As filed with the Securities and Exchange Commission on April 30, 2019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

    ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

    ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

    ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 .

OR

    ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                 .

Commission file number 000-53445

KB Financial Group Inc.

(Exact name of Registrant as specified in its charter)

KB Financial Group Inc.

(Translation of Registrant’s name into English)

The Republic of Korea

(Jurisdiction of incorporation or organization)

26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea

(Address of principal executive offices)

Peter BongJoong Kwon

11F, Kookmin Bank, 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea

Telephone No.: +82-2-2073-2824

Facsimile No.: +82-2-2073-2848

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
American Depositary Shares, each representing one share of Common Stock	New York Stock Exchange
Common Stock, par value ￦5,000 per share	New York Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

395,551,297 shares of Common Stock, par value ￦5,000 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ☒ Yes  ☐ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  ☐ Yes   ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒ Yes  ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ Yes  ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

  ☒    Large accelerated filer             ☐     Accelerated filer             ☐     Non-accelerated filer             ☐     Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act:  ☐ Yes  ☐ No

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

☐    U.S. GAAP   ☒    International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  ☐ Item 17  ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐ Yes  ☒ No

* Not for trading, but only in connection with the registration of the American Depositary Shares.

TABLE OF CONTENTS

PRESENTATION OF FINANCIAL AND OTHER INFORMATION			1
FORWARD-LOOKING STATEMENTS			2
Item 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		3
Item 2.	OFFER STATISTICS AND EXPECTED TIMETABLE		3
Item 3.	KEY INFORMATION		3
	Item 3.A.	Selected Financial Data	3
	Item 3.B.	Capitalization and Indebtedness	12
	Item 3.C.	Reasons for the Offer and Use of Proceeds	12
	Item 3.D.	Risk Factors	12
Item 4.	INFORMATION ON THE COMPANY		37
	Item 4.A.	History and Development of the Company	37
	Item 4.B.	Business Overview	38
	Item 4.C.	Organizational Structure	119
	Item 4.D.	Property, Plants and Equipment	121
Item 4A.	UNRESOLVED STAFF COMMENTS		122
Item 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		122
	Item 5.A.	Operating Results	122
	Item 5.B.	Liquidity and Capital Resources	164
	Item 5.C.	Research and Development, Patents and Licenses, etc.	170
	Item 5.D.	Trend Information	170
	Item 5.E.	Off-Balance Sheet Arrangements	170
	Item 5.F.	Tabular Disclosure of Contractual Obligations	170
	Item 5.G.	Safe Harbor	170
Item 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		170
	Item 6.A.	Directors and Senior Management	170
	Item 6.B.	Compensation	175
	Item 6.C.	Board Practices	176
	Item 6.D.	Employees	177
	Item 6.E.	Share Ownership	180
Item 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		181
	Item 7.A.	Major Shareholders	181
	Item 7.B.	Related Party Transactions	181
	Item 7.C.	Interests of Experts and Counsel	181
Item 8.	FINANCIAL INFORMATION		182
	Item 8.A.	Consolidated Statements and Other Financial Information	182
	Item 8.B.	Significant Changes	184

i

Item 9.	THE OFFER AND LISTING		184
	Item 9.A.	Offering and Listing Details	184
	Item 9.B.	Plan of Distribution	186
	Item 9.C.	Markets	186
	Item 9.D.	Selling Shareholders	186
	Item 9.E.	Dilution	186
	Item 9.F.	Expenses of the Issue	187
Item 10.	ADDITIONAL INFORMATION		187
	Item 10.A.	Share Capital	187
	Item 10.B.	Memorandum and Articles of Association	187
	Item 10.C.	Material Contracts	193
	Item 10.D.	Exchange Controls	194
	Item 10.E.	Taxation	195
	Item 10.F.	Dividends and Paying Agents	200
	Item 10.G.	Statement by Experts	200
	Item 10.H.	Documents on Display	200
	Item 10.I.	Subsidiary Information	201
Item 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		201
Item 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		223
Item 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		224
Item 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		224
Item 15.	CONTROLS AND PROCEDURES		224
Item 16.	[RESERVED]		225
Item 16A.	AUDIT COMMITTEE FINANCIAL EXPERT		225
Item 16B.	CODE OF ETHICS		225
Item 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		226
Item 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		226
Item 16E.	PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		227
Item 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		227
Item 16G.	CORPORATE GOVERNANCE		227
Item 16H.	MINE SAFETY DISCLOSURE		229
Item 17.	FINANCIAL STATEMENTS		229
Item 18.	FINANCIAL STATEMENTS		229
Item 19.	EXHIBITS		229

ii

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

The financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As such, we make an explicit and unreserved statement of compliance with IFRS as issued by the IASB with respect to our consolidated financial statements as of December 31, 2017 and 2018 and for the years ended December 31, 2016, 2017 and 2018 included in this annual report. Unless indicated otherwise, the financial information in this annual report as of and for the years ended December 31, 2014, 2015, 2016, 2017 and 2018 has been prepared in accordance with IFRS as issued by the IASB, which is not comparable to information prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.

In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission which became effective on March 4, 2008, we are not required to provide a reconciliation to U.S. GAAP.

Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.

In this annual report:

• references to “we,” “us” or “KB Financial Group” are to KB Financial Group Inc. and, unless the context otherwise requires, its subsidiaries;

• references to “Korea” are to the Republic of Korea;

• references to the “government” are to the government of the Republic of Korea;

• references to “Won” or “￦” are to the currency of Korea; and

• references to “U.S. dollars,” “$” or “US$” are to United States dollars.

Discrepancies between totals and the sums of the amounts contained in any table may be a result of rounding.

For your convenience, this annual report contains translations of Won amounts into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York for Won in effect on December 31, 2018, which was ￦1,112.85 = US$1.00.

1

FORWARD-LOOKING STATEMENTS

The U.S. Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This annual report contains forward-looking statements.

Words and phrases such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “estimate,” “expect,” “future,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “predict,” “project,” “risk,” “seek to,” “shall,” “should,” “will likely result,” “will pursue,” “plan” and words and terms of similar substance used in connection with any discussion of future operating or financial performance or our expectations, plans, projections or business prospects identify forward-looking statements. In particular, the statements under the headings “Item 3.D. Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 4.B. Business Overview” regarding our financial condition and other future events or prospects are forward-looking statements. All forward-looking statements are management’s present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

In addition to the risks related to our business discussed under “Item 3.D. Risk Factors,” other factors could cause actual results to differ materially from those described in the forward-looking statements. These factors include, but are not limited to:

• our ability to successfully implement our strategy;

• future levels of non-performing loans;

• our growth and expansion;

• the adequacy of allowances for credit and investment losses;

• technological changes;

• interest rates;

• investment income;

• availability of funding and liquidity;

• cash flow projections;

• our exposure to market risks; and

• adverse market and regulatory conditions.

By their nature, certain disclosures relating to these and other risks are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains, losses or impact on our income or results of operations could materially differ from those that have been estimated. For example, revenues could decrease, costs could increase, capital costs could increase, capital investment could be delayed and anticipated improvements in performance might not be fully realized.

In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this annual report could include, but are not limited to:

• general economic and political conditions in Korea or other countries that have an impact on our business activities or investments;

• the monetary and interest rate policies of Korea;

• inflation or deflation;

2

• unanticipated volatility in interest rates;

• foreign exchange rates;

• prices and yields of equity and debt securities;

• the performance of the financial markets in Korea and globally;

• changes in domestic and foreign laws, regulations and taxes;

• changes in competition and the pricing environments in Korea; and

• regional or general changes in asset valuations.

For further discussion of the factors that could cause actual results to differ, see the discussion under “Item 3.D. Risk Factors” contained in this annual report. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this annual report. Except as required by law, we are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this annual report.

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3. KEY INFORMATION

Item 3.A. Selected Financial Data

The selected consolidated financial and operating data as of and for the years ended December 31, 2014, 2015, 2016, 2017 and 2018 set forth below have been derived from our audited consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements as of and for the years ended December 31, 2014, 2015, 2016, 2017 and 2018 have been audited by independent registered public accounting firm Samil PricewaterhouseCoopers.

IFRS 9 Financial Instruments, or IFRS 9, is effective for annual periods beginning on or after January 1, 2018 and replaces International Accounting Standard 39 Financial Instruments: Recognition and Measurement, or IAS 39. We have applied IFRS 9 in our consolidated financial statements as of and for the year ended December 31, 2018 included elsewhere in this annual report. As permitted by the transition rules of IFRS 9, our consolidated financial statements as of and for the years ended December 31, 2016 and 2017 included elsewhere in this annual report have not been restated to retroactively apply IFRS 9. For information regarding the impact of the application of IFRS 9 to our consolidated financial statements, see “Item 5.A. Operating Results—Overview—Changes in Accounting Policies—Adoption of IFRS 9” and Notes 2.1 and 45 of the notes to our consolidated financial statements included elsewhere in this annual report.

You should read the following data together with the more detailed information contained in “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements included elsewhere in this annual report. Historical results do not necessarily predict future results.

3

Consolidated statements of comprehensive income data

	Year Ended December 31,
	2014			2015			2016			2017			2018(3)			2018(3)(4)
	(in billions of Won, except common share data)															(in millions of US$, except common share data)
Interest income(1)	￦	11,907		￦	10,617		￦	10,335		￦	11,919		￦	13,735		US$	12,342
Interest expense		(5,219	)		(4,173	)		(3,619	)		(3,672	)		(4,830	)		(4,340	)
Net interest income(1)		6,688			6,444			6,716			8,247			8,905			8,002
Fee and commission income		2,666			2,971			3,151			3,988			3,717			3,341
Fee and commission expense		(1,283	)		(1,436	)		(1,566	)		(1,938	)		(1,474	)		(1,325	)
Net fee and commission income		1,383			1,535			1,585			2,050			2,243			2,016
Insurance income(2)		1,215			1,373			1,201			8,971			11,975			10,760
Insurance expense(2)		(1,352	)		(1,479	)		(1,319	)		(8,377	)		(11,485	)		(10,320	)
Net insurance income (expenses)(2)		(137	)		(106	)		(118	)		594			490			440
Net gains (losses) on financial assets and liabilities at fair value through profit or loss(1)		—			—			—			—			352			316
Net gains (losses) on financial assets and liabilities at fair value through profit or loss (under IAS 39)(1)		167			119			(322	)		203			—			—
Net other operating income (expenses)(2)		(904	)		(610	)		(416	)		(902	)		(1,130	)		(1,015	)
General and administrative expenses		(4,010	)		(4,524	)		(5,229	)		(5,629	)		(5,919	)		(5,318	)
Operating profit before provision for credit losses		3,187			2,858			2,216			4,563			4,941			4,440
Provision for credit losses		(1,228	)		(1,037	)		(539	)		(548	)		(674	)		(605	)
Net operating profit		1,959			1,821			1,677			4,015			4,267			3,835
Share of profit (loss) of associates and joint ventures		13			203			281			84			24			22
Net other non-operating income (expenses)		(71	)		140			671			39			11			9
Net non-operating profit (loss)		(58	)		343			952			123			35			31
Profit before income tax		1,901			2,164			2,629			4,138			4,302			3,865
Tax income (expenses)		(486	)		(437	)		(439	)		(795	)		(1,240	)		(1,114	)
Profit for the year	￦	1,415		￦	1,727		￦	2,190		￦	3,343		￦	3,062		US$	2,751
Items that will not be reclassified to profit or loss:
Remeasurements of net defined benefit		(100	)		(23	)		13			23			(138	)		(124	)
Shares of other comprehensive income of associates and joint ventures		—			—			4			—			(0	)		(0	)
Revaluation gains on equity instruments at fair value through other comprehensive income		—			—			—			—			(31	)		(28	)
Fair value changes on financial liabilities designated at fair value due to own credit risk		—			—			—			—			1			1
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations		17			45			20			(110	)		49			44
Net gains on financial instruments at fair value through other comprehensive income		—			—			—			—			119			107
Valuation gains (losses) on financial investments		249			(29	)		(48	)		89			—			—
Shares of other comprehensive income (loss) of associates and joint ventures		(32	)		—			(11	)		101			(4	)		(3	)
Cash flow hedges		(10	)		1			4			21			(9	)		(8	)
Gains (losses) on hedges of a net investment in a foreign operation		—			(25	)		(7	)		27			(27	)		(24	)
Other comprehensive income of separate account		—			—			—			(14	)		30			26
Net gains (losses) on overlay adjustment		—			—			—			—			0			0
Other comprehensive income (loss) for the year, net of tax		124			(31	)		(25	)		136			(10	)		(9	)
Total comprehensive income for the year	￦	1,539		￦	1,696		￦	2,165		￦	3,480		￦	3,052		US$	2,742
Profit attributable to:
Shareholders of the parent company	￦	1,401		￦	1,698		￦	2,144		￦	3,311		￦	3,061		US$	2,750
Non-controlling interests		14			29			46			32			1			1
	￦	1,415		￦	1,727		￦	2,190		￦	3,343		￦	3,062		US$	2,751
Total comprehensive income attributable to:
Shareholders of the parent company	￦	1,526		￦	1,667		￦	2,119		￦	3,446		￦	3,051		US$	2,741
Non-controlling interests		13			29			46			34			1			1
	￦	1,539		￦	1,696		￦	2,165		￦	3,480		￦	3,052		US$	2,742
Earnings per share
Basic earnings per share	￦	3,626		￦	4,396		￦	5,588		￦	8,305		￦	7,721		US$	6.94
Diluted earnings per share		3,611			4,376			5,559			8,257			7,676			6.90

4

⁽¹⁾ Prior to 2018, interest income arising from financial assets at fair value through profit or loss was recorded as part of net gains (losses) on financial assets and liabilities at fair value through profit or loss. Pursuant to a change in our accounting policies which became effective as of January 1, 2018, commencing in such year, interest income arising from financial assets at fair value through profit or loss is recorded as part of interest income, instead of as part of net gains (losses) on financial assets and liabilities at fair value through profit or loss. Interest income arising from financial assets at fair value through profit or loss for prior years has been reclassified accordingly. See Note 2. 1 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽²⁾  Prior to 2017, insurance income and expense of KB Life Insurance Co., Ltd., our life insurance subsidiary, and KB Kookmin Card Co., Ltd., our credit card subsidiary, were recorded as part of other operating income and expenses. In May 2017, KB Insurance Co., Ltd., a non-life insurance company, became our consolidated subsidiary pursuant to a tender offer (and became a wholly-owned subsidiary in July 2017 pursuant to a comprehensive stock swap). See “Item 5.A. Operating Results—Overview—Acquisitions.” As a result, commencing in 2017, insurance income and expense (comprising insurance income and expense of KB Life Insurance and KB Kookmin Card, as well as insurance income and expense of KB Insurance from the date of its consolidation) are recorded as separate line items, instead of as part of other operating income and expenses. Insurance income and expense of KB Life Insurance and KB Kookmin Card for prior years have been reclassified accordingly.

⁽³⁾  Figures for 2018 reflect the application of IFRS 9 and therefore may not be directly comparable to corresponding figures for prior years. See Notes 2.1 and 45 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽⁴⁾  Won amounts are expressed in U.S. dollars at the rate of ￦1,112.85 to US$1.00, the noon buying rate in effect on December 31, 2018 as quoted by the Federal Reserve Bank of New York in the United States.

5

Consolidated statements of financial position data

	Year Ended December 31,
	2014		2015		2016			2017			2018(2)			2018(2)(3)
	(in billions of Won)													(in millions of US$)
Assets
Cash and due from financial institutions	￦	15,424	￦	16,316	￦	17,885		￦	19,818		￦	20,274		US$	18,219
Financial assets at fair value through profit or loss		—		—		—			—			50,988			45,817
Financial assets at fair value through profit or loss (IAS 39)		10,758		11,174		27,858			32,227			—			—
Derivative financial assets		1,968		2,278		3,382			3,310			2,026			1,821
Loans		231,450		245,005		265,486			290,123			319,202			286,833
Financial investments		34,961		39,137		45,148			66,608			61,665			55,412
Investments in associates and joint ventures		670		1,738		1,771			335			505			454
Property and equipment		3,083		3,287		3,627			4,202			4,272			3,839
Investment property		378		212		755			849			2,120			1,905
Intangible assets		489		467		652			2,943			2,756			2,476
Net defined benefit assets		—		—		—			1			—			—
Current income tax assets		306		19		66			6			10			9
Deferred income tax assets		16		8		134			4			4			4
Assets held for sale		70		49		52			156			17			15
Other assets		8,783		9,375		8,858			16,204			15,749			14,152
Total assets	￦	308,356	￦	329,065	￦	375,674		￦	436,786		￦	479,588		US$	430,955
Liabilities
Financial liabilities at fair value through profit or loss	￦	—	￦	—	￦	—		￦	—		￦	15,327		US$	13,773
Financial liabilities at fair value through profit or loss (IAS 39)		1,819		2,975		12,123			12,023			—			—
Derivative financial liabilities		1,797		2,326		3,807			3,143			2,901			2,607
Deposits		211,549		224,268		239,731			255,800			276,770			248,704
Debts		15,865		16,241		26,251			28,821			33,005			29,658
Debentures		29,201		32,601		34,992			44,993			53,279			47,876
Provisions		614		607		538			568			526			473
Net defined benefit liabilities		76		73		96			155			262			236
Current income tax liabilities		232		31		442			434			699			628
Deferred income tax liabilities		93		179		103			533			493			443
Insurance contract liabilities(1)		6,265		6,925		7,291			31,801			33,413			30,025
Other liabilities(1)		13,332		13,937		19,039			24,470			27,200			24,441
Total liabilities	￦	280,843	￦	300,163	￦	344,413		￦	402,741		￦	443,875		US$	398,864
Total Equity
Capital stock	￦	1,932	￦	1,932	￦	2,091		￦	2,091		￦	2,091		US$	1,879
Capital surplus		15,855		15,855		16,995			17,122			17,122			15,385
Accumulated other comprehensive income		461		429		405			538			178			159
Retained earnings		9,067		10,464		12,229			15,044			17,282			15,530
Treasury shares		—		—		(722	)		(756	)		(969	)		(870	)
Equity attributable to shareholders of the parent company		27,315		28,680		30,998			34,039			35,704			32,083
Non-controlling interests		198		222		263			6			9			8
Total equity	￦	27,513	￦	28,902	￦	31,261		￦	34,045		￦	35,713		US$	32,091
Total liabilities and equity	￦	308,356	￦	329,065	￦	375,674		￦	436,786		￦	479,588		US$	430,955

6

⁽¹⁾  Prior to 2017, insurance contract liabilities of KB Life Insurance, our life insurance subsidiary, and KB Kookmin Card, our credit card subsidiary, were recorded as part of other liabilities. In May 2017, KB Insurance, a non-life insurance company, became our consolidated subsidiary pursuant to a tender offer (and became a wholly-owned subsidiary in July 2017 pursuant to a comprehensive stock swap). See “Item 5.A. Operating Results—Overview—Acquisitions.” As a result, commencing as of December 31, 2017, insurance contract liabilities (comprising such liabilities of KB Life Insurance, KB Kookmin Card and KB Insurance) are recorded as separate line items, instead of as part of other liabilities. Insurance contract liabilities of KB Life Insurance and KB Kookmin Card as of prior dates have been reclassified accordingly.

⁽²⁾  Figures as of December 31, 2018 reflect the application of IFRS 9 and therefore may not be directly comparable to corresponding figures as of prior dates. See Notes 2.1 and 45 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽³⁾  Won amounts are expressed in U.S. dollars at the rate of ￦1,112.85 to US$1.00, the noon buying rate in effect on December 31, 2018 as quoted by the Federal Reserve Bank of New York in the United States.

Profitability ratios and other data

	As of or for the year Ended December 31,
	2014			2015			2016			2017			2018
	(Percentages)
Profit (loss) attributable to stockholders as a percentage of:
Average total assets(1)		0.47	%		0.54	%		0.62	%		0.80	%		0.67	%
Average stockholders’ equity(1)		5.30			6.05			7.13			9.56			8.58
Dividend payout ratio(2)		21.48			22.32			23.23			23.17			24.83
Net interest spread(3)		2.18			2.05			2.01			2.11			2.05
Net interest margin(4)		2.42			2.21			2.13			2.27			2.23
Efficiency ratio(5)		55.72			61.28			69.14			58.65			57.08
Cost-to-average assets ratio(6)		1.34			1.43			1.50			1.36			1.29
Won loans (gross) as a percentage of Won deposits		107.73			107.88			110.77			114.02			115.98
Total loans (gross) as a percentage of total deposits		110.57			110.40			111.69			114.24			116.27

⁽¹⁾  Average balances are based on daily balances for our banking, credit card and investment and securities operations and monthly or quarterly balances for our other operations.

⁽²⁾  Represents the ratio of total dividends declared on common stock as a percentage of profit attributable to stockholders.

⁽³⁾  Represents the difference between the yield on average interest earning assets and cost of average interest bearing liabilities.

⁽⁴⁾  Represents the ratio of net interest income to average interest earning assets.

⁽⁵⁾  Represents the ratio of general and administrative expenses to the sum of net interest income, net fee and commission income, net gain on financial assets and liabilities at fair value through profit or loss and net other operating income.

⁽⁶⁾  Represents the ratio of general and administrative expenses to average total assets.

Capital ratios

	As of or for the year Ended December 31,
	2016			2017			2018
	(Percentages)
Consolidated capital adequacy ratio of KB Financial Group(1)		15.27	%		15.23	%		14.60	%
Capital adequacy ratios of Kookmin Bank
Tier I capital adequacy ratio(2)		14.83			14.86			14.33
Common equity Tier I capital adequacy ratio(2)		14.83			14.86			14.33
Tier II capital adequacy ratio(2)		1.49			1.16			1.19
Average stockholders’ equity as a percentage of average total assets		8.63			8.37			7.75

⁽¹⁾  Under applicable guidelines of the Financial Services Commission, we, as a bank holding company, were required to maintain a total minimum consolidated capital adequacy ratio of 10.625% (including applicable additional capital buffers and requirements) as of December 31, 2018. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy.”

⁽²⁾  Kookmin Bank’s capital adequacy ratios are computed in accordance with the guidelines issued by the Financial Services Commission. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Banks—Capital Adequacy.”

7

Credit portfolio ratios and other data

	As of December 31,
	2014			2015			2016			2017			2018
	(in billions of Won, except percentages)
Total loans(1)	￦	233,902		￦	247,587		￦	267,764		￦	292,233		￦	321,811
Total non-performing loans(2)		1,068			922			923			758			725
Other impaired loans not included in non-performing loans		1,996			2,075			1,613			1,509			1,377
Total of non-performing loans and other impaired loans		3,064			2,997			2,536			2,267			2,102
Total allowances for loan losses		2,452			2,582			2,278			2,110			2,609
Non-performing loans as a percentage of total loans		0.46	%		0.37	%		0.34	%		0.26	%		0.23	%
Non-performing loans as a percentage of total assets		0.35	%		0.28	%		0.25	%		0.17	%		0.15	%
Total of non-performing loans and other impaired loans as a percentage of total loans		1.31	%		1.21	%		0.95	%		0.78	%		0.65	%
Allowances for loan losses as a percentage of total loans		1.05	%		1.04	%		0.85	%		0.72	%		0.81	%

⁽¹⁾  Before deduction of allowances for loan losses.

⁽²⁾  Non-performing loans are defined as those loans, including corporate, retail and other loans, which are past due by 90 days or more.

8

Selected Statistical Information

Average Balance Sheets and Related Interest

The following table shows our average balances and interest rates for the past three years:

	Year Ended December 31,
	2016								2017								2018
	Average Balance(1)			Interest Income(2)(3)		Average Yield			Average Balance(1)			Interest Income(2)(3)		Average Yield			Average Balance(1)			Interest Income(2)(3)		Average Yield
	(in billions of Won, except percentages)
Assets
Cash and interest earning deposits in other banks	￦	8,630		￦	111		1.29	%	￦	9,620		￦	126		1.31	%	￦	8,162		￦	109		1.34	%
Financial assets at fair value through profit or loss (debt securities)(4)		13,562			313		2.31			22,908			537		2.34			27,911			749		2.68
Financial investments (debt securities)(5)		34,868			890		2.55			49,137			1,160		2.36			56,585			1,325		2.34
Loans:
Corporate		112,657			3,469		3.08			123,004			3,962		3.22			134,938			4,471		3.31
Mortgage		55,638			1,522		2.74			60,944			1,683		2.76			65,799			1,994		3.03
Home equity		34,048			983		2.89			32,777			953		2.91			32,661			1,020		3.12
Other consumer(6)		39,506			1,835		4.64			46,325			2,115		4.57			52,333			2,491		4.76
Credit cards(7)		12,827			1,124		8.76			14,881			1,258		8.45			16,725			1,386		8.29
Foreign		3,011			88		2.92			3,607			125		3.47			4,254			190		4.47
Loans (total)		257,687			9,021		3.50			281,538			10,096		3.59			306,710			11,552		3.77
Total average interest earning assets	￦	314,747		￦	10,335		3.28	%	￦	363,203		￦	11,919		3.28	%	￦	399,368		￦	13,735		3.44	%
Cash and due from banks		9,797			—		—			10,494			—		—			11,072			—		—
Financial assets at fair value through profit or loss (excluding debt securities):
Equity securities		1,832			—		—			3,849			—		—			4,646			—		—
Other		1,353			—		—			4,499			—		—			17,051			—		—
Financial assets at fair value through profit or loss (excluding debt securities) (total)		3,185			—		—			8,348			—		—			21,697			—		—
Financial investment (equity securities)		6,140			—		—			9,135			—		—			2,628			—		—
Investment in associates		2,107			—		—			968			—		—			432			—		—
Derivative financial assets		2,583			—		—			2,372			—		—			2,470			—		—
Premises and equipment		3,464			—		—			5,826			—		—			5,639			—		—
Intangible assets		515			—		—			2,409			—		—			2,839			—		—
Allowances for loan losses		(2,734	)		—		—			(2,428	)		—		—			(2,827	)		—		—
Other non-interest earning assets		8,746			—		—			13,405			—		—			16,963			—		—
Total average non-interest earning assets		33,803			—		—			50,529			—		—			60,913			—		—
Total average assets	￦	348,550		￦	10,335		2.97	%	￦	413,732		￦	11,919		2.88	%	￦	460,281		￦	13,735		2.98	%

9

	Year Ended December 31,
	2016							2017							2018
	Average Balance(1)		Interest Expense		Average Cost			Average Balance(1)		Interest Expense		Average Cost			Average Balance(1)		Interest Expense		Average Cost
	(in billions of Won, except percentages)
Liabilities
Deposits:
Demand deposits	￦	97,858	￦	295		0.30	%	￦	110,945	￦	290		0.26	%	￦	117,267	￦	347		0.30	%
Time deposits		125,612		2,126		1.69			127,478		2,010		1.58			141,021		2,637		1.87
Certificates of deposit		3,387		56		1.65			2,863		45		1.57			3,045		58		1.90
Deposits (total)		226,857		2,477		1.09			241,286		2,345		0.97			261,333		3,042		1.16
Debts(8)		22,798		289		1.27			33,065		446		1.35			37,565		639		1.70
Debentures		34,213		853		2.49			39,767		880		2.22			48,147		1,149		2.39
Total average interest bearing liabilities	￦	283,868	￦	3,619		1.27	%	￦	314,118	￦	3,672		1.17	%	￦	347,045	￦	4,830		1.39	%
Non-interest bearing demand deposits		4,073		—		—			4,114		—		—			4,059		—		—
Derivative financial liabilities		2,687		—		—			2,422		—		—			2,932		—		—
Financial liabilities at fair value through profit or loss		5,737		—		—			12,674		—		—			14,280		—		—
Other non-interest bearing liabilities		21,877		—		—			45,618		—		—			56,275		—		—
Total average non-interest bearing liabilities		34,374		—		—			64,828		—		—			77,546		—		—
Total average liabilities		318,242		3,619		1.14			378,946		3,672		0.95			424,591		4,830		1.14
Total equity		30,308		—		—			34,786		—		—			35,690		—		—
Total average liabilities and equity	￦	348,550	￦	3,619		1.04	%	￦	413,732	￦	3,672		0.87	%	￦	460,281	￦	4,830		1.05	%

⁽¹⁾  Average balances are based on daily balances for our banking, credit card and investment and securities operations and monthly or quarterly balances for our other operations.

⁽²⁾  We do not invest in any tax-exempt securities.

⁽³⁾  Includes interest income from financial assets at fair value through profit or loss.

⁽⁴⁾  For 2018 only, includes deposits and loans at fair value through profit or loss. For information on interest income arising from such financial instruments, see Note 27 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽⁵⁾ Comprises financial assets at fair value through other comprehensive income and at amortized cost (or available-for-sale and held-to-maturity financial assets). For 2018 only, also includes loans at fair value through other comprehensive income. For information on interest income arising from such financial instruments, see Note 27 of the notes to our consolidated financial statements included elsewhere in this annual report. Information related to investment securities classified as financial assets at fair value through other comprehensive income (or available-for-sale financial assets) has been computed using amortized cost, and therefore does not give effect to changes in fair value that are reflected as a component of total equity.

⁽⁶⁾  Includes other interest income

⁽⁷⁾ Interest income from credit cards includes principally cash advance fees of ￦210 billion, ￦216 billion and ￦223 billion and interest on credit card loans of ￦525 billion, ￦629 billion and ￦704 billion for the years ended December 31, 2016, 2017 and 2018, respectively, but does not include interchange fees.

⁽⁸⁾  Includes other interest expense.

The following table presents our net interest spread, net interest margin, and asset liability ratio for the past three years:

	Year Ended December 31,
	2016			2017			2018
	(percentages)
Net interest spread(1)		2.01	%		2.11	%		2.05	%
Net interest margin(2)		2.13			2.27			2.23
Average asset liability ratio(3)		110.88			115.63			115.08

⁽¹⁾  The difference between the average rate of interest earned on interest earning assets and the average rate of interest paid on interest bearing liabilities.

10

⁽²⁾  The ratio of net interest income to average interest earning assets, and reflects the application of the 2018 Accounting Policy Change.

⁽³⁾  The ratio of average interest earning assets to average interest bearing liabilities.

Analysis of Changes in Net Interest Income—Volume and Rate Analysis

The following table provides an analysis of changes in interest income, interest expense and net interest income based on changes in volume and changes in rate for 2016 compared to 2017 and 2017 compared to 2018. Information is provided with respect to: (1) effects attributable to changes in volume (changes in volume multiplied by prior rate) and (2) effects attributable to changes in rate (changes in rate multiplied by prior volume). Changes attributable to the combined impact of changes in rate and volume have been allocated proportionately to the changes due to volume changes and changes due to rate changes.

	2017 vs. 2016 Increase/(Decrease) Due to Change in									2018 vs. 2017 Increase/(Decrease) Due to Change in
	Volume			Rate			Total			Volume			Rate			Total
	(in billions of Won)
Interest earning assets
Cash and interest earning deposits in other banks	￦	13		￦	2		￦	15		￦	(20	)	￦	3		￦	(17	)
Financial assets at fair value through profit or loss (debt securities)(1)		220			4			224			127			84			211
Financial investments (debt securities)(2)		341			(71	)		270			176			(10	)		166
Loans:
Corporate		330			163			493			395			114			509
Mortgage		150			11			161			140			171			311
Home equity		(37	)		7			(30	)		(3	)		70			67
Other consumer		308			(28	)		280			285			91			376
Credit cards		175			(41	)		134			152			(24	)		128
Foreign		19			18			37			25			40			65
Total interest income	￦	1,519		￦	65		￦	1,584		￦	1,277		￦	539		￦	1,816
	2017 vs. 2016 Increase/(Decrease) Due to Change in									2018 vs. 2017 Increase/(Decrease) Due to Change in
	Volume			Rate			Total			Volume			Rate			Total
	(in billions of Won)
Interest bearing liabilities
Deposits:
Demand deposits	￦	37		￦	(42	)	￦	(5	)	￦	15		￦	42		￦	57
Time deposits		30			(146	)		(116	)		230			397			627
Certificates of deposit		(8	)		(3	)		(11	)		3			10			13
Debts		138			19			157			66			127			193
Debentures		128			(100	)		28			197			71			268
Total interest expense		325			(272	)		53			511			647			1,158
Total net interest income	￦	1,194		￦	337		￦	1,531		￦	766		￦	(108	)	￦	658

⁽¹⁾  For 2018 only, includes deposits and loans at fair value through profit or loss. For information on interest income arising from such financial instruments, see Note 27 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽²⁾ Comprises financial assets at fair value through other comprehensive income and at amortized cost (or available-for-sale and held-to-maturity financial assets). For 2018 only, also includes loans at fair value through other comprehensive income. For information on interest income arising from such financial instruments, see Note 27 of the notes to our consolidated financial statements included elsewhere in this annual report. Information related to investment securities classified as financial assets at fair value through other comprehensive income (or available-for-sale financial assets) has been computed using amortized cost, and therefore does not give effect to changes in fair value that are reflected as a component of total equity.

