Jan. 18, 2007
Jan. 19, 2007
Jan. 25, 2007
Jan. 25, 2007
Jan. 26, 2007
Feb. 05, 2007
Feb. 06, 2007
Feb. 06, 2007
Feb. 09, 2007
Feb. 14, 2007
Feb. 14, 2007
Feb. 15, 2007
Feb. 15, 2007
Feb. 16, 2007
Feb. 23, 2007
Feb. 28, 2007
Mar. 02, 2007
Mar. 09, 2007
Mar. 12, 2007
Mar. 15, 2007
Mar. 15, 2007
Mar. 16, 2007
Mar. 23, 2007
Mar. 27, 2007
Mar. 27, 2007
Mar. 27, 2007
Mar. 27, 2007
Mar. 29, 2007
Apr. 03, 2007
Apr. 18, 2007

Dec. 04, 2008
Dec. 06, 2008
Dec. 06, 2009
Dec. 08, 2008
Dec. 11, 2009
Dec. 12, 2008
Dec. 13, 2008
Dec. 14, 2008
Dec. 15, 2008
Dec. 18, 2008
Dec. 19, 2008
Dec. 20, 2007
Dec. 20, 2008
Dec. 21, 2007
Dec. 28, 2007
Jan. 09, 2009
Jan. 10, 2010
Jan. 11, 2010
Jan. 16, 2008
Jan. 17, 2009
Jan. 18, 2009
Jan. 18, 2010
Jan. 19, 2009
Jan. 25, 2009
Jan. 25, 2010
Jan. 26, 2010
Feb. 05, 2010
Feb. 06, 2008
Aug. 06, 2008
Feb. 09, 2010
Feb. 14, 2008
Aug. 14, 2008
Feb. 15, 2008
Aug. 15, 2008
Aug. 16, 2008
Aug. 23, 2008
Feb. 28, 2010
Mar. 02, 2008
Mar. 09, 2008
Mar. 12, 2008
Mar. 15, 2008
Mar. 15, 2009
Mar. 16, 2009
Sep. 23, 2008
Mar. 27, 2008
Mar. 27, 2009
Mar. 27, 2009
Mar. 27, 2010
Sep. 29, 2008
Apr. 03, 2009
Oct. 18, 2008

Annual interest rates (%)

2007

4.94 ₩
4.92		
4.98		
4.89		
5.00		
4.96		
4.95		
4.97		
4.99		
5.04		
5.00		
4.95		
5.02		
4.96		
4.83		
5.07		
5.10		
5.09		
5.09		
5.15		
5.17		
5.20		
5.16		
5.20		
5.23		
5.47		
5.23		
5.10		
5.14		
5.14		
5.09		
5.11		
5.05		
5.06		
5.05		
5.03		
5.05		
5.03		
5.00		
5.03		
5.03		
5.06		
5.05		
5.02		
5.01		
5.03		
5.21		
5.26		
5.02		
5.05		
5.11		

2006
10,000 ₩10,000		
40,000		
30,000		
50,000		
50,000		
50,000		
50,000		
120,000		
20,000		
50,000		-		
20,000		-		-		
50,000		
50,000		
50,000		
40,000		
50,000		
20,000		
30,000		
50,000		
20,000		
30,000		
30,00050,000		
10,000		
30,000		
50,000		
40,000		
10,000		
30,000		
60,000		
20,00010,000		
30,000		
10,000		
40,000		
30,000		
30,000		
20,000		
50,000		
70,000		
20,000		
30,000		
40,000		
10,000		
10,00050,000		
10,000		

10,00010,00040,00030,00050,00050,00050,00050,000120,000
20,00050,00030,00020,00090,00050,000-Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

Issued date

Expiration date

Apr. 19, 2007
Apr. 24, 2007
May 02, 2007
May 03, 2007
May 08, 2007
May 08, 2007
May 09, 2007
May 14, 2007
May 14, 2007
May 15, 2007
May 15, 2007
May 16, 2007
May 17, 2007
May 21, 2007
May 21, 2007
May 23, 2007
May 25, 2007
May 29, 2007
May 30, 2007
Jun. 01, 2007
Jun. 05, 2007
Jun. 13, 2007
Jun. 15, 2007
Jun. 18, 2007
Jun. 26, 2007
Jun. 28, 2007
Jul. 10, 2007
Jul. 11, 2007
Jul. 16, 2007
Jul. 16, 2007
Jul. 18, 2007
Jul. 19, 2007
Jul. 24, 2007
Jul. 24, 2007
Jul. 25, 2007
Jul. 26, 2007
Jul. 26, 2007
Jul. 30, 2007
Jul. 31, 2007
Jul. 31, 2007
Aug. 01, 2007
Aug. 03, 2007
Aug. 03, 2007
Aug. 08, 2007
Aug. 09, 2007
Aug. 14, 2007
Aug. 23, 2007
Aug. 24, 2007
Aug. 28, 2007
Aug. 29, 2007
Sep. 10, 2007

Oct. 19, 2008
Oct. 24, 2008
May 02, 2009
Nov. 03, 2008
May 08, 2008
May 08, 2009
May 09, 2009
May 14, 2008
May 14, 2010
May 15, 2008
May 15, 2009
May 16, 2010
May17, 2010
May 21, 2009
May 21, 2010
May 23, 2010
May 25, 2010
May 29, 2008
May 30, 2010
Jun. 01, 2010
Jun. 05, 2009
Jun. 13, 2010
Dec. 15, 2008
Jun. 18, 2009
Jun. 26, 2009
Jun. 28, 2010
Jul. 10, 2009
Jul. 11, 2009
Jul. 16. 2008
Jan. 16, 2009
Jul. 18, 2008
Jan. 19, 2009
Jan. 24, 2009
Jul. 24, 2010
Jul. 25, 2010
Jan. 26, 2009
Jul. 26, 2009
Jul. 30, 2010
Jul. 31, 2009
Jul. 31, 2010
Aug. 01, 2009
Aug. 03, 2009
Aug. 03, 2010
Feb. 08, 2009
Aug. 09, 2009
Aug. 14, 2010
Aug. 23, 2010
Aug. 24, 2010
Aug. 28, 2008
Aug. 29, 2008
Sep. 10, 2010

Annual interest rates (%)

2007

5.10 ₩
5.15		
5.24		
5.20		
5.18		
5.24		
5.27		
5.22		
5.32		
5.24		
5.28		
5.35		
5.36		
5.33		
5.39		
5.38		
5.67		
5.22		
5.36		
5.37		
5.28		
5.49		
5.35		
5.39		
5.40		
5.44		
5.50		
5.50		
5.40		
5.40		
5.41		
5.53		
5.52		
5.60		
5.61		
5.51		
5.55		
5.53		
5.48		
5.53		
5.45		
5.44		
5.48		
5.32		
5.57		
5.58		
5.65		
5.67		
5.50		
5.50		
5.77		

159

2006
20,000 ₩20,000		
50,000		
30,000		
10,000		
10,000		
20,000		
10,00040,00010,00020,000		
50,000		
50,000		
20,000		
30,000		
100,000		
40,000		
50,000		
50,000		
50,000		
50,000		
50,000		
50,000		
30,000		
50,000		
50,000		
50,000		
50,000		
40,000		
10,000		
40,000		
50,000		
30,000		
20,000		
50,000		
40,000		
10,000		
30,000		
20,000		
30,000		
20,000		
40,000		
10,000		
10,000		
40,000		
10,000		
30,000		
50,000		
10,000		
10,000		
200,000		

-160

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

Issued date

Expiration date

Annual interest rates (%)

2007

Sep. 17, 2007
Sep. 17, 2009
6.00 ₩
Sep. 17, 2007
Sep. 17, 20106.06		
Sep. 20, 2007
Sep. 20, 2008
5.64		
Sep. 27, 2007
Sep. 27, 2008
5.65		
Oct. 02, 2007
Apr. 2, 20095.77		
Oct. 09, 2007
Oct. 9, 2008
5.65		
Oct. 09, 2007
Apr. 9, 20095.77		
Oct. 10, 2007
Oct. 10, 20105.93		
Oct. 11, 2007
Oct. 11, 2008
5.65		
Oct. 11, 2007
Apr. 11, 20095.78		
Oct. 12, 2007
Apr. 12, 20095.80		
Oct. 16, 2007
Apr. 16, 20095.81		
Oct. 17, 2007
Apr. 17, 20095.80		
Oct. 18, 2007
Oct. 18, 20095.84		
Oct. 18, 2007
Oct. 18, 20105.91		
Oct. 23, 2007
Oct. 23, 20105.84		
Oct. 24, 2007
Oct. 24, 2008
5.65		
Oct. 24, 2007
Oct. 24, 20095.78		
Oct. 25, 2007
Oct. 25, 2008
5.65		
Oct. 26, 2007
Apr. 26, 20095.74		
Oct. 29, 2007
Oct. 29, 2010
5.69		
Oct. 29, 2007
Apr. 29, 20095.76		
Oct. 30, 2007
Oct. 30, 20085.70		
Oct. 30, 2007
Apr. 30, 20095.76		
Nov. 02, 2007
Nov. 02, 20095.86		
Nov. 05, 2007
Nov. 05, 2008
5.72		
Nov. 06, 2007
Nov. 06, 2008
5.72		
Nov. 08, 2007
Nov. 08, 20105.88		
Nov. 14, 2007
Nov. 14, 20105.94		
Nov. 23, 2007
Nov. 23, 20106.22		
Nov. 26, 2007
Nov. 26, 20106.25		
Nov. 30, 2007
Nov. 30, 2010
6.63		
Dec. 05, 2007
Dec. 05, 2010
6.70		
Dec. 17, 2007
Dec. 17, 2008
6.33		
						 ₩

200620,000 ₩20,000		
50,000		
50,000		
50,000		
10,000		
20,000		
200,000		
24,000		
26,00050,000140,000		
50,000		
30,000		
70,000		
10,000		
10,000		
40,000		
40,000		
20,000		
40,000		
30,000		
190,000		
30,000		
40,000		
50,000		
10,000		
200,000		
50,000		
70,000		
260,000		
170,000		
140,000		
110,000		
7,010,000 ₩

4,470,000

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

161

3) Finance debentures issued in foreign currencies as of December 31, 2007 and 2006 consisted of (Unit: In
thousands of U.S. dollars, in millions of Won):
First underwriter
Issued date
Expiration date			Annual interest
rate (%)

2007

2006

- ₩
22,310
BNP Paribas, HSBC
Dec. 23, 2005
Dec. 23, 2007
- ₩							
(US$24,000)
BNP Paribas, HSBC
Dec. 23, 2005
Dec. 23, 2008
4.89		
45,034
44,621
					(US$48,000)(US$48,000)
BNP Paribas
Mar. 13, 2006
Mar. 12, 2007
-		-		39,376							
(US$42,358)
SMBC Bank Seoul
Jun. 07, 2006
Jun. 07, 2007
-		
-		
7,788
							