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Item 3.B. Capitalization and Indebtedness

Not applicable.

Item 3.C. Reasons for the Offer and Use of Proceeds

Not applicable.

Item 3.D. Risk Factors

Risks relating to our retail credit portfolio

Future changes in market conditions as well as other factors may lead to increases in delinquency levels of our retail loan portfolio.

In recent years, consumer debt has increased significantly in Korea. Our portfolio of retail loans, including mortgage and home equity loans, increased from ￦124,194 billion as of December 31, 2015 to ￦134,956 billion as of December 31, 2016, ￦146,150 billion as of December 31, 2017 and ￦158,807 billion as of December 31, 2018. As of December 31, 2018, our domestic retail loans represented 49.3% of our total lending. Within our retail loan portfolio, the outstanding balance of other consumer loans, which unlike mortgage or home equity loans are often unsecured and therefore tend to carry a higher credit risk, increased from ￦36,312 billion as of December 31, 2015 to ￦56,200 billion as of December 31, 2018; as a percentage of total outstanding retail loans, such balance increased from 29.2% as of December 31, 2015 to 35.4% as of December 31, 2018. The growth of our retail lending business, which generally offers higher margins than other lending activities, has contributed significantly to our interest income and profitability in recent years.

The growth of our retail loan portfolio, together with fluctuating economic conditions in Korea and globally in recent years, may lead to increases in delinquency levels and a deterioration in asset quality. The amount of our non-performing retail loans (defined as those loans that are past due by 90 days or more) decreased from ￦329 billion as of December 31, 2015 to ￦272 billion as of December 31, 2016 and ￦252 billion as of December 31, 2017, but increased to ￦304 billion as of December 31, 2018. Higher delinquencies in our retail loan portfolio in the future will require us to increase our loan loss provisions and charge-offs, which in turn will adversely affect our financial condition and results of operations.

Our large exposure to consumer debt means that we are exposed to changes in economic conditions affecting Korean consumers. Accordingly, economic difficulties in Korea that hurt consumers could result in a deterioration in the credit quality of our retail loan portfolio. For example, a rise in unemployment, an increase in interest rates or a decline in real estate prices in Korea could adversely affect the ability of consumers to make payments and increase the likelihood of potential defaults. See “Risks relating to Korea—Unfavorable financial and economic developments in Korea may have an adverse effect on us.” In order to minimize our risk as a result of such exposure, we are continuing to strengthen our risk management processes, including further improving the retail lending process, upgrading our retail credit rating system, as well as strengthening the overall management of our portfolio. Despite our efforts, however, there is no assurance that we will be able to prevent significant credit quality deterioration in our retail loan portfolio.

In addition, we are exposed to changes in regulations and policies on retail lending by the Korean government, which may adopt measures to restrict retail lending or encourage financial institutions to provide financial support to certain types of retail borrowers. From the second half of 2016 to 2018, the Korean government introduced various measures to tighten regulations on mortgage lending and housing subscription in response to the rapid growth in consumer debt and concerns over speculative investments in real estate in certain areas. A decrease in housing prices as a result of the implementation of such measures, together with the high level of consumer debt and rising interest rate levels, could result in declines in consumer spending and reduced economic growth, which may lead to increases in delinquency levels of our retail loan portfolio.

12

In light of adverse conditions in the Korean economy affecting consumers, in March 2009, the Financial Services Commission requested Korean banks, including us, to establish a “pre-workout program,” including a credit counseling and recovery service, for retail borrowers with outstanding short-term debt defaults. Under the pre-workout program, which has been in operation since April 2009, maturity extensions and/or interest reductions are provided for retail borrowers with total loans of ￦1.5 billion or less (consisting of no more than ￦500 million of unsecured loans and ￦1 billion of secured loans) who are in arrears on their payments for more than 30 days but less than 90 days, and who either have an income in excess of the minimum cost of living or are deemed by the Credit Counseling and Recovery Service, a public service organization that provides debt adjustment services to low-income families in Korea, to have the ability to repay their loans. In addition, in March 2015, in response to increasing levels of consumer debt and amid concerns over the debt-servicing capacity of retail borrowers if interest rates were to rise, the Korean government launched, and requested Korean banks to participate in, a mortgage loan refinancing program aimed at reducing the payment burden on and improving the asset quality of outstanding mortgage loans. Under such refinancing program, over 340,000 qualified retail borrowers converted their outstanding non-amortizing floating-rate mortgage loans from Korean commercial banks (including us) into amortizing fixed-rate mortgage loans with lower interest rates, amounting to an aggregate principal amount of ￦34 trillion for all commercial banks in 2015. Our participation in such refinancing program may lead to a decrease in our interest income on our outstanding mortgage loans, as well as in our overall net interest margin. Moreover, our participation in such initiatives led by the Korean government to provide financial support to retail borrowers may lead us to offer credit terms for such borrowers that we would not generally offer, which may have an adverse effect on our results of operations and financial condition.

Our credit card operations may generate losses in the future, which could hurt our financial condition and results of operations.

With respect to our credit card portfolio, our delinquency ratio (which represents the ratio of amounts that are overdue by 30 days or more to total outstanding balances) was 1.21% as of December 31, 2016 and increased to 1.29% as of December 31, 2017 and 1.31% as of December 31, 2018. In line with industry practice, we have restructured a portion of delinquent credit card account balances (defined as balances overdue by 30 days or more) as loans. As of December 31, 2018, these restructured loans outstanding amounted to ￦97 billion. Because these loans are not treated as being delinquent at the time of conversion or for a period of time thereafter, our delinquency ratios may not fully reflect all delinquent amounts relating to our outstanding loans. Including all restructured loans, outstanding balances overdue by 30 days or more accounted for 1.9% of our credit card receivables (including credit card loans) as of December 31, 2018. Delinquencies may further increase in 2019 and in the future as a result of, among other things, adverse economic conditions in Korea, additional government regulations or the inability of Korean consumers to manage increased household debt.

Despite our continuing efforts to sustain and improve our credit card asset quality and performance, we may experience increased delinquencies or deterioration of the asset quality of our credit card portfolio, which would require us to increase our loan loss provisions and charge-offs and adversely affect our overall financial condition and results of operations.

Risks relating to our small- and medium-sized enterprise loan portfolio

We have significant exposure to small- and medium-sized enterprises, and any financial difficulties experienced by these customers may result in a deterioration of our asset quality and have an adverse impact on us.

One of our core businesses is lending to small- and medium-sized enterprises (as defined under “Item 4.B. Business Overview—Corporate Banking—Small- and Medium-sized Enterprise Banking”). Our loans to small- and medium-sized enterprises increased from ￦78,665 billion as of December 31, 2015 to ￦106,015 billion as of December 31, 2018. During that period, non-performing loans (defined as those loans that are past due by 90 days or more) to small- and medium-sized enterprises decreased from ￦309 billion as of December 31, 2015

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to ￦267 billion as of December 31, 2018, and the non-performing loan ratio for such loans decreased from 0.4% as of December 31, 2015 to 0.3% as of December 31, 2018. However, our non-performing loans and non-performing loan ratio may increase in 2019. According to data compiled by the Financial Supervisory Service, the delinquency ratio for Won-currency loans by Korean commercial banks to small- and medium-sized enterprises was 0.5% as of December 31, 2018. The delinquency ratio for Won-currency loans to small- and medium-sized enterprise is calculated as the ratio of (1) the outstanding balance of such loans in respect of which either principal or interest payments are overdue by one month or more to (2) the aggregate outstanding balance of such loans. Our delinquency ratio for such Won currency loans decreased from 0.5% as of December 31, 2015 to 0.3% as of December 31, 2018. However, our delinquency ratio for such Won currency loans may increase in 2019.

In light of the deteriorating financial condition and liquidity position of small- and medium-sized enterprises in Korea since the global financial crisis commencing in the second half of 2008, the Korean government introduced policies and initiatives intended to encourage Korean banks to provide financial support to small- and medium-sized enterprise borrowers. For example, the Korean government requested Korean banks, including us, to establish a “fast track” program to provide liquidity assistance to small- and medium-sized enterprises on an expedited basis. Under the “fast track” program we established, we provide liquidity assistance to qualified small- and medium-sized enterprise borrowers applying for such assistance, in the form of new loans or maturity extensions or interest rate adjustments with respect to existing loans, after expedited credit review and approval by us. The overall prospects for the Korean economy in 2019 and beyond remain uncertain, and the Korean government may extend or renew existing or past policies and initiatives or introduce new policies or initiatives to encourage Korean banks to provide financial support to small- and medium-sized enterprises. Our participation in such government-led initiatives may lead us to extend credit to small- and medium-sized enterprise borrowers that we would not otherwise extend, or offer terms for such credit that we would not otherwise offer, in the absence of such initiatives. Furthermore, there is no guarantee that the financial condition and liquidity position of our small- and medium-sized enterprise borrowers benefiting from such initiatives will improve sufficiently for them to service their debt on a timely basis, or at all. Accordingly, increases in our exposure to small- and medium-sized enterprise borrowers resulting from such government-led initiatives may have a material adverse effect on our financial condition and results of operations.

A substantial part of our small and medium sized enterprise lending comprises loans to “small office/home office” customers, or SOHOs. SOHOs, which we currently define to include sole proprietorships and individual business interests, are usually dependent on a limited number of suppliers or customers. SOHOs tend to be affected to a greater extent than larger corporate borrowers by fluctuations in the Korean economy. In addition, SOHOs often maintain less sophisticated financial records than other corporate borrowers. Although we continue to make efforts to improve our internally developed credit rating systems to rate potential borrowers, particularly with respect to SOHOs, and intend to manage our exposure to these borrowers closely in order to prevent any deterioration in the asset quality of our loans to this segment, we may not be able to do so as intended.

In addition, many small- and medium-sized enterprises have close business relationships with the largest Korean commercial conglomerates, known as “chaebols”, primarily as suppliers. Any difficulties encountered by those chaebols would likely hurt the liquidity and financial condition of related small- and medium-sized enterprises, including those to which we have exposure, also resulting in an impairment of their ability to repay loans.

In recent years, we have taken measures which sought to stem rising delinquencies in our loans to small- and medium-sized enterprises, including through strengthening the review of loan applications and closer monitoring of the post-loan performance of small- and medium-sized enterprise borrowers in industry sectors that are relatively more sensitive to downturns in the economy and have shown higher delinquency ratios, such as shipping, construction, lodging, retail and wholesale, restaurants and real estate. Despite such efforts, however, there is no assurance that delinquency levels for our loans to small- and medium-sized enterprises will not rise in the future. In particular, financial difficulties experienced by small- and medium-sized enterprises as a result of,

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among other things, adverse economic conditions in Korea and globally, as well as aggressive marketing and competition among banks to lend to this segment, may lead to a deterioration in the asset quality of our loans to this segment in the future. Any such deterioration would result in increased charge-offs and higher provisioning and reduced interest and fee income from this segment, which would have an adverse impact on our financial condition and results of operations.

We have exposure to Korean construction, shipbuilding and shipping companies, and financial difficulties of these companies may have an adverse impact on us.

As of December 31, 2018, we had loans outstanding to construction, shipbuilding and shipping companies (many of which are small- and medium-sized enterprises) in the amount of ￦3,269 billion, ￦520 billion and ￦250 billion, or 1.02%, 0.16% and 0.08% of our total loans, respectively. We also have other exposures to Korean construction, shipbuilding and shipping companies, including in the form of guarantees extended on behalf of such companies (which included confirmed guarantees of ￦280 billion for construction companies, ￦569 billion for shipbuilding companies and ￦14 billion for shipping companies as of December 31, 2018) and debt and equity securities of such companies held by us. In the case of construction companies, such exposures include guarantees provided to us by general contractors with respect to financing extended by us for residential and commercial real estate development projects. In the case of shipbuilding companies, such exposures include refund guarantees extended by us on behalf of shipbuilding companies to cover their obligation to return a portion of the ship order contract amount to customers in the event of performance delays or defaults under shipbuilding contracts.

Although the construction industry in Korea has shown signs of recovery since 2015, excessive investment in residential property development projects, the recent strengthening of mortgage lending regulations by the Korean government, stagnation of real property prices and reduced demand for residential property in areas outside of Seoul are expected to continue to negatively impact the construction industry. The shipbuilding industry in Korea has experienced a severe downturn in recent years reflecting a significant decrease in ship orders, primarily due to oversupply. Although ship orders have started to increase again, the shipbuilding industry has yet to recover fully. In the case of shipping companies in Korea, reduced shipping rates and high chartering costs, together with the slowdown in global trade, have contributed to the deterioration of their financial condition, requiring some of them to file for bankruptcy or pursue voluntary restructuring of their debt.

In response to the deteriorating financial condition and liquidity position of borrowers in the construction, shipbuilding and shipping industries, which were disproportionately impacted by adverse economic developments in Korea and globally, the Korean government implemented a program in 2009 to promote expedited restructuring of such borrowers by their Korean creditor financial institutions, under the supervision of major commercial banks. In accordance with such program, 24 construction companies and five shipbuilding companies became subject to workout in 2009, following review by their creditor financial institutions (including us) and the Korean government. Each year since 2009, the Financial Services Commission and the Financial Supervisory Service have announced the results of subsequent credit risk evaluations conducted by creditor financial institutions (including us) of companies in Korea with outstanding credit exposures of ￦50 billion or more, pursuant to which a number of companies were selected by such financial institutions for restructuring in the form of workout, liquidation or court receivership. Most recently, in 2018, two companies with outstanding credit exposures of ￦50 billion or more (one of which was a construction company and the other a shipbuilding company) was selected by such financial institutions for restructuring. However, there is no assurance that these measures will be successful in stabilizing the Korean construction, shipbuilding and shipping industries.

The allowances that we have established against our credit exposures to Korean construction, shipbuilding and shipping companies may not be sufficient to cover all future losses arising from these and other exposures. If the credit quality of our exposures to such companies declines further, we may incur substantial additional provisions (including in connection with restructurings of such companies) and charge-offs, which could adversely impact our results of operations and financial condition. See “—Risks relating to our large corporate

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loan portfolio—We have exposure to companies that are currently or may in the future be put in restructuring, and we may suffer losses as a result of additional loan loss provisions required and/or the adoption of restructuring plans with which we do not agree.” Furthermore, although a portion of our credit exposures to construction, shipbuilding and shipping companies are secured by collateral, such collateral may not be sufficient to cover uncollectible amounts in respect of such credit exposures. See “—Other risks relating to our business—A decline in the value of the collateral securing our loans and our inability to realize full collateral value may adversely affect our credit portfolio.”

Risks relating to our financial holding company structure and strategy

We may not succeed in implementing our strategy to take advantage of, or fail to realize the anticipated benefits of, our financial holding company structure.

One of our principal strategies is to take advantage of our financial holding company structure to become a comprehensive financial services provider capable of offering a full range of products and services to our large existing base of retail and corporate banking customers. The continued implementation of these plans may require additional investments of capital, infrastructure, human resources and management attention. This strategy entails certain risks, including the possibility that we may face significant competition from other financial holding companies and more specialized financial institutions in particular segments. If our strategy does not succeed, we may incur losses on our investments and our results of operations and financial condition may suffer.

Furthermore, our success under a financial holding company structure depends on our ability to realize the anticipated synergies, growth opportunities and cost savings from coordinating the businesses of our various subsidiaries. Although we have been integrating certain aspects of our subsidiaries’ operations into our financial holding company structure, our subsidiaries will generally continue to operate as independent entities with separate management and staff and our ability to direct our subsidiaries’ day-to-day operations may be limited.

In addition, one of the intended benefits of our financial holding company structure is that it enhances our ability to engage in mergers and acquisitions which we decide to pursue as part of our strategy. For example:

• In March 2014, we acquired 52.02% of the outstanding shares of KB Capital Co., Ltd. (formerly named Woori Financial Co., Ltd.), a publicly listed Korean consumer finance company, from Woori Finance Holdings Co., Ltd. for ￦280 billion. We conducted a tender offer in May 2017, through which we acquired 5,949,300 shares of KB Capital at ￦27,500 per share, increasing our shareholding in KB Capital to 79.70%. We subsequently acquired the remaining outstanding shares of KB Capital in exchange for 2,269,057 shares of common stock of our company through a comprehensive stock swap effected in July 2017, as a result of which KB Capital became a wholly-owned subsidiary.

• In June 2015, we acquired 19.47% of the outstanding shares of KB Insurance Co., Ltd. (formerly named LIG Insurance Co., Ltd.), a publicly listed Korean non-life insurance company, from a group of individual shareholders for ￦651 billion. In November 2015, we increased our shareholding in KB Insurance to 33.29% by acquiring its treasury shares for ￦231 billion, and in December 2016, we further increased our shareholding in KB Insurance to 39.81% by purchasing new shares of KB Insurance for ￦171 billion in a rights offering. Through a tender offer conducted in May 2017, we acquired 36,237,649 shares of KB Insurance at ￦33,000 per share, increasing our shareholding to 94.30%. We subsequently effected a comprehensive stock swap in July 2017 to acquire the remaining outstanding shares of KB Insurance in exchange for 2,170,943 shares of common stock of our company, as a result of which KB Insurance became a wholly-owned subsidiary.

• In May 2016, we acquired 22.56% of the outstanding shares of Hyundai Securities Co., Ltd., a publicly listed Korean securities firm, from Hyundai Merchant Marine Co., Ltd. and other shareholders for ￦1,242 billion, and further increased our shareholding in Hyundai Securities to 29.62% in June 2016

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by acquiring treasury shares of Hyundai Securities for ￦107 billion. In October 2016, we effected a comprehensive stock swap of the outstanding shares of Hyundai Securities for 31,759,844 newly issued shares of common stock of our company, as a result of which Hyundai Securities became a wholly-owned subsidiary. Following such transaction, we merged an existing subsidiary, KB Investment & Securities, with and into Hyundai Securities in December 2016 and changed the name of the surviving entity to KB Securities Co., Ltd.

See “Item 5.A. Operating Results—Overview—Acquisitions.”

We may continue to increase our equity interest in our subsidiaries or investees and may also consider acquiring or merging with other financial institutions to achieve more balanced growth and further diversify our revenue base. For example, in July 2018, we acquired a 90% interest in Tomato Specialized Bank of Cambodia (which was subsequently renamed KB Daehan Specialized Bank) through our subsidiary, KB Kookmin Card, for US$11 million, and a 22% interest in Bank Bukopin of Indonesia through our subsidiary, Kookmin Bank, for ￦116 billion, as part of our efforts to expand our businesses abroad. The integration of our new subsidiaries’ or investees’ separate businesses and operations, as well as those of any companies we may acquire or merge with in the future, under our financial holding company structure could require a significant amount of time, financial resources and management attention. Moreover, that process could disrupt our operations (including our risk management operations) or information technology systems, reduce employee morale, produce unintended inconsistencies in our standards, controls, procedures or policies, and affect our relationships with customers and our ability to retain key personnel. The realization of the anticipated benefits of our financial holding company structure and any mergers or acquisitions we decide to pursue may be blocked, delayed or reduced as a result of many factors, some of which may be outside our control. These factors include:

• difficulties in integrating the diverse activities and operations of our subsidiaries or investees or any companies we may merge with or acquire, including risk management operations and information technology systems, personnel, policies and procedures;

• difficulties in reorganizing or reducing overlapping personnel, branches, networks and administrative functions;

• restrictions under the Financial Holding Company Act and other regulations on transactions between a financial holding company and, or among, its subsidiaries;

• unforeseen contingent risks, including lack of required capital resources, increased tax liabilities or restrictions in our overseas operations, relating to our financial holding company structure;

• unexpected business disruptions;

• failure to attract, develop and retain personnel with necessary expertise;

• loss of customers; and

• labor unrest.

Accordingly, we may not be able to realize the anticipated benefits of our financial holding company structure, and our business, results of operations and financial condition may suffer as a result.

We depend on limited forms of funding to fund our operations at the holding company level.

We are a financial holding company with no significant assets other than the shares of our subsidiaries. Our primary sources of funding and liquidity are dividends from our subsidiaries, direct borrowings and issuances of equity or debt securities at the holding company level. In addition, as a financial holding company, we are required to meet certain minimum financial ratios under Korean law, including with respect to liquidity, leverage and capital adequacy. Our ability to meet our obligations to our direct creditors and employees and our other liquidity needs and regulatory requirements at the holding company level depends on timely and adequate distributions from our subsidiaries and our ability to sell our securities or obtain credit from our lenders.

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The ability of our subsidiaries to pay dividends to us depends on their financial condition and operating results. In the future, our subsidiaries may enter into agreements, such as credit agreements with lenders or indentures relating to high-yield or subordinated debt instruments, that impose restrictions on their ability to make distributions to us, and the terms of future obligations and the operation of Korean law could prevent our subsidiaries from making sufficient distributions to us to allow us to make payments on our outstanding obligations. See “—As a financial holding company, we depend on receiving dividends from our subsidiaries to pay dividends on our common stock.” Any delay in receipt of or shortfall in payments to us from our subsidiaries could result in our inability to meet our liquidity needs and regulatory requirements, including minimum liquidity and capital adequacy ratios, and may disrupt our operations at the holding company level.

In addition, creditors of our subsidiaries will generally have claims that are prior to any claims of our creditors with respect to their assets. Furthermore, our inability to sell our securities or obtain funds from our lenders on favorable terms, or at all, could also result in our inability to meet our liquidity needs and regulatory requirements and may disrupt our operations at the holding company level.

As a financial holding company, we depend on receiving dividends from our subsidiaries to pay dividends on our common stock.

Since our principal assets at the holding company level are the shares of our subsidiaries, our ability to pay dividends on our common stock largely depends on dividend payments from those subsidiaries. Those dividend payments are subject to the Korean Commercial Code, the Bank Act and regulatory limitations, generally based on capital levels and retained earnings, imposed by the various regulatory agencies with authority over those entities. For example:

• under the Korean Commercial Code, dividends may only be paid out of distributable income, an amount which is calculated by subtracting the aggregate amount of a company’s paid-in capital and certain mandatory legal reserves as well as certain unrealized profits from its net assets, in each case as of the end of the prior fiscal period;

• under the Bank Act, a bank also must credit at least 10% of its net profit to a legal reserve each time it pays dividends on distributable income until that reserve equals the amount of its total paid-in capital; and

• under the Bank Act and the requirements of the Financial Services Commission, if a bank fails to meet its required capital adequacy ratio or otherwise becomes subject to management improvement measures imposed by the Financial Services Commission, then the Financial Services Commission may restrict the declaration and payment of dividends by that bank.

Our subsidiaries may not continue to meet the applicable legal and regulatory requirements for the payment of dividends in the future. If they fail to do so, they may stop paying or reduce the amount of the dividends they pay to us, which would have an adverse effect on our ability to pay dividends on our common stock.

Although increasing our fee income is an important part of our strategy, we may not be able to do so.

We have historically relied on interest income as our primary revenue source. While we have developed new sources of fee income as part of our business strategy, our ability to increase our fee income and thereby reduce our dependence on interest income will be affected by the extent to which our customers generally accept the concept of fee-based services. Historically, customers in Korea have generally been reluctant to pay fees in return for value-added financial services, and their continued reluctance to do so will adversely affect the implementation of our strategy to increase our fee income. Furthermore, the fees that we charge to customers are subject to regulation by Korean financial regulatory authorities, which may seek to implement regulations or measures that may also have an adverse impact on our ability to achieve this aspect of our strategy.

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We may suffer customer attrition or our net interest margin may decrease as a result of our competition strategy.

We have been pursuing, and intend to continue to pursue, a strategy of maintaining or enhancing our margins where possible and avoid, to the extent possible, entering into price competition. In order to execute this strategy, we will need to maintain relatively low interest rates on our deposit products while charging relatively higher rates on loans. If other banks and financial institutions adopt a strategy of expanding market share through interest rate competition, we may suffer customer attrition due to rate sensitivity. In addition, we may in the future decide to compete to a greater extent based on interest rates, which could lead to a decrease in our net interest margins. Any future decline in our customer base or our net interest margins as a result of our future competition strategy could have an adverse effect on our results of operations and financial condition.

Risks relating to competition

Competition in the Korean financial industry is intense, and we may lose market share and experience declining margins as a result.

Competition in the Korean financial industry has been and is likely to remain intense. Some of the financial institutions that we compete with have longer operating histories as financial holding companies, greater financial resources or more specialized capabilities than us and our subsidiaries. In the retail and small- and medium-sized enterprise lending business, which has been our traditional core business, competition has increased significantly and is expected to increase further. Most Korean banks have been focusing on retail customers and small- and medium-sized enterprises in recent years, although they have begun to generally increase their exposure to large corporate borrowers. In addition, the profitability of our retail lending and credit card operations may decline as a result of growing market saturation in the retail lending and credit card segments, increased interest rate competition, pressure to lower the fee rates applicable to our credit cards (particularly merchant fee rates) and higher marketing expenses. Intense and increasing competition has made and continues to make it more difficult for us to secure retail, credit card and small- and medium-sized customers with the credit quality and on credit terms necessary to achieve our business objectives in a commercially acceptable manner.

Furthermore, the introduction of Internet-only banks in Korea is expected to increase competition in the Korean banking industry. Internet-only banks operate without branches and conduct most of their operations through electronic means, which enables them to minimize costs and offer customers higher interest rates on deposits or lower lending rates. In April 2017, K Bank, the first Internet-only bank in Korea, commenced operations. Kakao Bank, another Internet-only bank, in which we hold a 10% equity interest, commenced operations in July 2017.

In the Korean insurance industry, there has been downward pressure in recent years on margins of insurance products as some of our competitors have sought to obtain or maintain market share by reducing margins and increasing marketing efforts. As the Korean non-life insurance and life insurance sectors continue to mature, they may experience a slowdown in growth as well as a stagnation in market penetration. Due to these and other factors, we believe that competition in the Korean insurance industry will likely remain intense in the future. Sustained or increased competition may lead to decreases in the market share and profitability of our non-life insurance and life insurance businesses.

In addition, we believe that regulatory reforms and the general modernization of business practices in Korea will lead to increased competition among financial institutions in Korea. In the second half of 2015, the Korean government implemented measures to facilitate bank account portability of retail customers by requiring commercial banks to establish systems that allow retail customers to easily switch their bank accounts at one commercial bank to another and automatically transfer the automatic payment settings of their former accounts to the new ones. Such measures are expected to further intensify competition among financial institutions in Korea.

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Moreover, in March 2016, the Financial Services Commission introduced an individual savings account scheme in Korea, which enables individuals to efficiently manage a wide range of retail investment vehicles, including cash deposits, funds and securities investment products, from a single integrated account with one financial institution and offers tax benefits on investment returns. Since the scheme backed by the Korean government allows only one individual savings account per person, financial institutions have been competing to retain existing customers and attract new customers since the launch of the individual savings account scheme. Over 30 financial institutions, including banks, securities companies and insurance companies, have registered with the Financial Services Commission to sell their individual savings account products and competition among these financial institutions is expected to remain intense.

Moreover, a number of significant mergers and acquisitions in the financial industry have taken place in Korea in recent years, including Hana Financial Group’s acquisition of a controlling interest in Korea Exchange Bank in 2012 and the subsequent merger of Hana Bank into Korea Exchange Bank in 2015. In addition, as part of the Korean government’s plans to privatize Woori Finance Holdings Co., Ltd. (the former financial holding company of Woori Bank), certain subsidiaries of Woori Finance Holdings were sold to other financial institutions and Woori Finance Holdings itself was merged into Woori Bank in 2014, which established a new financial holding company, Woori Financial Group Inc., in January 2019. In the insurance sector, China’s Anbang Insurance Group acquired controlling interests in Tong Yang Life Insurance Co., Ltd. and Allianz Life Insurance Korea Co., Ltd. in 2015 and 2016, respectively, while Mirae Asset Life Insurance Co., Ltd. acquired PCA Life Insurance Co., Ltd. in 2017. In February 2019, Shinhan Financial Group acquired a 59% interest in Orange Life Insurance, Ltd. (formerly known as ING Life Insurance Korea, Ltd.). In the securities sector, in 2016, Mirae Asset Securities Co., Ltd. acquired a 43% interest in KDB Daewoo Securities Co., Ltd., which subsequently merged with and into Mirae Asset Securities to create Mirae Asset Daewoo Securities Co., Ltd., the largest securities company in Korea in terms of capital.

We expect that consolidation in the Korean financial industry will continue. The financial institutions resulting from such consolidation may, by virtue of their increased size and business scope, provide significantly greater competition for us. We also believe that foreign financial institutions, many of which have greater experience and resources than we do, may seek to compete with us in providing financial products and services either by themselves or in partnership with existing Korean financial institutions. Increased competition and continuing consolidation may lead to decreased margins, resulting in a material adverse impact on our future profitability. Accordingly, our results of operations and financial condition may suffer as a result of increasing competition in the Korean financial industry.

Risks relating to our large corporate loan portfolio

We have exposure to chaebols, and, as a result, financial difficulties of chaebols may have an adverse impact on us.

Of our 20 largest corporate exposures (including loans, debt and equity securities and guarantees and acceptances) as of December 31, 2018, 12 were to companies that were members of the 31 largest highly-indebted business groups among chaebols in Korea designated as such by the Financial Supervisory Service based on their outstanding exposures. As of that date, the total amount of our exposures to 31 of such largest highly-indebted business groups among chaebols was ￦26,297 billion, or 5.9% of our total exposures. If the credit quality of our exposures to chaebols declines as a result of financial difficulties they experience or for other reasons, we could require substantial additional loan loss provisions, which would hurt our results of operations and financial condition. See “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Exposure to Chaebols.”

We cannot assure you that the allowances we have established against these exposures will be sufficient to cover all future losses arising from these exposures. In addition, with respect to those companies that are in or in the future enter into workout or liquidation proceedings, we may not be able to make any recoveries against such companies. We may, therefore, experience future losses with respect to those loans.

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We have exposure to companies that are currently or may in the future be put in restructuring, and we may suffer losses as a result of additional loan loss provisions required and/or the adoption of restructuring plans with which we do not agree.

As of December 31, 2018, our loans and guarantees to companies that were in workout, restructuring or rehabilitation amounted to ￦463 billion or 0.1% of our total loans and guarantees, most of which was classified as impaired. As of the same date, our allowances for credit losses on these loans and guarantees amounted to ￦274 billion, or 59.2% of these loans and guarantees. These allowances may not be sufficient to cover all future losses arising from our exposure to these companies. Furthermore, we have other exposure to such companies, in the form of debt and equity securities of such companies held by us (including equity securities we acquired as a result of debt-to-equity conversions). Our exposures as of December 31, 2018 with respect to such securities of companies in workout, restructuring or rehabilitation amounted to ￦23 billion, or less than 0.02% of our total debt securities and equity securities, but may increase in the future. In addition, in the case of borrowers that are or become subject to workout or restructuring, we may be forced to restructure our credits pursuant to restructuring plans approved by other creditor financial institutions of the borrower, or to dispose of our credits to other creditors on unfavorable terms.

In particular, as of December 31, 2018, we had ￦322 billion of outstanding exposures, comprising ￦111 billion of loans, ￦6 billion of debt securities, ￦38 billion of equity securities and ￦167 billion of guarantees (mainly in the form of refund guarantees relating to shipbuilding contracts), to Daewoo Shipbuilding & Marine Engineering Co., Ltd., or DSME, which has been pursuing a voluntary restructuring program. In April 2017, the creditors of DSME agreed on a plan to provide additional financial support to DSME in connection with its voluntary restructuring program, under which Korea Development Bank and the Export-Import Bank of Korea would provide ￦2.9 trillion of new loans to DSME, on the condition that DSME’s other creditors and bondholders agree to a ￦2.9 trillion debt-to-equity swap. The financial support plan required the Korean commercial bank creditors of DSME (including us) to swap 80% of our outstanding unsecured loans into equity of DSME and extend the maturity of the remaining loans for a period of three years. The financial support plan also requires DSME’s creditors (including us) to provide additional refund guarantees in connection with future shipbuilding contracts of DSME. The implementation of the financial support plan for DSME has required and may continue to require us to increase our loan loss provisions and recognize write-offs and impairment losses with respect to our exposures to DSME and may therefore have a material adverse impact on our results of operations and financial condition. Furthermore, there is no guarantee that the plan will be successful in ensuring the financial viability of DSME.

A large portion of our credit exposure is concentrated in a relatively small number of large corporate borrowers, which increases the risk of our corporate credit portfolio.