(US$8,378)
SMBC Bank Seoul
Jun. 26, 2006
Jun. 26, 2007
-		
-		
7,788
							
(US$8,378)
DBS (*1)
Jan. 25, 2007
Jan. 25, 2008
2.77		
32,447							(US$34,585)
BOA (*2)
Feb. 16, 2007
Feb. 19, 2008
4.65		
18,760							(US$19,999)
HSBC (*3)
Mar. 14, 2007
Mar. 14, 2008
4.48		
46,901		
					(US$49,998)
NH Investment & Securities
Korea Investment & Securities
Jul. 13, 2007
May 25, 20105.98		
37,528							(US$40,000)
CalyonJul. 20, 2007
Jul. 20, 2012
5.51		
281,460		
					 (US$300,000)
NAB (*4)
Oct. 15, 2007
Oct. 15, 20095.87		
24,052		
					(US$25,640)
MIZUHO
Oct. 29, 2007
Oct. 29, 20095.21		
46,910					(US$50,000)
MIZUHO
Oct. 30, 2007
Oct. 30, 20095.20		
18,764							(US$20,000)
NAB (*5)
Nov. 05, 2007
Nov. 05, 2008
4.40		
45,699							(US$48,716)
NAB (*6)
Nov. 07, 2007
Nov. 07, 2008
4.49		
19,242		
					(US$20,512)
Others-		2,460		18,320					(US$2,622)		
(US$19,706)
619,257 ₩
140,203				 ₩
					 (US$660,072)		 (US$150,820)(*1) Issued in Singapore dollar (SGD) amounting to SGD 50 million(*2) Issued in Hong Kong dollar (HKD) amounting to HKD 156 million(*3) Issued in Hong Kong dollar (HKD) amounting to HKD 390 million(*4) Issued in Hong Kong dollar (HKD) amounting to HKD 200 million(*5) Issued in Hong Kong dollar (HKD) amounting to HKD 380 million(*6) Issued in Hong Kong dollar (HKD) amounting to HKD 160 million

162

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

4) Subordinated debentures as of December 31, 2007 and 2006 were as follows (Unit: In thousands of U.S.
dollars, in millions of Won):
Classification
Issued date
Expiration date			Annual interest
rate (%)

2007

2006

Debentures in Won:
General saleFeb. 28, 2000
Feb. 28, 2005
- ₩
- ₩
50
General sale
May. 28, 2001
Feb. 28, 2007
-		2,009		400,000
General saleNov. 28, 2001
Feb. 28, 2007-		-		
200,000
General sale
Oct. 28, 2002
Jan. 28, 2008
6.75		
200,000		
200,000
General saleMar. 28, 2003
Dec. 28, 2008
5.80		
242,504		
242,504
Underwriting sale (*1)
Oct. 21, 2004
Oct. 21, 20145.10		
170,000		
170,000
General sale (*1)
Nov. 28, 2004
Nov. 28, 20144.90		
80,000		
80,000						
694,513		
1,292,554
Debentures in foreign currencies:
CITI group & HSBC (*1,*2)
Jun. 10, 2005
Jun. 10, 2015
5.00		
281,859		
270,068						 (US$300,426)		 (US$290,521)
					 ₩
976,372 ₩
1,562,622(*1) After 5 years from issuance date, the optional early redemption right is able to be exercised by the Bank.
(*2) The first underwriters

In addition, certain subordinated debentures are under swap contracts in order to hedge risks from changes in interest rates andexchange rates. Loss on valuation of derivatives amounting to ₩9,293 million was accounted for in connection to such contracts for the year ended
December 31, 2007.
5) As of December 31, 2007, Hybrid Tier 1 bond was as follows (Unit: In millions):
Classification
Issued period (*2)
		Hybrid debentures 1st (*1)

Annual interest
rate (%) (*3)

May 28, 2003 ~May 28, 2033

Balance8.50

250,000₩(*1) After 5 years from issuance date, call option can be exercised under the authorization of the Governor of the Financial Supervisory Service.
(*2) After expiration, the bond can be extended under the same terms.
(*3) After 10 years from issuance date, the interest rate increases to 10.0%.

( 7 ) Term structure of borrowings as of December 31, 2007 was as follows (Unit: In millions):
Classification

Borrowing inWon

Due in less than one year
Due from one to three years
Due after three years₩₩

768,495
235,415759,312
1,763,222

Borrowing in
Debentures inforeign currencies Won₩₩

6,070,976
134,729
6,205,705₩₩

3,258,513
4,196,000
500,000
7,954,513

Debentures in
Total
foreign currencies₩₩

210,543
127,254563,319
901,116₩₩

10,308,527
4,693,398
1,822,631
16,824,556

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

13.
Other liabilities

163( 1 ) Other liabilities as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Accounts payable
Accrued expenses (see Notes 16 and 18)
Unearned revenues
Guarantee money received
Accrued payable foreign exchange
Deferred income tax liabilities
Derivatives instruments liabilities (see Note 16)
Due to trust accounts
Accrued severance benefits (see Note 3)
Less: Funds converted to National Pension
Less: Due to retirement insurance
Liability reserve for acceptances and guarantees
Liability reserve for unused credit limit
Allowance for other liabilities (see Note 16)
Sundry liabilities

2007
₩

₩

6,235,955
743,056
93,497
214,429
338,981
173,867
805,501
609,298
265,369(743)(184,198)
56,085
196,813108,259
1,783,547
11,439,716

2006
₩

₩

4,684,241
699,250
67,360215,174
298,785
139,606
772,489
327,760
223,694(776)(172,138)
41,142
172,349
206,359
1,410,399
9,085,694( 2 ) Accrued severance benefits
The changes in accrued severance benefits for the years ended December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification
Beginning
Provision (see Note 18)
Payment (*)
Foreign currencies translation

2007₩

Funds Converted to National Pension
Due to Retirement Insurance₩

223,694
58,137(16,597)135
265,369(743)(184,198)
80,4282006₩₩

177,037
56,329(9,517)(155)
223,694(776)(172,138)
50,780(*) The payment of severance benefits amounting to ₩427 million for the nine month ended December 31, 2007 is accounted as accounts payable.

As of December 31, 2007, parts of severance benefits were contributed to pension funds of Samsung Life Insurance Co., Ltd.
( 3 ) Liability reserve for acceptances and guarantees
1) Acceptances and guarantees as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification
Confirmed acceptances and guarantees in Won:
Payment guarantee for issuance of debentures
Acceptances for letters of guarantee for importers
Payment guarantee for loans
Others		
Confirmed acceptances and guarantees in foreign currencies:
Acceptances on letters of credit
Acceptances for letters of guarantee for importers
Credit derivatives-sold
Others		
Unconfirmed acceptances and guarantees:
Letters of credit
Others		
Bills endorsed
		

2007
₩

₩

2006
2,253
719
70,6581,650,183
1,723,813

₩

1,034
975
64,555623,525
690,089

280,958
116,944
47,4893,212,635
3,658,026

252,443
98,727
18,592
1,739,551
2,109,313

4,793,835
20,131
4,813,966
62,165
10,257,970

3,627,527
14,354
3,641,881
63,486
6,504,769₩

164

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

2) The classification of asset quality for acceptances and guarantees and liability reserve for acceptancesand guarantees as of December 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
Classification
NormalPrecautionary Substandard Doubtful
Estimated
Total
					
loss		
														Confirmed acceptances
Unconfirmed acceptances
Bills endorsed₩ 5,373,439 ₩
4,806,173
62,165₩10,241,777 ₩

7,485
3,159
10,644

20
4,522
4,542

₩

₩

₩

₩

748
35
783

147
77
224

₩

₩

Liability
reserve for
acceptancesand guarantees₩ 5,381,839 ₩
4,813,966
62,165₩10,257,970 ₩<December 31, 2006>
Classification
NormalPrecautionary Substandard Doubtful
Estimated
Total
					
loss		
														Confirmed acceptances
Unconfirmed acceptances
Bills endorsed₩ 2,737,964
3,560,363
63,486₩ 6,361,813

57,79874,532₩ 132,330
₩

21
6,971
6,992

₩

₩

₩

₩

91
4
95

₩

₩

3,528
11
3,539

46,6338,923
529
56,085

Liability
reserve for
acceptancesand guarantees₩ 2,799,402
3,641,881
63,486₩ 6,504,769₩₩

32,4568,242
444
41,142

3) Acceptances and guarantees, by industry, except for the portion of overseas branches as of December 31,
2007 and 2006 were as follows (Unit: In millions):

By industry
Manufacturing
Wholesale/retail
Construction
Finance
Telecommunication
Others2007		
Balance
Percentage (%)₩

Confirmed acceptance and guarantees in overseas branches₩

2006
Balance

3,253,373
63.23 ₩
608,254
11.82
641,312
12.46
284,857
5.54
18,6350.36
339,070
6.59
5,145,501
100.00236,338		
5,381,839		 ₩

Percentage (%)

1,371,939
467,820294,609210,253
20,181
286,973
2,651,775
147,627
2,799,402

51.74
17.64
11.11
7.93
0.76
10.82
100.004) Confirmed acceptances and guarantees in foreign currencies, by country, as of December 31, 2007 and 2006
were as follows (Unit: In thousands of U.S. Dollars, in millions of Won):<December 31, 2007>
By country

Korea
TaiwanFranceUSA
Singapore
OthersConfirmed acceptances Translationand guarantees in
into Won
foreign currencies (*)
US$

US$

3,391,350
75,633
69,25258,81740,480263,451
3,898,983₩₩(*) Foreign currencies other than U.S. dollars were converted into U.S. dollars at the basic rates of exchange at balance sheet dates.

Percentage (%)

3,181,765
70,95964,972
55,182
37,978247,1703,658,026

86.97
1.94
1.78
1.51
1.04
6.76
100.00165

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

<December 31, 2006>
By country

Korea
FranceGermany
UK
USA
Japan
OthersConfirmed acceptances Translationand guarantees in
into Won
foreign currencies (*)
US$

US$

1,888,127
51,35041,226
26,54088,35027,451
146,0102,269,054₩₩

Percentage (%)

1,755,203
47,73538,324
24,672
82,13025,518135,7312,109,313

83.22
2.26
1.82
1.17
3.89
1.21
6.43
100.00(*) Foreign currencies other than U.S. dollars were converted into U.S. dollars at the basic rates of exchange at balance sheet dates.

5) The percentage of liability reserve for acceptances and guarantees as of December 31, 2007, 2006 and 2005
was as follows (Unit: In millions):
Classification

Acceptances andguarantees

Dec. 31, 2007
Dec. 31, 2006
Dec. 31, 2005₩

10,257,971
6,504,769
5,829,430

Liability reserve₩

Percentage (%)

56,085
41,142
41,336

0.55
0.63
0.71

( 4 ) Liability reserve for unused credit limit
The Bank accrued reserve for estimated potential losses on unused credit limit considering the credit conversion factor based on the newstandard of the Bank for International Settlements Accord by applying the same methodology that was used to determine the allowance for loan
losses since 2005. The calculation of liability reserve for unused credit limit as of December 31, 2007 and 2006 was as follows (Unit: In millions):<December 31, 2007>
Classification
Limit (a)Balance (b)						Allowance (c) = Liability reserve(a-b) x credit
for unused
conversion factor credit limit (d)Card loans₩ 15,508,197 ₩2,006,812 ₩
6,750,429 ₩Loans to enterprise
65,471,645
25,102,582
9,762,067
Loans to household
3,405,898
1,429,844
398,239
Loans to public and others
133,939
83,246
10,139		₩ 84,519,679 ₩ 28,622,484 ₩ 16,920,874		
Subsidiaries								Liability reserve for unused credit limit							 ₩<December 31, 2006>
Classification
Limit (a)Balance (b)						106,962
85,093
3,982
86
196,123690
196,813

Allowance (c) = Liability reserve(a-b) x credit
for unused
conversion factor credit limit (d)Card loans₩ 14,831,100 ₩1,911,563 ₩6,459,424 ₩Loans to enterprise
55,145,872
18,377,572
8,646,210
Loans to household
2,922,734
1,165,632
358,421Loans to public and others
14,955
7,332
1,525
		
₩ 72,914,661 ₩ 21,462,099 ₩ 15,465,580		
Subsidiaries								Liability reserve for unused credit limit							 ₩102,003
65,831
3,584
11
171,429920
172,349

166

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 5 ) Allowance for other liabilities
Allowance for other liabilities as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification
Reserve for tax probe (see Note 16)
Reserve for money-back point & yes-point
Reserve for litigation (see Note 16)
Reserve for employees‘ accident (*1)
Compensation to customers related to Won & Yen swap (see Note 16)
Provision for severance and early retirement benefits (*2)
Others (*3)

2007₩

21,20352,268600
17,741
12,172
4,275
108,259₩

2006₩

133,953
20,325
17,926
3,950
30,205
206,359₩(*1) Provision was made for 2 suspense payment, which occurred in connection with employees‘ illegal act such as embezzlement.
(*2) The Bank reserved the provision for severance and early retirement benefits for voluntary retirees who have worked for more than 15 years and are more than 40 years old.
(*3) T he Bank reversed the allowance for other liabilities amounting to ₩18,149 million as it won the lawsuit of a claim for refund of disposal deposit of Hanbo Steel. The Bank also
reversed the allowance amounting to ₩3,218 million as escrow deposit of KP Chemical Co., Ltd.