As of December 31, 2018, our loans and guarantees to our 20 largest borrowers totaled ￦9,984 billion and accounted for 3.0% of our total loans and guarantees. As of that date, our single largest corporate credit exposure was to the Korea Securities Finance Corporation, to which we had outstanding loans of ￦11 billion, as well as additional credit exposure of ￦1,886 billion in the form of debt securities. Any deterioration in the financial condition of the Korea Securities Finance Corporation or our other large corporate borrowers may require us to record substantial additional provisions and charge-offs and may have a material adverse impact on our results of operations and financial condition.

Risks relating to our insurance operations

Our profitability may be adversely affected if actual benefits and claims amounts on our in-force insurance policies exceed the amounts that we have reserved, or we increase the amount of reserves due to a change in our underlying assumptions.

We operate our insurance business through KB Insurance Co., Ltd., our non-life insurance subsidiary which became a consolidated subsidiary in May 2017, as well as KB Life Insurance Co., Ltd., our life insurance

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subsidiary. With respect to our insurance operations, we establish and carry, as a liability, policy reserves based on the greater of statutory reserves and actuarial estimates of how much we will need to pay for future benefits and claims on our in-force non-life insurance and life insurance policies. The profitability of our insurance operations depends significantly upon the extent to which our actual claims results are consistent with the assumptions used in setting the prices for our insurance products and establishing the liabilities in our financial statements for our obligations for future insurance policy benefits and claims. We establish the liabilities for obligations for future insurance policy benefits and claims based on the expected payout of benefits, calculated through the use of assumptions for investment returns, mortality, morbidity, expenses and persistency, as well as certain macroeconomic factors such as inflation. We also use methods to analyze loss trends with respect to certain risk assumptions relating to natural disasters. These assumptions are based on our previous experience and published data from third party industry sources, as well as judgments made by our management. These assumptions and estimates may deviate from our actual experience due to various factors that are beyond our control, including as a result of unexpected changes in the scope of coverage by the Korean national health insurance program and advancements in health care that result in increased life expectancy and early detection of diseases, as well as re-interpretations of our insurance policy terms by Korean regulators or courts. In addition, the occurrence of unexpected catastrophic events in Korea, including pandemics or natural or man-made disasters, may result in claims that significantly exceed our expectations. As a result, we cannot determine with precision the ultimate amounts that we will pay for, or the timing of payment of, actual benefits and claims or whether the assets supporting the insurance policy liabilities will grow to the level we assume prior to payment of benefits or claims. These amounts may vary from the estimated amounts, particularly when those payments may not occur until well into the future.

We evaluate the adequacy of our insurance policy liabilities periodically based on changes in the assumptions used to determine our best estimates of claims, expenses, persistency rates and interest rates, as well as based on our actual policy benefits and claims results. To the extent that trends in actual claims results are less favorable than our underlying assumptions used in establishing these liabilities, and our total insurance policy liabilities are considered to be inadequate to meet our future contractual obligations as and when they arise, we could be required to increase our liabilities. We record increases in our insurance policy liabilities as expenses in the period in which the liabilities are established or re-evaluated. If actual benefits and claims amounts exceed the amounts that we have reserved, or we increase the amount of insurance policy liabilities due to a change in our underlying assumptions, it could have a material adverse effect on our results of operations and financial condition.

Our insurance subsidiaries may be required to raise additional capital or reduce their growth or business scale if their risk-based capital adequacy ratio deteriorates or the applicable capital requirements change in the future.

Pursuant to the risk-based capital adequacy requirements implemented by the Financial Services Commission, insurance companies in Korea are required to maintain a statutory ratio of available regulatory capital to risk-weighted assets of not less than 100% on a consolidated basis. Furthermore, the Financial Supervisory Service had previously recommended that insurance companies maintain a risk-based capital adequacy ratio of not less than 150%, and its former administrative guidelines had required insurance companies failing to maintain such recommended 150% ratio to submit a capital increase plan. Although the Financial Supervisory Service has since withdrawn such administrative guidelines, we believe that a risk-based capital adequacy ratio of not less than 150% is still considered standard in the Korean insurance industry. Risk-based capital adequacy requirements require insurance companies to hold adequate capital to cover their exposures to interest rate risk, market risk, credit risk and operational risk as well as insurance risk by reflecting such risks in their calculation of risk-weighted assets. As of December 31, 2018, KB Insurance had a risk-based capital adequacy ratio of 187.09%, while KB Life Insurance had a risk-based capital adequacy ratio of 203.74%.

The Financial Supervisory Service has announced that it plans to introduce a new regulatory solvency regime for insurance companies by 2022 based on the International Capital Standard developed by the

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International Association of Insurance Supervisors, which would be similar in substance to the Solvency II Directive of the European Union. The Solvency II Directive, which has been in effect in the European Union since January 1, 2016, is a comprehensive program of regulatory requirements for insurance companies, covering authorization, corporate governance, supervisory reporting, public disclosure and risk assessment and management, as well as solvency. Under the Financial Supervisory Service’s planned new solvency regime in Korea, among other things, insurance contract liabilities are expected to be measured based on market value, rather than book value, which would require a number of insurance companies in Korea with a large portfolio of high guaranteed rate of return products to obtain additional capital to meet their capital adequacy requirements. The Financial Supervisory Service has also announced its plans to implement a series of incremental changes to the calculation methodology for the risk-based capital adequacy ratio of insurance companies, as interim measures. Such changes implemented in 2017 included increasing the maximum statutory duration of insurance liabilities recognized for purposes of such calculation, as well as reducing the coefficient applied in calculating interest rate risk and adjusting the methods used to assess the risk of guaranteed benefits of variable insurance policies. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Insurance Companies—Capital Adequacy.”

The details of the new solvency regime in Korea have not yet been finalized and may be further amended in the future. Accordingly, there is no guarantee that our insurance subsidiaries will not be required to raise additional capital to sustain their risk-based capital adequacy ratio above the required level in connection with the future implementation of the new solvency regime. Any material deterioration in the risk-based capital adequacy ratio of our insurance subsidiaries, as a result of the implementation of the new solvency regime or otherwise, could change their customers’ or business counterparties’ perception of their financial health, which in turn could adversely affect their business and profitability. Furthermore, if they grow rapidly or if their asset quality deteriorates in the future, our insurance subsidiaries may be required to raise additional capital, which we may need to provide in whole or in part, to meet their capital adequacy requirements. If we or our insurance subsidiaries are not able to raise any required additional capital, we may be forced to reduce the growth or scale of our insurance operations.

Changes in accounting standards for insurance contracts could adversely impact our reported results of operations and financial condition.

In response to a lack of comparability in the global insurance industry stemming from variations in accounting policies being applied, the IASB issued IFRS 17 (previously referred to as IFRS 4 Phase II), a new IFRS accounting standard for insurance contracts, in May 2017 with an effective date of January 1, 2021, which was subsequently deferred to January 1, 2022. Compliance with such revised accounting standards could significantly affect the way in which we and other operators of insurance businesses in Korea account for insurance policies, annuity contracts and financial instruments and how our financial statements are presented.

IFRS 17 will introduce a fundamentally different approach to current accounting policies in terms of both liability measurement and profit recognition. Under IFRS 17, insurance contract liabilities will no longer be calculated based on historical or past assumptions but based on the present value of future insurance cash flows using a discount rate reflecting current interest rates and the characteristics of the insurance contracts, with a risk adjustment and deferral of up-front profits. Among other effects, this may result in an increase in the level of the liabilities of our insurance subsidiaries, which would lead to a decrease in the balance of their available capital, which in turn may lower their risk-based capital adequacy ratio, depending on the solvency regime applicable at the time. In addition, under IFRS 17, certain parts of premium income from insurance contracts will be allocated over the coverage period in proportion to the value of expected coverage and other services that the insurer will provide over such period, rather than recognized at the time of receipt of premium payments, and the investment component of an insurance contract (which refers to amounts to be repaid to policyholders even if the insured event does not occur) will be disaggregated and excluded from premium income. Such changes to revenue recognition methodology will likely have the effect of, among other things, reducing the reported revenue from our insurance operations.

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Given the complexity of IFRS 17 and the significant amount of time and resources that will be required to adopt IFRS 17 accounting, we have established and are in the process of executing an implementation plan, including investments in information technology systems and processes, in order to enhance our financial analysis and impact assessment with respect to our insurance operations. We are also taking other measures to reduce the amount of our statutorily required capital under IFRS 17, including developing new products with improved capital efficiency and strengthening our asset-liability management and our monitoring of interest rate risk. Potential challenges that we may face in terms of implementation of IFRS 17 include:

• interpretation of the requirements and potential operational difficulties when applying such requirements;

• data collection, storage and analysis;

• integration of existing systems and processes with new actuarial systems;

• increased finance, actuarial and risk management coordination;

• implementation of new business strategies in preparation for IFRS 17, including adjusting the duration of interest earning assets and interest bearing liabilities and our asset-liability management policies within our insurance operations;

• impact of the transition to a new Korean regulatory solvency regime, which is expected to be implemented around the time of the effective date of IFRS 17; and

• changes to other aspects of our insurance business, such as product design, remuneration policies and business planning.

Accordingly, the implementation of IFRS 17, as well as any other new or revised insurance accounting standards we are required to adopt in the future, could result in significant costs and may have a material adverse effect on our business and our reported results of operations and financial condition.

Other risks relating to our business

Unfavorable changes in the global financial markets could adversely affect our results of operations and financial condition.

The overall prospects for the Korean and global economy remain uncertain. In recent years, the global financial markets have experienced significant volatility as a result of, among other things:

• a deterioration in economic and trade relations between the United States and its major trading partners, including China;

• uncertainty regarding the timing and method of the United Kingdom’s exit from the European Union, or Brexit;

• financial and social difficulties affecting many countries worldwide, in particular in Latin America and Europe;

• the slowdown of economic growth in China and other major emerging market economies;

• interest rate fluctuations as well as the possibility of further increases in policy rates by the U.S. Federal Reserve and other central banks; and

• political and social instability in various countries in the Middle East, including Syria, Iraq and Yemen.

In addition, the global economy faces a number of uncertainties in 2019, including due to the possibility of higher inflation pressures in the United States and elsewhere, which may lead to corrections in the global financial markets, and credit risks arising from yield-seeking investors increasing their exposure to lower-rated

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corporate and sovereign borrowers, as well as escalations in trade protectionism globally and geopolitical tensions in East Asia and the Middle East. In light of the high level of interdependence of the global economy, unfavorable changes in the global financial markets, including as a result of any of the foregoing developments, could have a material adverse effect on the Korean economy and financial markets, and in turn on our business, financial condition and results of operations.

We are also exposed to adverse changes and volatility in the global and Korean financial markets as a result of our liabilities and assets denominated in foreign currencies and our holdings of trading and investment securities, including structured products. The value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has fluctuated widely in recent years. A depreciation of the Won will increase our cost in Won of servicing our foreign currency-denominated debt, while continued exchange rate volatility may also result in foreign exchange losses for us. Furthermore, as a result of changes in global and Korean economic conditions, there has been volatility in securities prices, including the stock prices of Korean and foreign companies in which we hold an interest. Such volatility has resulted in and may lead to further trading and valuation losses on our trading and investment securities portfolio as well as impairment losses on our investments accounted for under the equity method.

Our business may be materially and adversely affected by legal claims and regulatory actions against us.

We are subject to the risk of legal claims and regulatory actions in the ordinary course of our business, which may expose us to substantial monetary damages and legal costs, injunctive relief, criminal and civil penalties, sanctions against our management and employees and regulatory restrictions on our operations, as well as significant reputational harm. See “Item 8A. Consolidated Statements and Other Financial Information—Legal Proceedings.”

We are unable to predict the outcome of the legal claims and regulatory actions in which we are involved, and the scope of the claims or actions or the total amount in dispute in such matters may increase. Furthermore, adverse final determinations, decisions or resolutions in such matters could encourage other parties to bring related claims and actions against us. Accordingly, the outcome of current and future legal claims and regulatory actions, particularly those for which it is difficult to assess the maximum potential exposure or the ultimate adverse impact with any degree of certainty, may materially and adversely impact our business, reputation, results of operations and financial condition.

Our risk management system may not be effective in mitigating risk and loss.

We seek to monitor and manage our risk exposure through a group-wide risk management platform, encompassing a multi-layered risk management governance structure, reporting and monitoring systems, early warning systems, credit risk management systems for our banking operations and other risk management infrastructure, using a variety of risk management strategies and techniques. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” However, such risk management strategies and techniques employed by us and the judgments that accompany their application cannot anticipate the economic and financial outcome in all market environments, and many of our risk management strategies and techniques have a basis in historic market behavior that may limit the effectiveness of such strategies and techniques in times of significant market stress or other unforeseen circumstances. Furthermore, our risk management strategies may not be effective in a difficult or less liquid market environment, as other market participants may be attempting to use the same or similar strategies as us to deal with such market conditions. In such circumstances, it may be difficult for us to reduce our risk positions due to the activity of such other market participants.

We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries.

Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies which may differ in some respects from standards applicable in other countries, including the

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United States. As a reporting company registered with the U.S. Securities and Exchange Commission and listed on the New York Stock Exchange, we are subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002. However, foreign private issuers, including us, are exempt from certain corporate governance requirements under the Sarbanes-Oxley Act or under the rules of the New York Stock Exchange. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or non-public companies in other countries. Such differences in corporate governance standards and less public information could result in corporate governance practices or disclosures that are perceived as less than satisfactory by investors in certain countries.

A decline in the value of the collateral securing our loans and our inability to realize full collateral value may adversely affect our credit portfolio.

A substantial portion of our loans is secured by real estate, the values of which have fluctuated significantly in recent years. Although it is our general policy to lend up to 40% to 70% of the appraised value of collateral (except in areas of high speculation designated by the government where we generally limit our lending to between 40% to 60% of the appraised value of collateral) and to periodically re-appraise our collateral, a downturn in the real estate market in Korea may result in declines in the value of the collateral securing our mortgage and home equity loans. If collateral values decline in the future, they may not be sufficient to cover uncollectible amounts in respect of our secured loans. Any future declines in the value of the real estate or other collateral securing our loans, or our inability to obtain additional collateral in the event of such declines, could result in a deterioration in our asset quality and may require us to take additional loan loss provisions.

In Korea, foreclosure on collateral generally requires a written petition to a court. An application, when made, may be subject to delays and administrative requirements that may result in a decrease in the value realized with respect to such collateral. We cannot guarantee that we will be able to realize the full value on our collateral as a result of, among other factors, delays in foreclosure proceedings and defects in the perfection of our security interest in collateral. Our failure to recover the expected value of collateral could expose us to losses.

The secondary market for corporate bonds in Korea is not fully developed, and, as a result, we may not be able to realize the full book value of debt securities we hold at the time of any sale of such securities.

As of December 31, 2018, we held debt securities issued by Korean companies and financial institutions (other than those issued by the Bank of Korea, Korea Housing Finance Corporation, Korea Development Bank, Industrial Bank of Korea, the Export-Import Bank of Korea, Korea Deposit Insurance Corporation and the Korea Land & Housing Corporation, which are government-owned or -controlled enterprises or financial institutions) with a total carrying amount of ￦37,656 billion in our trading and investment securities portfolio. The market value of these securities could decline significantly due to various factors, including future increases in interest rates or a deterioration in the financial and economic condition of any particular issuer or of Korea in general. Any of these factors individually or a combination of these factors would require us to write down the fair value of these debt securities, resulting in impairment losses. Because the secondary market for corporate bonds in Korea is not fully developed, the market value of many of these securities as reflected on our statements of financial position is determined by references to suggested prices posted by Korean rating agencies or the Korea Financial Investment Association. These valuations, however, may differ significantly from the actual value that we could realize in the event we elect to sell these securities. As a result, we may not be able to realize the full book value at the time of any such sale of these securities and thus may incur losses.

We may be required to make transfers from our general banking operations to cover shortfalls in our guaranteed trust accounts, which could have an adverse effect on our results of operations.

We manage a number of money trust accounts through Kookmin Bank, our banking subsidiary. Under Korean law, trust account assets of a bank are required to be segregated from the assets of that bank’s general banking operations. Those assets are not available to satisfy the claims of a bank’s depositors or other creditors

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of its general banking operations. For some of the trust accounts we manage, we have guaranteed either the principal amount of the investor’s investment or the principal and a fixed rate of interest.

If, at any time, the income from our guaranteed trust accounts is not sufficient to pay any guaranteed amount, we will have to cover the shortfall first from the special reserves maintained in these trust accounts, then from our fees from such trust accounts and finally from funds transferred from our general banking operations. As of December 31, 2018, we had ￦111 billion of special reserves in respect of trust accounts for which we provided guarantees of principal. There was no transfer from general banking operations to cover deficiencies in guaranteed trust accounts in 2016, 2017 and 2018. However, we may be required to make transfers from our general banking operations to cover shortfalls, if any, in our guaranteed trust accounts in the future. Such transfers may adversely impact our results of operations.

Our operations have been, and will continue to be, subject to increasing and continually evolving cyber security and other technological risks.

With the proliferation of new technologies and the increasing use of the Internet and mobile devices to conduct financial transactions, our operations as a large financial institution have been, and will continue to be, subject to an increasing risk of cyber incidents relating to these activities, the nature of which is continually evolving. Our computer systems, software and networks are subject to cyber incidents, such as disruptions, delays or other difficulties from our information technology system, computer viruses or other malicious codes, loss or destruction of data (including confidential client information), unauthorized access, account takeover attempts and cyber attacks. A significant portion of our daily operations relies on our information technology systems, including customer service, billing, the secure processing, storage and transmission of confidential and other information as well as the timely monitoring of a large number of complex transactions. Although we have made substantial and continuous investments to build systems and defenses to address cyber security and other technological risks, there is no guarantee that such measures or any other measures can provide adequate security. In addition, because methods used to cause cyber attacks change frequently or, in some cases, are not recognized until launched, we may be unable to implement effective preventive measures or proactively address these methods. Furthermore, these cyber threats may arise from human error, accidental technological failure and third parties with whom we do business. Although we maintain insurance coverage that may cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. If we were to be subject to a cyber incident, it could result in the disclosure of confidential client information, damage to our reputation with our customers and in the market, customer dissatisfaction, additional costs to us, regulatory penalties, exposure to litigation and other financial losses to both us and our customers, which could have an adverse effect on our business and results of operations.

Risks relating to liquidity and capital management

A considerable increase in interest rates could decrease the value of our debt securities portfolio and raise our funding costs while reducing loan demand and the repayment ability of our borrowers, which, as a result, could adversely affect us.

Interest rates in Korea have been subject to significant fluctuations in the past. The Bank of Korea reduced its policy rate to 2.00% through a series of reductions from 2012 to 2014 to support Korea’s economy in light of the slowdown in Korea’s growth and uncertain global economic prospects. The Bank of Korea further reduced its policy rate to 1.50% in 2015 and again to an unprecedented 1.25% in June 2016 amid deflationary concerns and interest rate cuts by central banks around the world. However, the Bank of Korea increased its policy rate to 1.50% in November 2017 and 1.75% in November 2018 in light of improved growth prospects in Korea and rising interest rate levels globally. All else being equal, further increases in interest rates in the future could lead to a decline in the value of our portfolio of debt securities, which generally pay interest based on a fixed rate. A sustained increase in interest rates will also raise our funding costs, while reducing loan demand, especially among retail borrowers. Rising interest rates may therefore require us to re-balance our asset portfolio and our liabilities in order to minimize the risk of potential mismatches and maintain our profitability.

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In addition, rising interest rate levels may adversely affect the Korean economy and the financial condition of our corporate and retail borrowers, including holders of our credit cards, which in turn may lead to a deterioration in our credit portfolio. In particular, since most of our retail and corporate loans bear interest at rates that adjust periodically based on prevailing market rates, a sustained increase in interest rate levels will increase the interest costs of our retail and corporate borrowers and could adversely affect their ability to make payments on their outstanding loans.

Furthermore, in periods of increasing interest rates, the yields on the general account assets of our insurance subsidiaries may not be sufficient to fund the higher floating interest credit rates necessary to keep their interest-sensitive insurance products competitive. They may therefore have to accept a lower spread and thus lower profitability or face a decline in sales and greater attrition among their existing policyholders. In addition, in periods of increasing interest rates, the value of the debt securities and other general account assets of our insurance subsidiaries may decline, resulting in lower unrealized gains within other comprehensive income in their total equity, which in turn would lower their available capital and their risk-based capital adequacy ratio. Moreover, surrenders and withdrawals of insurance policies may increase as policyholders seek to buy products with perceived higher returns. This process may lead to a cash outflow from our insurance subsidiaries. Such cash outflows may require them to sell their investment assets at a time when the prices of those assets are lower because of the increase in market interest rates, which may result in investment losses.

Our funding is highly dependent on short-term deposits, which dependence may adversely affect our operations.

We meet a significant amount of our funding requirements through short-term funding sources, which consist primarily of customer deposits. As of December 31, 2018, approximately 95.5% of our deposits had maturities of one year or less or were payable on demand. In the past, a substantial proportion of our customer deposits have been rolled over upon maturity. We cannot guarantee, however, that depositors will continue to roll over their deposits in the future. In the event that a substantial number of our short-term deposit customers withdraw their funds or fail to roll over their deposits as higher-yielding investment opportunities emerge, our liquidity position could be adversely affected. We may also be required to seek more expensive sources of short-term and long-term funding to finance our operations. See “Item 5.B. Liquidity and Capital Resources—Financial Condition—Liquidity.”

We may be required to raise additional capital if our capital adequacy ratio deteriorates or the applicable capital requirements change in the future, but we may not be able to do so on favorable terms or at all.

Under the capital adequacy requirements of the Financial Services Commission, as of December 31, 2018, both we and Kookmin Bank, our banking subsidiary, were required to maintain a total minimum common equity Tier I capital adequacy ratio of 7.125%, Tier I capital adequacy ratio of 8.625% and combined Tier I and Tier II capital adequacy ratio of 10.625%, on a consolidated basis (including applicable additional capital buffers and requirements as described below). As of December 31, 2018, our common equity Tier I capital, Tier I capital and combined Tier I and Tier II capital adequacy ratios were 13.97%, 13.97% and 14.60%, respectively, and Kookmin Bank’s common equity Tier I capital, Tier I capital and combined Tier I and Tier II capital adequacy ratios were 14.33%, 14.33% and 15.52%, respectively, all of which exceeded the minimum levels required by the Financial Services Commission. However, our capital base and capital adequacy ratios may deteriorate in the future if our results of operations or financial condition deteriorates for any reason, including as a result of a deterioration in the asset quality of our retail loans (including credit card balances) and loans to small- and medium-sized enterprises, or if we are not able to deploy our funding into suitably low-risk assets.

The current capital adequacy requirements of the Financial Services Commission are derived from a new set of bank capital measures, referred to as Basel III, which the Basel Committee on Banking Supervision initially introduced in 2009 and began phasing in starting from 2013. Commencing in July 2013, the Financial Services Commission promulgated a series of amended regulations implementing Basel III, pursuant to which Korean

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banks and bank holding companies were required to maintain a minimum ratio of common equity Tier I capital (which principally includes equity capital, capital surplus and retained earnings) to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to 4.5% and 6.0%, respectively, from January 1, 2015. Such requirements are in addition to the pre-existing requirement for a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets of 8.0%, which remains unchanged. The amended regulations also require an additional capital conservation buffer of 1.875% in 2018 and 2.5% in 2019, as well as a potential counter-cyclical capital buffer of up to 2.5%, which is determined on a quarterly basis by the Financial Services Commission. Furthermore, we were designated as one of five domestic systemically important banks for 2018 by the Financial Services Commission and were subject to an additional capital requirement of 0.75% in 2018. In June 2018, we were again designated as a domestic systemically important bank for 2019, which would subject us to an additional capital requirement of 1.0% in 2019. The implementation of Basel III in Korea may have a significant effect on the capital requirements of Korean financial institutions, including us. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy” and “—Principal Regulations Applicable to Banks—Capital Adequacy.”

We may be required to obtain additional capital in the future in order to remain in compliance with more stringent capital adequacy and other regulatory requirements. However, we may not be able to obtain additional capital on favorable terms, or at all. Our ability to obtain additional capital at any time may be constrained to the extent that banks or other financial institutions in Korea or from other countries are seeking to raise capital at the same time. To the extent that we fail to comply with applicable capital adequacy ratio or other regulatory requirements in the future, Korean regulatory authorities may impose penalties on us ranging from a warning to suspension or revocation of our banking license.

Risks relating to government regulation and policy

Our income tax expenses may increase as a result of changes to Korean corporate income tax laws.

Pursuant to an amendment to the Corporate Income Tax Law of Korea which became effective in January 2018, the corporate income tax rate applicable to the portion of the tax base of companies that exceeds ￦300 billion has been raised from 24.2% to 27.5%, inclusive of local income surtax in each case. In addition, pursuant to an amendment to the Special Tax Treatment Control Law of Korea which became effective in January 2018, large corporations with net equity in excess of ￦50 billion, including us and certain of our subsidiaries, are subject to a 20% additional levy on the unused amount if a certain portion (i.e., 65% or 15%, depending on the taxation method) of their taxable income is not used for investments or wage increases. Such changes in Korean income tax laws may result in an increase in our and our subsidiaries’ income tax expenses, which, depending on the magnitude of such increase, may have a material adverse effect on our results of operations.

Strengthening of consumer protection laws applicable to financial institutions could adversely affect our operations.

As a financial service provider, we are subject to a variety of regulations in Korea that are designed to protect financial consumers. In recent years, in light of heightened public concern regarding privacy issues, the Korean government has placed greater emphasis on protection of personal information by financial institutions and has implemented a number of measures to enhance consumer protection, including considerably restricting a financial institution’s ability to transfer or provide personal information to its affiliates or holding company. Under the Personal Information Protection Act, financial institutions, as personal information managers, may not collect, store, maintain, utilize or provide resident registration numbers of their customers, unless other laws or regulations specifically require or permit the management of resident registration numbers. In addition, under the Use and Protection of Credit Information Act, a financial institution has a higher duty to protect all information

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that it collects from its customers and is required to treat such information as credit information. A financial institution’s ability to transfer or provide the information to its affiliates or holding company is considerably restricted. Treble damages may be imposed on a financial institution for leakage of such information. Furthermore, under the Electronic Financial Transaction Act, a financial institution is primarily responsible for compensating its customers harmed by a cyber security breach affecting the financial institution even if the breach is not directly attributable to the financial institution.

In June 2016, the Financial Services Commission proposed the enactment of the Act on the Financial Consumer Protection Framework, which was submitted to the Korean National Assembly in May 2017. If the act is adopted as proposed, we as a financial instrument distributor will be subject to heightened investor protection measures, including stricter distribution guidelines, improved financial dispute resolution procedures, increased liability for customer losses and newly imposed penalty surcharges.

These and other measures that may be implemented by the Korean government to strengthen consumer protection laws applicable to financial institutions may limit our operational flexibility and cause us to incur significant additional compliance costs, as well as subject us to increased potential liability to our customers, which could adversely affect our business and performance.

The Korean government may promote lending and financial support by the Korean financial industry to certain types of borrowers as a matter of policy, which financial institutions, including us, may decide to follow.

Through its policies and recommendations, the Korean government has promoted and, as a matter of policy, may continue to attempt to promote lending by the Korean financial industry to particular types of borrowers. For example, the Korean government has in the past provided and may continue to provide policy loans, which encourage lending to particular types of borrowers. It has generally done this by identifying sectors of the economy it wishes to promote and making low interest funding available to financial institutions that may voluntarily choose to lend to these sectors. The government has in this manner provided policy loans intended to promote mortgage lending to low-income individuals and lending to small- and medium-sized enterprises. All loans or credits we choose to make pursuant to these policy loans would be subject to review in accordance with our credit approval procedures. However, the availability of policy loans may influence us to lend to certain sectors or in a manner in which we otherwise would not in the absence of such loans from the government.

In the past, the Korean government has also announced policies under which financial institutions in Korea are encouraged to provide financial support to particular sectors. For example, in light of the deteriorating financial condition and liquidity position of small- and medium-sized enterprises in Korea and adverse conditions in the Korean economy affecting such enterprises, the Korean government introduced measures intended to encourage Korean banks to provide financial support to small- and medium-sized enterprise and retail borrowers. See “—Risks relating to our small- and medium-sized enterprise loan portfolio—We have significant exposure to small- and medium-sized enterprises, and any financial difficulties experienced by these customers may result in a deterioration of our asset quality and have an adverse impact on us.” and “—Risks relating to our retail credit portfolio—Future changes in market conditions as well as other factors may lead to increases in delinquency levels of our retail loan portfolio.” The Korean government may in the future request financial institutions in Korea, including us, to make investments in or provide other forms of financial support to particular sectors of the Korean economy as a matter of policy, which financial institutions, including us, may decide to accept. We may incur costs or losses as a result of providing such financial support.

The Financial Services Commission may impose burdensome measures on us if it deems us or one of our subsidiaries to be financially unsound.

If the Financial Services Commission deems our financial condition or the financial condition of our subsidiaries to be unsound, or if we or our subsidiaries fail to meet applicable regulatory standards, such as

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minimum capital adequacy and liquidity ratios, the Financial Services Commission may order or recommend, among other things:

• capital increases or reductions;

• stock cancelations or consolidations;

• transfers of businesses;

• sale of assets;

• closures of subsidiaries or branch offices;

• mergers with other financial institutions; and

• suspensions of a part of our business operations.

If any of these measures is imposed on us by the Financial Services Commission, they could hurt our business, results of operations and financial condition. In addition, if the Financial Services Commission orders us to partially or completely reduce our capital, you may lose part or all of your investment.

Risks relating to Korea

Escalations in tensions with North Korea could have an adverse effect on us and the market price of our ADSs.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In particular, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following:

• North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs, and warheads that can be mounted on ballistic missiles. Over the years, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. In response, the Korean government has repeatedly condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions. In February 2016, the government also closed the inter-Korea Gaesong Industrial Complex in response to North Korea’s fourth nuclear test in January 2016. Internationally, the United Nations Security Council has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in December 2017 in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea.

• In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Korean government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Korean government condemned North Korea for the attack and vowed stern retaliation should there be further provocation.

North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. Although bilateral summit meetings were held between the two Koreas in April,

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May and September 2018 and between the United States and North Korea in June 2018 and February 2019, there can be no assurance that the level of tensions affecting the Korean peninsula will not escalate in the future. Any increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea or the United States and North Korea break down or further military hostilities occur, could have a material adverse effect on the Korean economy and on our business, financial condition and results of operations and the market value of our common stock and American depositary shares, or ADSs.

Unfavorable financial and economic developments in Korea may have an adverse effect on us.

We are incorporated in Korea, and substantially all of our operations are located in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in recent years have shown mixed signs of growth and uncertainty, and future growth of the Korean economy is subject to many factors beyond our control, including developments in the global economy.

In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. See “Other risks relating to our business—Unfavorable changes in the global financial markets could adversely affect our results of operations and financial condition.” The value of the Won relative to major foreign currencies has also fluctuated significantly. See “Item 3.A. Selected Financial Data—Exchange Rates.” Furthermore, as a result of changing global and Korean economic conditions, there has been volatility in the stock prices of Korean companies in recent years. Future declines in the Korea Composite Stock Price Index (known as the “KOSPI”) and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.

Developments that could have an adverse impact on Korea’s economy in the future include:

• adverse conditions or uncertainty in the economies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, as well as increased uncertainties regarding a future Brexit and deteriorating economic and trade relations between the United States and China;

• adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, the Euro or the Japanese Yen exchange rates or revaluation of the Chinese Renminbi), interest rates, inflation rates or stock markets;

• a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail or small- and medium-sized enterprise borrowers in Korea;

• declines in consumer confidence and a slowdown in consumer spending;

• a deterioration in the financial condition or performance of small- and medium-sized enterprises and other companies in Korea due to the Korean government’s policies to increase minimum wages and limit working hours of employees;

• investigations of Korean conglomerates and their senior management for bribery, embezzlement and other possible misconduct;

• social and labor unrest;

• decreases in the market prices of Korean real estate;

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• a decrease in tax revenues and a substantial increase in the Korean government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that, together, would lead to an increased government budget deficit;

• financial problems or lack of progress in the restructuring of chaebols, other large troubled companies and their suppliers;

• loss of investor confidence arising from corporate accounting irregularities, allegations of corruption and corporate governance issues concerning certain chaebols;

• increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

• increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets;

• the economic impact of any pending or future free trade agreements or changes in existing free trade agreements;

• geo-political uncertainty and the risk of further attacks by terrorist groups around the world;

• natural or man-made disasters that have a significant adverse economic or other impact on Korea or its major trading partners;

• the occurrence of severe health epidemics in Korea or other parts of the world, such as the Middle East Respiratory Syndrome outbreak in Korea in 2015;

• deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the controversy between Korea and China regarding the deployment of a Terminal High Altitude Area Defense system in Korea by the United States);

• political uncertainty or increasing strife among or within political parties in Korea;

• hostilities or political or social tensions involving oil producing countries in the Middle East and North Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;

• political or social tensions involving Russia and any resulting adverse effects on the global supply of oil or the global financial markets;

• an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States; and

• changes in financial regulations in Korea.