( 6 ) Sundry liabilities
Sundry liabilities as of December 31, 2007 and 2006 consisted of (Unit: In millions):
Classification

2007₩

Suspense receipt
Withholding taxes
Agency business accounts
AgencyCredit control deposits
Guarantee deposits for securities subscription
Domestic exchange settlements credits
Domestic remittance payable
Others

256,757
32,193
93,251820,170
2,150
14,999536,596
16,896
10,535
1,783,547₩

14.
Shareholders’equity2006₩

113,088
28,32480,582
461,139
1,700
17,592
692,316
5,459
10,1991,410,399₩( 1 ) Capital stock
Capital stock as of December 31, 2007 and 2006 was as follows (Unit: in millions except par share amounts):
Classification

2007

Shares authorized		₩Par share (In currency units)
Shares issued		₩Common stock2006
1,000,000,000
5,000
644,906,826
3,224,534₩₩

1,000,000,000
5,000
644,906,826
3,224,534( 2 ) Capital adjustments
Changes in capital adjustments for the year ended December 31, 2007 were as follows (Unit: In millions):

Stock option

Beginning₩
18,862

Increase₩
5,417

Decrease (*)₩(24,279)

Ending₩-(*) Represents exercise of stock option amounting to ₩6,499 million for the year ended December 31, 2007 and reclassification to accrued expenses amounting to ₩17,780 million.

In accordance with SKAS No.22, Share-Based Payment, the stock compensation costs, which had been recorded in capital adjustment
was reclassified as other liabilities since the Bank had settled stock option by cash payment in the last two years and was assessed at fair value(intrinsic value for stock option granted before December 31, 2006). As a result, stock compensation costs were decreased by ₩285 million for theyear ended December 31, 2007.

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

167

( 3 ) Accumulated other comprehensive income
The changes in accumulated other comprehensive income for the year ended December 31, 2007 were as follows (Unit: In millions):
Classification
Beginning
Changes
Disposal				Gain (loss) on valuation of available-for-sale securities ₩Gain (loss) on valuation of held-to-maturity securities		
₩

1,123,734 ₩(773)		1,122,961 ₩(2,278) ₩566		
(1,712) ₩Deferredincome tax(38,145) ₩-		(38,145) ₩Ending11,116 ₩(156)		10,960 ₩1,094,427(363)
1,094,064( 4 ) Statements of comprehensive income
Comprehensive income consists of all changes in equity during a period from transactions and other events except those resulting
from investments by owners and distributions to owners. Comprehensive income for the year ended December 31, 2007 was as follows (Unit: In
millions):
Classification

2007₩
Net income
Effect of exchange rate fluctuation
Retained earnings on trust accounts		
Other comprehensive income:₩Gain on valuation of available-for-sale securities (Effect of income tax : 11,116)
Gain on valuation of held-to-maturity securities (Effect of income tax : (156)₩Comprehensive income₩
Controlling company‘s comprehensive income
Minority‘s comprehensive income		

961,1432,290(391)(29,307)410
934,145933,968177( 5 ) Retained earnings
Retained earnings as of December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification

2007₩

Legal reserve (*1)
Other reserves (*2)
Unappropriated retained earnings

196,500
39,3792,119,898
2,355,777

₩

2006
₩

₩

35,5162,000,863
2,036,379(*1) T he Korean Banking Law requires a bank to appropriate at least 10 percent of net income after income tax to legal reserve, until such reserve equals 100 percent of its paid-in
capital. This reserve is not available for payment of cash dividends; however, it can be used to reduce deficit or be transferred to capital.
(*2) R elevant Japanese regulations require the Bank‘s overseas branches located in Japan to appropriate a minimum of 10 percent of annual income after income tax as a legal
reserve, until such reserve equals ¥2,000 million. This reserve is not available for the payment of cash dividends and may be utilized upon liquidation of the Japanese branches.
Singapore and Hanoi branches‘ statutory reserves are included in other statutory reserves. In addition, it includes futures transaction reserves by the Act of futures transactionand electronic commerce accident reserve by the Act of electronic commerce reserved by KEBFC.

15.
Share-based
payment( 1 ) The details of the stock options as of December 31, 2007 were as follows (Unit: share, in Won):
Grant dateMar. 13, 2001
Mar. 30, 2002 (*)
Aug. 26, 2002
Mar. 31, 2003 (*)
Sep. 04, 2003 (*)
Sep. 16, 2003
Feb. 13, 2004
Mar. 07, 2005
Jun. 29, 2005
Mar. 07, 2006
Aug. 01, 2006
Mar. 08, 2007
Mar. 29, 2007
Mar. 29, 2007
Aug. 10, 2007

Stock option
granted
547,000
32,020725,000
101,401
53,369120,000
2,390,000
1,355,000
200,000
400,000
200,000
1,090,000
100,000
530,000
380,000
8,223,790

Stock option Stock option
expired to date exercised(24,015)(421,850)(120,000)(567,770)(338,525)(63,230)(100,850)(35,000)(72,510)(1,743,750)(547,000)(220,150)(972,760)(178,515)(15,880)(1,934,305)

Stock option
outstanding
8,005
83,000101,401
53,369849,470
837,960
120,890299,150
165,000
1,017,490
100,000
530,000
380,000
4,545,735

Exercise
price
₩

5,000
70,7156,300
13,266
15,533
5,000
7,000
8,800
9,000
13,30011,90013,90014,50014,50013,900Exercise period
Mar. 14, 2004~Mar. 13, 2007
Mar. 31, 2005~Mar. 30, 2008
Aug. 27, 2005~Aug. 26, 2008
Apr. 01, 2006~Mar. 31, 2009
Sep. 05, 2006~Sep. 04, 2009
Sep. 17, 2006~Sep. 16, 2009
Feb. 14, 2006~Feb. 13, 2009
Mar. 08, 2007~Mar. 07, 2010
Jun. 30, 2007~Jun. 29, 2010
Mar. 08, 2008~Mar. 07, 2011
Aug. 02, 2008~Aug. 01, 2011
Mar. 09, 2009~Mar. 08, 2012
Mar. 30, 2009~Mar. 29, 2012
Mar. 30, 2009~Mar. 29, 2012
Aug. 11, 2009~Aug. 10, 2012(*) Granted from KEBCS prior to the merger with the Bank. Exercise price per share and the shares outstanding were adjusted based on the merger ratio.

168

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

When the stock options are exercised, the Bank has the option to settle either through issuance of new shares or treasury stock, or
through payment of cash equivalent to the difference between the market price and the exercise price. The number of exercisable stock option isdetermined in accordance with the management performance and the calculation criteria of the number of exercisable shares.
( 2 ) Assumption to value stock compensation cost as of December 31, 2007 was as follows (Unit: In Won):
Grant date

Risk freerate (%)
		Mar. 30, 2002 (*1)
Aug. 26, 2002
Mar. 31, 2003 (*1)
Sep. 04, 2003 (*1)
Sep. 16, 2003
Feb. 13, 2004
Mar. 07, 2005
Jun. 29, 2005
Mar. 07, 2006
Aug. 01, 2006
Mar. 08, 2007 (*2)
Mar. 29, 2007 (*2)
Mar. 29, 2007 (*2)
Aug. 10, 2007 (*2)

Expected
Volatility of
Expected
exercise
the underlying dividend
period (year) stock price (%) rate (%)
5.64
5.66
5.68
5.69
5.69
5.67
5.71
5.72
5.74
5.75
5.76
5.76
5.76
5.77

3
6
3
3
6
5
5
5
5
5
5
5
5
5

28.92
26.61
29.38
29.49
29.33
29.85
31.69
31.33
29.98
30.74
37.41
37.74
37.74
39.51

Exercised
price0.00 ₩
0.00
0.00		
0.00		
0.00
0.00
0.00
0.00
0.00
0.00
0.00		
0.00		
0.00		
0.00		

Intrinsic
value (*2)

70,715 ₩6,300
13,266		
15,533		
5,000
7,000
8,800
9,000
13,30011,90013,900		
14,500		
14,500		
13,900		

8,360
1,394
9,660
7,660
5,860
5,660
1,360
2,760
5,823
5,668
5,668
6,310

(*1) Granted from KEBCS prior to the merger with the Bank. Exercise price per share and the shares outstanding were adjusted based on the merger ratio.
(*2) T he intrinsic value of compensation cost granted before December 31, 2006 is the difference between the market price and the exercise price in accordance with SKAS
Interpretations 39-35 - Accounting for Stock Options, and the intrinsic value of compensation cost granted after January 1, 2007 is fair value in accordance with SKAS No.22 Share-Based Payment.

16.
Contingencies
and commitments( 1 ) Derivatives
The notional amounts outstanding for derivative contracts as of December 31, 2007 and 2006 were as follows (Unit: In millions):

Type (*)
Currency:
Currency forwards
Currency futures
Currency swaps
Currency options purchased
Currency options sold		Interest rate:
Interest rate futures
Interest rate swaps
Interest rate options purchased
Interest rate options sold		
Index:
Stock index futures
Stock index purchased
Stock index sold				2007			Trading
Hedge
Total

2006
Trading₩42,704,051
2,828,810
6,640,534
6,477,700
8,762,723
67,413,818-₩42,704,051
2,828,810
6,640,534
6,477,700
8,762,723
67,413,818₩31,819,496
740,966
6,101,202
2,115,263
3,890,146
44,667,073

779,424
26,084,129
26,863,553

426,881426,881

779,424
26,511,010
27,290,434

2,178
45,64899,628147,454₩94,424,825

426,881

2,178
45,64899,628147,454₩94,851,706

₩

₩

Hedge

Total
1,750
1,750

₩31,821,246
740,966
6,101,202
2,115,263
3,890,146
44,668,823

563,809
16,772,450
185,920
185,920
17,708,099

599,195
599,195

563,809
17,371,645
185,920
185,920
18,307,294

41,18931,767382,294455,250₩62,830,422

600,945

41,18931,767382,294455,250₩63,431,367₩₩(*) F or transaction between Won and foreign currencies, unsettled amount of transaction is presented using the basic foreign exchange rate based on the contract amount in foreign
currencies. For transaction between foreign currencies and foreign currencies, unsettled amount is presented using the basic foreign exchange rate based on foreign currencies
purchased at balance sheet dates.

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

169

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

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

P/L						Trading		Hedging		
Total
Gain onLoss onGain onLoss onGain onLoss onvaluation valuation valuation valuation valuation valuation

B/S
AssetsLiabilities₩ 374,033
56,97048,29821,417500,718₩ 340,957
51,191
12,54036,603441,291

146,813
146,813

212,897
212,897

3,647
3,647
₩ 651,178
₩

1,363
34
1,397
₩ 655,585
₩

₩

-

₩

9,569
9,569
₩

₩

9,569

₩

₩

-

₩ 374,033
56,97048,29821,417500,718₩ 340,957
51,191
12,54036,603441,291₩ 377,619
154,324
75,422607,365₩ 376,020
78,804
94,368549,192

3,452
3,452

156,382
156,382

216,349
216,349

178,190
178,190

233,678
233,678

3,452

3,647
3,647
₩ 660,747
₩

1,363
34
1,397
₩ 659,037
₩

1,015
1,015
₩ 786,570₩

22,631
22,631₩ 805,501₩

The Bank uses various derivative instruments for its trading activities, including interest rate and foreign exchange swaps, futures,
forwards and options, to manage the interest rate characteristics of certain assets or liabilities and to economically hedge against the effects offluctuations in interest rates or foreign exchange rates.
The Bank holds derivative instruments accounted for as fair value hedges applied to securities, debentures and bills discounted ofmerchant banking. The Bank recognized ₩3,452 million of gains on valuation of derivatives of available-for-sale securities, and ₩276 million and₩9,293 million of losses on valuation of derivatives of available-for-sale securities and finance debentures in foreign currencies, respectively,
for the year ended December 31, 2007. In addition, the interest rate swap covers the fair value changes of the hedged items resulted from thefluctuation in interest rate and foreign exchange rate.
The details of derivatives and the valuation of derivatives for the year ended December 31, 2006 were as follows (Unit: In millions):

Type

P/L						Trading		Hedging		
Total
Gain onLoss onGain onLoss onGain onLoss onvaluation valuation valuation valuation valuation valuation

Currency:₩ 40,979
Currency forwards
Currency swaps
80,643Currency options purchased
5,633
Currency options sold		
127,255
Interest:
Interest rate swaps
10,448Interest rate options purchased
3,102Interest rate options sold		
13,550Index:
Stock index purchased
9,519
Stock index sold
19
		
9,538
₩ 150,343
		₩ 54,913
33,173
14,187102,273

164
164

21,931
21,931887
1888₩ 125,092

₩

₩

B/S
AssetsLiabilities-₩ 40,979₩ 54,913₩ 263,377₩ 407,814

80,807
5,633
127,419

33,173
14,187102,273

251,873
21,406536,656

127,406
25,424560,644

1,048
1,048

631
631

11,496
3,102
14,59822,562
22,562

90,953
3,102
94,055

119,285
119,285

1,212

631

9,519
19
9,538
₩ 151,555

887
1
888
₩ 125,723

118
118₩ 630,829

92,56092,560₩ 772,489

₩

₩

170

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

The Bank holds derivative instruments accounted for as fair value hedges applied to securities, debentures and notes discounted inmerchant banking assets, and the interest rate swap covers the fair value changes of the hedged items resulted from the fluctuation in interest rate
and foreign exchange rate. The Bank recognized ₩802 million, ₩492 million and ₩12 million of gains on valuation of derivatives of securities
debentures and deposits, respectively, and ₩731 million of losses on valuation of derivatives of securities, and recorded as gain or loss on
valuation of derivatives, which were included in gain or loss on trading and valuation of derivatives for the year ended December 31, 2006. Also,
gain on valuation of derivatives of loans to hedge interest rate amounting to ₩354 million was recognized as other income of operating income of
merchant banking accounts and reflected in prior operation.
( 2 ) The credit default swap sold for revenue as of December 31, 2007 was as follows (Unit : In thousands of USD):Type

Contract

Maturity

Par value

CDS (Unfunded Synthetic CDO)
Synthetic CDO

Apr. 18, 2007
May 30, 2006

Dec. 30, 2014
Apr. 28, 2011

USD
USD

18,00020,000

When the Bank sells the credit default swap above, it‘s possible to suffer a loss depending on swap commitment, if a credit event statedon commitment occurs, such as dishonor of reference entities.
( 3 ) T he Bank holds written-off loans, of which the claim for borrowers and guarantors have not been terminated,amounting to ₩1,167,728 million and ₩1,467,531 million as of December 31, 2007 and 2006, respectively.
( 4 ) E ndorsed notes with collateral amount to ₩62,165 million and ₩63,486 million as of December 31, 2007 and 2006,
respectively. Endorsed notes without collateral held at the merchant banking account amount to ₩8,095,294
million and ₩4,839,947 million as of December 31, 2007 and 2006, respectively.
( 5 ) T h e B a n k i s o b l i g e d t o r e p u r c h a s e s o m e o f t h e l o a n s p r e v i o u s l y s o l d t o t h e K o r e a A s s e t M a n a g e m e n t
Corporation (“KAMCO”) under certain conditions including the following:- When it is considered impossible to collect the loans and interest due to delay in repayment of loans and interest over six months.
- When it is considered impossible to collect the loans and interest due to the abrogation of court-receivership process and thecancellation of mediation.
As of December 31, 2007, KAMCO and other loan purchasers may exercise the resale option for loans amounting to ₩1,940 million. An
additional loss or profit may occur, depending on the loan classification on valuation of loans or final arrangement on loans when KAMCO and otherloan purchasers exercise their repurchase agreement.
( 6 ) Loans sold to asset backed securitization (ABS) (Unit: In millions)Classification
Date
Value of loans
Sale price				
KEB 5th Securitization Specialty Co., Ltd. (*2)
KEB 6th Securitization Specialty Co., Ltd. (*3)
KEB 7th Securitization Specialty Co., Ltd. (*4)
KEB 8th Securitization Specialty Co., Ltd. (*5)
KEB 9th Securitization Specialty Co., Ltd. (*6)
KEB 10th Securitization Specialty Co., Ltd. (*7)
KEB 11th Securitization Specialty Co., Ltd. (*8)
KEB 12th Securitization Specialty Co., Ltd.
KEB 13th Securitization Specialty Co., Ltd.
KEB 14th Securitization Specialty Co., Ltd.
KEB 15th Securitization Specialty Co., Ltd. (*9)

Feb. 01, 2001₩
May 25, 2001		
Oct. 30, 2001		
Nov. 12, 2003		
May 14, 2004		
Aug. 10, 2004		
Apr. 30, 2005		
Nov. 14, 2005		
May 08, 2006		
Nov. 10, 2006		
Jun. 20, 2007		

589,175 ₩
998,923		
163,750		
155,391		
206,442		
147,464		
207,886		
178,587		
121,173		
92,087		
121,121		(*1) The subordinated debentures are included in sale price.
(*2) After redemption of the subordinated bonds on March 27, 2007, the 5th SPC had liquidation registered on September 5, 2007.
(*3) After redemption of the subordinated bonds on March 20, 2006, the 6th SPC had liquidation registered on October 27, 2006.
(*4) After redemption of the subordinated bonds on March 9, 2006, the 7th SPC had liquidation registered on October 27, 2006.
(*5) After redemption of the subordinated bonds on January 16, 2006, the 8th SPC had liquidation registered on October 30, 2006.
(*6) After redemption of the subordinated bonds on January 19, 2006, the 9th SPC had liquidation registered on October 23, 2007.
(*7) After redemption of the subordinated bonds on January 19, 2006, the 10th SPC had liquidation registered on October 31, 2007.
(*8) After redemption of the subordinated bonds on January 19, 2006, the 11th SPC had liquidation registered on October 31, 2007.
(*9) The losses on disposal of loans have been recognized amounting to ₩6,887 million (see Note 5).

Subordinateddebentures (*1)

- ₩
-		
-		
-		
-		
-		
-		
136,000		
92,000		
74,000		
90,000		

66,00045,00036,00044,000Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

171

( 7 ) The Bank has pending litigation as plaintiff or defendant in various legal actions arising from the normal courseof operation. The aggregate amounts of these claims brought by and against the Bank were approximately₩352,722 million (1,411 cases) and ₩107,003 million (135 cases), respectively, as of December 31, 2007. The
Bank recognized ₩52,268 million of provisions related to these lawsuits (see Note 13). The Bank believes thatthe outcome of these matters will not have a material impact to the Bank’s financial position or operations.
The Bank was fined ₩25 billion for a violation of the securities exchange act related to affiliation with Korea
Exchange Bank Credit Service Co, Ltd. on February 1, 2008. The Bank appealed to the court immediately and thelitigation is pending.
( 8 ) Tax probe
The Bank was under tax probe by the National Tax Service (“NTS“) from January 25 to August 31, 2006 for the fiscal years from 2001 to
2004, and was informed of a pre-taxation notice on October 12, 2006 as a result of the tax probe.
The Bank has reserved ₩133,953 million as allowance for other liabilities as of December 31, 2006 according to SKAS No.17 ‘Provisions,Contingent Liabilities and Contingent Assets‘ regardless of the tax payment amount to be confirmed after legal process such as confirmed-taxation
notice, appeal to tax tribunal and others (see Note 13).
As the tax reconciliation partially reflects the Bank‘s appeal in pre-taxation judgment on the pre-taxation notice above, the Bank reversed
the allowance for other liabilities amounting to ₩127,091 million out of ₩133,953 million less the amount related to Won-Yen s
wap of ₩6,862 million.
In addition, NTS notified the Bank and its customers of the tax on interest income on Won & Yen swap from 2003 to 2005. The
Bank compensated its customers with the condition of entrusting tax appeal procedures. The amount of compensation to customers, meeting
compensation requisite and reported is ₩10,879 million as of December 31, 2007. The Bank totally accounted it as an allowance for otherliabilities (see Note 13). The Bank has obligation to pay when a customer requires compensation, meeting the requisite hereafter; however, theamount is not accounted as an allowance of other liabilities since it cannot be reliably estimated as of December 31, 2007.
( 9 ) Credit to work-out companies
As of December 31, 2007, the Bank‘s outstanding loans and guarantees to the companies under workout programs amounted to₩907,723 million. Actual losses on the above loans and guarantees may differ from the allowances for such losses provided by the Bank.
( 10 ) Debt to equity swap of Hynix Semiconductor Inc.
The Bank‘s outstanding loans (including acceptances and guarantees) and available-for-sale securities convertible to equity
securities with respect to Hynix Semiconductor Inc. (“Hynix“) as of December 31, 2007 amount to ₩190,872 million and ₩933,171 million,
respectively. As of December 31, 2007, the Bank‘s loans for Hynix are classified as normal. Joint control procedure for Hynix Semiconductor
Inc was completed on Jul. 12, 2005. Also, the Bank‘s 37,742 thousand shares of Hynix are restricted for sale until December 31, 2007 and thegain on valuation of available-for-sale securities amounting to ₩498,367 million is accounted as other comprehensive income as ofDecember 31, 2007.
( 11 ) Debt to equity swap of Hyundai Engineering & Construction Co., Ltd.
As of December 31, 2007, the Bank has loans (including acceptances and guarantees) of ₩312,702 million and available-for-salesecurities of ₩961,961 million with respect to Hyundai Engineering & Construction Co., Ltd. and the Bank‘s loans for Hyundai Engineering &Construction Co., Ltd. are classified as normal.
The Bank has 13,778 thousand shares of Hyundai Engineering & Construction Co., Ltd., which are restricted for sale until completionof M&A of Hyundai Engineering & Construction Co., Ltd. With regards to these securities, the gain on valuation of available-for-sale securities
amounting to ₩514,621 million is accounted as other comprehensive income as of December 31, 2007.
( 12 ) Commitments related to credit card business
The Bank has entered into trademark license (membership) agreements with Master Card International Incorporated in 1993, VISAInternational Service Association in 1988 and JCB International Service Association in 1997. The Bank pays and receives certain amounts of fees
and commissions in connection to the income and expense incurred pertaining to these agreements.
The Bank has entered into credit card affinity agreements with KDB Capital. Under the agreements, the Bank gives an allocation of thefee income related to the credit card affinities.
( 13 ) I ndemnification obligations regarding the share subscription agreement by and between the Bank and the LSFKEB Holdings, SCA
The Bank shall indemnify LSF-KEB Holdings, SCA for all purchaser losses (*1) and pay for damages resulting from any breach by the Bankof any of the Bank‘s covenants (*2) in the Share Subscription Agreement. The Bank‘s indemnification obligations are as follows:
Duration of indemnification obligations are as follows:- Purchaser losses, excluding those mentioned below, may be indemnified until 18 months from the Closing Date (*3).
- Purchaser losses arising as a result of fraud or intentional misrepresentation by the Bank may be indemnified at the Closing Date andcontinue to be in full force and effective until three years from the Closing Date.
- Purchaser losses related to tax matters may be indemnified at the Closing Date and continue to be in full force effective until five
years from the Closing Date.
The Bank‘s indemnification obligations expire after the duration periods stated above. However, if the Bank receives written claims fromLone Star before the expiration of the durations, regardless of the durations stated above, the Bank‘s indemnification obligations continue to be inforce and effective until the related matter are brought to satisfactory settlement.