Labor unrest in Korea may adversely affect our operations.

Economic difficulties in Korea or increases in corporate reorganizations and bankruptcies could result in layoffs and higher unemployment. Such developments could lead to social unrest and substantially increase government expenditures for unemployment compensation and other costs for social programs. According to statistics from the Korea National Statistical Office, the unemployment rate increased from 3.7% in 2016 and 2017 to 3.8% in 2018. Further increases in unemployment and any resulting labor unrest in the future could adversely affect our operations, as well as the operations of many of our customers and their ability to repay their loans, and could adversely affect the financial condition of Korean companies in general, depressing the price of their securities. These developments would likely have an adverse effect on our financial condition and results of operations.

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Risks relating to our common stock and ADSs

We or our major stockholders may sell shares of our common stock or ADSs in the future, and these and other sales may adversely affect the market price of our common stock and ADSs and may dilute your investment and relative ownership in us.

We have no current plans for any public offerings of our common stock, ADSs or securities exchangeable for or convertible into such securities. However, it is possible that we may decide to offer or sell such securities in the future. In addition, our major stockholder, the Korean National Pension Service, held approximately 9.5% of our total issued common stock as of December 31, 2018, which it may sell at any time.

Any future offerings or sales by us of our common stock or ADSs or securities exchangeable for or convertible into such securities, significant sales of our common stock by a major stockholder, or the public perception that an offering or sales may occur, could have an adverse effect on the market price of our common stock and ADSs. Furthermore, any offerings by us in the future of any such securities could have a dilutive impact on your investment and relative ownership interest in us.

Ownership of our common stock is restricted under Korean law.

Under the Financial Holding Company Act, a single stockholder, together with its affiliates, is generally prohibited from owning more than 10.0% of the issued and outstanding shares of voting stock of a bank holding company such as us that controls a nationwide bank, with the exception of certain stockholders that are non-financial business group companies, whose applicable limit has been reduced from 9.0% to 4.0% pursuant to an amendment of the Financial Holding Company Act which became effective from February 14, 2014. To the extent that the total number of shares of our common stock (including those represented by ADSs) that a holder and its affiliates own exceeds the applicable limits, that holder will not be entitled to exercise the voting rights for the excess shares, and the Financial Services Commission may order that holder to dispose of the excess shares within a period of up to six months. Failure to comply with such an order would result in an administrative fine of up to 0.03% of the book value of such shares per day until the date of disposal. Non-financial business group companies can no longer acquire more than 4.0% of the issued and outstanding shares of voting stock of a bank holding company pursuant to the amended Financial Holding Company Act, which grants an exception for non-financial business group companies which, at the time of the enactment of the amended provisions, held more than 4.0% of the shares thereof with the approval of the Financial Services Commission before the amendment. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Restrictions on Ownership of a Financial Holding Company.”

A holder of our ADSs may not be able to exercise dissent and appraisal rights unless it has withdrawn the underlying shares of our common stock and become our direct stockholder.

In some limited circumstances, including the transfer of the whole or any significant part of our business and the merger or consolidation of us with another company, dissenting stockholders have the right to require us to purchase their shares under Korean law. However, holders of our ADSs will not be able to exercise such dissent and appraisal rights if the depositary refuses to do so on their behalf. Our deposit agreement does not require the depositary to take any action in respect of exercising dissent and appraisal rights. In such a situation, holders of our ADSs must withdraw the underlying common stock from the ADS facility (and incur charges relating to that withdrawal) and become our direct stockholder prior to the record date of the stockholders’ meeting at which the relevant transaction is to be approved, in order to exercise dissent and appraisal rights.

A holder of our ADSs may be limited in its ability to deposit or withdraw common stock.

Under the terms of our deposit agreement, holders of common stock may deposit such stock with the depositary’s custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the depositary

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and receive common stock. However, to the extent that a deposit of common stock exceeds the difference between:

(1) the aggregate number of common shares we have deposited or we have consented to allow to be deposited for the issuance of ADSs (including deposits in connection with offerings of ADSs and stock dividends or other distributions relating to ADSs); and

(2) the number of shares of common stock on deposit with the custodian for the benefit of the depositary at the time of such proposed deposit,

such common stock will not be accepted for deposit unless

(A) our consent with respect to such deposit has been obtained; or

(B) such consent is no longer required under Korean laws and regulations.

Under the terms of the deposit agreement, no consent is required if the shares of common stock are obtained through a dividend, free distribution, rights offering or reclassification of such stock. We have consented, under the terms of the deposit agreement, to any deposit to the extent that, after the deposit, the number of deposited shares does not exceed such number of shares as we determine from time to time (which number shall at no time be less than 100,000,000 shares), unless the deposit would be prohibited by applicable laws or ownership restrictions or violate our articles of incorporation. We might not consent to the deposit of any additional common stock. As a result, if a holder surrenders ADSs and withdraws common stock, it may not be able to deposit the stock again to obtain ADSs.

A holder of our ADSs will not have preemptive rights in some circumstances.

The Korean Commercial Code and our articles of incorporation require us, with some exceptions, to offer stockholders the right to subscribe for new shares of our common stock in proportion to their existing shareholding ratio whenever new shares are issued. If we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, to the extent practicable, the depositary may make the rights available to holders of our ADSs or dispose of the rights on behalf of such holders and make the net proceeds available to such holders. The depositary, however, is not required to make available to holders any rights to purchase any additional shares of our common stock unless it timely receives evidence satisfactory to it from us that it may lawfully do so and:

• a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares; or

• the offering and sale of those shares is exempt from or is not subject to the registration requirements of the Securities Act.

Similarly, holders of our common stock located in the United States may not exercise any such rights they receive absent registration or an exemption from the registration requirements under the Securities Act.

We are under no obligation to file any registration statement with the U.S. Securities and Exchange Commission or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, a holder of our ADSs may be unable to participate in our rights offerings and may experience dilution in its holdings. If a registration statement is required for a holder of our ADSs to exercise preemptive rights but is not filed by us or is not declared effective, the holder will not be able to exercise its preemptive rights for additional ADSs and it will suffer dilution of its equity interest in us. If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or practicable, it will allow the rights to lapse, in which case the holder will receive no value for these rights.

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Dividend payments and the amount a holder of our ADSs may realize upon a sale of its ADSs will be affected by fluctuations in the exchange rate between the U.S. dollar and the Won.

Our common stock is listed on the KRX KOSPI Market of the Korea Exchange and quoted and traded in Won. Cash dividends, if any, in respect of the shares represented by the ADSs will be paid to the depositary in Won and then converted by the depositary into U.S. dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Won and the U.S. dollar will affect, among other things, the amounts a holder of our ADSs will receive from the depositary in respect of dividends, the U.S. dollar value of the proceeds that it would receive upon sale in Korea of the shares of our common stock obtained upon surrender of ADSs and the secondary market price of ADSs. Such fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of our common stock.

The market value of an investment in our ADSs may fluctuate due to the volatility of the Korean securities market.

Our common stock is listed on the KRX KOSPI Market, which has a smaller market capitalization and is more volatile than the securities markets in the United States and many European countries. The market value of ADSs may fluctuate in response to the fluctuation of the trading price of shares of our common stock on the KRX KOSPI Market. The KRX KOSPI Market has experienced substantial fluctuations in the prices and volumes of sales of listed securities and the KRX KOSPI Market has prescribed a fixed range in which share prices are permitted to move on a daily basis. The KOSPI declined from 1,897.1 on December 31, 2007 to 938.8 on October 24, 2008. The KOSPI was 2,216.43 on April 29, 2019. There is no guarantee that the stock prices of Korean companies will not decline again in the future. Like other securities markets, including those in developed markets, the Korean securities market has experienced problems including market manipulation, insider trading and settlement failures. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of Korean companies, including our common stock and ADSs, in both the domestic and the international markets.

The Korean government has the potential ability to exert substantial influence over many aspects of the private sector business community, and in the past has exerted that influence from time to time. For example, the Korean government has promoted mergers to reduce what it considers excess capacity in a particular industry and has also encouraged private companies to publicly offer their securities. Similar actions in the future could have the effect of depressing or boosting the Korean securities market, whether or not intended to do so. Accordingly, actions by the government, or the perception that such actions are taking place, may take place or has ceased, may cause sudden movements in the market prices of the securities of Korean companies in the future, which may affect the market price and liquidity of our common stock and ADSs.

If the Korean government deems that emergency circumstances are likely to occur, it may restrict holders of our ADSs and the depositary from converting and remitting dividends and other amounts in U.S. dollars.

If the Korean government deems that certain emergency circumstances, including, but not limited to, severe and sudden changes in domestic or overseas economic circumstances, extreme difficulty in stabilizing the balance of payments or implementing currency exchange rate and other macroeconomic policies, have occurred or are likely to occur, it may impose certain restrictions provided for under the Foreign Exchange Transaction Act, including the suspension of payments or requiring prior approval from governmental authorities for any transaction. See “Item 10.D. Exchange Controls—General.”

A holder of our ADSs may not be able to enforce a judgment of a foreign court against us.

We are a corporation with limited liability organized under the laws of Korea. Substantially all of our directors and officers and other persons named in this document reside in Korea, and all or a significant portion of the assets of our directors and officers and other persons named in this document and substantially all of our

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assets are located in Korea. As a result, it may not be possible for holders of our ADSs to effect service of process within the United States, or to enforce against them or us in the United States judgments obtained in United States courts based on the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.

Item 4. INFORMATION ON THE COMPANY

Item 4.A. History and Development of the Company

Overview

We were established as a new financial holding company on September 29, 2008 pursuant to a “comprehensive stock transfer” under Korean law, whereby holders of the common stock of Kookmin Bank and certain of its subsidiaries transferred all of their shares to us in return for shares of our common stock. We were established pursuant to the Financial Holding Company Act, which was enacted in October 2000 and which, together with associated regulations and a related Enforcement Decree, has enabled banks and other financial institutions, including insurance companies, investment trust companies, credit card companies and securities companies, to be organized and managed under the auspices of a single financial holding company.

Our legal and commercial name is KB Financial Group Inc. Our registered office and principal executive offices are located at 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea. Our telephone number is +82-2-2073-7114. Our agent in the United States, Kookmin Bank, New York Branch, is located at 565 Fifth Avenue, 24th Floor, New York, NY 10017. Its telephone number is (212) 697-6100. The address of our English website is https://www.kbfg.com/Eng/index.jsp.

The U.S. Securities and Exchange Commission maintains a website (http://www.sec.gov), which contains reports, proxy and information statements and other information regarding issuers that file electronically with the U.S. Securities and Exchange Commission.

History of the Former Kookmin Bank

The former Kookmin Bank was established by the Korean government in 1963 under its original name of Citizens National Bank under the Citizens National Bank Act of Korea with majority government ownership. Under this Act, we were limited to providing banking services to the general public and to small- and medium-sized enterprises. In September 1994, we completed our initial public offering in Korea and listed our shares on the KRX KOSPI Market.

In January 1995, the Citizens National Bank Act of Korea was repealed and replaced by the Repeal Act of the Citizens National Bank Act. Our status was changed from a specialized bank to a nationwide commercial bank and in February 1995, we changed our name to Kookmin Bank. The Repeal Act allowed us to engage in lending to large businesses.

History of H&CB

H&CB was established by the Korean government in 1967 under the name Korea Housing Finance Corporation. In 1969, Korea Housing Finance Corporation became the Korea Housing Bank pursuant to the Korea Housing Bank Act. H&CB was originally established to provide low and middle income households with long-term, low-interest mortgages in order to help them purchase their own homes, and to promote the increase of housing supply in Korea by providing low-interest housing loans to construction companies. Until 1997 when the Korea Housing Bank Act was repealed, H&CB was the only entity in Korea allowed to provide mortgage loans with a term of longer than ten years. H&CB also had the exclusive ability to offer housing-related deposit accounts offering preferential rights to subscribe for newly-built apartments.

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Merger of the Former Kookmin Bank and H&CB

Effective November 1, 2001, the former Kookmin Bank and H&CB merged into a new entity named Kookmin Bank. This merger resulted in Kookmin Bank becoming the largest commercial bank in Korea. Kookmin Bank’s ADSs were listed on the New York Stock Exchange on November 1, 2001 and its common shares were listed on the KRX KOSPI Market on November 9, 2001.

Establishment of KB Financial Group

We were established on September 29, 2008 pursuant to a “comprehensive stock transfer” under Article 360-15 of the Korean Commercial Code, whereby holders of the common stock of Kookmin Bank and certain of its subsidiaries transferred all of their shares to us, a new financial holding company, and in return received shares of our common stock. In the stock transfer, each holder of one share of Kookmin Bank common stock received one share of our common stock, par value ￦5,000 per share. Holders of Kookmin Bank ADSs and global depositary shares, each of which represented one share of Kookmin Bank common stock, received one of our ADSs for every ADS or global depositary share they owned. In addition, holders of the common stock of KB Investment & Securities Co., Ltd., KB Asset Management Co., Ltd., KB Real Estate Trust Co., Ltd., KB Investment Co., Ltd., KB Futures Co., Ltd., KB Credit Information Co., Ltd., and KB Data Systems Co., Ltd., all of which were Kookmin Bank’s subsidiaries, transferred all of their shares to us and, as consideration for such transferred shares, received shares of our common stock in accordance with the specified stock transfer ratio applicable to each such subsidiary. Following the completion of the stock transfer, Kookmin Bank, KB Investment & Securities Co., Ltd., KB Asset Management Co., Ltd., KB Real Estate Trust Co., Ltd., KB Investment Co., Ltd., KB Futures Co., Ltd., KB Credit Information Co., Ltd., and KB Data Systems Co., Ltd. became our wholly-owned subsidiaries.

The purpose of the stock transfer and our establishment as a financial holding company was to reorganize the different businesses of Kookmin Bank and its subsidiaries under a holding company structure, the adoption of which we believed would:

• assist us in creating an integrated system that facilitates the sharing of customer information and the development of integrated products and services by the different businesses within our subsidiaries;

• assist us in expanding our business scope to include new types of business with higher profit margins;

• enhance our ability to pursue strategic investments or reorganizations by way of mergers, acquisitions, spin-offs or other means;

• maximize our management efficiency; and

• further enhance our capacity to expand our overseas operations.

Following the stock transfer, our common stock was listed on the KRX KOSPI Market on October 10, 2008 and our ADSs were listed on the New York Stock Exchange on September 29, 2008.

Item 4.B. Business Overview

Business

We are one of the largest financial holding companies in Korea, in terms of consolidated total assets, and our operations include Kookmin Bank, one of the leading commercial banks in Korea. Our subsidiaries collectively engage in a broad range of businesses, including commercial banking, credit cards, asset management, non-life and life insurance, capital markets activities and international banking and finance. As of December 31, 2018, we had consolidated total assets of ￦480 trillion, consolidated total deposits of ￦277 trillion and consolidated total equity of ￦36 trillion.

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As part of our commercial banking activities, we provide credit and related financial services to individuals and small- and medium-sized enterprises and, to a lesser extent, to large corporate customers. We also provide a full range of deposit products and related services to both individuals and enterprises of all sizes. We provide these services predominantly through Kookmin Bank.

By their nature, our core consumer and small- and medium-sized enterprise operations place a high premium on customer access and convenience. Our combined banking network of 1,057 branches as of December 31, 2018, one of the most extensive in Korea, provides a solid foundation for our business and is a major source of our competitive strength. This network provides us with a large, stable and cost effective funding source, enables us to provide our customers convenient access and gives us the ability to provide the customer attention and service essential to conducting our business, particularly in an increasingly competitive environment. Our branch network is further enhanced by automated banking machines and fixed-line, smartphone and Internet banking. As of December 31, 2018, we had a customer base of approximately 34.2 million retail customers, which represented over one-half of the Korean population.

The following table sets forth the principal components of our lending business as of the dates indicated. As of December 31, 2018, retail loans and credit card loans and receivables accounted for 54.7% of our total loan portfolio:

	As of December 31,
	2016				2017				2018
	(in billions of Won, except percentages)
Retail
Mortgage and home equity(1)	￦	93,327	34.9	%	￦	97,253	33.3	%	￦	102,607	31.9	%
Other consumer(2)		41,629	15.5			48,897	16.7			56,200	17.5
Total retail		134,956	50.4			146,150	50.0			158,807	49.4
Credit card		13,530	5.1			15,205	5.2			17,354	5.4
Corporate		116,271	43.4			127,381	43.6			140,701	43.7
Foreign		3,007	1.1			3,497	1.2			4,949	1.5
Total loans	￦	267,764	100.0	%	￦	292,233	100.0	%	￦	321,811	100.00	%

⁽¹⁾  Includes ￦817 billion, ￦699 billion and ￦6,072 billion of overdraft loans secured by real estate in connection with home equity loans as of December 31, 2016, 2017 and 2018, respectively.

⁽²⁾ Includes ￦7,670 billion, ￦7,791 billion and ￦9,361 billion of overdraft loans as of December 31, 2016, 2017 and 2018, respectively.

We provide a full range of personal lending products and retail banking services to individual customers, including mortgage loans. We are the largest private sector mortgage lender in Korea.

Lending to small- and medium-sized enterprises is the single largest component of our non-retail credit portfolio and represents a widely diversified exposure to a broad spectrum of the Korean corporate community, both by type of lending and type of customer, with one of the categories being collateralized loans to SOHO customers that are among the smallest of the small- and medium-sized enterprises. The volume of our loans to small- and medium-sized enterprises requires a customer-oriented approach that is facilitated by our large and geographically diverse branch network.

With respect to large corporate customers, we continue to seek to maintain and expand quality relationships by providing them with an increasing range of fee-related services.

Strategy

Our strategic focus is to become a world-class financial group that ranks among the leaders of the financial industry in Asia and globally. We plan to continue to solidify our market position as Korea’s leading financial

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group, enhance our ability to provide comprehensive financial services to our retail and corporate customers and strengthen our overseas operating platform and network. We believe our strong market position in the commercial banking area in Korea is an important competitive advantage, which will enable us to compete more effectively based on convenient delivery, product breadth and differentiation, and service quality while focusing on our profitability.

The key elements of our strategy are as follows:

Providing comprehensive financial services and maximizing synergies among our subsidiaries through our financial holding company structure

We believe the Korean financial services market has been undergoing and will continue to undergo significant change, resulting from, among other things, fluctuations in the Korean and global economy and the evolving social landscape in Korea, including the acceleration of population aging in Korea, the prevalence of smartphone usage, developments in digital and mobile technologies and the ensuing trend toward high-tech “smart banking” in the banking sector. In the context of such changes, we plan to become a comprehensive financial services provider capable of offering a full range of products and services to our large existing base of retail and corporate customers, as well as a global firm that can effectively compete with leading international financial institutions. To that end, we are continuing to implement specific initiatives including the enhancement of our group-wide integrated customer relationship management system to facilitate the sharing of customer information in accordance with applicable laws and the integration of various customer loyalty programs among our subsidiaries.

We believe our financial holding company structure gives us a competitive advantage over commercial banks and unaffiliated financial services providers by:

• allowing us to offer a more extensive range of financial products and services;

• enabling us to share customer information, which is not permitted outside a financial holding company structure, thereby enhancing our risk management capabilities;

• enhancing our ability to reduce costs in areas such as back-office processing and procurement; and

• enabling us to raise and manage capital on a centralized basis.

Identifying, targeting and marketing to attractive customer segments and providing superior customer value and service to such segments

In recent years, rather than focusing on developing products and services to satisfy the overall needs of the general population, we have increasingly targeted specific market segments in Korea that we expect to generate superior growth and profitability. We will continue to implement a targeted marketing approach that seeks to identify the most attractive customer segments and to develop strategies to build market share in those segments. In particular, we intend to increase our “wallet share” of superior existing customers by using our advanced customer relationship management technology to better identify and meet the needs of our most creditworthy and high net worth customers, on whom we intend to concentrate our marketing efforts. For example, as part of this strategy, we operate a “priority customer” program called KB Star Club through five of our subsidiaries, Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card and KB Life Insurance. We select and classify KB Star Club customers based on their transaction history with the five entities and provide such customers with preferential treatment in various areas, including interest rates and transaction fees, depending upon how they are classified. We also provide private banking services, including personal wealth management services through our exclusive brand “Gold & Wise,” to increase our share of the priority customer market and in turn increase our profitability and strengthen our position in retail banking.

We are also focusing on attracting and retaining creditworthy customers by offering more differentiated fee-based products and services that are tailored to meet their specific needs. The development and marketing of

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our products and services are, in part, driven by customer segmentation to ensure that we meet the needs of each customer segment. For instance, we continue to develop hybrid financial products with enhanced features, including various deposit products and investment products, for which consumer demand has increased in recent years. We are also focusing on addressing the needs of our customers by providing the highest-quality products and services and developing an open-architecture strategy, which allows us to sell such products through one of the largest branch networks in Korea. In short, we aim to offer our customers a convenient one-stop financial services destination where they can meet their traditional retail and corporate banking requirements, as well as find a broad array of fee-based products and services tailored to address more specific financial needs, including in investment banking, securities brokerage, insurance and wealth management. We believe such differentiated, comprehensive services and cross-selling will not only enhance customer loyalty but also increase profitability.

One of our key customer-related strategies continues to be creating greater value and better service for our customers. We intend to continue improving our customer service, including through:

• Improved customer relationship management technology. Management has devoted substantial resources toward development of our customer relationship management system, which is designed to provide our employees with the information needed to continually improve the level of service and incentives offered to our preferred customers. Our integrated customer relationship system allows for better customer management and streamlines our customer reward system. We have also developed state-of-the-art call centers, smartphone applications and online Internet capabilities to provide shorter response times to customers seeking information or to execute transactions. Our goals are to continually focus on improving customer service to satisfy our customers’ needs through continuing efforts to deliver new and improved services and to upgrade our customer relationship management system to provide the best possible service to our customers in the future.

• Enhanced distribution channels. We also believe we can improve customer retention and usage rates by increasing the range of products and services we offer and by developing a differentiated, multi-channel distribution network, including branches, ATMs, call centers, smartphone banking and Internet banking. We believe that our leading market position in the commercial banking area in Korea gives us a competitive advantage in developing and enhancing our distribution capabilities.

Focusing on expanding and improving credit quality in our corporate lending business and increasing market share in the corporate financial services market

We plan to focus on corporate lending as one of our core businesses through attracting top-tier corporate customers and providing customized and distinctive products and services to build our position as a leading service provider in the Korean corporate financial market. To increase our market share in providing financial services to the corporate market, we intend to:

• promote a more balanced and strengthened portfolio with respect to our corporate business by developing our large corporate customer base and utilizing our improved credit management operations to better evaluate new large corporate and small- and medium-sized enterprise customers;

• develop and sell more varied corporate financial products, consisting of transactional banking products which provide higher margin and less risk;

• generate more fee income from large corporate customers through business-to-business transactions, foreign exchange transactions and derivative and other investment products, as well as investment banking services;

• strengthen our marketing system based on our accumulated expertise in order to attract top-tier corporate customers;

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• focus on enhancing our channel network in order to provide the best service by strengthening our corporate customer management; and

• further develop and train our core professionals with respect to this market, including through programs such as the “Career Development Path.”

Strengthening internal risk management capabilities

We believe that ensuring strong asset quality through effective credit risk management is critical to maintaining stable growth and profitability and risk management will continue to be one of our key focus areas. One of our highest priorities is to improve our asset quality and more effectively price our lending products to take into account inherent credit risk in our portfolio. Our goal is to maintain the soundness of our credit portfolio, profitability and capital base. To this end, we intend to continue to strengthen our internal risk management capabilities by tightening our underwriting and management policies and improving our internal compliance policies. To accomplish this objective, we have undertaken the following initiatives:

• Strengthening underwriting procedures with advanced credit scoring techniques. We have centralized our credit management operations into our Credit Group. Through such centralization, we aim to enhance our credit management expertise and improve our system of checks-and-balances with respect to our credit portfolio. We have also improved our ability to evaluate the credit of our small- and medium-sized enterprise customers through assigning experienced credit officers to our regional credit offices. We also require the same officer to evaluate, review and monitor the outstanding loans and other credits with respect to a customer, which we believe enhances the expertise and improves the efficiency and accountability of such officer, while enabling us to maintain a consistent credit policy. We have also, as a general matter, implemented enhanced credit analysis and scoring techniques, which we believe will enable us to make better-informed decisions about the credit we extend and improve our ability to respond more quickly to incipient credit problems. We are also focusing on enhancing our asset quality through improvement of our early monitoring systems and collection procedures.

• Improving our internal compliance policy and ensuring strict application in our daily operations. We have improved our monitoring capabilities with respect to our internal compliance by providing training and educational programs to our management and employees. We have also implemented strict compliance policies to maintain the integrity of our risk management system.

Cultivating a performance-based, customer-oriented culture that emphasizes market best practices

We believe a strong and dedicated workforce is critical to our ability to offer our customers the highest quality financial services and is integral to our goal of maintaining our position as one of Korea’s leading financial services providers. In the past, we have dedicated significant resources to develop and train our core professionals, and we intend to continue to enhance the productivity of our employees, including by regularly sponsoring in-house training and educational programs. We have also been seeking to cultivate a performance-based culture to create a work environment where members of our staff are incentivized to maximize their potential and in which our employees are directly rewarded for superior performance. We intend to maintain a professional workforce whose high quality of customer service reflects our goal to achieve and maintain global best practice standards in all areas of operations.

Retail Banking

Due to Kookmin Bank’s history and development as a retail bank and the know-how and expertise we have acquired from our activities in that market, retail banking has been and will continue to remain one of our core businesses. Our retail banking activities consist primarily of lending and deposit-taking.

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Lending Activities

We offer various loan products that target different segments of the population, with features tailored to each segment’s financial profile and other characteristics. The following table sets forth the balances and the percentage of our total retail lending represented by the categories of our retail loans as of the dates indicated:

	As of December 31,
	2016				2017				2018
	(in billions of Won, except percentages)
Retail:
Mortgage and home equity loans	￦	93,327	69.2	%	￦	97,253	66.5	%	￦	102,607	64.6	%
Other consumer loans(1)		41,629	30.8			48,897	33.5			56,200	35.4
Total	￦	134,956	100.0	%	￦	146,150	100.0	%	￦	158,807	100.0	%

⁽¹⁾  Excludes credit card loans, but includes overdraft loans.

Our retail loans consist of:

• Mortgage loans, which are loans made to customers to finance home purchases, construction, improvements or rentals; and home equity loans, which are loans made to our customers secured by their homes to ensure loan repayment. We also provide overdraft loans in connection with our home equity loans.

• Other consumer loans, which are loans made to customers for any purpose (other than mortgage and home equity loans). These include overdraft loans, which are loans extended to customers to cover insufficient funds when they withdraw funds from their demand deposit accounts with us in excess of the amount in such accounts up to a limit established by us.

For secured loans, including mortgage and home equity loans, our policy is to lend up to 100% of the adjusted collateral value (except in areas of high speculation designated by the government where we generally limit our lending to between 40% to 60% of the appraised value of collateral) minus the value of any lien or other security interests that are prior to our security interest. In calculating the adjusted collateral value for real estate, we use the appraisal value of the collateral multiplied by a factor, generally between 40% to 79% (40% to 70% in the case of mortgage and home equity loans). This factor varies depending upon the location and use of the real estate and is established in part by taking into account court-supervised auction prices for nearby properties.

A borrower’s eligibility for our mortgage loans depends on the value of the mortgage property, the appropriateness of the use of proceeds and the borrower’s creditworthiness. A borrower’s eligibility for home equity loans is determined by the borrower’s credit and the value of the property, while the borrower’s eligibility for other consumer loans is primarily determined by the borrower’s credit. If the borrower’s credit deteriorates, it may be difficult for us to recover the loan. As a result, we review the borrower’s creditworthiness, collateral value, credit scoring and third party guarantees when evaluating a borrower. In addition, to reduce the interest rate of a loan or to qualify for a loan, a borrower may provide collateral, deposits or guarantees from third parties.

Mortgage and Home Equity Lending

The housing finance market in Korea is divided into public sector and private sector lending. In the public sector, two government entities, the National Housing Urban Fund and the National Agricultural Cooperative Federation, are responsible for most of the mortgage lending.

Private sector mortgage and home equity lending in Korea has expanded substantially in recent years. We provide customers with a number of mortgage and home equity loan products that have flexible features,

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including terms, repayment schedules, amounts and eligibility for loans, and we offer interest rates on a commercial basis. The maximum term of mortgage loans is 35 years and the majority of our mortgage loans have long-term maturities, which may be renewed. Non-amortizing home equity loans have a maturity of one to five years and home equity loans subject to amortization of principal may have a maximum term of up to 35 years. As of December 31, 2018, we had ￦29,400 billion of amortizing home equity loans, representing 92.7% of our total home equity loans, and ￦2,307 billion of non-amortizing home equity loans, representing 7.3% of our total home equity loans. Any customer is eligible for a mortgage or an individual home equity loan regardless of whether it participates in one of our housing related savings programs and so long as that customer is not barred by regulation from obtaining a loan because of bad credit history. However, customers with whom we frequently transact business and provide us with significant revenue receive preferential interest rates on loans.

As of December 31, 2018, 59.3% of our mortgage loans were secured by residential property which is the subject of the loan, 22.3% of our mortgage loans were guaranteed by the Housing Finance Credit Guarantee Fund, a government housing-related entity, and the remaining 18.4% of our mortgage loans, contrary to general practices in the United States, were unsecured (although the use of proceeds from these loans is restricted to financing of home purchases and some of these loans are guaranteed by a third party). One reason that a relatively high percentage of our mortgage loans are unsecured is that we, along with other Korean banks, provide advance loans to borrowers for the down payment of new housing (particularly apartments) that is in the process of being built. Once construction is completed, which may take several years, these mortgage loans become secured by the new housing purchased by these borrowers. For the year ended December 31, 2018, the average initial loan-to-value ratio of our mortgage loans, which is a measure of the amount of loan exposure to the appraised value of the security collateralizing the loan, was approximately 50.9%. There are three reasons that our loan-to-value ratio is relatively lower (as is the case with other Korean banks) compared to similar ratios in other countries, such as the United States. The first reason is that housing prices are high in Korea relative to average income, so most people cannot afford to borrow an amount equal to the entire value of their collateral and make interest payments on such an amount. The second reason relates to the “jeonsae” system, through which people provide a key money deposit while residing in the property prior to its purchase. At the time of purchase, most people use the key money deposit as part of their payment and borrow the remaining amount from Korean banks, which results in a loan that will be for an amount smaller than the appraised value of the property for collateral and assessment purposes. The third reason is that Korean banks discount the appraised value of the borrower’s property for collateral and assessment purposes so that a portion of the appraised value is reserved in order to provide recourse to a renter who lives at the borrower’s property. This is in the event that the borrower’s property is seized by a creditor, and the renter is no longer able to reside at that property. See “Item 3.D. Risk Factors—Other risks relating to our business—A decline in the value of the collateral securing our loans and our inability to realize full collateral value may adversely affect our credit portfolio.”

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The following table sets forth our unsecured and secured mortgage loans and home equity loans as of December 31, 2016, 2017 and 2018, based on their loan classification categories under IFRS and our internal credit ratings for loans (which are described in Note 4.2.4 of the notes to our consolidated financial statements):

	As of December 31, 2016
	Non-impaired												Impaired						Total
	Not Past Due										Past Due
	Grade 1		Grade 2		Grade 3		Grade 4		Grade 5				Past Due Up to 89 Days		Past Due 90 Days to 179 Days		Past Due 180 Days or More
											(in billions of Won)
Mortgage:
Secured(1)	￦	49,284	￦	7,055	￦	562	￦	121	￦	76	￦	360	￦	59	￦	27	￦	48	￦	57,592
Unsecured		1,040		310		55		2		1		5		1		1		8		1,423
Home Equity:
Secured		30,722		2,654		430		100		68		251		47		14		26		34,312
Unsecured		—		—		—		—		—		—		—		—		—		—
Total	￦	81,046	￦	10,019	￦	1,047	￦	223	￦	145	￦	616	￦	107	￦	42	￦	82	￦	93,327
	As of December 31, 2017
	Non-impaired												Impaired						Total
	Not Past Due										Past Due
	Grade 1		Grade 2		Grade 3		Grade 4		Grade 5				Past Due Up to 89 Days		Past Due 90 Days to 179 Days		Past Due 180 Days or More
											(in billions of Won)
Mortgage:
Secured(1)	￦	54,547	￦	6,645	￦	336	￦	76	￦	75	￦	426	￦	67	￦	23	￦	42	￦	62,237
Unsecured		1,800		88		2		2		1		5		1		1		3		1,903
Home Equity:
Secured		30,039		2,358		259		56		57		260		44		15		25		33,113
Unsecured		—		—		—		—		—		—		—		—		—		—
Total	￦	86,386	￦	9,091	￦	597	￦	134	￦	133	￦	691	￦	112	￦	39	￦	70	￦	97,253

	As of December 31, 2018
	Stage 1										Stage 2		Stage 3		Total
	Grade 1		Grade 2		Grade 3		Grade 4		Grade 5
							(in billions of Won)
Mortgage:
Secured(1)	￦	59,162	￦	1,206	￦	32	￦	141	￦	1	￦	6,969	￦	138	￦	67,649
Unsecured		3,088		41		1		—		—		117		4		3,251
Home Equity:
Secured		27,708		711		76		5		2		3,020		98		31,620
Unsecured		60		22		5		—		—		—		—		87
Total	￦	90,018	￦	1,980	￦	114	￦	146	￦	3	￦	10,106	￦	240	￦	102,607

⁽¹⁾  Includes advance loans guaranteed by the Housing Finance Credit Guarantee Fund to borrowers for the down payment of new housing that is in the process of being built.

Our home equity loan portfolio includes loans that are in a second lien position. In addition to the underwriting procedures we perform when we issue home equity loans in general, we perform additional underwriting procedures with respect to home equity loans secured by a second lien to assess and confirm the value and status of any loans secured by security interests on the collateral which would be prior to our security interest under the second lien home equity loan. Under regulations implemented by the Financial Supervisory Service, our home equity loans are subject to maximum loan-to-value ratios (i.e., the ratio of the aggregate principal amount of loans, including first and second lien loans, secured by a particular item of collateral to the appraised value of such collateral) of between 40% and 70%. As such, for home equity loans, we do not lend more than an amount equal to the adjusted collateral value (i.e., the collateral value as discounted by the required loan-to-value ratio) minus the value of any loans secured by security interests on the collateral that are prior to

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our security interest. Accordingly, in order to ascertain the value of loans secured by security interests on the collateral which would be prior to our security interest and to confirm the status of such loans, we perform additional underwriting procedures including a review of the relevant title and security interest registration documents and bank documents and certificates regarding such loans. In addition, for purposes of calculating debt-to-income ratios applicable to loans secured by certain types of housing under regulations implemented by the Financial Supervisory Service (see “—Supervision and Regulation—Principal Regulations Applicable to Banks—Regulations Relating to Retail Household Loans”), which we apply on a nationwide basis for our home equity loans, we perform additional adjustments in our debt-to-income ratio calculations with respect to second lien home equity loans to account for the value of loans secured by security interests on the collateral that are prior to our security interest.

Following the issuance of a home equity loan, we make use of the Korea Credit Information Services’ database of delinquent borrowers to generally monitor the compliance of our borrowers with their other loan obligations, including the compliance of our second lien borrowers with their first lien loans. If a borrower in Korea is past due on payments of interest or principal for more than three months on any of its outstanding loans to Korean financial institutions (including mortgage, home equity, other consumer and credit card loans), such borrower is registered on the Korea Credit Information Services’ database of delinquent borrowers, which we monitor on a daily basis. The information disclosed by such database, which includes the outstanding loan amount which is past due, the identity of the delinquent borrower and the name of the applicable lending institution for such loan, provides an early warning about such borrower to our loan officers at the branch level, who then closely monitor our outstanding loans to such delinquent borrower and take appropriate preventive and remedial measures (including requiring such borrower to provide additional collateral) as necessary. Upon the occurrence of a default in the first lien position, we treat the second lien home equity loan as part of our potential problem loans or non-performing loans. More specifically, upon learning of the occurrence of a default in the first lien position, we examine our second lien home equity loan to determine whether the loan should be re-classified as “precautionary,” “substandard” or “doubtful” according to the asset classification guidelines of the Financial Services Commission. Assuming that such second lien home equity loan is not delinquent, if the outstanding principal amount of the relevant first lien loan is less than ￦15 million, we classify the entire amount of the second lien home equity loan as “precautionary” and closely monitor it as a loan that may potentially become problematic. If the outstanding principal amount of the relevant first lien loan is ￦15 million or above or the borrower is undergoing, or preparing to undergo, foreclosure proceedings with respect to the underlying collateral, we classify the estimated recoverable amount of the second lien home equity loan as “substandard” and the rest of such loan amount as “doubtful.”

Pricing. The interest rates on our retail mortgage loans are generally based on a periodic floating rate (which is based on a base rate determined for three-month, six-month or twelve-month periods using our Market Opportunity Rate system, which reflects our internal cost of funding, further adjusted to account for our expenses related to lending). Our interest rates also incorporate a margin based among other things on the type of security, the credit score of the borrower and the estimated loss on the security. We can adjust the price to reflect the borrower’s current and/or expected future contribution to us. The applicable interest rate is determined at the time of the loan. If a loan is terminated prior to its maturity, the borrower is obligated to pay us an early termination fee of approximately 1.2% to 1.4% of the loan amount in addition to the accrued interest.

The interest rates on our home equity loans are determined on the same basis as our retail mortgage loans.

As of December 31, 2018, our three-month, six-month and twelve-month base rates were 1.66%, 1.80% and 1.96%, respectively.

As of December 31, 2018, 68.4% of our outstanding mortgage and home equity loans were priced based on a floating rate.

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Other Consumer Loans

Other consumer loans are primarily unsecured. However, such loans may be secured by real estate, deposits or securities. As of December 31, 2018, approximately ￦30,412 billion, or 54.1% of our consumer loans (other than mortgage and home equity loans) were unsecured loans (although some of these loans were guaranteed by a third party). Overdraft loans are also classified as other consumer loans, are primarily unsecured and generally have an initial maturity of one year, which is typically extended automatically on an annual basis and may be extended up to a maximum of five years. The amount of overdraft loans as of December 31, 2018 was approximately ￦9,361 billion.

Pricing. The interest rates on our other consumer loans (including overdraft loans) are determined on the same basis as on our mortgage and home equity loans, except that, for unsecured loans, the borrower’s credit score as determined during our loan approval process is also taken into account. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk Management.”

As of December 31, 2018, 54.1% of our other consumer loans had interest rates that were not fixed but were variable in reference to our base rate, which is based on the Market Opportunity Rate.

Deposit-taking Activities

Due to our extensive nationwide network of branches, together with our long history of development and our resulting know-how and expertise, as of December 31, 2018, we had the largest number of retail customers and retail deposits among Korean commercial banks. The balance of our deposits from retail customers was ￦161,232 billion, ￦169,246 and ￦174,851 billion as of December 31, 2016, 2017 and 2018, respectively, which constituted 67.3%, 66.2% and 63.2%, respectively, of the balance of our total deposits.

We offer many deposit products that target different segments of our retail customer base, with features tailored to each segment’s financial profile, characteristics and needs, including:

• Demand deposits, which either do not accrue interest or accrue interest at a lower rate than time deposits. Demand deposits allow the customer to deposit and withdraw funds at any time and, if they are interest bearing, accrue interest at a variable rate depending on the amount of deposit. Retail and corporate demand deposits constituted 40.9% of our total deposits as of December 31, 2018 and paid average interest of 0.30% for 2018.

• Time deposits, which generally require the customer to maintain a deposit for a fixed term, during which the deposit accrues interest at a fixed rate or a variable rate based on the KOSPI, or to deposit specified amounts on an installment basis. If the amount of the deposit is withdrawn prior to the end of the fixed term, the customer will be paid a lower interest rate than that originally offered. The term for time deposits typically ranges from one month to three years, and the term for installment savings deposits ranges from six months to five years. Retail and corporate time deposits constituted 51.7% of our total deposits as of December 31, 2018 and paid average interest of 1.87% for 2018. Most installment savings deposits offer fixed interest rates.

• Certificates of deposit, the maturities of which typically range from 30 days to 730 days with a required minimum deposit of ￦10 million. Interest rates on certificates of deposit are determined based on the length of the deposit and prevailing market rates. Our certificates of deposit are sold at a discount to their face value, reflecting the interest payable on the certificates of deposit.

• Foreign currency deposits, which are available to Korean and foreign residents, non-residents and overseas immigrants. We offer foreign currency demand deposits and time deposits as well as checking accounts in 11 currencies. Foreign currency demand deposits, which accrue interest at a variable rate, allow customers to deposit and withdraw funds at any time. Foreign currency time deposits generally require customers to maintain the deposit for a fixed term, during which the deposit accrues interest at a fixed rate. If the funds in a foreign currency time deposit are withdrawn prior to the end of the fixed term, the customer will be paid a lower interest rate than that originally offered.

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We offer varying interest rates on our deposit products depending upon average funding costs, the rate of return on our interest earning assets and the interest rates offered by other commercial banks.

We also offer comprehensive savings deposits for housing subscription, which are monthly installment savings deposits that provide the holder with preferential rights to subscribe for both public and private housing under the Housing Act. This law is the basic law setting forth various measures supporting the purchase of houses and the supply of such houses by construction companies. These deposits require monthly installments of ￦20,000 to ￦500,000 and accrue interest at variable rates depending on the term. An eligible account holder with ￦70 million or less in annual salary income may also claim a tax deduction for 40% of its annual installment amounts, subject to a maximum deductible amount, in its income tax return for the year under the Special Tax Treatment Control Law.

In 2002, after significant research and planning, we launched private banking operations at Kookmin Bank’s headquarters. Shortly thereafter, we launched a comprehensive strategy with respect to customers with higher net worth, which included staffing appropriate representatives, marketing aggressively, establishing IT systems, selecting appropriate branch locations and readying such branches with the necessary facilities to service such customers. As of December 31, 2018, we operated 21 private banking centers through Kookmin Bank.

The Monetary Policy Committee of the Bank of Korea, or the Monetary Policy Committee, imposes a reserve requirement on Won currency deposits of commercial banks based generally on the type of deposit instrument. The reserve requirement is currently up to 7%. See “—Supervision and Regulation—Principal Regulations Applicable to Banks—Liquidity.”

The Depositor Protection Act provides for a deposit insurance system where the Korea Deposit Insurance Corporation guarantees to depositors the repayment of their eligible bank deposits. The deposit insurance system insures up to a total of ￦50 million per depositor per bank. See “—Supervision and Regulation—Principal Regulations Applicable to Banks—Deposit Insurance System.” We paid ￦401 billion of premium for 2018.

Credit Cards

Credit cards are another of our core retail products. We issue most of our credit cards under the “KB Kookmin Card” brand. Our credit card business is operated by our subsidiary, KB Kookmin Card Co., Ltd.

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The following table sets forth certain data relating to our credit card operations, on a non-consolidated basis, as of the dates and for the periods indicated:

	As of and for the Year Ended December 31,
	2016			2017			2018
	(in billions of Won, except number of holders, accounts and percentages)
Number of credit cardholders (at year end) (thousands)
General accounts		8,896			9,217			9,772
Corporate accounts		484			502			564
Total		9,380			9,719			10,336
Number of merchants (at year end) (thousands)		2,414			2,499			2,575
Active ratio (at year end)(1)		88.4	%		90.0	%		89.2	%
Credit card fees(2)
Merchant fees(3)	￦	1,633		￦	1,816		￦	1,327
Installment and cash advance fees		380			406			450
Annual membership fees		105			127			114
Other fees		664			807			922
Total	￦	2,782		￦	3,156		￦	2,813
Charge volume(4)
General purchase	￦	51,876		￦	60,657		￦	70,622
Installment purchase		13,134			15,553			17,493
Cash advance		8,619			8,885			9,331
Card loan(5)		6,060			5,736			6,098
Total	￦	79,689		￦	90,831		￦	103,544
Outstanding balance (at year end)
General purchase	￦	4,747		￦	5,356		￦	6,417
Installment purchase		3,349			4,090			4,772
Cash advance		1,178			1,240			1,257
Card loan(5)		4,287			4,552			4,942
Total	￦	13,561		￦	15,238		￦	17,388
Average outstanding balances
General purchase	￦	4,749		￦	5,373		￦	6,145
Installment purchase		3,060			3,777			4,449
Cash advance		1,177			1,186			1,230
Card loan(5)		3,855			4,560			4,917
Total	￦	12,841		￦	14,896		￦	16,741
Delinquency ratios (at year end)(6)
From 1 month to 3 months		0.60	%		0.62	%		0.63	%
From 3 months to 6 months		0.57			0.63			0.63
Over 6 months		0.04			0.04			0.05
Total		1.21	%		1.29	%		1.31	%
Non-performing loan ratio		0.60	%		0.66	%		0.66	%
Write-offs (gross)	￦	357		￦	401		￦	465
Recoveries(7)		134			133			135
Net write-offs	￦	223		￦	268		￦	330
Gross write-off ratio(8)		2.78	%		2.69	%		2.78	%
Net write-off ratio(9)		1.74	%		1.80	%		1.97	%

⁽¹⁾  The active ratio represents the ratio of accounts used at least once within the last six months to total accounts as of year-end.

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⁽²⁾ Due to our adoption of IFRS 15 Revenue from Contracts with Customers, effective as of January 1, 2018, credit card fees for 2018 exclude certain fees related to our services provided to cardholders. Figures for prior years have not been restated to reflect such changes and may not be directly comparable.

⁽³⁾  Merchant fees consist of maintenance fees and costs associated with prepayment by us (on behalf of customers) of sales proceeds to merchants, processing fees relating to sales and membership applications, costs relating to the management of delinquencies and recoveries, provision for loan losses, general variable expenses and other fixed costs that are charged to our member merchants. We typically charge our member merchants fees that range from 0.8% to 2.3%. We offer discounts for member merchants that are small- and medium-sized enterprises pursuant to applicable laws.

⁽⁴⁾ Represents the aggregate cumulative amount charged during the year.

⁽⁵⁾  Card loans consist of loans that are provided on an unsecured basis to cardholders upon prior agreement. Payment on such a loan can be due either in one payment or in installments after a fixed period, in the case of principal payments, and will be due in installments, in the case of interest payments.

⁽⁶⁾  Represents ratio of credit card balances overdue by one month or more to outstanding balance. In line with industry practice, we have restructured a portion of delinquent credit card account balances as loans. As of December 31, 2016, 2017 and 2018, these restructured loans amounted to ￦43 billion, ￦55 billion and ￦97 billion, respectively. Because these restructured loans are not treated as being delinquent at the time of conversion or for a period of time thereafter, our delinquency ratios may not fully reflect all delinquent amounts relating to our outstanding balances.

⁽⁷⁾  Does not include proceeds that we received from sales of our non-performing loans that were written off.

⁽⁸⁾  Represents the ratio of gross write-offs for the year to average outstanding balance for the year. Our charge-off policy is generally to write off balances which have been overdue for four payment cycles or more or which have been classified as expected loss.

⁽⁹⁾  Represents the ratio of net write-offs for the year to average outstanding balances for the year. Our charge-off policy is generally to write off balances which have been overdue for four payment cycles or more or which have been classified as expected loss.

In contrast to the system in the United States and many other countries, where most credit cards are revolving cards that allow outstanding amounts to be rolled over from month to month so long as a required minimum percentage is repaid, credit cardholders in Korea are generally required to pay for their purchases within approximately 14 to 44 days of purchase depending on their payment cycle. However, we also offer revolving payment plans to individuals that allow outstanding amounts to be rolled over to subsequent payment periods. Delinquent accounts (defined as amounts overdue for one day or more) are charged penalty interest and closely monitored. For installment purchases, we charge interest on unpaid installments at rates that vary according to the individual cardholder’s membership level, which is based on, among others, transaction history, the length of the cardholder’s relationship with us and contribution to our profitability.

We are committed to continuing to enhance our credit card business by strengthening our risk management and maximizing our operational efficiency. In addition, we believe that our extensive branch network, brand recognition and overall size will enable us to cross-sell products such as credit cards to our existing and new customers.

To promote our credit card business, we offer services targeted to various financial profiles and customer requirements and are concentrating on:

• strengthening cross-sales to existing customers and offering integrated financial services;

• offering cards that provide additional benefits such as frequent flyer miles and reward program points that can be redeemed by the customer for complementary services, prizes and cash;

• offering platinum cards, VVIP cards and other prime members’ cards, which have a higher credit limit and provide additional services in return for a higher fee;

• acquiring new customers through strategic alliances and cross-marketing with retailers;

• encouraging increased use of credit cards by existing customers through special offers for frequent users;

• introducing new features such as travel services and insurance through alliance partners; and

• developing fraud detection and security systems to prevent the misuse of credit cards.

As of December 31, 2018, we had approximately 10.3 million credit cardholders. Of the credit cards outstanding, approximately 89.2% were active, meaning that they had been used at least once during the previous six months.

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Our card revenues consist principally of cash advance fees, merchant fees, credit card installment fees, interest income from credit card loans, annual fees paid by cardholders, interest and fees on late payments and, with respect to revolving payment plans we offer, interest and fees relating to revolving balances.

Under non-exclusive license agreements with overseas financial services corporations, we also issue MasterCard, Visa, American Express, JCB and China UnionPay credit cards.

We issue debit cards and charge merchants commissions that range from 1.0% to 2.0% of the amounts purchased using a debit card. We also issue “check cards,” which are similar to debit cards except that “check cards” are accepted by all merchants that accept credit cards, and charge merchants commissions that typically range from 0.5% to 1.5%. Much like debit cards, check card purchases are also debited directly from customers’ accounts with us.

Corporate Banking

We lend to and take deposits from small- and medium-sized enterprises and, to a lesser extent, large corporate customers. We had 300,106 small- and medium-sized enterprise borrowers and 1,885 large corporate borrowers for Won-currency loans as of December 31, 2018. For 2018, we received fee revenue from cash management services offered to corporate customers, which include “firm-banking” services such as inter-account transfers, transfers of funds from various branches and agencies of a company (such as insurance premium payments) to the account of the headquarters of such company and transfers of funds from various customers of a company to the main account of such company, in the amount of ￦120 billion. Of our branch network as of December 31, 2018, we had three branches that primarily handled large corporate banking.

The following table sets forth the balances and the percentage of our total corporate lending represented by our small- and medium-sized enterprise business loans and our large corporate business loans as of the dates indicated, estimated based on our internal classifications of corporate borrowers:

	As of December 31,
	2016				2017				2018
	(in billions of Won, except percentages)
Corporate:
Small- and medium-sized enterprise loans	￦	86,065	74.0	%	￦	97,379	76.4	%	￦	106,015	75.3	%
Large corporate loans		30,206	26.0			30,002	23.6			34,686	24.7
Total	￦	116,271	100.0	%	￦	127,381	100.0	%	￦	140,701	100.0	%

On the deposit-taking side, we currently offer our corporate customers several types of corporate deposits. Our corporate deposit products can be divided into two general categories: (1) demand deposits that have no restrictions on deposits or withdrawals, but which offer a relatively low interest rate; and (2) deposits from which withdrawals are restricted for a period of time, but offer higher interest rates. We also offer installment savings deposits, certificates of deposit and repurchase instruments. We offer varying interest rates on deposit products depending upon the rate of return on our income-earning assets, average funding costs and interest rates offered by other nationwide commercial banks.

The total amount of deposits from our corporate customers amounted to ￦97,076 billion as of December 31, 2018, or 35.1% of our total deposits.

Small- and Medium-sized Enterprise Banking

Our small- and medium-sized enterprise banking business has traditionally been and will remain one of our core businesses because of both our historical development and our accumulated expertise. We believe that we

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possess the necessary elements to succeed in the small- and medium-sized enterprise market, including our extensive branch network, our credit rating system for credit approval, our marketing capabilities (which we believe have provided us with significant brand loyalty) and our ability to take advantage of economies of scale.

We use the term “small- and medium-sized enterprises” as defined in the Framework Act on Small and Medium Enterprises and related regulations. Under the Framework Act on Small and Medium Enterprises and related regulations, an enterprise must meet each of the following criteria in order to meet the definition of a small- and medium-sized enterprise: (i) total assets at the end of the immediately preceding fiscal year must be less than ￦500 billion, (ii) the average or annual sales revenue standards as prescribed by the Enforcement Decree of the Framework Act on Small and Medium Enterprises that are applicable to the enterprise’s primary business must be met and (iii) the standards of management independence as prescribed by the Enforcement Decree of the Framework Act on Small and Medium Enterprises must be met. In addition, certified social enterprises (as defined in the Social Enterprise Promotion Act) and cooperatives and federations of cooperatives (each as defined in the Framework Act on Cooperatives and the Consumer Cooperatives Act) that satisfy the requirements prescribed by the Framework Act on Small and Medium Enterprises may also qualify as small- and medium-sized enterprises.

Lending Activities

Our principal loan products for our small- and medium-sized enterprise customers are working capital loans and facilities loans. Working capital loans are provided to finance working capital requirements and include notes discounted and trade financing. Facilities loans are provided to finance the purchase of equipment and the establishment of manufacturing assembly plants. As of December 31, 2018, working capital loans and facilities loans accounted for 48.1% and 51.9%, respectively, of our total small- and medium-sized enterprise loans. As of December 31, 2018, we had 300,106 small- and medium-sized enterprise customers on the lending side.

Loans to small- and medium-sized enterprises may be secured by real estate or deposits or may be unsecured. As of December 31, 2018, secured loans and guaranteed loans accounted for, in the aggregate, 86.3% of our small- and medium-sized enterprise loans. Among the secured loans, 95.9% were secured by real estate and 4.1% were secured by deposits or securities. Working capital loans generally have a maturity of one year, but may be extended for additional terms of up to one year in length for an aggregate term of five years. Facilities loans have a maximum maturity of 15 years.

When evaluating the extension of working capital loans, we review the corporate customer’s creditworthiness and capability to generate cash. Furthermore, we take credit guaranty letters from other financial institutions and use time deposits that the borrower has with us as collateral, and may require additional collateral.

The value of any collateral is defined using a formula that takes into account the appraised value of the property, any prior liens or other claims against the property and an adjustment factor based on a number of considerations including, with respect to property, the value of any nearby property sold in a court-supervised auction during the previous five years. We revalue any collateral on a periodic basis (generally every year) or if a trigger event occurs with respect to the loan in question.

We also offer mortgage loans to home builders or developers who build or sell single- or multi-family housing units, principally apartment buildings. Many of these builders and developers are categorized as small- and medium-sized enterprises. We offer a variety of such mortgage loans, including loans to purchase property or finance the construction of housing units and loans to contractors used for working capital purposes. Such mortgage loans subject us to the risk that the housing units will not be sold. As a result, we review the probability of the sale of the housing unit when evaluating the extension of a loan. We also review the borrower’s creditworthiness and the adequacy of the intended use of proceeds. Furthermore, we take a lien on the land on which the housing unit is to be constructed as collateral. If the collateral is not sufficient to cover the loan, we also take a guarantee from the Housing Finance Credit Guarantee Fund as security.

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A substantial number of our small- and medium-sized enterprise customers are SOHOs, which we currently define to include sole proprietorships and individual business interests. With respect to SOHOs, we apply credit risk evaluation models, which not only use quantitative analysis related to a customer’s accounts, personal credit and financial information and due amounts but also require our credit officers to perform a qualitative analysis of each potential SOHO customer. With respect to SOHO loans in excess of ￦1 billion, our credit risk evaluation model also includes a quantitative analysis of the financial statements of the underlying business. We generally lend to SOHOs on a secured basis, although a small portion of our SOHO exposures are unsecured.

Pricing

We establish the price for our corporate loan products based principally on transaction risk, our cost of funding and market considerations. Transaction risk is measured by such factors as the credit rating assigned to a particular borrower, the size of the borrower and the value and type of collateral. Our loans are priced based on the Market Opportunity Rate system, which is a periodic floating rate system that takes into account the current market interest rate. As of December 31, 2018, the Market Opportunity Rate was 1.92% for three months, 1.95% for six months and 1.98% for one year.

While we generally utilize the Market Opportunity Rate system, depending on the price and other terms set by competing banks for similar borrowers, we may adjust the interest rate we charge to compete more effectively with other banks.

Large Corporate Banking

Large corporate customers include all companies that are not small- and medium-sized enterprise customers. Kookmin Bank’s articles of incorporation provide that financial services to large corporate customers must be no more than 40% of the total amount of our Won-denominated loans. Our business focus with respect to large corporate banking is to selectively increase the proportion of high quality large corporate customers. Specifically, we are carrying out various initiatives to improve our customer relationship with large corporate customers and have been seeking to expand our service offerings to this segment.

Lending Activities

Our principal loan products for our large corporate customers are working capital loans and facilities loans. As of December 31, 2018, working capital loans and facilities loans accounted for 75.8% and 24.2%, respectively, of our total large corporate loans. We also offer mortgage loans to large corporate clients who build or sell single- or multi-family housing units, as described above under “—Small- and Medium-sized Enterprise Banking—Lending Activities.”

As of December 31, 2018, secured loans and guaranteed loans accounted for, in the aggregate, 25.7% of our large corporate loans. Among the secured loans, 76.9% were secured by real estate and 23.1% were secured by deposits or securities. Working capital loans generally have a maturity of one year, but may be extended for additional terms ranging from three months to one year in length for an aggregate term of five years. Facilities loans have a maximum maturity of 15 years.

In our unsecured lending to large corporate customers, a critical consideration in our policy regarding the extension of such unsecured loans is the borrower’s creditworthiness. We assign each borrower a credit rating based on the judgment of our experts or scores calculated using the appropriate credit rating system, taking into account both financial factors and non-financial factors (such as our perception of a borrower’s reliability, management and operational risk and risk relating to the borrower’s industry). The credit ratings, along with such factors, are key determinants in our lending to large corporate customers. Large corporate customers generally have higher credit ratings due to their higher repayment capability compared to other types of borrowers, such as small- and medium-sized enterprise borrowers. In addition, large corporate borrowers generally are affected to a

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lesser extent than small- and medium-sized enterprise borrowers by fluctuations in the Korean economy and also maintain more sophisticated financial records. As of December 31, 2018, 88.0% of our large corporate customers had credit ratings or BBB- or above according to the internal credit rating system of Kookmin Bank, compared to 74.5% of our small- and medium-sized enterprise customers. A credit rating of BBB- is assigned to customers whose ability to repay the principal and interest on their outstanding loans is determined by us to be generally satisfactory but nonetheless subject to adverse effects under unfavorable economic conditions or during downturns in the business environment. Based on our internal analysis of historical data, we believe that the probability of default for loans extended to large corporate customers with a credit rating of BBB- or above is between 0.00% and 2.26%.

We monitor the credit status of large corporate borrowers and collect information to adjust our ratings appropriately. We also manage and monitor our large corporate customers through a dedicated Corporate Banking Branch and Kookmin Bank’s Large Corporate Business Department. In addition, Kookmin Bank’s Credit Risk Department manages the exposures to each large corporate customer and conducts in-depth analysis of various economic and industry-related risks that are relevant to large corporate customers.

As of December 31, 2018, in terms of our outstanding loan balance, 32.8% was extended to borrowers in the manufacturing industry, 32.2% of our large corporate loans was extended to borrowers in the financial industry, and 21.1% was extended to borrowers in the service industry.

Pricing

We determine pricing of our large corporate loans in the same way as we determine the pricing of our small- and medium-sized enterprise loans. See “—Small- and Medium-sized Enterprise Banking—Pricing” above. As of December 31, 2018, the Market Opportunity Rate, which is utilized in pricing loans offered by us, was the same for our large corporate loans as for our small- and medium-sized enterprise loans.

Capital Markets Activities and International Banking/Finance

Through our capital markets operations, we invest and trade in debt and equity securities and, to a lesser extent, engage in derivatives and asset securitization transactions and make call loans. We also provide investment banking and securities brokerage services.

Securities Investment and Trading

We invest in and trade securities for our own account in order to maintain adequate sources of liquidity and to generate interest and dividend income and capital gains. As of December 31, 2016, 2017 and 2018, our investment portfolio, which consists primarily of financial assets at amortized cost and financial assets at fair value through other comprehensive income (or held-to-maturity financial assets and available-for-sale financial assets) and our trading portfolio had a combined total carrying amount of ￦74,777 billion, ￦99,171 billion and ￦111,434 billion (including the investment and trading portfolios of our insurance operations) and represented 19.9%, 22.7% and 23.2% of our total assets, respectively.

Our trading and investment portfolios consist primarily of Korean treasury securities and debt securities issued by Korean government agencies, local governments or certain government-invested enterprises and debt securities issued by financial institutions. As of December 31, 2016, 2017 and 2018, we held debt securities with a total carrying amount of ￦61,942 billion, ￦82,989 billion and ￦107,192 billion, respectively, of which:

• financial assets at amortized cost (or held-to-maturity debt securities) accounted for ￦11,178 billion, ￦18,492 billion and ￦23,663 billion, or 18.0%, 22.3% and 22.1%, respectively;

• financial assets at fair value through other comprehensive income (or available-for-sale debt securities) accounted for ￦27,445 billion, ￦38,959 billion and ￦35,244 billion, or 44.4%, 46.9% and 32.9%, respectively; and

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• debt securities at fair value through profit or loss accounted for ￦23,319 billion, ￦25,538 billion and ￦48,285 billion, or 37.6%, 30.8% and 45.0%, respectively.

Of these amounts, debt securities issued by the Korean government and government agencies as of December 31, 2016, 2017 and 2018 amounted to:

• ￦2,218 billion, ￦5,448 billion and ￦5,090 billion, or 19.8%, 29.5% and 21.5%, respectively, of our financial assets at amortized cost (or held-to-maturity debt securities);

• ￦7,111 billion, ￦3,629 billion and ￦3,475 billion, or 25.9%, 9.3% and 9.9%, respectively, of our financial assets at fair value through other comprehensive income (or available-for-sale debt securities); and

• ￦5,390 billion, ￦6,233 billion and ￦7,923 billion, or 23.1%, 24.4% and 16.4%, respectively, of our debt securities at fair value through profit or loss.

From time to time we also purchase equity securities for our securities portfolios. Our equity securities consist primarily of marketable beneficiary certificates and equities listed on the KRX KOSPI Market, the KRX KOSDAQ Market or the KRX KONEX Market. As of December 31, 2016, 2017 and 2018:

• equity securities at fair value through other comprehensive income (or available-for-sale equity securities) had a carrying amount of ￦6,525 billion, ￦9,157 billion and ￦2,370 billion, or 19.2%, 19.0% and 6.3%, respectively, of our securities at fair value through other comprehensive income (or available-for-sale securities) portfolio; and

• equity securities at fair value through profit or loss had a carrying amount of ￦3,107 billion, ￦5,003 billion and ￦1,288 billion, or 11.1%, 15.5% and 2.6%, respectively, of our securities at fair value through profit or loss portfolio.

Our trading portfolio also includes derivative-linked securities, the underlying assets of which were linked to, among other things, interest rates, exchange rates, stock price indices or credit risks. As of December 31, 2016, 2017 and 2018, derivative-linked securities in our trading portfolio had a carrying amount of ￦1,362 billion, ￦1,613 billion and ￦3,517 billion, or 4.9%, 5.0% and 7.1% of our trading portfolio, respectively. See “—Derivatives Trading.”