172

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

The Bank has no indemnification obligation for claims less than ₩100 million. The Bank‘s indemnification obligation applies to claims
exceeding ₩15,000 million cumulative, and only losses exceeding ₩10,000 million may be indemnified.
The total amount of indemnification obligations cannot exceed the LSF-KEB Holdings, SCA‘s investments in the Bank.
(*1) Purchase losses means the amount of any and all losses, costs, liabilities, damages, judgments, settlements and expenses that arise out of any breach by the Bank of any of
the Bank‘s representations and warranties contained in the Share Subscription Agreement or any breach by the Bank of any of the Bank‘s covenants or agreements in the Share
Subscription Agreement.
(*2) Covenant means the conditions set forth in the Share Subscription Agreement that the Bank shall comply with the share subscription until the Closing Date.
(*3) Closing Date means the date that the new shares come into effect, and falls on October 31, 2003.

( 14 ) The equity linked special incentive
On July 15, 2005, December 21, 2006 and December 12, 2007, the Bank granted the equity linked special incentive to employees for the
purpose of motivation to improve long-term performance. Above incentive is one time incentive which is linked with the Bank‘s stock price and net
asset per share, and can be eligible for the incentive for three years after two years from the effective date. The Bank recognized ₩23,766 million
as compensation expense for the accomplishment over the long period related to above bonus and ₩17,385 million is recognized as long-termpayable. The number of shares decreased due to early retirement was 38 thousand shares and 2,583 thousand shares of these were exercised and₩37,914 million was paid for the year ended December 31, 2007.
( 15 ) The dormant deposit
The Bank has recognized the dormant accounts which have no transaction for 5 years since the date of last transaction as income. The
Bank has no legal obligation to pay for them which have been recognized as income. In accordance with the custom practice of the banking industry
and by consideration of the bank‘s public responsibility; however, the Bank grants the account for refund in case a customer requires.
In addition, the special act about on transfer of dormant accounts, which enables the dormant deposit recognized as income since 2003
less than the amount the Presidential decree limits - the decree, limits the amount of translation of the dormant accounts to ₩300 thousand peran account, was announced and effected during this period, -to freely be transferred the dormant account if there is an active account in the same
Bank or the other financial company institution, was pronounced on August 3, 2007. The Bank recognized dormant deposit to be transferred to otherbanks based on the Act amounting to ₩13,611 million as expenses.

17.
Assets and liabilities
denominated inforeign currencies

Significant assets and liabilities denominated in foreign currencies as of December 31, 2007 and 2006 were as follows (Unit: In thousands of U.S.
dollars, in millions of Won):

Classification
Assets:Cash and due from bank:
		 Foreign currencies
		 Due from banks in foreign currencies
Securities:
		 Trading securities
Available-for-sale securities
		 Held-to-maturity securities
		 Securities using the equity method
Loans:
		 Call loans
		 Domestic import usance bill
Credit card receivables
Bills bought in foreign currencies
Advances for customers
Bills bought in Won
Loans in foreign currencies
Factoring receivables
Private placed bonds(Reserve for bad debts)
			Liabilities:
Deposits:
		 Demand deposits in foreign currencies
		 Savings deposits in foreign currencies
Borrowings:
		 Borrowings in foreign currencies
		 Due to BOK in foreign currencies
		 Call money in foreign currencies
		 Bonds in foreign currencies
Other liabilities:
		 Accrued expenses in foreign currencies			2007		
USD
Translation
Equivalent (*)
into Won

2006
USD
Equivalent (*)

Translation
into Won

US$

US$

₩

384,242
1,730,165₩

360,496
1,623,241

291,935
1,571,325

271,383
1,460,704

39,686
1,022,510
492,901
4,516

37,233
959,319
462,440
4,236

63,418669,899
628,522
3,776

58,953622,738
584,274
3,510

1,958,954
1,857,444
2,004
3,757,320
1
97,9497,340,989
191,876
109,370(67,444)
US$ 18,992,483₩

1,837,891
1,742,654
1,880
3,525,118
1
91,896
6,887,316
180,018
102,611(63,276)
17,753,074

1,897,915
1,474,327
1,727
3,342,396
97,3295,170,770
175,032
116,321(61,252)
US$ 15,443,440₩

1,764,301
1,370,534
1,605
3,107,091
90,4784,806,748
162,710
108,132(56,940)
14,356,221

US$₩

3,802,290
6,396,506

US$₩

4,052,749
6,817,849
6,614,481
868,542
960,474

361,310
US$ 19,675,405₩

4,001,461
4,951,745

6,205,705
814,866
901,116

5,035,367
3,423
488,447
441,342

338,981
18,459,464

321,412
US$ 15,243,197(*) Foreign currencies other than U.S. dollars were converted into U.S. dollars at the basic rates of exchange at balance sheet dates.

3,719,758
4,603,142
4,680,877
3,182
454,060
410,271₩298,785
14,170,075

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

18.
Operatingrevenueand expenses

173( 1 ) Gain and loss on trading and valuation of derivatives
Details of gain and loss on trading and valuation of derivatives for the years ended December 31, 2007 and 2006 were as follows (Unit: In million):
Classification

2007

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

2006
1,951,079
664,1992,615,278₩

1,936,910
668,606
2,605,516₩₩₩

2,066,432
152,861
2,219,293
2,081,026
126,454
2,207,480( 2 ) Commission income and expenses
Details of commission income and expenses for the years ended December 31, 2007 and 2006 were as follows (Unit: In million):
Classification

2007

Commission income:Commission received₩
Guarantee fees received		
Other commission received				₩Commission expenses:
Commission paid₩
Other commission paid
		
₩

2006
557,241
20,862968
579,071₩443,136
18,980177
462,293

217,809 ₩4,625		222,434 ₩

188,392
9,446
197,838₩( 3 ) Dividend income
Details of dividend income for the years ended December 31, 2007 and 2006 were as follows (Unit: In million):
Classification

2007₩
Dividend income from trading securities
Dividend income from available-for-sale securities		
		
₩

2006
3,458
4,701
8,159

₩
₩

2,586
1,916
4,502

( 4 ) Other operating revenue and expenses
Details of other operating revenue and expenses for the years ended December 31, 2007 and 2006 were as follows (Unit: In million):
Classification
Other operating revenue:
Profit on operating trust accountReversal of allowance for other liabilities
Others		
Other operating expenses:
Fund contributions
Provision for allowance for acceptances and guarantees
Provision for unused credit limit
Provision for other liabilities
Others
		

2007
₩

₩
₩

₩

2006
21,98579,004
2,584
103,573₩

128,293
14,737
24,464
1,371
168,865₩₩₩

16,157
16,157
114,285600
81,567
119,625140
316,217

174

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 5 ) General and administrative expenses
General and administrative expenses for the years ended December 31, 2007 and 2006 were as follows (Unit: In millions):
Classification

2007

Salaries
Expenses for fringe benefits
Retirement allowances
Honorary retirement
Operating expense
Depreciation
Amortization
Taxes
RentalEntertainment
Advertising

₩

₩

18.
Other interest
income and expenses

20.
Non-operating
income and expenses

2006
528,241
137,550
58,1372,547
193,218
107,305
30,026
38,59751,926
12,27737,538
1,197,362₩₩

484,181
170,072
56,3292,245
178,640
98,37924,75145,06639,656
8,305
34,837
1,142,461

Other interest income and expenses for the years ended December 31, 2007 and 2006 consisted of (In millions):
Classification
Other interest income:Interest on domestic transaction
Miscellaneous interest revenues
Interest on cashier‘s check reimbursement
Others		
Other interest expenses:
Interest paid on domestic transaction
Interest on borrowings from trust account
Others
		

2007
₩

₩
₩

₩

2006
13,116
8,178
3,281
9,637
34,212₩

3,661
31,892297
35,850

₩

₩

₩

8,794
8,479
1,876
6,868
26,0174,240
16,058141
20,439Non-operating income and expenses for the years ended December 31, 2007 and 2006 consisted of (In millions):
Classification
Non-operating income:Gain on disposal of tangible assets
Rental income
Gain on securities using the equity method
Others		
Non-operating expenses:
Loss on disposal of tangible assets
Loss on securities using the equity method
Others
		

2007
₩

₩
₩

₩

2006
3,485
2,243
694
80,40686,828

₩

5,448
109
30,90236,459

₩

₩

₩

1,954
2,097
593
53,96858,612
9,433
17,641
27,074

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

21.
Income tax expense

175( 1 ) Components of income tax expense
The components of income tax expense for the years ended December 31, 2007 and 2006 were summarized as follows (Unit: In millions):
Classification
Bank:
Income tax currently payable
Change in deferred taxes due to temporary differences
Change in deferred taxes due to loss carry forward
Income tax directly applied to shareholders‘ equity
Income tax expense of overseas branch
Income tax expense
Subsidiaries:
Income tax currently payable
Changes in deferred income tax assets
Income tax directly applied to shareholders‘ equity
Income tax expense
		

2007
₩

₩

2006
468,063
62,623
10,564
14,394555,644
21,194(1,414)44
19,824575,468₩₩

363,237(25,156)
134,410
108,3776,758
587,626
15,038(1,543)(101)
13,394
601,020( 2 ) D eferred income tax assets in the consolidated financial statements as of December 31, 2007 and 2006 were as
follows (Unit: In millions):
Classification
Bank
KEBC
KEBF
KEBOC
KEBA
KEBI
KEB NYFINCO
KEB LAFINCO

2007
₩

₩

2,562
1,511
3,934
555
1,304
1,082
10,948

2006
₩

₩

826
2,136
13
1,266
1,845
827
1,050
403
8,366

( 3 ) T he statutory income tax rate applicable to the Bank and its subsidiaries, including resident tax surcharges, is27.5 percent for the years ended December 31, 2007 and 2006, respectively. However, due to tax adjustments,
the effective tax rates for the years ended December 31, 2007 and 2006 are 37.45 percent and 37.39 percent,respectively.

22.
Earnings per share( 1 ) Basic net income per share
Basic income per share is calculated for common stock by dividing controlling company‘s net income available to common shareholders by
the weighted average number of outstanding common stock. The basic net income per share for the years ended December 31, 2007 and 2006 was
as follows (Unit: In Won):
Classification

2007₩
Controlling company‘s net income
Weighted average number of common shares		₩
Basic net income per share2006
960,944,014,839 ₩
644,906,826		
1,490 ₩

1,006,413,554,624
644,906,826
1,561

Both the weighted average number of outstanding common stock and the number of outstanding common stock are same because there
is no change on the number of outstanding common stock for years ended December 31, 2007 and 2006.

176

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 2 ) Diluted net income per share
Diluted net income per share for the years ended December 31, 2007 and 2006 represent diluted controlling company‘s net income
divided by the number of common shares and diluted securities. Diluted net income per share for the years ended December 31, 2007 and 2006 wascomputed as follows (Unit: In Won):
Classification

2007

Controlling company‘s net income(+) Expense by stock option
Diluted net income ( ① )Weighted average number of common shares
Number of diluted securities (*)
Weighted average number of common shares outstanding and diluted securities ( ② )Diluted net income per share ( ① ÷②)

₩

₩

2006
960,944,014,839
960,944,014,839
644,906,826
644,906,826
1,490

1,006,413,554,624
51,593,823
1,006,465,148,447
644,906,826
980,257
645,887,083
1,558

₩

₩

(*) The number of shares in relation with stock option is calculated using treasury stock method.

Since the Bank transferred stock option included in other accumulated comprehensive income to accrued expense as of December 31, 2007
and did not have diluted securities, the basic net income per share and diluted net income per share were the same (see Note 14).

23.
Segment
information( 1 ) Balance sheets per business segment as of December 31, 2007 and 2006 were as follows (Unit: In millions):<December 31, 2007>
Financial & insurance Consolidation
business
adjustment
Asset:Cash and due from banks
Securities
Loans
Tangible assets
Other assets
		Liability:
Deposits
Borrowings
Other liabilities		
Shareholders equity:
Common stock
Capital surplus
comprehensive income
Retained earnings
Minority interests
		
		

₩

₩
₩

₩

5,759,429
12,571,770
58,289,464
912,740
10,112,659
87,646,062₩

48,740,719
19,028,425
12,762,940
80,532,084₩

3,446,222
42,0001,106,780
2,518,976
7,113,97887,646,062

₩

₩

Total

(108,954)(443,753)(945,217)(2,851)(1,209,121)(2,709,896)₩(69,365)(879,192)(1,323,224)(2,271,781)₩(221,688)(42,000)(12,716)(163,199)
1,488(438,115)(2,709,896)₩₩

5,650,475
12,128,017
57,344,247
909,889
8,903,538
84,936,166
48,671,354
18,149,233
11,439,716
78,260,303
3,224,534
1,094,064
2,355,777
1,488
6,675,863
84,936,166

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

177

<December 31, 2006>
Financial & insurance Consolidation
business
adjustment
Asset:Cash and due from banks
Securities
Loans
Tangible assets
Other assets
		Liability:
Deposits
Borrowings
Other liabilities		
Shareholders equity:
Common stock
Capital surplus
Capital adjustments
Accumulated other comprehensive income
Retained earnings
Minority interests
		
		

₩

₩
₩

₩

4,253,581
11,347,398
49,372,458
894,440
7,184,795
73,052,672₩

41,818,156
14,842,714
9,624,241
66,285,111₩

3,430,932
41,24918,862
1,134,429
2,142,089
6,767,561
73,052,672

₩

₩

Total

(25,935)(368,642)(726,948)(3,472)(445,142)(1,570,139)₩(14,216)(653,861)(538,547)(1,206,624)₩(206,398)(41,249)(11,468)(105,710)
1,310(363,515)(1,570,139)₩₩

4,227,646
10,978,756
48,645,510
890,968
6,739,653
71,482,533
41,803,940
14,188,853
9,085,694
65,078,487
3,224,534
18,862
1,122,961
2,036,379
1,310
6,404,046
71,482,533( 2 ) S tatements of income per business segment for the years ended December 31, 2007 and 2006 were as follows (Unit:
In millions):<December 31, 2007>
Financial & insurance Consolidation
business
adjustment₩
Operating revenue
Operating expenses
Operating income
Non-operating income
Non-operating expenses
Income before income Tax
Income tax expense₩
Net income₩
Controlling company interests
Minority interests		

9,113,174 ₩7,613,641
1,499,533
141,026
50,011
1,590,548
575,468
1,015,080 ₩
1,015,080 ₩
-		

Total

(117,009) ₩(103,718)(13,291)(54,198)(13,552)(53,937)(53,937) ₩(54,135) ₩198		

8,996,165
7,509,923
1,486,242
86,82836,459
1,536,611
575,468
961,143
960,945
198<December 31, 2006>
Financial & insurance Consolidation
business
adjustment
Operating revenue₩
Operating revenue₩
Operating expenses
Operating income
Non-operating income
Non-operating expenses
Income before income Tax
Income tax expense
Net income₩
Controlling company interests₩
Minority interests		

9,113,174 ₩
8,211,541 ₩
6,624,283
1,587,258
98,46339,616
1,646,105
601,020
1,045,085 ₩
1,045,085 ₩
-		

Total

(117,009) ₩(55,424) ₩(44,225)(11,199)(39,851)(12,542)(38,508)(38,508) ₩(38,671) ₩163		

8,996,165
8,156,117
6,580,058
1,576,059
58,612
27,074
1,607,597
601,020
1,006,577
1,006,414
163

178

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 3 ) F inancial information per business segment as of and for years ended December 31, 2007 and 2006 was as follows(Unit: In millions):<December 31, 2007>
Banking
Trust account
Others				
Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income (loss)
Cash and due from banks
Securities
Loans
Tangible assets
Other assets

₩

₩
₩

₩

8,909,485(108,555)
8,800,930
1,457,065
5,405,380
11,832,386
56,596,566
878,800
10,070,582
84,783,714

₩

₩
₩

₩

66,081(2,407)
63,674
10,833
187,969
665,102265,019
7,975
1,126,065

₩

₩
₩

₩

Consolidation
adjustment
137,608(6,047)
131,561
31,635
166,080
74,282
1,427,879
33,94034,102
1,736,283

₩

₩
₩

₩

(117,009)
117,009(13,291)(108,954)(443,753)(945,217)(2,851)(1,209,121)(2,709,896)

Total
₩

₩
₩

₩

8,996,165
8,996,165
1,486,242
5,650,475
12,128,017
57,344,247
909,889
8,903,538
84,936,166<December 31, 2006>
Banking
Trust account
Others				
Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income (loss)
Cash and due from banks
Securities
Loans
Tangible assets
Other assets

₩

₩
₩

₩

8,074,241(47,877)
8,026,364
1,556,446
4,120,606
10,647,726
48,285,017
853,933
7,151,603
71,058,885

₩

₩
₩

₩

57,638(2,238)55,4009,545
14,901
635,100
371,091
7,603
1,028,695

₩

₩
₩

₩

Consolidation
adjustment
79,662(5,309)74,353
21,267118,074
64,572
716,350
40,50725,589965,092₩₩₩₩(55,424)
55,424(11,199)(25,935)(368,642)(726,948)(3,472)(445,142)(1,570,139)

Total
₩

₩
₩

₩

8,156,117
8,156,117
1,576,059
4,227,646
10,978,756
48,645,510
890,968
6,739,653
71,482,533( 4 ) F inancial information per geographical area as of and for the years ended December 31, 2007 and 2006 was asfollows (Unit: In millions):<December 31, 2007>
Domestic
Overseas			Consolidation
adjustment

Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income
Cash and due from banks
Securities
Loans
Tangible assets
Other assets

₩

₩

₩
₩

₩

8,947,367(106,345)
8,841,022
1,443,182
5,395,448
12,519,999
56,367,494
909,651
10,081,291
85,273,883

₩

₩
₩

₩

165,807(10,664)
155,143
56,351
363,981
51,771
1,921,970
3,089
31,3682,372,179₩₩₩(117,009)
117,009(13,291)(108,954)(443,753)(945,217)(2,851)(1,209,121)(2,709,896)

Total
₩

₩
₩

₩

8,996,165
8,996,165
1,486,242
5,650,475
12,128,017
57,344,247
909,889
8,903,538
84,936,166<December 31, 2006>
Domestic
Overseas			Consolidation
adjustment

Operating revenue
Less: inter-company transaction
Net operating revenue
Operating income
Cash and due from banks
Securities
Loans
Tangible assets
Other assets

₩

₩

₩
₩

₩

8,095,536(48,619)
8,046,917
1,540,545
4,060,723
11,239,205
48,103,251
892,247
7,164,263
71,459,689

₩

₩
₩

₩

116,005(6,805)109,200
46,713
192,858
108,193
1,269,207
2,193
20,532
1,592,983₩₩₩(55,424)
55,424(11,199)(25,935)(368,642)(726,948)(3,472)(445,142)(1,570,139)

Total
₩

₩
₩

₩

8,156,117
8,156,117
1,576,059
4,227,646
10,978,756
48,645,510
890,968
6,739,653
71,482,533

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

24.
Significant transactions
between the bankand subsidiaries

179( 1 ) S ignificant balances made in the normal course of business with subsidiaries as of December 31, 2007 and 2006
are summarized as follows (Unit: In millions):<December 31, 2007>
Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAG KEBI
Trust								Assets:Due from banks in		 foreign currencies
Loans in Won
Loans in foreign currencies
Allowance for possible
		 loan losses
Other assets
			Liabilities:
Deposits in Won
Deposits in Foreign		 currencies
Borrowings in foreign		 currencies
Other liabilities			

51,30033,472₩ 1,322-₩ 2,777-₩ 2,818
249,484(1,111)
139₩ 83,800

(340)
1
₩ 983

₩ 2,777624
830
7₩252,926 ₩118,584 ₩ 13,710

₩

₩

145

₩

35

₩

-

₩

-

₩ 57,265
60,489

₩

-

₩

₩

284
13,419

-

-

3,562

-

-

889

455

3,345
₩ 3,490342₩ 3,939-

59,867₩ 59,867

54,926618₩ 56,433

9,384
64₩ 9,903

₩

Other
Total
subsidiaries

-

₩

₩

-

(1,451)
3,475
5,076₩333,621 ₩806,401

₩

-

₩

₩

-

₩

-

(385)
259
₩101,550 ₩

-

151

47

₩

₩

72,40029,276₩849-₩ 10,056
127,795

₩

849

421
₩137,851 ₩ 79,496

₩

-

₩

₩

-

₩ 5,60373,472

₩

-

₩

256
25,471

₩

180
6,151

13,262
108,751377₩108,751 ₩ 14,884

137,439
113,497₩257,267₩

Othersubsidiaries

₩

(401)
2,681
3,499
₩171,868 ₩517,463
₩

₩

-

-

₩

-

169,187

Total

-

(16)
138
₩ 25,849₩-₩ 64,466
51,300687,0101,245<December 31, 2006>
Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAG KEBI
Trust								Assets:Due from banks in foreign		 currencies
Loans in Won
Loans in foreign currencies
Allowance for possible
		 loan losses
Other assets
			Liabilities:
Deposits in Won
Deposits in Foreign		 currencies
Borrowings in foreign		 currencies
Other liabilities			

330,146-₩ 16,764
72,400425,201

₩

198

2,794

3,666

-

-

253

46

-

1,930

8,689

2,763
₩ 5,7082₩ 3,715-

23,492₩ 23,492

66,52921,063₩ 87,845

16,009₩ 16,055

86,631₩ 86,631

17,504838₩ 20,272

107,525
127,306₩243,718₩

180

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

( 2 ) S ignificant transactions with subsidiaries for the years ended December 31, 2007 and 2006 were as follows (Unit:
In millions):<December 31, 2007>
Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAG KEBI
Trust								Revenue:
Interest revenues in Won
Interest revenues in		 foreign currencies
Commission income in Won
Commission income in		 foreign currencies
Other revenue
			Expenses:
Interest expenses in Won
Interest expenses in		 foreign currencies
Commission expense in Won
Commission expense in		 foreign currencies
Written-off of bad debts
Other expenses
			₩ 5,954