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The following tables show, as of the dates indicated, the unrealized gains and losses on financial assets at fair value through other comprehensive income (or available-for-sale financial assets) and financial assets at amortized cost (or held-to-maturity financial assets) within our investment portfolio, and the amortized cost and fair value of the portfolio by type of financial asset:

	As of December 31, 2016
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in billions of Won)
Available-for-sale financial assets:
Debt securities
Korean treasury securities and government agencies	￦	7,213	￦	10	￦	112	￦	7,111
Financial institutions(1)		11,189		10		27		11,172
Corporate(2)		5,891		38		25		5,904
Asset-backed securities(3)		2,717		18		5		2,730
Others		558		5		35		528
Subtotal		27,568		81		204		27,445
Equity securities		5,343		1,223		41		6,525
Total available-for-sale financial assets	￦	32,911	￦	1,304	￦	245	￦	33,970
Held-to-maturity financial assets:
Korean treasury securities and government agencies	￦	2,218	￦	113	￦	—	￦	2,331
Financial institutions(4)		1,869		—		44		1,825
Corporate(5)		3,488		114		—		3,602
Asset-backed securities(6)		3,603		40		—		3,643
Total held-to-maturity financial assets	￦	11,178	￦	267	￦	44	￦	11,401

	As of December 31, 2017
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in billions of Won)
Available-for-sale financial assets:
Debt securities
Korean treasury securities and government agencies	￦	3,640	￦	7	￦	18	￦	3,629
Financial institutions(1)		21,001		13		68		20,946
Corporate(2)		10,593		36		58		10,571
Asset-backed securities(3)		2,408		2		8		2,402
Others		1,446		2		37		1,411
Subtotal		39,088		60		189		38,959
Equity securities		7,775		1,477		95		9,157
Total available-for-sale financial assets	￦	46,863	￦	1,537	￦	284	￦	48,116
Held-to-maturity financial assets:
Korean treasury securities and government agencies	￦	5,448	￦	—	￦	16	￦	5,432
Financial institutions(4)		2,475		15		—		2,490
Corporate(5)		6,219		—		4		6,215
Asset-backed securities(6)		4,306		—		3		4,303
Others		44		—		1		43
Total held-to-maturity financial assets	￦	18,492	￦	15	￦	24	￦	18,483

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	As of December 31, 2018
	Amortized Cost(7)		Net Unrealized Gain and Loss(8)			Loss Allowance for Expected Credit Losses(9)		Fair Value
	(in billions of Won)
Financial assets at fair value through other comprehensive income:
Debt securities
Korean treasury securities and government agencies	￦	3,471	￦	4		￦	—	￦	3,475
Financial institutions(1)		20,102		7			1		20,108
Corporate(2)		10,488		56			3		10,541
Asset-backed securities(3)		1,096		4			—		1,100
Others		20		—			—		20
Subtotal		35,177		71			4		35,244
Equity securities		1,763		607			—		2,370
Total financial assets at fair value through other comprehensive income	￦	36,940	￦	678		￦	4	￦	37,614
Financial assets at amortized cost:
Korean treasury securities and government agencies	￦	5,090	￦	362		￦	—	￦	5,452
Financial institutions(4)		6,847		(50	)		—		6,797
Corporate(5)		6,943		150			—		7,093
Asset-backed securities(6)		4,783		35			1		4,817
Total financial assets at amortized cost	￦	23,663	￦	497		￦	1	￦	24,159

⁽¹⁾  Includes debt securities issued by the Bank of Korea, Korea Housing Finance Corporation, Korea Development Bank, Industrial Bank of Korea and the Export-Import Bank of Korea in the aggregate amount of ￦6,749 billion as of December 31, 2016, ￦15,834 billion as of December 31, 2017 and ￦15,795 billion as of December 31, 2018. These financial institutions are owned or controlled by the Korean government.

⁽²⁾ Includes debt securities issued by Korea Housing Finance Corporation, Korea Deposit Insurance Corporation and Korea Land & Housing Corporation in the aggregate amount of ￦1,490 billion as of December 31, 2016, ￦2,254 billion as of December 31, 2017 and ￦1,857 billion as of December 31, 2018. These entities are owned or controlled by the Korean government.

⁽³⁾  Includes mortgage-backed securities issued by Korea Housing Finance Corporation, which have residential mortgage loans as underlying assets, in the amount of ￦2,730 billion as of December 31, 2016, ￦2,277 billion as of December 31, 2017 and ￦1,016 billion as of December 31, 2018. Korea Housing Finance Corporation is controlled by the Korean government.

⁽⁴⁾  Includes debt securities issued by the Bank of Korea, Korea Development Bank, Industrial Bank of Korea and the Export-Import Bank of Korea in the aggregate amount of ￦328 billion as of December 31, 2016, ￦1,055 billion as of December 31, 2017 and ￦5,512 billion as of December 31, 2018. These financial institutions are owned or controlled by the Korean government.

⁽⁵⁾ Includes debt securities issued by Korea Housing Finance Corporation, Korea Deposit Insurance Corporation and Korea Land & Housing Corporation in the aggregate amount of ￦1,169 billion as of December 31, 2016, ￦1,616 billion as of December 31, 2017 and ￦1,815 billion as of December 31, 2018. These entities are owned or controlled by the Korean government.

⁽⁶⁾  Includes mortgage-backed securities issued by Korea Housing Finance Corporation, which have residential mortgage loans as underlying assets, in the amount of ￦3,583 billion as of December 31, 2016, ￦4,205 billion as of December 31, 2017 and ￦4,681 billion as of December 31, 2018. Korea Housing Finance Corporation is controlled by the Korean government.

⁽⁷⁾  Gross carrying amount before adjusting for loss allowance for expected credit losses in accordance with IFRS 9.

⁽⁸⁾  Net unrealized gain and loss after adjusting for loss allowance for expected credit losses in accordance with IFRS 9.

⁽⁹⁾  Loss allowance for expected credit losses in accordance with IFRS 9.

Derivatives Trading

We engage in derivatives trading, including on behalf of our customers. Our trading volume increased from ￦264,110 billion in 2016 to ￦324,786 billion in 2017 and ￦376,249 billion in 2018. Our net trading revenue (expense) from derivatives for the year ended December 31, 2016, 2017 and 2018 was ￦173 billion, ￦906 billion and ￦(284) billion, respectively.

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We provide and trade a range of derivatives products, including:

• Won interest rate swaps, relating to Won interest rate risks;

• cross-currency swaps, forwards and options relating to foreign exchange risks; and

• stock price index options linked to the KOSPI index.

Our derivatives operations focus on addressing the needs of our corporate clients to hedge their risk exposure and the need to hedge our risk exposure that results from such client contracts. We also engage in derivatives trading activities to hedge the interest rate and foreign currency risk exposures that arise from our own assets and liabilities. In addition, we engage in proprietary trading of derivatives within our regulated open position limits.

The following shows the estimated fair value of our derivatives as of December 31, 2016, 2017 and 2018:

	As of December 31,
	2016				2017				2018
	Estimated Fair Value Assets		Estimated Fair Value Liabilities		Estimated Fair Value Assets		Estimated Fair Value Liabilities		Estimated Fair Value Assets		Estimated Fair Value Liabilities
	(in billions of Won)
Foreign exchange derivatives(1)	￦	2,139	￦	2,148	￦	2,361	￦	2,036	￦	1,133	￦	1,090
Interest rate derivatives(1)		793		911		641		689		659		908
Equity derivatives		375		687		233		373		158		796
Credit derivatives		55		50		42		37		33		25
Commodity derivatives		1		5		4		—		2		3
Others(1)		18		6		29		8		41		79
Total	￦	3,381	￦	3,807	￦	3,310	￦	3,143	￦	2,026	￦	2,901

⁽¹⁾  Includes those for trading purposes and hedging purposes.

The following table shows certain information related to our derivatives designated as fair value hedges for the years ended December 31, 2016, 2017 and 2018:

	Year Ended December 31,
	2016								2017							2018
	Derivatives			Hedged Items			Hedge Ineffectiveness		Derivatives		Hedged Items			Hedge Ineffectiveness		Derivatives			Hedged Items		Hedge Ineffectiveness
	(in billions of Won)
Foreign exchange derivatives(1)	￦	(27	)	￦	28		￦	1	￦	78	￦	(41	)	￦	37	￦	(119	)	￦	98	￦	(21	)
Interest rate derivatives		(63	)		64			1		15		(15	)		—		(41	)		37		(4	)
Other derivatives		1			(1	)		—		—		—			—		—			—		—
Total	￦	(89	)	￦	91		￦	2	￦	93	￦	(56	)	￦	37	￦	(160	)	￦	135	￦	(25	)

⁽¹⁾  Amounts for 2016 include ￦19 billion of offsetting profit and loss relating to non-derivative financial instruments designated as hedging instruments, which did not result in hedge ineffectiveness.

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The following table shows certain information related to our derivatives designated as cash flow hedges for the years ended December 31, 2016, 2017 and 2018:

	Year Ended December 31,
	2016						2017									2018
	Derivatives		Effective Portion		Ineffective Portion		Derivatives			Effective Portion			Ineffective Portion			Derivatives			Effective Portion			Ineffective Portion
	(in billions of Won)
Foreign exchange derivatives	￦	9	￦	9	￦	—	￦	(133	)	￦	(121	)	￦	(12	)	￦	(17	)	￦	(19	)	￦	2
Interest rate derivatives		8		7		1		20			20			—			(6	)		(6	)		—
Total	￦	17	￦	16	￦	1	￦	(113	)	￦	(101	)	￦	(12	)	￦	(23	)	￦	(25	)	￦	2

Asset Securitization Transactions

We are active in the Korean asset-backed securities market. Based on our diverse experience with respect to product development and management capabilities relating to asset securitization, we offer customers a wide range of financial products and participate in various asset securitization transactions, including through our subsidiary KB Securities, to reinforce our position as a leading financial services provider with respect to the asset securitization market. We were involved in asset securitization transactions with an initial aggregate issue amount of ￦8,867 billion in 2016 (excluding such amount of Hyundai Securities for the period before it became our consolidated subsidiary), ￦9,724 billion in 2017 and ￦7,791 billion in 2018, a significant portion of which were public offerings of asset-backed securities.

Call Loans

We make call loans and borrow call money in the short-term money market. Call loans are defined as short-term lending among banks and financial institutions either in Won or in foreign currencies with maturities of 90 days or less. Typically, call loans have maturities of one day. As of December 31, 2018, we had made call loans of ￦4,064 billion and borrowed call money of ￦1,081 billion, compared to ￦3,579 billion and ￦1,299 billion, respectively, as of December 31, 2017 and ￦2,052 billion and ￦2,940 billion, respectively, as of December 31, 2016.

Investment Banking

We have focused on selectively expanding our investment banking activities in order to increase our fee income and diversify our revenue base. We provide investment banking services primarily through KB Securities and Kookmin Bank. Our principal investment banking services include:

• securities underwriting;

• financing and financial advisory services for mergers and acquisitions;

• project finance and financial advisory services for social overhead capital projects such as highway, port, power, water and sewage projects;

• financing and financial advisory services for real estate development projects; and

• structured finance.

In May 2016, we acquired 22.56% of the outstanding shares of Hyundai Securities Co., Ltd., a publicly listed Korean securities firm, and further increased our shareholding in Hyundai Securities to 29.62% in June 2016 by acquiring treasury shares of Hyundai Securities. In October 2016, we effected a comprehensive stock swap of the outstanding shares of Hyundai Securities for newly issued shares of our company, as a result of

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which Hyundai Securities became a wholly-owned subsidiary. Following such transaction, we merged our existing subsidiary, KB Investment & Securities, with and into Hyundai Securities in December 2016 and changed the name of the surviving entity to KB Securities. Through the acquisition of Hyundai Securities and the creation of an integrated securities firm, we sought to strengthen our investment banking and securities brokerage capabilities, as well as to achieve economies of scale.

In 2018, we generated investment banking revenues of ￦533 billion, consisting of ￦104 billion of interest income, ￦371 billion of fee income and ￦58 billion of other income.

Securities Brokerage

We provide securities brokerage services through KB Securities. Our activities include provision of brokerage services to our retail and corporate customers relating to a wide range of investment products, including stocks, investment company products, futures, options, equity- and derivative-linked securities and debt instruments, as well as provision of prime brokerage services to hedge funds. In addition, we offer self-directed brokerage services through KB Securities’ online and smartphone brokerage platforms.

As of December 31, 2018, KB Securities operated a brokerage network consisting of 118 branches and sub-branches in Korea. In 2018, KB Securities generated commission income of ￦354 billion through its securities brokerage activities.

International Banking and Finance

We engage in various international banking and finance activities, including foreign exchange services and derivatives dealing, import and export-related services, offshore lending, syndicated loans, foreign currency securities investment and non-life insurance. These services are provided primarily to our domestic customers and overseas subsidiaries and affiliates of Korean corporations and, to a limited extent, to local companies and individuals. We also raise foreign currency funds through our international banking and finance operations.

The table below sets forth certain information regarding our foreign currency assets and borrowings:

	As of December 31,
	2016		2017		2018
	(in millions of US$)
Total foreign currency assets	US$	20,256	US$	31,847	US$	33,213
Foreign currency borrowings:
Debts		6,355		7,254		9,077
Debentures		3,182		3,459		4,228
Total borrowings	US$	9,537	US$	10,713	US$	13,305

The table below sets forth our overseas subsidiaries, branches and representative and liaison offices in operation as of December 31, 2018:

Business Unit(1)	Location
Subsidiaries
Kookmin Bank Cambodia PLC		Cambodia
Kookmin Bank (China) Ltd.		China
KBFG Securities America Inc.		United States
KB Securities Hong Kong Ltd.		Hong Kong
KB Securities Vietnam Joint Stock Company		Vietnam
KB Asset Management Singapore Pte. Ltd.		Singapore
KB Microfinance Myanmar Co., Ltd.		Myanmar
Leading Insurance Services, Inc.		United States

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LIG Insurance (China) Co., Ltd.	China
PT. KB Insurance Indonesia	Indonesia
KB Daehan Specialized Bank Plc.	Cambodia
KB KOLAO Leasing Co., Ltd.	Laos
KBAM Shanghai Advisory Services Co., Ltd.	China
Branches
Kookmin Bank (China) Ltd., Beijing Branch	China
Kookmin Bank (China) Ltd., Guangzhou Branch	China
Kookmin Bank (China) Ltd., Harbin Branch	China
Kookmin Bank (China) Ltd., Shanghai Branch	China
Kookmin Bank (China) Ltd., Suzhou Branch	China
Kookmin Bank, Tokyo Branch	Japan
Kookmin Bank, Auckland Branch	New Zealand
Kookmin Bank, New York Branch	United States
Kookmin Bank, London Branch	United Kingdom
Kookmin Bank, Ho Chi Minh City Branch	Vietnam
Kookmin Bank, Hong Kong Branch	Hong Kong
Kookmin Bank Cambodia PLC, Toul Kork Branch	Cambodia
Kookmin Bank Cambodia PLC, Toul Tom Pounh Branch	Cambodia
Kookmin Bank Cambodia PLC, Tuek Thla Branch	Cambodia
Kookmin Bank Cambodia PLC, Stueng Meanchey Branch	Cambodia
Kookmin Bank Cambodia PLC, Chbar Ampov Branch	Cambodia
KB Microfinance Myanmar Co., Ltd., Hlaingtharya Branch	Myanmar
KB Microfinance Myanmar Co., Ltd., Shwepyithar Branch	Myanmar
KB Microfinance Myanmar Co., Ltd., Thanlyin Branch	Myanmar
KB Microfinance Myanmar Co., Ltd., Pyinmana Branch	Myanmar
KB Microfinance Myanmar Co., Ltd., Twantay Branch	Myanmar
KB Microfinance Myanmar Co., Ltd., Magway Branch	Myanmar
KB Microfinance Myanmar Co., Ltd., Thaketa Branch	Myanmar
KB Securities Vietnam Joint Stock Company, Hanoi Branch	Vietnam
KB Securities Vietnam Joint Stock Company, Ho Chi Minh City Branch	Vietnam
Kookmin Best Insurance Co., Ltd. U.S. Branch	United States
LIG Insurance (China) Co., Ltd., Guangzhou Branch	China
PT. KB Insurance Indonesia Kebon Jeruk Branch	Indonesia
PT. KB Insurance Indonesia Jayakarta Branch	Indonesia
Representative and Liaison Offices
Kookmin Bank, Gurgaon Representative Office	India
Kookmin Bank, Yangon Representative Office	Myanmar
Kookmin Bank, Hanoi Representative Office	Vietnam
KB Securities Shanghai Representative Office	China
KB Kookmin Card, Yangon Representative Office	Myanmar
KB Insurance, Los Angeles Liaison Office	United States
KB Insurance, Hanoi Liaison Office	Vietnam
KB Insurance, Ho Chi Minh City Liaison Office	Vietnam

⁽¹⁾  Does not include subsidiaries and branches in liquidation or dissolution.

Trustee and Custodian Services Relating to Investment Trusts and Other Functions

We act as a trustee for 96 financial investment companies with a collective investment license, which invest in investment assets using funds raised by the sale of beneficiary certificates of investment trusts to investors. We

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also act as custodian for 182 financial institutions and as fund administrator for 73 financial institutions with respect to various investments, as well as acting as settlement agent in connection with such services. We receive a fee for acting in these capacities and generally perform the following functions:

• holding assets for the benefit of the investment trusts or institutional investors;

• receiving and making payments in respect of such investments;

• acting as settlement agent in respect of such investments on behalf of the investment trust or institutional investors, in the domestic and overseas markets;

• providing reports on assets held in custody;

• providing certain foreign exchange services for overseas investment and foreign investors; and

• providing fund-related administration and accounting services.

For the year ended December 31, 2018, our fee income from our trustee and custodian services was ￦30 billion and revenue collected as a result of administration of the underlying investments was ￦9 billion.

Other Businesses

Trust Account Management Services

Money Trust Management Services

We provide trust account management services for both specified money trusts and unspecified money trusts. We receive fees for our trust account management services consisting of basic fees that are based upon a percentage of either the net asset value of the assets or the principal under management and, for certain types of trust account operations, performance fees that are based upon the performance of the trust account operations. In 2018, our basic money trust fees ranged from 0.1% to 2.0% of total assets under management depending on the type of trust account. We also charge performance fees with respect to certain types of trust account products. We receive penalty payments when customers terminate their trust accounts prior to the original contract maturity.

We currently provide trust account management services for 20 types of money trusts. The maturity of the money trusts we manage varies by the type of the trust. Approximately 4.04% of our money trusts also provide periodic payments of dividends which are added to the assets held in such trusts and not distributed.

Under Korean law, the assets of our trust accounts are segregated from our banking account assets and are not available to satisfy the claims of any of our potential creditors. We are, however, permitted to deposit surplus funds generated by trust assets into our banking accounts in certain circumstances as set forth under the Financial Investment Services and Capital Markets Act and the regulations thereunder.

As of December 31, 2018, the total balance of our money trusts was ￦47,412 billion (as calculated in accordance with Statement of Korea Accounting Standard No. 5004, Trust Accounts, and the Enforcement Regulations of Financial Investment Services under the Financial Investment Services and Capital Markets Act, which we refer to as an “SKAS basis”). As for unspecified money trust accounts, we have investment discretion over all money trusts, which are pooled and managed jointly for each type of trust account. Specified money trust accounts are established on behalf of individual customers who direct our investment of trust assets.

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The following table shows the balances of our money trusts by type as of the dates indicated. Under IFRS, we consolidate trust accounts for which we guarantee both the repayment of the principal amount and a fixed rate of interest as well as trust accounts for which we guarantee only the repayment of the principal amount.

	As of December 31,
	2016		2017		2018
	(in billions of Won)
Principal and interest guaranteed trusts(1)	￦	0.2	￦	0.1	￦	0.1
Principal guaranteed trusts(1)		3,532		3,694		3,783
Performance trusts(1)(2)		36,375		35,060		43,629
Total	￦	39,907	￦	38,754	￦	47,412

⁽¹⁾  Calculated on an SKAS basis.

⁽²⁾  Trusts which are primarily non-guaranteed.

The balance of our money trusts increased 28.3% between December 31, 2016 and December 31, 2018. As of December 31, 2018, the trust assets we managed consisted principally of securities investments and loans from the trust accounts. As of December 31, 2018, on an SKAS basis, our trust accounts had invested in securities in the aggregate amount of ￦24,891 billion, of which ￦19,940 billion was debt securities and derivative-linked securities. Securities investments consist of government-related debt securities, corporate debt securities, including bonds and commercial paper, equity securities, derivative-linked securities and other securities. Loans made by our trust account operations are similar in type to the loans made by our bank account operations. As of December 31, 2018, on an SKAS basis, our trust accounts had made loans in the principal amount of ￦250 billion (excluding loans from the trust accounts to our banking accounts of ￦1,277 billion), which accounted for 0.5% of our money trust assets. Loans by our money trusts are subject to the same credit approval process as loans from our banking accounts. As of December 31, 2018, substantially all loans from our money trust accounts were collateralized or guaranteed.

Our money trust accounts also invest, to a lesser extent, in equity securities, including beneficiary certificates issued by financial investment companies with a collective investment license. On an SKAS basis, as of December 31, 2018, equity securities in our money trust accounts amounted to ￦4,951 billion, which accounted for 10.2% of our total money trust assets. Of this amount, ￦4,839 billion was from specified money trusts and ￦112 billion was from unspecified money trusts.

We continue to offer pension-type money trusts that provide a guarantee of the principal amount of the investment. On an SKAS basis, as of December 31, 2018, the balance of the money trusts for which we guaranteed the principal was ￦3,773 billion.

If the income from a money trust for which we provide a guarantee is less than the amount of the payments we have guaranteed, we will need to pay the amount of the shortfall with funds from special reserves maintained with respect to trust accounts followed by basic fees from that money trust and funds from our general banking operations. In 2016, 2017 and 2018, we made no payment from our banking accounts to cover shortfalls in our guaranteed trusts. On an SKAS basis, we derived trust fees with regard to trust account management services (including those fees related to property trust management services) of ￦174 billion in 2016, ￦293 billion in 2017 and ￦112 billion in 2018.

Property Trust Management Services

We also offer property trust management services, where we manage non-monetary assets in return for a fee. Non-monetary assets include mostly securities, but can also include other liquid receivables and real estate. Under these arrangements, we render custodial services for the property in question and collect fee income in return.

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In 2018, our basic property trust fees ranged from 0.1% to 0.3% of total assets under management depending on the type of trust accounts. On an SKAS basis, as of December 31, 2018, the aggregate balance of our property trusts decreased to ￦3,506 billion, compared to ￦7,769 billion as of December 31, 2017 and ￦6,862 billion as of December 31, 2016.

Under IFRS, the property trusts are not consolidated within our financial statements.

Investment Trust Management

Through KB Asset Management and KB Securities, we offer investment trust products to customers and manage the funds invested by them in investment trusts. As of December 31, 2018, KB Asset Management and KB Securities had an aggregate of ￦44,968 billion of investment trust assets under management.

Insurance

Non-Life Insurance

In June 2015, we acquired a 19.47% stake in KB Insurance Co., Ltd. (formerly named LIG Insurance Co., Ltd.), a publicly listed Korean non-life insurance company. In November 2015 and December 2016, we increased our shareholding in KB Insurance to 33.29% and 39.81%, respectively. Through a tender offer conducted in May 2017, we acquired 36,237,649 shares of KB Insurance at ￦33,000 per share, increasing our shareholding to 94.30%. We subsequently effected a comprehensive stock swap in July 2017 to acquire the remaining shares of KB Insurance in exchange for 2,170,943 shares of common stock of our company, as a result of which KB Insurance became a wholly-owned subsidiary. KB Insurance offers a variety of non-life insurance products, including principally the following:

• Long-term insurance products. Long-term insurance products are sold to retail customers and provide protection against various types of losses, with specified coverage periods of at least three years and ranging up to 30 years or ending at specified ages. Unlike general property and casualty insurance products, which usually have a coverage period of one year or less and only have pure protection features, substantially all long-term insurance policies in Korea also have an integrated savings feature. KB Insurance offers a broad range of long-term insurance products covering the policyholder’s injuries, illnesses, long-term care, disabilities, accidents, property losses or other events.

• Automobile insurance products. Automobile insurance products are sold to both retail and institutional customers and generally provide coverage for the following types of losses resulting from the policyholder’s ownership or use of an insured automobile: (i) liability to third parties for bodily injuries or death as well as damage to automobiles or other personal property; and (ii) the policyholder’s own bodily injuries and automobile damage or theft. KB Insurance’s automobile insurance policies typically have a coverage period of one year or less.

• General property and casualty insurance products. General property and casualty insurance products are sold to institutional customers and include the following: (i) fire and allied lines insurance policies, providing protective coverage for damage to buildings and facilities and their contents against fire, flood, storm, lightening, explosion, theft and other risks; (ii) marine insurance policies, providing protective coverage for damage to marine vessels and their cargo; and (iii) specialty insurance policies, which cover various other types of specified risks faced by businesses, including liabilities and business interruption.

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The following table sets forth certain information regarding the operations of KB Insurance, on a standalone basis, as of the dates or for the periods indicated:

	As of or for the Year Ended December 31,
	2016			2017			2018
	(in billions of Won, except as otherwise indicated)
Total policies in force (in thousands)		13,692			14,427			15,191
Number of new policies sold (in thousands)		8,617			8,965			9,373
Gross direct written premiums(1)	￦	9,425		￦	9,724		￦	9,850
Long-term insurance		6,073			6,298			6,509
Automobile insurance		2,031			2,098			2,035
General property and casualty insurance		883			917			932
Other		438			411			375
Net earned premiums(2)	￦	8,427		￦	8,795		￦	8,944
Loss ratio(3)		84.15	%		82.15	%		84.06	%
Risk-based capital adequacy ratio(4)		168.69	%		190.31	%		187.09	%

⁽¹⁾  The amount of direct written premiums recognized in a specified period in respect of policies in force during such period, on a standalone basis.

⁽²⁾  The sum of (i) gross direct written premiums for the specified period, (ii) reinsurance premium income for such period, (iii) return of surrender refunds for such period and (iv) total unearned premiums deferred from the previous period, less the sum of (x) reinsurance expenses for the specified period, (y) surrender refunds for such period and (z) total unearned premiums deferred to the next period, on a standalone basis.

⁽³⁾  The ratio of (i) total claims paid for the specified period to (ii) net earned premiums for such period, on a standalone basis.

⁽⁴⁾  Calculated in accordance with the applicable requirements of the Financial Supervisory Service. See “—Regulation and Supervision—Principal Regulations Applicable to Insurance Companies—Capital Adequacy.”

KB Insurance operates a multi-channel distribution platform in Korea, comprising agencies (which are independent insurance brokerage companies), a network of financial consultants, bancassurance arrangements with commercial banks and other financial institutions, direct marketing channels (including home shopping television networks and the Internet) and a corporate sales force.

As of December 31, 2018, KB Insurance had ￦27,309 billion of general account investment assets on a standalone basis, of which domestic debt securities, loans, beneficiary certificates, domestic equity securities and overseas securities accounted for 36.1%, 25.3%, 11.3%, 1.4% and 16.0%, respectively.

Life Insurance

Through KB Life Insurance Co., Ltd., we offer a variety of individual and group life insurance products, including annuities, savings insurance, variable life insurance, whole life insurance and term life insurance as well as health insurance. KB Life Insurance utilizes its multi-channel distribution platform to market these products, which includes sales through agencies, financial consultants, telemarketers and bancassurance arrangements with commercial banks and other financial institutions.

KB Life Insurance generated gross premiums (not including separate account premiums) of ￦1,162 billion in 2016, ￦971 billion in 2017 and ￦877 billion in 2018 on a standalone basis. As of December 31, 2018, KB Life Insurance had ￦8,016 billion of general account investment assets on a standalone basis, of which domestic debt securities, beneficiary certificates, loans, domestic equity securities and overseas securities accounted for 54.3%, 13.1%, 12.6%, 0.3% and 6.4%, respectively. As of such date, KB Life Insurance’s risk-based capital adequacy ratio was 203.74%.

For further information regarding our insurance-related assets and liabilities, see Note 37 of the notes to our consolidated financial statements included elsewhere in this annual report.

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Bancassurance

Through the bancassurance operations of Kookmin Bank, we offer insurance products of other institutions to retail customers in Korea. We currently market a wide range of bancassurance products and seek to generate additional fee-based revenues by expanding our offering of these products.

Currently, our bancassurance business has alliances with 21 life insurance companies (including our subsidiary, KB Life Insurance) and ten non-life insurance companies (including our subsidiary, KB Insurance) and offers 90 different products through our branch network. These products are composed of 59 types of life insurance policies, such as annuities, savings insurance and variable life insurance, and 31 types of non-life insurance products. In 2018, our commission income from our bancassurance business amounted to ￦46.7 billion.

Consumer Finance

We provide consumer finance services through KB Capital Co., Ltd. We acquired 52.02% of the outstanding shares of KB Capital (formerly known as Woori Financial Co., Ltd.) in March 2014 for ￦280 billion. We conducted a tender offer in May 2017, through which we acquired 5,949,300 shares of KB Capital at ￦27,500 per share, increasing our shareholding in KB Capital to 79.70%. We subsequently acquired the remaining outstanding shares of KB Capital in exchange for 2,269,057 shares of common stock of our company through a comprehensive stock swap effected in July 2017, as a result of which KB Capital became a wholly-owned subsidiary. KB Capital provides leasing services and installment finance services for various products, including automobiles, heavy machineries and medical equipment, as well as microlending services. We expect KB Capital to continue to expand our customer base by providing a variety of non-banking financial services to retail customers, as well as synergies through coordinated business operations with our other subsidiaries, including Kookmin Bank.

Management of the National Housing Urban Fund

The National Housing Urban Fund is a government fund that provides financial support to low-income households in Korea by providing mortgage financing and construction loans for projects to build small-sized housing. The operations of the National Housing Urban Fund include providing and managing National Housing Urban Fund loans, issuing National Housing Urban Fund bonds and collecting subscription savings deposits.

In February 2013, the Ministry of Land, Infrastructure and Transport (formerly the Ministry of Land, Transport and Maritime Affairs) designated us as one of the managers of the National Housing Urban Fund. In 2018, we received total fees of ￦33 billion for managing the National Housing Urban Fund, compared to ￦32 billion in 2017 and ￦31 billion in 2016.

The financial accounting for the National Housing Urban Fund is entirely separate from our financial accounting, and the non-performing loans and loan losses of the National Housing Urban Fund, in general, do not impact our financial condition. Regulations and guidelines for managing the National Housing Urban Fund are issued by the Minister of Land, Infrastructure and Transport pursuant to the Housing Act.

Distribution Channels

Banking Branch Network

As of December 31, 2018, Kookmin Bank operated a network of 1,057 branches and sub-branches in Korea, which was one of the largest branch networks among Korean commercial banks. An extensive branch network is important to attracting and maintaining retail customers, who use branches extensively and value convenience. We believe that our extensive branch network in Korea and retail customer base provide us with a source of stable and relatively low cost funding. Approximately 35.8% of our branches and sub-branches are located in

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Seoul, and approximately 23.6% of our branches are located in the six next largest cities. The following table presents the geographical distribution of our branch network in Korea as of December 31, 2018:

Area	Number of Branches		Percentage
Seoul		378		35.8	%
Six largest cities (other than Seoul)		250		23.6
Other		429		40.6
Total		1,057		100.0	%

In addition, we have continued to implement the specialization of our branch functions. Of our branch network as of December 31, 2018, we had three branches that primarily handled large corporate banking.

In order to support our branch network, we have established an extensive network of ATMs, which are located in branches and in unmanned outlets known as “autobanks.” As of December 31, 2018, we had 7,185 ATMs.

We have actively promoted the use of these distribution outlets in order to provide convenient service to customers, as well as to maximize the marketing and sales functions at the branch level, reduce employee costs and improve profitability. The aggregate number of transactions conducted using our ATMs amounted to approximately 505 million in 2016, 460 million in 2017 and 417 million in 2018.

Other Banking Channels

The following table sets forth information, for the periods indicated, on the number of users and transactions of the other banking channels for our retail and corporate banking customers, which are discussed below:

	For the Year Ended December 31,
	2016		2017		2018
Internet banking:
Number of users(1)		19,095,749		20,059,806		20,957,261
Number of transactions (thousands)(2)		5,094,063		5,427,142		5,471,484
Phone banking:
Number of users(3)		4,989,769		5,020,272		5,046,634
Number of transactions (thousands)(2)		147,157		119,059		104,163
Smartphone banking:
Number of users(4)		12,301,753		13,533,359		14,645,787
Number of transactions (thousands)(2)		5,169,324		6,192,633		7,142,958

⁽¹⁾  Number of users is defined as the total cumulative number of retail and corporate customers who have registered through our branch offices to use our Internet banking services.

⁽²⁾  Number of transactions includes balance and transaction inquiries, fund transfers and other transactions.

⁽³⁾  Number of users is defined as the total cumulative number of retail and corporate customers who have registered through our branch offices to use our phone banking services.

⁽⁴⁾  Number of users is defined as the total cumulative number of retail customers who have registered through our branch offices, or the customers’ smartphones, to use our smartphone banking services.

Internet Banking

Our goal is to consolidate our position as a market leader in online banking. Our Internet banking services currently include:

• basic banking services, including fund transfers, balance and transaction inquiries, pre-set automatic transfers, product inquiries, online bill payments and foreign exchange services;

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• investment services, including opening deposit accounts and investing in funds;

• processing of loan applications;

• electronic certification services, which permit our Internet banking service users to authenticate transactions on a confidential basis through digital signatures; and

• wealth management and advisory services, including financial planning and real estate information services.