₩

-

₩

-

₩

-

₩

-

₩

-

₩

Other
subsidiaries--₩ 5,954

1,912
-

175

7
-

8,580
-

3,682
-

1,377
-

2

16,971-

32,529177

1,023₩ 8,889

₩

175

₩

36
43

₩ 8,580

2,718₩ 6,400₩ 1,377

10,833₩ 10,835

26
535₩ 17,532

2,780
12,391₩ 53,831

101

₩

1

₩

-

₩

-

₩ 2,407₩-₩ 2,509

₩

-

₩

-

₩

-

116
569

65
-

1,495
-

5,045
-

979
-

-

1,244
-

8,944
569

305
1,262
₩ 1,668

100
36
822

65

₩ 1,495101₩ 5,146(16)
60₩ 1,023₩ 2,407581₩ 1,825

201
289
1,939
₩ 14,451

Othersubsidiaries

Total

₩

₩

<December 31, 2006>
Classification
KEBC
KEBF
KEBOC
KEBA
KEBDAG KEBI
Trust								Revenue:
Interest revenues in Won
Interest revenues in		 foreign currencies
Commission income
Other revenue
			Expenses:
Interest expenses in		 foreign currencies
Commission expense in Won
Commission expense in		 foreign currencies
Written-off of bad debts
Other expenses
			

₩

Total

₩

-

1,163
₩ 1,163

₩

₩

690
690

₩

-

₩ 3,562

₩

₩

91
91

2,298
145
₩ 6,005

3,806
2,996
₩ 6,8022,100₩ 2,100

8
-

₩

43
-

₩ 3,721
-

₩

8

59
2,481
₩ 2,583284₩ 4,005

₩

₩

-

₩

₩

-

615
16
57
688

₩

142

₩

₩

2
162
306

577

₩

223
(25)
775

₩

₩

-

-

₩ 3,704

9,548₩ 9,5487,877
10₩ 7,887

17,335
3,008
9,855₩ 33,902-₩ 1,096-₩ 6,173577

2,238₩ 2,238₩ 1,096

507
50
4,776
₩ 12,083₩

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

181

( 3 ) D etails of significant receivables and payables among subsidiaries as of December 31, 2007 were as follows(Unit: In
millions):
Subsidiaries

Classification

KEBF
Due from Retirement Insurance
KEBF
Due from Retirement Insurance
KEBC
Due from Retirement Insurance
KEBDAGDue from banks in foreign currencies
KEBI
Due from banks in foreign currencies		Amount₩₩Counterparty Classification

Amount819 TrustTime deposits in Won
12 Trust
Accrued expenses
242 TrustTime deposits in Won
196 KEBOC
Demand deposits in foreign currencies
50 KEBDAG
Demand deposits in foreign currencies
1,319			

819
12
242
196
50
1,319

₩

₩

( 4 ) D etails of significant transactions among subsidiaries for the year ended December 31, 2007 were as follows(Unit: In
millions):
Subsidiaries

Classification

AmountCounterparty Classification

Amount₩210 KEBNYFinco
Commission Income in₩
KEBLAFinco
Operating expense					foreign currency
KEBNYFinco
Interest on borrowings in foreign currency
210 KEBOC
Interest on Call Loan in foreign currency
KEBNYFinco
Interest on borrowings in foreign currency
209 KEBOC
Interest on Due from Banks in foreign currency
KEBLAFinco
Interest on borrowings in foreign currency
102 KEBOC
Interest on Call Loan in foreign currency
TrustInterest on deposits in Won
13 KEBF
Interest on Due from Banks in Won
KEBOC
Interest on deposits in Won
11 KEBDAGInterest on Due from Banks in foreign currency		₩755				
₩

210
210
209
102
13
11
755

( 5 ) Guarantees and acceptances with subsidiaries as of December 31, 2007 were as follows (Unit: In millions):
Subsidiaries

Classification

KEBA
Other guarantees and acceptances in foreign currency
KEBA
Interest rate swap sold
KEBA
Interest rate swap purchased
KEBDAG
Other guarantees and acceptances in foreign currency
KEB
Guarantees and acceptances in Won
KEBNYF
Guarantees and acceptances in foreign currency
KEBNYF
Guarantees and acceptances in foreign currency
KEBOC
Credit default swap purchased		Amount₩₩1,213
33,103
33,10347
40,000846
2,455
11,762
122,529

Counterparty Provided for
KEB
KEB
KEB
KEB
KEBF
KEB
Trade transaction With strings of
KEB		 loan guaranteeKEB( 6 ) The key management compensations for the year ended December 31, 2007 were as follows (Unit: In millions):
Classification

Compensations

Short-term employee benefits₩
Employee benefits after resignation		
Stock option		
		
₩

7,027
1,904
4,969
13,900The key management includes the directors, the executives and the officers who have authorities and responsibilities for decision-makingof the business plan, operations and control over the Bank.

182

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 2006

25.
Computation ofvalue added

Accounts required for computation of value added for the years ended December 31, 2007 and 2006 consisted of the following (Unit: In millions):
Accounts

2007

Salaries
Retirement allowances
Expenses for fringe benefit
Rent
Depreciation
Amortization
Taxes and dues

₩

₩

26.
Dividends

2006
528,241
58,137
137,550
51,926
107,305
30,026
38,597
951,782

484,181
56,329170,072
39,656
98,37924,75145,066
918,434₩₩( 1 ) T he calculation of dividends for the years ended December 31, 2007 and 2006 was as follows (Unit: shares, In millions
except per share amounts):
Classification

2007

Dividends per share (rate)
Shares issued
Dividends

₩
₩

2006
700 (14%) ₩644,906,826		
451,435 ₩1,000 (20%)
644,906,826
644,907( 2 ) T he calculation of dividend payout ratio for the years ended December 31, 2007 and 2006 was as follows(Unit: In
millions):
Classification

2007

Dividends
Net income
Dividend payout ratio(%)₩

2006
451,435
960,94546.98₩

644,907
1,006,167
64.10( 3 ) T he calculation of dividend yield for the years ended December 31, 2007 and 2006 was as follows (Unit: In
currency units):
Classification

2007

Dividends
Closing price
Dividend yield ratio (%)

₩

2006
700
14,500
4.83

₩

1,000
12,8507.78

Notes to Consolidated Financial Statements-KOREA EXCHANGE BANK AND SUBSIDIARIES for the years ended December 31, 2007 and 200627.
Cash flows

183( 1 ) C ash in statements of cash flows consists of cash, due from bank (excluding restricted due from bank),
receivables and preferred stock with 3 months or less of maturity and securities under agreement to repurchasewith 3 months or less of maturity. Cash flows from operating activities are presented by the indirect method.
	In addition, the Bank has reclassified the components of the cash flows; such as, changes in available-for-salesecurities, held-to-maturity securities and loans that were presented under cash flows from investing activities
are currently presented under cash flows from operating activities.
( 2 ) T he cash and due from banks in the statements of cash flows for the years ended December 31, 2007 and 2006
were as follows (Unit : In millions)Classification

2007

Cash and due from banks
Add: securities₩

Less: restricted due from bank₩2006
5,650,475
458,169
6,108,644(1,891,856)
4,216,788₩₩

4,227,646
199,824
4,427,470(1,543,036)
2,884,434( 3 ) S ignificant transactions not involving cash inflows and outflows for the years ended December 31, 2007 and 2006
were as follows (Unit : In millions):
Classification

2007

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

2006
355,998
29,3075,439,166
17,780₩338,835
286,506
883,864-

Organization Chart (Mar. 21, 2008)

184

3 Banks

General Meeting of Shareholders

10 Groups
30 Departments

Board of Directors

Channel Development Committee

39 Divisions
118 Teams

President & CEO

Compensation Committee

Risk Management Committee

Audit Committee

Audit & Examination Division

Outside Director Candidate Recommendation Committee

Compliance Dept.

Global Products Dept.

Corporate Group

Corporate Group Strategic Marketing Support Dept.

World Corporate Group

Large Corporate Support Dept.

Global Corporate Bank

Capital Markets Dept.

Business
Units

International group

Retail Bank

Retail Bank Strategic Marketing Support Dept.

PB Marketing Support Dept.

Card Bank

Credit Management

Special Credit Management Dept.

Card Credit Management Dept.
Operations
GroupsService Delivery

Service Delivery Dept.

Information & Technology

FinanceFinance Support Dept.

Risk Management

Risk Management Dept.

SupportFunctions
Human Resources

Communications

External Relations Dept.

Board of Directors & Managing Directors

Board of Direc t o r sStanding Directors
Richard F. Wacker

Chairman, President & CEO

Jang, Myoung-Kee

Deputy President, CCO

William H. Roelle

Deputy President, SDG/IT/ Risk/ BPDD

Outside Directors
Ellis Short

Vice President, Lone Star

Michael D. Thomson

General Counsel-Asia, Lone StarPaul Yoo

President, Lone Star Advisors Korea

Park, Hyo-Min

Ex-General Manager of Currency Issue Dept., BOK

Larry S. Owen

Managing Director, Stanford Management Company

Shin, Joong-Ouk

Ex-Executive Director, KEXIM

Park, Chin-Keun

Dean of Department of Business and Economics, Yonsei University

Kim, Joung-Soo

Director of Economic Research at JoongAng Daily

Managing Dire c t o r s

Kim, Hyoung-Min

Senior Managing Director, HR/Communications

Suh, Choong-Suk

Senior Managing Director, CFO

Yun, Jong-Ho

Senior Managing Director, Global Corporate Bank / World Corporate Group

Kim, Gwi-Hyun

Senior Managing Director, Retail BankNoh, Chan

Senior Managing Director, Int’l Group.

Kevin W. Kneebone

Managing Director, Card Bank/Trust Division

Jhun, Joong-Gyu

Managing Director, Special Credit Mgmt. Dept.

Alexander S. Kim

Managing Director, Service Delivery Dept.

Kwon, Moo-Kyung

Managing Director, Corporate Group

Lee, Sang-Don

Managing Director, Capital Markets Dept.

Jang, Chan-Woong

Managing Director, Information&Technology

Park, Jae-HongManaging Director, PB Marketing Support Dept.