Phone Banking

We offer a variety of phone banking services, including inter-account fund transfers, balance and transaction inquiries, customer service inquiries and bill payments. We also have call centers, which we primarily use to:

• advise clients with respect to deposits, loans and credit cards and to provide our customers a way to report any emergencies with respect to their accounts;

• allow our customers to conduct transactions with respect to their accounts, such as balance and transfer inquiries, transfers or payments and opening accounts; and

• conduct telemarketing to our customers or potential customers to advertise products or services.

Smartphone Banking

“KB Star Banking,” our mobile banking application for smartphones, allows our customers the flexibility to conduct a variety of financial transactions, including balance and transaction inquiries, fund transfers and asset management, anywhere at any time. Our smartphone banking services currently include:

• basic banking services, including fund transfers, balance and transaction inquiries, bill payments and foreign exchange services;

• investment services, including investing in savings deposits that are designed specifically for and offered to smartphone banking customers; and

• processing of loan applications and bancassurance services.

We also continue to develop innovative mobile applications that cater to specific customer needs and lifestyles. For example, we offer “Liiv,” a mobile banking platform designed to make routine transactions easier for our customers, including providing easy access to banking services without the additional electronic certification process, foreign currency exchange services with lower fees and functions that allow customers to easily split bills and transfer money. Through “Liiv Talk Talk,” our mobile peer-to-peer payment and messaging application, we also allow our customers to perform routine banking tasks with voice commands and interactive messaging. We provide our customers with a number of other useful tools, such as “KB Star Alerts,” which are free text messages that contain real-time account activity information as well as security alerts, and “KB My Money,” a mobile application that allows customers to manage a wide range of assets deposited with various financial institutions.

Other Channels

We provide cash management services, which include automatic transfers, connection services to other financial institutions, real-time firm banking, automatic fund concentration and transmittal of trading information.

Distribution Channels for Other Services

Through our non-banking subsidiaries, we operate a network of dedicated branches and other distribution channels through which our customers can access credit card, securities brokerage, insurance and consumer

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finance products and services. The following table sets forth information regarding the number and geographical distribution of the branches in Korea operated by KB Kookmin Card, KB Securities and KB Insurance as of December 31, 2018:

Area	KB Kookmin Card		KB Securities		KB Insurance
Seoul		7		46		12
Six largest cities (other than Seoul)		7		25		14
Other		11		47		26
Total		25		118		52

KB Life Insurance and KB Capital also operate a number of branches in the Seoul area.

We also provide credit card, securities brokerage, insurance and consumer finance services through dedicated call centers, smartphone applications and Internet websites operated by KB Kookmin Card, KB Securities, KB Insurance, KB Life Insurance and KB Capital.

Competition

We compete principally with other financial holding companies and nationwide commercial banks, as well as regional banks, development banks, specialized banks and branches of foreign banks operating in Korea. We also compete with other types of financial institutions in Korea, including savings institutions (such as mutual savings and finance companies and credit unions and credit cooperatives), investment institutions (such as merchant banking corporations), life insurance companies, non-life insurance companies, securities companies and other financial investment companies.

Competition in the domestic banking industry is generally based on the types and quality of the products and services offered, including the size and location of retail networks, the level of automation and interest rates charged and paid. Competition has increased significantly in our traditional core businesses, retail banking, small- and medium-sized enterprise banking and credit card lending, contributing to some extent to the asset quality deterioration in retail and small- and medium-sized loans. As a result, our margins on lending activities may decrease in the future.

Furthermore, the introduction of Internet-only banks in Korea is expected to increase competition in the Korean banking industry. Internet-only banks operate without branches and conduct most of their operations through electronic means, which enables them to minimize cost and offer customers higher interest rates on deposits or lower lending rates. In April 2017, K Bank, the first Internet-only bank in Korea, commenced operations. Kakao Bank, another Internet-only bank, in which we hold a 10% equity interest, commenced operations in July 2017.

In the Korean insurance industry, competition is based on a number of factors, including brand recognition, service, product features and pricing, investment performance and perceived financial strength. There has been downward pressure in recent years on margins of insurance products as some of our competitors have sought to obtain or maintain market share by reducing margins and increasing marketing efforts. As the Korean non-life insurance and life insurance sectors continue to mature, they may experience a slowdown in growth as well as a stagnation in market penetration. Due to these and other factors, we believe that competition in the Korean insurance industry will likely remain intense in the future.

In addition, general regulatory reforms in the Korean financial industry have increased competition among banks and other financial institutions in Korea. As the reform of the financial sector continues, foreign financial institutions, some with greater resources than us, have entered, and may continue to enter, the Korean market either by themselves or in partnership with existing Korean financial institutions and compete with us in providing financial and related services.

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Moreover, the Korean financial industry is undergoing significant consolidation. The number of nationwide commercial banks in Korea has decreased from 16 as of December 31, 1997, to eight as of December 31, 2018. A number of significant mergers and acquisitions in the financial industry have taken place in Korea in recent years, including Hana Financial Group’s acquisition of a controlling interest in Korea Exchange Bank in 2012 and the subsequent merger of Hana Bank into Korea Exchange Bank in 2015. In addition, as part of the Korean government’s plans to privatize Woori Finance Holdings Co., Ltd. (the former financial holding company of Woori Bank), certain subsidiaries of Woori Finance Holdings were sold to other financial institutions and Woori Finance Holdings itself was merged into Woori Bank in 2014, which established a new financial holding company, Woori Financial Group Inc., in January 2019. In the insurance sector, China’s Anbang Insurance Group acquired controlling interests in Tong Yang Life Insurance Co., Ltd. and Allianz Life Insurance Korea Co., Ltd. in 2015 and 2016, respectively, while Mirae Asset Life Insurance Co., Ltd. acquired PCA Life Insurance Co., Ltd. in 2017. In February 2019, Shinhan Financial Group acquired a 59% interest in Orange Life Insurance, Ltd. (formerly known as ING Life Insurance Korea, Ltd.). In the securities sector, in 2016, Mirae Asset Securities Co., Ltd. acquired a 43% interest in KDB Daewoo Securities Co., Ltd., which subsequently merged with and into Mirae Asset Securities to create Mirae Asset Daewoo Securities Co., Ltd., the largest securities company in Korea in terms of capital. We expect that consolidation in the Korean financial industry will continue. The financial institutions resulting from such consolidation may, by virtue of their increased size and business scope, provide significantly greater competition for us. We intend to review potential acquisition opportunities as they arise. We cannot guarantee that we will not be involved in any future mergers or acquisitions.

Information Technology

We regularly implement various IT system-related initiatives and upgrades at the group and subsidiary level. We believe that continuous improvement of our IT systems is crucial in supporting our operations and management and providing high-quality customer service. Accordingly, we continue to upgrade and improve our systems through various activities, including projects to develop next generation banking systems for Kookmin Bank, further strengthen system security and timely develop and implement various new IT systems and services (including group-wide software) that support our business operations and risk management activities.

Our mainframe-based banking and credit card IT systems are designed to ensure continuity of services even where there is a failure of the host data center due to a natural disaster or other accidents by utilizing backup systems in disaster recovery data centers. In addition, through the implementation of Parallel Sysplex, a “multi-CPU system,” our bank and credit card systems are designed and operated to be able to process transactions without material interruption in the event of CPU failure. In 2010, we launched a next-generation banking and credit card IT system that is designed to ensure greater reliability in financial transactions and allow more efficient development of new financial products. We also launched a new disaster recovery system to ensure continuity of operations. In addition, we implemented new technologies, including Multi Channel Integration and Enterprise Application Integration systems, to standardize our IT system and better manage IT system operational risk.

The integrity of our IT systems, and their ability to withstand potential catastrophic events (such as natural calamities and internal system failures), are crucial to our continuing operations. We currently test our disaster recovery systems on a quarterly basis. For additional information, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Operational Risk Management.”

In 2018, we spent approximately ￦670 billion for our IT system implementation and operations, including expenses related to the construction of new IT systems, implementation of hardware and software technologies and other new systems, as well as related labor costs.

As of December 31, 2018, we employed a total of 1,152 full-time employees in our IT operations.

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Assets and Liabilities

The tables below set out selected financial highlights regarding our operations and our assets and liabilities. Except as otherwise indicated, amounts as of and for the years ended December 31, 2014, 2015, 2016, 2017 and 2018 are presented on a consolidated basis under IFRS.

Loan Portfolio

As of December 31, 2018, our total loan portfolio was ￦321,811 billion compared to ￦292,233 billion as of December 31, 2017 and ￦267,764 billion as of December 31, 2016. As of December 31, 2018, 95.3% of our total loans were Won-denominated loans compared to 95.6% as of December 31, 2017 and 95.2% as of December 31, 2016.

Loan Types

The following table presents loans by type as of the dates indicated. Except where we specify otherwise, all loan amounts stated below are before deduction of allowances for loan losses. Total loans reflect our loan portfolio, including past due amounts.

	As of December 31,
	2014		2015		2016		2017		2018
	(in billions of Won)
Domestic:
Corporate
Small- and medium-sized enterprise	￦	71,960	￦	78,665	￦	86,065	￦	97,379	￦	106,015
Large corporate(1)		28,918		30,182		30,206		30,002		34,686
Retail
Mortgage and home equity		86,994		87,882		93,327		97,253		102,607
Other consumer		32,255		36,312		41,629		48,897		56,200
Credit cards		11,632		12,136		13,530		15,205		17,354
Total domestic		231,759		245,177		264,757		288,736		316,862
Foreign		2,143		2,410		3,007		3,497		4,949
Total gross loans	￦	233,902	￦	247,587	￦	267,764	￦	292,233	￦	321,811

⁽¹⁾  Large corporate loans include ￦191 billion, ￦248 billion, ￦285 billion, ￦222 billion and ￦199 billion of loans to the Korean government and government related agencies (including the Korea Deposit Insurance Corporation) as of December 31, 2014, 2015, 2016, 2017 and 2018, respectively.

Loan Concentrations

On a consolidated basis, our exposure to any single borrower or any single chaebol is limited by law to 20% and 25%, respectively, of our “net aggregate equity capital,” as defined under the Enforcement Decree of the Financial Holding Company Act. See “—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Financial Exposure to Any Individual Customer and Major Investor.” In addition, Kookmin Bank’s exposure to any single borrower or any single chaebol is limited by the Bank Act to 20% and 25%, respectively, of its total Tier I and Tier II capital.

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20 Largest Exposures by Borrower

As of December 31, 2018, our 20 largest exposures totaled ￦15,073 billion and accounted for 3.4% of our total exposures. The following table sets forth, as of December 31, 2018, our total exposures to these top 20 borrowers or issuers:

	Loans								Guarantees and Acceptances				Amounts Classified as Impaired Loans
Company(1)	Won Currency		Foreign Currency		Equity Securities		Debt Securities				Total Exposures
	(in billions of Won)
The Korea Securities Finance Corporation.	￦	11	￦	—	￦	53	￦	1,886	￦	—	￦	1,950	￦	—
Mirae Asset Daewoo Co., Ltd.		—		1,304		—		322		—		1,626		—
LG Display Co., Ltd.		—		—		—		13		894		907		—
Samsung Electronics Co., Ltd.		—		850		6		—		—		856		—
KEB Hana Bank		314		—		—		464		—		778		—
Hyundai Motor Company		—		761		1		—		—		762		—
Hyundai Capital Services Inc.		482		—		—		257		—		739		—
Hyundai-Steel Co., Ltd.		338		182		—		183		31		734		—
SK		—		98		455		142		—		695		—
Samsung Securities Co., Ltd.		—		596		—		63		—		659		—
NH Investment & Securities Co., Ltd.		—		411		1		228		—		640		—
Hyundai Heavy Industries Co., Ltd.		—		88		—		6		510		604		—
Lotte Corporation		500		—		70		—		—		570		—
LG Electronics Inc.		410		—		—		132		—		542		—
S-Oil Corp.		104		325		—		71		34		534		—
Nonghyup Bank		121		—		—		403		—		524		—
Kiwoom Securities Co., Ltd.		—		500		—		10		—		510		—
Hana Financial Investment Co., Ltd.		—		270		—		220		—		490		—
Kia Motors Corp.		200		175		—		103		—		478		—
Hi Investment & Securities Co., Ltd.		—		475		—		—		—		475		—
Total	￦	2,480	￦	6,035	￦	586	￦	4,503	￦	1,469	￦	15,073	￦	—

⁽¹⁾  Excludes exposures to government-owned or -controlled enterprises or financial institutions, including Bank of Korea, Korea Housing Finance Corporation, Korea Land & Housing Corporation, Korea Deposit Insurance Corporation and Korea Development Bank.

As of December 31, 2018, 12 of these top 20 borrowers or issuers were companies belonging to the 31 largest highly-indebted business groups among chaebols in Korea designated as such by the Financial Supervisory Service based on their outstanding exposures.

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Exposure to Chaebols

As of December 31, 2018, 5.9% of our total exposure was to the 31 largest highly-indebted business groups among chaebols in Korea designated as such by the Financial Supervisory Service based on their outstanding exposures. The following table shows, as of December 31, 2018, our total exposures to the ten chaebol groups to which we have the largest exposure:

	Loans								Guarantees and Acceptances				Amounts Classified as Impaired Loans
Chaebol	Won Currency		Foreign Currency		Equity Securities		Debt Securities				Total Exposures
	(in billions of Won)
Hyundai Motor(1)	￦	1,265	￦	1,710	￦	21	￦	1,592	￦	379	￦	4,967	￦	—
Samsung(2)		261		2,041		219		795		561		3,877		—
SK(3)		501		532		487		660		318		2,498		—
Lotte(4)		1,161		82		76		571		246		2,136		—
LG(5)		439		13		22		410		957		1,841		—
Hanwha(6)		908		205		8		313		161		1,595		—
Hyundai Heavy Industries(7)		103		252		6		52		770		1,183		—
GS(8)		322		364		2		383		56		1,127		—
POSCO(9)		92		165		444		187		224		1,112		—
Shinsegae(10)		166		3		4		212		408		793		—
Total	￦	5,218	￦	5,367	￦	1,289	￦	5,175	￦	4,080	￦	21,129	￦	—

⁽¹⁾  Includes principally Hyundai Capital Services Inc., Hyundai Steel Company and Hyundai Motor.

⁽²⁾  Includes principally Samsung Electronics Co., Ltd., Samsung Heavy Industries Co., Ltd. and Samsung Card Co., Ltd.

⁽³⁾  Includes principally SK Holdings Co., Ltd., SK Shipping Co., Ltd. and SK Networks Company Limited.

⁽⁴⁾  Includes principally Lotte Capital Co., Ltd., Lotte Engineering & Construction Co., Ltd and Hotel Lotte Co., Ltd.

⁽⁵⁾  Includes principally LG Electronics Inc., LG Chem, Ltd. and LG International Corp.

⁽⁶⁾  Includes principally Hanwha Corp, Hanwha Techwin Co., Ltd and Hanwha E&C.

⁽⁷⁾  Includes principally Hyundai Heavy Industries Co., Ltd, Hyundai Samho Heavy Industries Co., Ltd. and Hyundai Mipo Dockyard Co., Ltd.

⁽⁸⁾  Includes principally GS Engineering & Construction Co., Ltd., GS Retail Co., Ltd and GS Energy Corporation.

⁽⁹⁾  Includes principally POSCO International Corporation, POSCO and POSCO Energy Corporation.

⁽¹⁰⁾  Includes principally Shinsegae Co., Ltd., E-MART Inc. and Shinsegae Simon Inc.

Loan Concentration by Industry

The following table presents the aggregate balance of our domestic and foreign corporate loans, by industry concentration, as of December 31, 2016, 2017 and 2018:

	As of December 31,
	2016					2017					2018
Industry	Amount		%			Amount		%			Amount		%
	(in billions of Won, except percentages)
Services	￦	48,529		40.7	%	￦	54,268		41.5	%	￦	61,303		42.2	%
Manufacturing		36,505		30.6			40,201		30.7			42,267		29.1
Wholesale and retail		14,247		12.0			15,061		11.5			16,683		11.5
Financial institutions		10,603		8.9			11,094		8.5			13,494		9.3
Construction		3,381		2.9			3,022		2.4			3,277		2.2
Public sector		887		0.7			1,057		0.8			864		0.6
Others		5,053		4.2			6,054		4.6			7,491		5.1
Total	￦	119,205		100.0	%	￦	130,757		100.0	%	￦	145,379		100.0	%

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Maturity Analysis

We typically roll over our working capital loans and unsecured consumer loans (other than those payable in installments) after we conduct our normal loan review in accordance with our loan review procedures. Working capital loans may generally be extended on an annual basis for an aggregate term of five years and unsecured consumer loans may generally be extended for another term of up to 12 months for an aggregate term of 10 years.

The following table sets out the scheduled maturities (time remaining until maturity) of our loan portfolio as of December 31, 2018. The amounts disclosed are before deduction of allowances for loan losses:

	1 Year or Less		Over 1 Year But Not More Than 5 Years		Over 5 Years		Total
	(in billions of Won)
Domestic:
Corporate
Small- and medium-sized enterprises	￦	79,003	￦	21,098	￦	5,914	￦	106,015
Large corporate		23,079		7,572		4,035		34,686
Total corporate		102,082		28,670		9,949		140,701
Retail
Mortgage and home equity		9,132		12,651		80,824		102,607
Other consumer		32,484		16,550		7,166		56,200
Total retail		41,616		29,201		87,990		158,807
Credit cards		14,613		2,350		391		17,354
Total domestic		158,311		60,221		98,330		316,862
Foreign:		3,067		1,175		707		4,949
Total gross loans	￦	161,378	￦	61,396	￦	99,037	￦	321,811

Interest Rate Sensitivity

The following table shows, as of December 31, 2018, the total amount of loans due after one year, which have fixed interest rates and variable or adjustable interest rates:

	As of December 31, 2018
	(in billions of Won)
Fixed rate(1)	￦	34,037
Variable or adjustable rates(2)		126,396
Total gross loans	￦	160,433

⁽¹⁾  Fixed rate loans are loans for which the interest rate is fixed for the entire term.

⁽²⁾  Variable or adjustable rate loans are loans for which the interest rate is not fixed for the entire term.

For additional information regarding our management of interest rate risk, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Market Risk Management—Market Risk Management for Non-Trading Activities.”

Credit Exposures to Companies in Workout, Restructuring or Rehabilitation

Workout is a voluntary procedure through which we, together with the borrower and other creditors, seek to restore the borrower’s financial stability and viability. Previously, workouts were regulated under a series of

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Corporate Restructuring Promotion Acts, which last expired on June 30, 2018. In September 2018, the National Assembly of Korea adopted a new Corporate Restructuring Promotion Act, which became effective in October 2018 and is scheduled to expire in October 2023. Under the new Corporate Restructuring Promotion Act, creditors of a financially troubled borrower may participate in a creditors’ committee, which is authorized to prohibit such creditors from exercising their rights against the borrower, commence workout procedures and approve or make revisions to a reorganization plan prepared by the lead creditor bank, the borrower and external experts. The composition of the creditors’ committee is determined at the initial meeting of the committee by the approval of creditors holding not less than 75% of the borrower’s total outstanding debt held by creditors who were notified of the initial meeting of the committee. Although creditors that are not financial institutions or hold less than 1% of the total outstanding debt of the borrower need not be notified of the initial meeting of the creditors’ committee, if such creditors wish to participate, they may not be excluded. Any decision of the creditors’ committee requires the approval of creditors holding not less than 75% of the total outstanding debt of the borrower. However, if a single creditor holds 75% or more of the borrower’s total outstanding debt held by the creditors comprising the creditors’ committee, any decision of the creditors’ committee requires the approval of not less than 40% of the total number of creditors (including such single creditor) comprising the committee. An additional approval of creditors holding not less than 75% of the secured debt is required with respect to the borrower’s debt restructuring. Once approved, any decision made by the creditors’ committee is binding on all creditors of the borrower, with the exception of those creditors that were excluded by a resolution of the committee at its initial meeting and those who exercised their right to request that their claims be purchased. Creditors that voted against commencement of workout, approval or revision of the reorganization plan, debt restructuring, granting of new credit, extension of the joint management process or other resolutions of the committee have the right to request the creditors that voted in favor of such matters to purchase their claims at a mutually agreed price. In the event that the parties are not able to agree on the terms of purchase, a coordination committee consisting of experts would determine the terms. The creditors that oppose a decision made by the coordination committee may request a court to change such decision.

Upon approval of the workout plan, a credit exposure is initially classified as precautionary or lower and thereafter cannot be classified higher than precautionary with limited exceptions. If a corporate borrower is in workout, restructuring or rehabilitation, we take the status of the borrower into account in valuing our loans to and collateral from that borrower for purposes of establishing our allowances for credit losses.

Korean law also provides for corporate rehabilitation proceedings, which are court-supervised procedures to rehabilitate an insolvent company. Under these procedures, a restructuring plan is adopted at a meeting of interested parties, including creditors of the company. Such restructuring plan is subject to court approval.

A portion of our loans to and debt securities of corporate customers are currently in workout, restructuring or rehabilitation. As of December 31, 2018, ￦452 billion or 0.1% of our total loans were in workout, restructuring or rehabilitation. This included ￦150 billion of loans to large corporate borrowers and ￦302 billion of loans to small- and medium-sized enterprises.

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The following table shows, as of December 31, 2018, our ten largest credit exposures that were in workout, restructuring or rehabilitation:

	Loans						Guarantees and Acceptances				Amounts Classified as Impaired Loans
Company	Won Currency		Foreign Currency		Equity Securities				Total Exposures
	(in billions of Won)
Dongmoon Construction Co., Ltd.	￦	70	￦	—	￦	—	￦	—	￦	70	￦	70
Orient Shipyard Co., Ltd.		49		2		—		—		51		51
Dongil Construction LTD		41		—		—		—		41		41
Korea Development Corporation		15		—		11		—		26		15
TRANS-PACIFIC RESOURCES LTD		—		9		—		6		15		9
Dreample Co., Ltd.		—		11		—		2		13		11
Ubcell Co., Ltd.		12		—		—		1		13		13
Woojeon Co., Ltd		—		10		—		—		10		10
Enersolar Co., Ltd.		3		—		7		—		10		3
JM ADVANCED MATERIALS		8		—		—		—		8		8
Total	￦	198	￦	32	￦	18	￦	9	￦	257	￦	231

Provisioning Policy

Under IFRS 9 Financial Instruments, which replaced IAS 39, for annual periods commencing on or after January 1, 2018, we establish allowances for credit losses based on expected credit losses instead of incurred losses (as was the case under IAS 39) by assessing changes in expected credit losses and recognizing such changes as impairment loss (or reversal of impairment loss) in profit or loss. See “Item 5.A. Operating Results—Overview—Changes in Accounting Policies.” Under IFRS 9, the allowance required to be established with respect to a loan or receivable is the amount of the expected 12-month credit loss or the expected lifetime credit loss for the applicable loan or receivable, according to three stages of credit risk deterioration since initial recognition.

We establish allowances for loan losses with respect to loans to absorb such losses. For financial reporting periods starting prior to January 1, 2018, under IAS 39 Financial Instruments: Recognition and Measurement, we assessed individually significant loans on a case-by-case basis and other loans on a collective basis. In addition, if we determined that no objective evidence of impairment existed for a loan, we included such loan in a group of loans with similar credit risk characteristics and assessed them collectively for impairment regardless of whether such loan was significant. For individually significant loans, allowances for loan losses were recorded if objective evidence of impairment existed as a result of one or more events that occurred after initial recognition. For collectively assessed loans, we based the level of allowances for loan losses on our evaluation of the risk characteristics of such loans, taking into account such factors as historical loss experience, the financial condition of the borrowers and current economic conditions.

If additions or changes to the allowances for loan losses are required, then we record a provision for loan losses, which is included in impairment losses on credit loss and treated as a charge against current income. Credit exposures that we deem to be uncollectible, including actual loan losses, net of recoveries of previously charged-off amounts, are charged directly against the allowances for loan losses. See “Item 5.A. Operating Results—Critical Accounting Policies—Impairment of Loans and Allowances for Loan Losses.”

We generally consider the following loans to be impaired loans:

• loans that are past due by 90 days or more;

• loans that are subject to legal proceedings related to collection;

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• loans to a borrower that has received a warning from the Korea Credit Information Services indicating that such borrower has exhibited difficulties in making timely payments of principal and interest;

• loans to corporate borrowers that are rated C or D according to Kookmin Bank’s internal credit ratings for large companies or small-and medium-sized enterprises;

• loans for which account-specific provisions have been made resulting from a significant perceived decline in credit quality; and

• loans with respect to which the amount of principal and interest payable has been materially decreased due to restructuring.

We regularly evaluate the adequacy of the overall allowances for loan losses and we believe that the allowances for loan losses reflect our best estimate of probable loan losses as of each balance sheet date.

Loan Aging Schedule

The following table shows our loan aging schedule (excluding accrued interest) as of the dates indicated:

As of December 31,	Normal Amount		%			Amount Past Due 1-3 Months		%			Amount Past Due 3-6 Months		%			Amount Past Due 6 Months or More		%			Total Amount
	(in billions of Won, except percentages)
2014	￦	232,159		99.2	%	￦	675		0.3	%	￦	385		0.2	%	￦	683		0.3	%	￦	233,902
2015		246,116		99.5			549		0.2			359		0.1			563		0.2			247,587
2016		266,381		99.5			460		0.2			295		0.1			628		0.2			267,764
2017		291,074		99.6			401		0.1			267		0.1			491		0.2			292,233
2018		320,628		99.6			458		0.2			366		0.1			359		0.1			321,811

Non-Accrual Loans and Past Due Accruing Loans

We generally consider impaired loans to be non-accrual loans. However, we exclude from non-accrual status and continue to accrue interest on loans that are fully secured by cash on deposit or on which there are financial guarantees from the government, Korea Deposit Insurance Corporation or certain financial institutions.

We generally recognize interest income on non-accrual loans using the interest rate used to discount the future cash flows of such loans for purposes of measuring impairment loss, as well as upon receipt of cash interest payments. We reclassify loans as accruing when interest and principal payments are up-to-date and future payments of principal and interest are reasonably assured.

Interest foregone is the interest due on non-accrual loans that has not been accrued in our books of account. The table below shows, for the years indicated, the amount of gross interest income that we would have recorded on loans accounted for on a non-accrual basis throughout the year, or since origination for loans held for part of the year, had we not foregone interest on those loans, as well as the amount of interest income on those loans that was included in our profit for the year.

	Year Ended December 31,
	2014		2015		2016		2017		2018
	(in billions of Won)
Gross interest income that would have been recorded	￦	275	￦	220	￦	195	￦	198	￦	154
Interest income included in profit for the year	￦	175	￦	151	￦	129	￦	135	￦	82

The following table shows, as of the dates indicated, the amount of loans that were placed on a non-accrual basis and accruing loans which were past due 90 days or more. The category “accruing but past due 90 days”

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includes loans which are still accruing interest but on which principal or interest payments are contractually past due 90 days or more.

	As of December 31,
	2014		2015		2016		2017		2018
	(in billions of Won)
Loans accounted for on a non-accrual basis
Corporate	￦	1,673	￦	1,607	￦	1,403	￦	1,108	￦	906
Consumer		1,022		763		766		759		873
Sub-total		2,695		2,370		2,169		1,867		1,779
Accruing loans which are contractually past due 90 days or more as to principal or interest
Corporate		39		47		27		66		84
Consumer		72		88		79		33		64
Sub-total		111		135		106		99		148
Total	￦	2,806	￦	2,505	￦	2,275	￦	1,966	￦	1,927

Troubled Debt Restructurings

The following table presents, as of the dates indicated, our loans that are “troubled debt restructurings” for which we, for economic or legal reasons relating to the debtor’s financial difficulties, grant a concession to the debtor that we would not otherwise consider. These loans consist principally of corporate loans that have been restructured (through the process of workout, court receivership or composition) and which are accruing interest at rates lower than the original contractual terms as a result of a variation of terms upon restructuring.

	As of December 31,
	2014		2015		2016		2017		2018
	(in billions of Won)
Loans classified as “troubled debt restructurings”	￦	256	￦	228	￦	168	￦	170	￦	133

For 2018, interest income that would have been recorded under the original contract terms of restructured loans amounted to ￦12 billion, out of which ￦7 billion was reflected as interest income during 2018.

Potential Problem Loans

We classify potential problem loans as loans that are designated as “early warning loans” and reported to the Financial Services Commission. “Early warning loans” are loans extended to borrowers that have been (i) identified by our early warning system as exhibiting signs of credit risk based on the relevant borrower’s financial data, credit information and/or transactions with banks and, following such identification and (ii) designated by our loan officers as potential problem borrowers based on their evaluation of known information about such borrowers’ possible credit problems. Such loans are required to be reported on a quarterly basis to the Financial Services Commission. If a borrower’s loans are designated as “early warning loans” pursuant to the process described above and included in our quarterly report to the Financial Services Commission, we consider such borrowers to have serious doubt as to their ability to comply with repayment terms in the near future.

As of December 31, 2018, we had ￦670 billion of potential problem loans.

Other Problematic Interest Earning Assets

We have certain other interest earning assets received in connection with troubled debt restructurings that, if they were loans, would be required to be disclosed as part of the non-accrual, past due or restructuring or

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potential problem loan disclosures provided above. As of December 31, 2014, 2015, 2016, 2017 and 2018, we did not have any debt securities received in connection with troubled debt restructurings on which interest was past due.

Non-Performing Loans

Non-performing loans are defined as loans that are past due by 90 days or more. These loans are generally classified as “substandard” or below. For further information on the classification of non-performing loans under Korean regulatory requirements, see “—Regulatory Reserve for Credit Losses” below.

The following table shows, as of the dates indicated, certain details of our total non-performing loan portfolio:

	As of December 31,
	2014			2015			2016			2017			2018
	(in billions of Won, except percentages)
Total non-performing loans	￦	1,068		￦	922		￦	923		￦	758		￦	725
As a percentage of total loans		0.5	%		0.4	%		0.3	%		0.3	%		0.2	%

Analysis of Non-Performing Loans

The following table sets forth, as of the dates indicated, our total non-performing loans by type of borrower:

	As of December 31,
	2014					2015					2016					2017					2018
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
	(in billions of Won, except percentages)
Domestic:
Corporate
Small- and medium sized enterprise	￦	373		34.9	%	￦	309		33.5	%	￦	302		32.7	%	￦	178		23.5	%	￦	267		36.8	%
Large corporate		137		12.8			187		20.3			247		26.8			209		27.6			17		2.3
Total corporate		510		47.7			496		53.8			549		59.5			387		51.1			284		39.1
Retail
Mortgage and home equity		209		19.6			172		18.7			124		13.4			110		14.5			134		18.5
Other consumer		186		17.4			157		17.0			148		16.0			142		18.7			170		23.5
Total retail		395		37.0			329		35.7			272		29.4			252		33.2			304		42.0
Credit cards		99		9.3			70		7.6			81		8.8			100		13.2			119		16.4
Total domestic		1,004		94.0			895		97.1			902		97.7			739		97.5			707		97.5
Foreign:		64		6.0			27		2.9			21		2.3			19		2.5			18		2.5
Total non-performing loans	￦	1,068		100.0	%	￦	922		100.0	%	￦	923		100.0	%	￦	758		100.0	%	￦	725		100.0	%

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Top 20 Non-Performing Loans

As of December 31, 2018, our 20 largest non-performing loans accounted for 22.3% of our total non-performing loan portfolio. The following table shows, as of December 31, 2018, certain information regarding our 20 largest non-performing loans:

	Industry	Gross Principal Outstanding		Allowances for Loan Losses(1)
	(in billions of Won)
Borrower A	Construction	￦	26	￦	21
Borrower B	Manufacturing		17		3
Borrower C	Construction		13		13
Borrower D	Services		13		1
Borrower E	Services		12		1
Borrower F	Construction		10		3
Borrower G	Services		9		9
Borrower H	Services		9		9
Borrower I	Manufacturing		8		4
Borrower J	Construction		7		7
Borrower K	Manufacturing		6		2
Borrower L	Construction		5		3
Borrower M	Financial institutions		5		5
Borrower N	Services		5		—
Borrower O	Services		4		—
Borrower P	Services		4		4
Borrower Q	Manufacturing		3		—
Borrower R	Services		2		1
Borrower S	Services		2		—
Borrower T	Manufacturing		2		—
Total		￦	162	￦	86

⁽¹⁾  If the estimated recovery value of collateral for a non-performing loan is sufficient compared to the outstanding loan balance, we record no allowances for loan losses for such non-performing loan.

Non-Performing Loan Strategy

One of our primary objectives is to prevent our loans from becoming non-performing. Through our corporate credit rating systems, we believe that we have reduced our risks relating to future non-performing loans. Our credit rating systems are designed to prevent our loan officers from extending new loans to borrowers with high credit risks based on the borrower’s credit rating. Our early warning system is designed to bring any sudden increase in a borrower’s credit risk to the attention of our loan officers, who then closely monitor such loans. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk Management—Credit Review and Monitoring.”