Choi, Myung-Hee

Auditor185

186

Global Directory

Financial Institutions Division

Multi-National Corporate Division

Investment Banking Division

•

•

•

Head of Financial Institutions
Chung, Chung-Won
Tel : 82-2-729-0432 Fax : 82-2-775-2565,8323

Head of Multi-National Corporate Division		
Yoo,Jae-Hoo			
Tel : 82-2-729-0266			

Head of Investment Banking Division
Cho, In-Kyun
Tel : 82-2-729-0557

The Americas & China(Hong Kong, Singapore & Taiwan)
Senior Manager : Chang, Suk-Ho
Tel : 82-2-729-0464

USA			
Maketing Manager			Han, Sang-Gwa			Tel : 82-2-729-0919						
Asia, UK			
Maketing Manager			Jeong, Han-Kyu			
Tel : 82-2-729-0288

P/F, M&A, S/F
Head of Structured Finance/M&A
Han, Sang-Han
Tel : 82-2-729-0542

Asia
Senior Manager : Kim, Chi-Ok
Tel : 82-2-729-8538
Western Europe & Africa
Senior Manager : Lee, Joo-Yun
Tel : 82-2-729-0457
Middle East & Eastern Europe
Senior Manager : Choi, Sung-Ho
Tel : 82-2-729-0465
Oceania & German
Manager : Choi, Su-Hee
Tel : 82-2-729-0448
Korean Banks
Senior Manager : Kim, Jong-Wook
Tel : 82-2-729-8916

Treasury Division•
Head of Treasury Division
Lee, Hyung-Soo
Tel : 82-2-729-0531
Medium & Long-Term Financing
Head of Foreign Currency Treasury Team
Park, Jun-Sik
Tel : 82-2-729-0365
Senior Manager
Kim, Beom-Rae
Tel : 82-2-729-0520

German, Swiss, Denmark, Norway
Maketing Manager
Chang, Tae-Yung
Tel : 82-2-729-0304
Europe II
Maketing Manager
Kim, Hyun-Sik
Tel : 82-2-729-0834
Outbound Marketing
General Manager(Dispatched to Global Korea)
Lee, Han Jong
Tel : 82-2-729-0141
Outbound Marketing
Maketing Manager
Park, Ji Sung
Tel : 82-2-3671-1478
FDI Consulting Desk
FDI Consultant
Kim, Yoen-Ju
Tel : 82-2-729-0280
FDI Consultant
Shon, Suk-Yeong
Tel : 82-2-729-0281
FDI Consultant
Kim, Chang-Bae
Tel : 82-2-729-0285

Project Finance/M&A
Chief Manager of Project
Finance/M&A Team
Jeong, Jong-Min
Tel : 82-2-729-0943
Structured Finance
Chief Manager of Structured
Finance Team
Lee, Hoa-Sun
Tel : 82-2-729-0547
C/F, SOC, R/E
Head of Corporate Finance/SOC/
Real Estate Team
Lee, Jae-Hak
Tel : 82-2-729-0292
Corporate Finance
Chief Manager of Corporate
Finance Team
Kim, Jae-Ho
Tel : 82-2-729-8882
SOC
Chief Manager of SOC Team
Park, Seong-Soo
Tel : 82-2-729-8436
Real Estate
Chief Manager of Real Estate TeamChoi, Yun-Hyun
Tel : 82-2-729-0546

FX Trading•
Head of FX Dealing TeamYang, Jin-Young
Tel : 82-2-729-0472
Chief Dealer
Lee, Sang-Bae
Tel : 82-2-729-0476
Chief Dealer
Moon, Young-Sun
Tel : 82-2-729-0498
Chief Dealer
Kim, Doo-Hyeon
Tel : 82-2-729-0507

Overseas Network (as of April, 2008)

Branches &Representative O f f i c e s

AMERICAS• Panama Branch
General Manager : Lim, Young-No
Calle 50, Edificio Torre Global Bank Planta Baja Apartado 8358,
Panama 7, Panama
Tel : 507-269-9966 Fax : 507-264-4224
koexpa@cwp.net.pa
EUROPE• London Branch
General Manager : Kim, Dae-Hwan
30 Old Jewry, London EC2R 8EB, U.K
Tel : 44-20-7606-0191 Fax : 44-20-7606-9968
gaf@kebldn.co.uk• Paris Branch
General Manager : Lee, Dong-Seob
17-19 Avenue Montaigne, 75008 Paris, France
Tel : 33-1-5367-1200 Fax : 33-1-5367-1234
kebparis@9business.fr• Amsterdam Branch
General Manager : Min, Seung-Ki
Dr.Willem Dreesweg 2, 1185VB, Amstelveen, The Netherlands
Tel : 31-20-546-9377 Fax : 31-20-546-9399
kebnl@xs4all.nl
MIDDLE EAST ASIA
• Bahrain Branch
General Manager : Woo, Gi-Hyun
5th Floor, Yateem Center Bldg., P.O. Box 5767, Manama, Bahrain
Tel : 973-17-229333 Fax : 973-17-225327
bahrain@keb.co.kr• Dubai Representative Office
Chief Representative : Choi, Min-Gyu
Office No. 202 (BlockA) Concorde Complex Bldg.,Plot
125-130, P.O.Box 14535, Dubai, U.A.E
Tel : 971-4-2281133 Fax: 971-4-2281132• Arbil Branch
General Manager : Shin, Hwan-Cheol
ROK Army Camp,Arbil,Iraq
Tel : 82-2-723-4204 Fax : 82-2-723-4205
lkrock@keb.co.kr

		

China
• Hong Kong Branch
General Manager : Sohn, Chang-Sup
Branch 32Fl., Far East Finance Centre, 16 Harcourt Road, 		Hong Kong, China
Tel : 852-2520-1221 Fax : 852-2861-2379
kebhk@pacific.net.hk• Kowloon (Hong Kong Sub-Branch)
General Manager : Sohn, Chang-Sup
Room 803, Energy Plaza Bldg., 92 Grandville Road, Tsim 		
Sha Tsui, East Kowloon, Hong Kong, China
Tel : 852-2369-2131 Fax : 852-2311-0390• Beijing Branch
General Manager : Lee, Byung-Seok#510, Henderson Center, Office Tower 2, 18 			
Jianguomennei Avenue, Beijing 100005, China
Tel : 86-10-6518-3101 Fax : 86-10-6518-3106
koexcnbj@mx.cei.gov.cn• Wangjing(Beijing Sub Branch)
General Manager : Lee, Byung-Seok
Room A212-213 Wangjing International Business Center, 		
No.9 Wangjing ST.Chaoyang District,Beijing 100102,China.
• Tianjin Branch
General Manager : Lee, Kwang-Hyun
No.122 Astor Hotel, 33 Taierzhuang Road, Tianjin 300040 China
Tel : 86-22-2319-2595 Fax : 86-22-2319-2594
kebcntj@public.tpt.tj.cn• Dalian Branch
General Manager : Lee, Sang-Chan
25th Fl., World Trade Center,No.25 Tongxing Road, Zhongshan
District, Dalian,China
Tel : 86-411-8253-1988 Fax : 86-411-8281-6150
kebdlcn@mail.dlptt.ln.cn• Shanghai Branch
General Manager : Jeong, Sang-Hyeon
17f Pufa Tower, No 588 Pudong South Road, pudong New 		
District,Shanghai 200120. China
Tel : 86-21-5882-5998 Fax : 86-21-5882-8743
kebcnsh@mail.online.sh.cn

Southeast Asia
• Singapore Branch
General Manager : Yun, Ho-Sun
30 Cecil St., #24-03, 08 Prudential Tower Singapore 049712
Tel : 65-6536-1633 Fax : 65-6538-2522
kebspore@keb.co.kr

Japan• Tokyo Branch
General Manager : Lee, Suk-Hoon
The Shin Kokusai Bldg., 4-1, Marunouchi, 3-Chome,
Chiyoda-ku, Tokyo, Japan
Tel : 81-3-3216-3561 Fax : 81-3-3214-4491
kebtkcom@cb.mbn.or.jp• Manila Branch
General Manager : Jeon, Jong-Bai
33rd Floor, Citi Bank Tower 8741 Paseo de Roxas
St. Makati City Metro Manila, Philippines
Tel : 63-2-848-1988 Fax : 63-2-848-1776
koexbank@eastern.com.ph• Shinjuku(Tokyo Sub-Branch)
General Manager : Lee, Suk-Hoon
Asuka Shinyoukumiai Honbu B/D 2F 32-9, Kabuki-cho, 		2-Chome, Shinjuku-ku,Tokyo, Japan
Tel : 81-3-3208-5211 Fax: 81-3-3208-5260
kebtkcom@cb.mbn.or.jp• Hanoi Branch
General Manager : Lee, Don-Keun
14th Floor, Daeha Business Center 360 Kim Ma St., Ba Dinh Dist., Hanoi, Vietnam
Tel : 84-4-771-6800 Fax : 84-4-771-6784
keb.hanoi@fpt.vn• Osaka Branch
General Manager : Joo, Jae-Jung
Namba Plaza Bldg., 5-7, Motomachi 1-chome,
Naniwa-ku, Osaka, Japan
Tel : 81-6-6630-2600 Fax : 81-6-6630-2806
kebosaka@helen.ocn.ne.jp• Ho Chi Minh City Representative Office
General Manager : Chief Representative : Kim, Kyoo-Sung
Unit 502,5th Floor, Diamond Plaza,34 Le Duan St.Dist.1, 		
Ho Chi Minh City, Vietnam
Tel : 84-8-827-4273 Fax : 84-8-827-4281

187

188

Overseas Network (continued) 		

Subsidiaries• KEB NY Financial Corp.
Preasident : Min, Young-Soo
460 Park Ave. 14th Floor, New York, N.Y.10022 U.S.A
Tel : 1-212-838-4949 Fax : 1-212-371-5290
kebny@kebus.com

• KEB USA International Corp.
President : Shin, Dong-Hun
460 Park Ave. 15th Floor, New York, N.Y.10022 U.S.A.
Tel : 1-212-838-4949 Fax : 1-212-752-8551• KEB LA Financial Corp.
President : Kang, Kyung-Moon
777 South Figueroa Street, Suite 3000, Los Angeles, CA.90017 U.S.
Tel : 1-213-683-0830 Fax : 1-213-622-5378
kebla@kebus.com• Korea Exchange Bank of Canada (H.O.)
President : Lee, Jong-Wook
Madison Centre Suite 1101, 4950 Yonge St. Toronto Ontario M2N 6K1, Canada
Tel : 1-416-222-5200 Fax : 1-416-222-5822
keboc@interlog.com• KEB Australia Ltd.
Managing Director : Oh, Hee-Cheon
Suite 602, Level 6, AIG Building 220 George St., Sydney
N.S.W.2000, Australia P.O.Box N595 Grosvenor Place NSW 1220
Tel : 61-2-9251-3355 Fax : 61-2-9251-3853
admin@keba.com.au• Korea Exchange Bank (Deutschland) A.G.
Managing Director : Lee, Jae-Cheol
Bockenheimer Landstrasse 51-53, 60325 Frankfurt/M Germany
Tel : 49-69-7129-0 Fax : 49-69-7129-122
mail@koexbank.de• PT Bank KEB Indonesia
Managing Director : Cho, Chong-Soo
Wisma GKBI 12th Fl., Suite 1201 Jalan Jenderal
Sudirman No.28 P.O. Box 2317 Jakarta 10210 Indonesia
Tel : 6221-574-1030 Fax : 6221-574-1031
kebd@cbn.net.id• Banco KEB do Brasil S.A.
President : Lee, Seong-Cheon
Av.Doutor Chucri Zaidan 940, Torre II,18 Andar,CEP 04583-110, Cordeiro, Sao Paulo, SP, Brasil
Tel : 55-11-5188-1122 Fax : 55-11-5188-1120
kebsp@sagesse.com.br

Domestic Network (as of March 31, 2008)

Head Office•			181, Euljiro 2-ga, Jung-gu, C.P.O.Box 2924, Seoul 100-793, Korea
Tel : 82-1544-3000 Tlx : K23141

Branches•

340

Subsidiaries
•			
			
			
			

KEB Capital Inc. 10F Hanwi Building, 70 Da-dong, Jung-gu, Seoul 100-180, Korea
Tel : 82-2-3708-2100 Fax : 82-2-756-5269

			
			

KEB Investor Services Co.,Ltd. 23F KEB Head Office, 181 Euljiro 2-ga, Jung-gu, Seoul 100-793, Korea
Tel : 82-2-729-0447 Fax: 82-2-777-5311

KEB Futures Co.,Ltd. 11F Yuhwa Building, 23-7 Youido-dong, Youngdungpo-gu, Seoul 150-738, Korea
Tel : 82-2-3770-4100 Fax : 82-2-3770-4147

1967
181, Euljiro 2-ga, Jung-gu, C.P.O. Box 2924, Seoul 100-793, Korea
Tel. 82-1544-3000
SWIFT. KOEXKRSETelex. K23141

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