Notwithstanding the above, if a loan becomes non-performing, an officer at the branch level responsible for monitoring non-performing loans will commence a due diligence review of the borrower’s assets, send a notice either demanding payment or stating that we will take legal action and prepare for legal action.

At the same time, we also initiate our non-performing loan management process, which begins with:

• identifying loans subject to a proposed sale by assessing the estimated losses from such sale based on the estimated recovery value of collateral, if any, for such non-performing loans;

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• identifying loans subject to charge-off based on the estimated recovery value of collateral, if any, for such non-performing loans and the estimated rate of recovery of unsecured loans; and

• on a limited basis, identifying corporate loans subject to normalization efforts based on the cash-flow situation of the borrower.

Once the details of a non-performing loan are identified, we pursue early solutions for recovery. While the overall process is the responsibility of Kookmin Bank’s Credit Division, actual recovery efforts on non-performing loans are handled at the operating branch level.

In addition, we use the services of our wholly-owned loan collection subsidiary, KB Credit Information Co., Ltd., which receives payments from recoveries made on charged-off loans and certain loans that are overdue for over three months (28 days on average in the case of credit card loans). KB Credit Information has approximately 140 employees, including legal experts and management employees. The fees that it receives are based on the amounts of non-performing and charged off loans that are recovered. In 2016, 2017 and 2018, the amount recovered was ￦404 billion, ￦313 billion and ￦324 billion, respectively.

Methods for resolving non-performing loans include the following:

• non-performing loans are managed by the operating branches of Kookmin Bank until such loans are charged off;

• a demand note is dispatched by mail if payment is generally one month past due;

• calls and visits are made by Kookmin Bank’s operating branches to customers encouraging them to make payments;

• borrowers who are past due on payments of interest and principal are registered on the Korea Credit Information Services’ database of non-performing loans;

• for unsecured loans other than credit card loans, the loans are transferred to KB Credit Information for collection on a case-by-case basis;

• for secured loans, actions to enforce or protect the security interests (including foreclosure and auction of the collateral) are commenced within five months of such loans becoming past due; and

• charged off loans are given to KB Credit Information for collection, except for loans where the cost of collection exceeds the possible recovery or where the statute of limitations for collection has expired.

In addition, credit card loans that are in arrears for over 28 days on average are transferred to KB Credit Information for collection.

If a loan becomes non-performing, it is managed by an operating branch of Kookmin Bank until such loan is charged off. However, in order to promote speedy recovery on loans subject to foreclosures and litigation, our policy is to permit the branch responsible for handling these loans to request one of Kookmin Bank’s regional head offices for assistance with litigation proceedings and proceedings related to foreclosure and auction of the collateral.

In addition to making efforts to collect on these non-performing loans, we also undertake measures to reduce the level of our non-performing loans, which include:

• selling our non-performing loans to third parties, including the Korea Asset Management Corporation; and

• entering into asset securitization transactions with respect to our non-performing loans.

We generally expect to suffer a partial loss on loans that we sell or securitize, to the extent such sales and securitizations are recognized under IFRS as sale transactions.

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Allocation and Analysis of Allowances for Loan Losses

The following table presents, as of the dates indicated, the allocation of our allowances for loan losses by loan type. The ratio represents the percentage of allowances for loan losses in each category to total allowances for loan losses.

	As of December 31,
	2014					2015					2016					2017					2018
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
	(in billions of Won, except percentages)
Domestic:
Corporate
Small- and medium sized enterprise	￦	819		33.4	%	￦	775		30.0	%	￦	644		28.3	%	￦	522		24.7	%	￦	618		23.7	%
Large corporate		656		26.8			875		33.9			696		30.6			666		31.6			608		23.3
Total corporate		1,475		60.2			1,650		63.9			1,340		58.9			1,188		56.3			1,226		47.0
Retail
Mortgage and home equity		48		2.0			37		1.4			29		1.3			24		1.2			39		1.5
Other consumer		488		19.9			454		17.6			452		19.8			404		19.2			602		23.1
Total retail		536		21.9			491		19.0			481		21.1			428		20.4			641		24.6
Credit cards		390		15.9			398		15.4			414		18.1			449		21.2			711		27.2
Total domestic		2,401		97.9			2,539		98.3			2,235		98.1			2,065		97.9			2,578		98.8
Foreign:(1)		51		2.1			43		1.7			43		1.9			45		2.1			31		1.2
Total allowances for loan losses	￦	2,452		100.0	%	￦	2,582		100.0	%	￦	2,278		100.0	%	￦	2,110		100.0	%	￦	2,609		100.0	%

⁽¹⁾  Consists primarily of loans to corporations.

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The following tables analyze our allowances for loan losses and loan loss experience for each of the years indicated:

	Year Ended December 31,
	2014			2015			2016			2017
	(in billions of Won, except percentages)
Balance at the beginning of the period	￦	2,861		￦	2,452		￦	2,582		￦	2,278
Amounts charged against income		1,211			1,100			579			583
Sale		(72	)		(50	)		(78	)		(66	)
Gross charge-offs:
Domestic:
Corporate
Small- and medium-sized enterprise		746			412			467			308
Large corporate		326			275			278			87
Retail
Mortgage and home equity		149			16			7			7
Other consumer		425			338			288			335
Credit cards		427			377			357			400
Foreign:		18			1			2			—
Total gross charge-offs		(2,091	)		(1,419	)		(1,399	)		(1,137	)
Recoveries:
Domestic:
Corporate
Small-and medium-sized enterprise		259			156			214			280
Large corporate		—			—			1			—
Retail
Mortgage and home equity		31			63			43			30
Other consumer		109			132			124			116
Credit cards		131			138			133			133
Foreign:		1			4			—			—
Total recoveries		531			493			515			559
Net charge-offs		(1,560	)		(926	)		(884	)		(578	)
Other charges(1)		12			6			79			(107	)
Balance at the end of the period	￦	2,452		￦	2,582		￦	2,278		￦	2,110
Ratio of net charge-offs during the period to average loans outstanding during the period		0.7	%		0.4	%		0.3	%		0.2	%

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	As of December 31, 2018
	Financial instruments applying 12-month expected credit losses			Financial instruments applying lifetime expected credit losses						Total
				Non-impaired			Impaired
	(in billions of Won, except percentages)
Balance at the beginning of the period(2)	￦	612		￦	732		￦	1,265		￦	2,609
Amounts charged against income		(2	)		185			469			652
Sale		(2	)		(2	)		(16	)		(20	)
Stage transference:
Transfer to 12-month expected credit losses		190			(187	)		(3	)		—
Transfer to lifetime expected credit losses (non-impaired)		(159	)		187			(28	)		—
Transfer to lifetime expected credit losses (impaired)		(7	)		(92	)		99			—
Gross charge-offs:
Domestic:
Corporate
Small- and medium-sized enterprise		—			—			35			35
Large corporate		—			—			198			198
Retail
Mortgage and home equity		—			—			5			5
Other consumer		—			—			376			376
Credit cards		—			—			465			465
Foreign:		—			—			—			—
Total gross charge-offs		—			—			(1,079	)		(1,079	)
Recoveries:
Domestic:
Corporate
Small-and medium-sized enterprise		—			—			36			36
Large corporate		—			—			135			135
Retail
Mortgage and home equity		—			—			10			10
Other consumer		—			—			115			115
Credit cards		—			—			133			133
Foreign:		—			—			—			—
Total recoveries		—			—			429			429
Net charge-offs		—			—			(650	)		(650	)
Other charges		—			1			17			18
Balance at the end of the period	￦	632		￦	824		￦	1,153		￦	2,609
Ratio of net charge-offs during the period to average loans outstanding during the period											0.2	%

⁽¹⁾ The amount for 2014 reflects an increase in allowances for loan losses of ￦83 billion attributable to the addition of KB Capital as a consolidated subsidiary in March 2014. The amount for 2016 reflects an increase in allowances for loan losses of ￦136 billion attributable to the addition of KB Securities as a consolidated subsidiary in October 2016. The amount for 2017 reflects an increase in allowance for loan losses of ￦60 billion attributable to the addition of KB Insurance as a consolidated subsidiary in May 2017.

⁽²⁾  Reflects a one-off increase in our allowance for loan losses (as compared to the balance as of December 31, 2017) due to the application of IFRS 9. See Notes 2.1 and 45 of the notes to our consolidated financial statements included elsewhere in this annual report.

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Regulatory Reserve for Credit Losses

If our allowances for credit losses are deemed insufficient for regulatory purposes, we are required to compensate for the difference by recording a regulatory reserve for credit losses, which is segregated within our retained earnings. Regulatory reserve for credit losses are not available for distribution to shareholders as dividends. The level of regulatory reserve for credit losses required to be recorded is equal to the amount by which our allowances for credit losses under IFRS are less than the greater of (x) the amount of expected loss calculated using the internal ratings-based approach under Basel III and as approved by the Financial Supervisory Service and (y) the required amount of credit loss reserve calculated based on standards prescribed by the Financial Services Commission. As of December 31, 2018, our regulatory reserve for credit losses was ￦3,131 billion.

The following tables set forth the Financial Services Commission’s guidelines for the classification of loans and the minimum percentages of the outstanding principal amount of the relevant loans or balances that the credit loss reserve must cover:

Loan Classification	Loan Characteristics
Normal	Loans extended to customers that, based on our consideration of their business, financial position and future cash flows, do not raise concerns regarding their ability to repay the loans.
Precautionary	Loans extended to customers that (i) based on our consideration of their business, financial position and future cash flows, show potential risks with respect to their ability to repay the loans, although showing no immediate default risk or (ii) are in arrears for one month or more but less than three months.
Substandard	(i) Loans extended to customers that, based on our consideration of their business, financial position and future cash flows, are judged to have incurred considerable default risks as their ability to repay has deteriorated; or (ii) the portion that we expect to collect of total loans (a) extended to customers that have been in arrears for three months or more, (b) extended to customers that have incurred serious default risks due to the occurrence of, among other things, final refusal to pay their debt instruments, entry into liquidation or bankruptcy proceedings or closure of their businesses, or (c) extended to customers who have outstanding loans that are classified as “doubtful” or “estimated loss.”
Doubtful	Loans exceeding the amount that we expect to collect of total loans to customers that: (i) based on our consideration of their business, financial position and future cash flows, have incurred serious default risks due to noticeable deterioration in their ability to repay; or (ii) have been in arrears for three months or more but less than six months (or three months or more but less than 12 months in the case of loans of Kookmin Bank).
Estimated loss	Loans exceeding the amount that we expect to collect of total loans to customers that: (i) based on our consideration of their business, financial position and future cash flows, are judged to be accounted as a loss because the inability to repay became certain due to serious deterioration in their ability to repay; (ii) have been in arrears for six months or more (or 12 months or more in the case of loans of Kookmin Bank); or (iii) have incurred serious risks of default in repayment due to the occurrence of, among other things, final refusal to pay their debt instruments, liquidation or bankruptcy proceedings or closure of their business.

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Loan Classifications	Corporate(1)		Consumer		Credit Card Balances(2)		Credit Card Loans(3)
Normal		0.85% or above		1% or above		1.1% or above		2.5% or above
Precautionary		7% or above		10% or above		40% or above		50% or above
Substandard		20% or above		20% or above		60% or above		65% or above
Doubtful		50% or above		55% or above		75% or above		75% or above
Estimated loss		100%		100%		100%		100%

⁽¹⁾  Subject to certain exceptions pursuant to the Banking Industry Supervision Regulations of Korea.

⁽²⁾  Applicable for credit card balances from general purchases.

⁽³⁾  Applicable for cash advances, card loans and revolving credit card assets.

Loan Charge-Offs

Basic Principles

We attempt to minimize loans to be charged off by adhering to a sound credit approval process based on credit risk analysis prior to extending loans and a systematic management of outstanding loans. However, if charge-offs are necessary, we charge off loans subject to our charge-off policy at an early stage in order to maximize accounting transparency, to minimize any waste of resources in managing loans which have a low probability of being collected and to reduce our non-performing loan ratio.

Loans To Be Charged Off

Loans are charged off if they are deemed to be uncollectible by falling under any of the following categories:

• loans for which collection is not foreseeable due to insolvency, bankruptcy, compulsory execution, disorganization, dissolution or the shutting down of the business of the debtor;

• loans for which collection is not foreseeable due to the death or disappearance of the debtor;

• loans for which expenses of collection exceed the collectable amount;

• loans on which collection is not possible through legal or any other means;

• payments in arrears in respect of credit cards that have been overdue for a period of six months or more and have been classified as expected loss (excluding instances where there has been partial payment of the overdue balance, where a related balance is not overdue or where a charge off is not possible due to Korean regulations); and

• the portion of loans classified as “estimated loss,” net of any recovery from collateral, which is deemed to be uncollectible.

Procedure for Charge-off Approval

In order to charge off corporate loans, an application for a charge-off must be submitted to Kookmin Bank’s Credit Management Department promptly after the corporate loan is classified as estimated loss or deemed uncollectible. The Credit Management Department refers the charge-off application to Kookmin Bank’s Audit Department for their review to ensure compliance with our internal procedures for charge-offs. Then, the Credit Management Department, after reviewing the application to confirm that it meets relevant requirements, seeks an approval from the Financial Supervisory Service for our charge-offs, which is typically granted. Once we receive approval from the Financial Supervisory Service, we must also obtain approval from our senior management to charge off those loans.

With respect to credit card balances and unsecured retail loans, we follow a different process to determine which credit card balances and unsecured retail loans should be charged off, based on the length of time those

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loans or balances are past due. We charge off unsecured retail loans deemed to be uncollectible and credit card balances which have been overdue for a period of six months or more or which have been deemed to be uncollectible under IFRS.

Treatment of Loans Charged Off

Once loans are charged off, we classify them as charged-off loans and remove them from our balance sheet. These loans are managed based on a different set of procedures. We continue our collection efforts in respect of these loans, including through our subsidiary, KB Credit Information, although loans may be charged off before we begin collection efforts in some circumstances.

If a collateralized loan is overdue, we will, typically within one year from the time that such loan became overdue (or after a longer period in certain circumstances), petition a court to foreclose and sell the collateral through a court-supervised auction. If a debtor ultimately fails to repay and the court grants its approval for foreclosure, we will sell the collateral, net of expenses incurred from the auction.

Investment Portfolio

Investment Policy

We invest in and trade Won-denominated and, to a lesser extent, foreign currency-denominated securities for our own account to:

• maintain the stability and diversification of our assets;

• maintain adequate sources of back-up liquidity to match our funding requirements; and

• supplement income from our core lending activities.

We also invest in and trade such securities as part of the general account investments of our insurance subsidiaries that support their insurance policy liabilities. In making securities investments, we take into account a number of factors, including macroeconomic trends, industry analysis, credit evaluation and maturity in determining whether to make particular investments in securities.

Our investments in securities are also subject to a number of guidelines, including limitations prescribed under the Financial Holding Company Act and the Bank Act. Under these regulations, a bank holding company may not own (i) more than 5% of the total issued and outstanding shares of another finance-related company, (ii) any shares of its affiliates, other than its direct or indirect subsidiaries or (iii) any shares of a non-finance-related company. In addition, Kookmin Bank must limit its investments in equity securities and bonds with a maturity in excess of three years (other than monetary stabilization bonds issued by the Bank of Korea and national government bonds) to 100.0% of its total Tier I and Tier II capital amount (less any capital deductions). Generally, Kookmin Bank is also prohibited from acquiring more than 15.0% of the shares with voting rights issued by any other corporation subject to certain exceptions. Pursuant to the Bank Act, a bank and its trust accounts are prohibited from acquiring the shares of a major shareholder (for the definition of “major shareholder,” see “—Supervision and Regulation—Principal Regulations Applicable to Banks—Financial Exposure to Any Individual Customer and Major Shareholder”) of that bank in excess of an amount equal to 1% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions). Further information on the regulatory environment governing our investment activities is set out in “—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Liquidity,” “—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Restrictions on Shareholdings in Other Companies,” “—Supervision and Regulation—Principal Regulations Applicable to Banks—Liquidity” and “—Supervision and Regulation—Principal Regulations Applicable to Banks—Restrictions on Shareholdings in Other Companies.”

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The following table sets out the definitions of the three categories of securities we hold:

Category	Classification
Financial assets at fair value through profit or loss	Financial assets that are either classified as held for trading, designated by us at fair value through profit or loss upon initial recognition or required to be mandatorily measured at fair value through profit or loss.
Financial assets at fair value through other comprehensive income	Debt instruments held with a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and are consistent with representing solely payments of principal and interest on the principal amount outstanding; or Equity instruments not held for trading with the objective of generating a profit from short-term fluctuations in price or dealers’ margin, designated as financial assets at fair value through other comprehensive income.
Financial assets at amortized cost	Financial assets held with a business model whose objective is to hold assets in order to collect contractual cash flows, and are consistent with representing solely payments of principal and interest on the principal amount outstanding.

See “Item 5.A. Operating Results—Critical Accounting Policies—Valuation of Securities and Financial Instruments.”

We also hold limited balances of venture capital securities, non-marketable and restricted equity securities and derivative instruments.

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Carrying Amount and Market Value

The following tables set out the carrying amount and market value of securities in our securities portfolio as of the dates indicated:

	As of December 31,
	2016				2017
	Carrying Amount		Market Value		Carrying Amount		Market Value
	(in billions of Won)
Available-for-sale financial assets:
Equity securities	￦	6,525	￦	6,525	￦	9,157	￦	9,157
Debt securities
Korean treasury securities and government agency securities		7,111		7,111		3,629		3,629
Debt securities issued by financial institutions		11,172		11,172		20,946		20,946
Corporate debt securities		5,904		5,904		10,571		10,571
Asset-backed securities		2,730		2,730		2,402		2,402
Others		528		528		1,411		1,411
Total available-for-sale financial assets		33,970		33,970		48,116		48,116
Held-to-maturity financial assets:
Debt securities
Korean treasury securities and government agency securities		2,218		2,331		5,448		5,432
Debt securities issued by financial institutions		1,869		1,825		2,475		2,490
Corporate debt securities		3,488		3,602		6,219		6,215
Asset-backed securities		3,603		3,643		4,306		4,303
Others		—		—		44		43
Total held-to-maturity financial assets		11,178		11,401		18,492		18,483
Financial assets at fair value through profit or loss:
Equity securities		3,041		3,041		4,935		4,935
Debt securities
Korean treasury securities and government agency securities		5,390		5,390		6,233		6,233
Debt securities issued by financial institutions		11,186		11,186		11,324		11,324
Corporate debt securities		4,595		4,595		5,133		5,133
Asset-backed securities		222		222		162		162
Others		1,594		1,594		2,317		2,317
Others		71		71		74		74
Sub-total		26,099		26,099		30,178		30,178
Financial assets designated at fair value through profit or loss(1)
Equity securities		66		66		67		67
Debt securities		332		332		369		369
Derivative-linked securities		1,361		1,361		1,613		1,613
Sub-total		1,759		1,759		2,050		2,050
Total financial assets at fair value through profit or loss		27,858		27,858		32,228		32,228
Total securities	￦	73,006	￦	73,229	￦	98,836	￦	98,827

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	As of December 31, 2018
	Carrying Amount		Market Value
	(in billions of Won)
Financial assets at fair value through other comprehensive income:
Equity securities
Stocks	￦	2,262	￦	2,262
Equity investments		39		39
Other equity securities		69		69
Debt securities
Korean treasury securities and government agency securities		3,475		3,475
Debt securities issued by financial institutions		20,108		20,108
Corporate debt securities		10,541		10,541
Asset-backed securities		1,100		1,100
Others		20		20
Total financial assets at fair value through other comprehensive income		37,614		37,614
Financial assets at amortized cost:
Debt securities
Korean treasury securities and government agency securities		5,090		5,452
Debt securities issued by financial institutions		6,847		6,797
Corporate debt securities		6,943		7,093
Asset-backed securities		4,783		4,817
Total financial assets at amortized cost		23,663		24,159
Financial assets at fair value through profit or loss
Equity securities
Stocks		1,094		1,094
Other equity securities		193		193
Debt securities
Korean treasury securities and government agency securities		7,923		7,923
Debt securities issued by financial institutions		14,978		14,978
Corporate debt securities		4,101		4,101
Asset-backed securities		84		84
Puttable instruments (investment funds, etc.)		10,252		10,252
Derivative linked securities		3,517		3,517
Others		7,430		7,430
Others		79		79
Total financial assets at fair value through profit or loss		49,651		49,651
Total securities	￦	110,928	￦	111,424

⁽¹⁾  Effective as of January 1, 2018, financial assets designated at fair value through profit or loss have been reclassified as financial assets at fair value through profit or loss, without the option for designation of fair value, pursuant to the application of IFRS 9. See Notes 2.1 and 42 of the notes to our consolidated financial statements included elsewhere in this annual report.

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Maturity Analysis

The following table categorizes our debt securities by maturity and weighted average yield as of December 31, 2018:

	Within 1 Year		Weighted Average Yield(1)			Over 1 But within 5 Years		Weighted Average Yield(1)			Over 5 But within 10 Years		Weighted Average Yield(1)			Over 10 Years		Weighted Average Yield(1)			Total		Weighted Average Yield(1)
	(in billions of Won, except percentages)
Financial assets at fair value through other comprehensive income:
Korean treasury securities and government agencies	￦	1,272		1.55	%	￦	2,028		2.11	%	￦	170		2.58	%	￦	5		2.46	%	￦	3,475		1.93	%
Debt securities issued by financial institutions		9,466		1.85			10,166		2.16			476		3.28			—		—			20,108		2.04
Corporate debt securities		3,467		2.50			5,493		2.53			1,397		3.06			184		5.04			10,541		2.63
Asset-backed securities		813		1.84			95		2.25			157		3.00			35		2.55			1,100		2.07
Others		20		2.22			—		—			—		—			—		—			20		2.22
Total	￦	15,038		1.97	%	￦	17,782		2.27	%	￦	2,200		3.06	%	￦	224		4.60	%	￦	35,244		2.21	%
Financial assets at amortized cost:
Korean treasury securities and government agencies	￦	278		2.29	%	￦	1,184		3.01	%	￦	73		2.65	%	￦	3,555		2.18	%	￦	5,090		2.39	%
Debt securities issued by financial institutions		4,754		1.86			948		2.92			31		2.94			1,114		4.69			6,847		2.47
Corporate debt securities		795		3.32			1,830		3.19			628		2.74			3,690		3.09			6,943		3.11
Asset-backed securities		463		1.84			3,675		2.30			330		2.68			315		2.89			4,783		2.32
Total	￦	6,290		2.06	%	￦	7,637		2.70	%	￦	1,062		2.72	%	￦	8,674		2.92	%	￦	23,663		2.61	%
Financial assets at fair value through profit or loss:(2)
Korean treasury securities and government agency securities	￦	1,052		2.17	%	￦	3,268		2.46	%	￦	1,182		2.44	%	￦	2,421		2.84	%	￦	7,923		2.53	%
Debt securities issued by financial institutions		9,423		2.11			4,948		2.38			378		3.32			229		4.28			14,978		2.26
Corporate debt securities		1,778		2.49			1,985		3.01			290		3.56			48		2.97			4,101		2.82
Asset-backed securities		10		1.69			50		1.99			—		—			24		2.18			84		2.01
Others		5,626		2.09			372		2.00			370		2.97			101		2.17			6,469		2.14
Total	￦	17,889		2.14	%	￦	10,623		2.51	%	￦	2,220		2.82	%	￦	2,823		2.93	%	￦	33,555		2.37	%

⁽¹⁾  The weighted average yield for the portfolio represents the yield to maturity for each individual security, weighted using its carrying amount (which is the amortized cost in the case of financial assets at amortized cost and the fair value in the case of financial assets at fair value through other comprehensive income and financial assets at fair value through profit or loss).

⁽²⁾  Excludes securities with no maturities, such as puttable instruments or derivative linked securities.

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Concentrations of Risk

As of December 31, 2018, we held the following securities of individual issuers where the aggregate carrying amount of those securities exceeded 10% of our stockholders’ equity at such date. As of December 31, 2018, our stockholders’ equity was ￦35,704 billion.

	Carrying Amount		Market Value
	(in billions of Won)
Name of issuer:
Korean government	￦	14,607	￦	14,965
Bank of Korea		12,751		12,752
Korea Development Bank		7,687		7,689
Korea Housing Finance Corporation		7,168		7,206
Industrial Bank of Korea		5,104		5,107
Total	￦	47,317	￦	47,719

The Korea Housing Finance Corporation is owned by the Korean government and the Bank of Korea. The Bank of Korea and Industrial Bank of Korea are controlled by the Korean government, whereas the Korea Development Bank is wholly-owned by the Korean government.

Funding

We obtain funding for our lending activities from a variety of sources, both domestic and foreign. Our principal source of funding is customer deposits. In addition, we acquire funding through long-term borrowings (comprising debentures and debts), short-term borrowings, including borrowings from the Bank of Korea, and call money.

Our primary funding strategy has been to achieve low-cost funding by increasing the average balances of low-cost retail deposits, in particular demand deposits and time deposits. We also have focused our marketing efforts on higher net worth individuals, who account for a significant portion of the assets in our retail deposit base. Customer deposits accounted for 79.7% of total funding as of December 31, 2016, 77.6% of total funding as of December 31, 2017 and 76.2% of total funding as of December 31, 2018.

Our borrowings consist of issuances of debentures and debt from financial institutions, the Korean government and government-affiliated funds. The majority of our debt is long-term, with maturities ranging from one year to 30 years.

Deposits

Although the majority of our deposits are short-term, it has been our experience that the majority of our depositors generally roll over their deposits at maturity, providing us with a stable source of funding.

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The following table shows the average balances of our deposits and the average rates paid on our deposits for the periods indicated:

	2016					2017					2018
	Average Balance(1)		Average Rate Paid			Average Balance(1)		Average Rate Paid			Average Balance(1)		Average Rate Paid
	(in billions of Won, except percentages)
Demand deposits:
Non-interest bearing	￦	4,073		—		￦	4,114		—		￦	4,059		—
Interest bearing		97,858		0.30	%		110,945		0.26	%		117,267		0.30	%
Time deposits		125,612		1.69			127,478		1.58			141,021		1.87
Certificates of deposit		3,387		1.65			2,863		1.57			3,045		1.90
Average total deposits	￦	230,930		1.09	%	￦	245,400		0.97	%	￦	265,392		1.16	%

⁽¹⁾  Average balances are based on daily balances for our banking, credit card and investment and securities operations and monthly or quarterly balances for our other operations.

For a description of our retail deposit products, see “—Business—Retail Banking—Deposit-Taking Activities.”

Time Deposits and Certificates of Deposit

The following table presents the remaining maturities of our time deposits and certificates of deposit which had a fixed maturity in excess of ￦100 million as of December 31, 2018:

	Time Deposits		Certificates of Deposit		Total
	(in billions of Won)
Maturing within three months	￦	28,405	￦	1,495	￦	29,900
After three but within six months		21,103		1,113		22,216
After six but within 12 months		33,682		895		34,577
After 12 months		2,638		10		2,648
Total	￦	85,828	￦	3,513	￦	89,341

Long-term borrowings

The aggregate amount of contractual maturities of all long-term borrowings (comprising debentures and debt) as of December 31, 2018 was as follows:

	As of December 31, 2018
	(in billions of Won)
Due in 2019	￦	16,346
Due in 2020		14,210
Due in 2021		9,753
Due in 2022		6,164
Due in 2023		5,219
Thereafter		3,299
Gross long-term borrowings		54,991
Fair value adjustments		(5	)
Deferred financing costs		(1	)
Discount		(39	)
Total long-term borrowings, net	￦	54,946

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Short-term borrowings

The following table presents information regarding our short-term borrowings (borrowings with an original maturity of one year or less) for the periods indicated:

	As of and for the Year Ended December 31,
	2016			2017			2018
	(in billions of Won, except percentages)
Call money:
Year-end balance	￦	2,940		￦	1,299		￦	1,081
Average balance(1)		2,576			3,405			2,189
Maximum balance(2)		3,422			3,997			3,421
Average interest rate(3)		1.06	%		1.31	%		1.81	%
Year-end interest rate		0.08-3.30	%		1.20-2.20	%		1.20-2.20	%
Borrowings from the Bank of Korea:(4)
Year-end balance	￦	1,644		￦	1,889		￦	1,673
Average balance(1)		1,571			1,805			1,766
Maximum balance(2)		1,714			1,935			1,868
Average interest rate(3)		0.68	%		0.69	%		0.70	%
Year-end interest rate		0.50-0.75	%		0.50-0.75	%		0.50-0.75	%
Other short-term borrowings:(5)
Year-end balance	￦	17,283		￦	22,632		￦	28,585
Average balance(1)		10,437			20,601			25,991
Maximum balance(2)		13,727			23,436			30,195
Average interest rate(3)		0.98	%		1.26	%		1.65	%
Year-end interest rate		0.00-5.40	%		0.00-7.00	%		0.00-5.55	%

⁽¹⁾  Average balances are based on daily balances for our banking, credit card and investment and securities operations and monthly or quarterly balances for our other operations.

⁽²⁾  Maximum balances are based on month-end balances.

⁽³⁾ Average interest rates for the year are calculated by dividing the total interest expense by the average amount borrowed.

⁽⁴⁾  Borrowings from the Bank of Korea generally mature within one month for borrowings in Won and six months for borrowings in foreign currencies. These short-term borrowings were secured by securities totaling ￦1,961 billion as of December 31, 2018.

⁽⁵⁾  Other short-term borrowings include securities sold under repurchase agreement, bills sold, borrowings and debentures. Other short-term borrowings have maturities of one year or less. Securities sold under repurchase agreements were secured by securities totaling ￦9,211 billion as of December 31, 2018.

Supervision and Regulation

Principal Regulations Applicable to Financial Holding Companies

General

The Financial Holding Company Act, last amended on December 31, 2018, regulates Korean financial holding companies and their subsidiaries. The entities that regulate and supervise Korean financial holding companies and their subsidiaries are the Financial Services Commission and the Financial Supervisory Service.

The Financial Services Commission exerts direct control over financial holding companies pursuant to the Financial Holding Company Act. Among other things, the Financial Services Commission approves the establishment of financial holding companies, issues regulations on the capital adequacy of financial holding companies and their subsidiaries, and drafts regulations relating to the supervision of financial holding companies.

Following the instructions and directives of the Financial Services Commission, the Financial Supervisory Service supervises and examines financial holding companies and their subsidiaries. In particular, the Financial Supervisory Service sets requirements relating to Korean financial holding companies’ liquidity and capital

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adequacy ratios and establishes reporting requirements within the authority delegated under the Financial Services Commission regulations. Financial holding companies must submit quarterly reports to the Financial Supervisory Service discussing business performance, financial status and other matters identified in the Enforcement Decree of the Financial Holding Company Act.

Under the Financial Holding Company Act, a financial holding company is a company which primarily engages in controlling its subsidiaries by holding equity stakes in them equal in aggregate to at least 50% of the financial holding company’s aggregate assets based on its balance sheet as of the end of the immediately preceding fiscal year. A company is required to obtain approval from the Financial Services Commission to become a financial holding company.

A financial holding company may engage only in controlling the management of its subsidiaries, as well as certain ancillary activities including:

• financially supporting its direct and indirect subsidiaries;

• raising capital necessary for investment in its subsidiaries or providing financial support to its direct and indirect subsidiaries;

• supporting the business of its direct and indirect subsidiaries, including the development and marketing of financial products;

• providing data processing, legal, accounting and other resources and services that have been commissioned by its direct and indirect subsidiaries so as to support their operations; and

• any other businesses exempted from authorization, permission or approval under the applicable laws and regulations.

The Financial Holding Company Act requires every financial holding company (other than a financial holding company that is controlled by another financial holding company) and its subsidiaries to obtain prior approval from the Financial Services Commission before acquiring control of another company or to file a report with the Financial Services Commission within 30 days thereafter in certain cases (including acquiring control of another company whose assets are less than ￦100 billion as of the end of the immediately preceding fiscal year). In addition, the Financial Services Commission must grant permission to liquidate or to merge with any other company before the liquidation or merger. A financial holding company must report to the Financial Services Commission when certain events, including the following, occur:

• when the largest shareholder changes;

• in the case of a bank holding company, when a major investor changes;

• when the shareholding of the controlling shareholder (i.e., the “largest shareholder” or a “principal shareholder,” each as defined in the Financial Holding Company Act) or a person who has a “special relationship” with such controlling shareholder (as defined in the Enforcement Decree of the Financial Holding Company Act) changes by 1% or more of the total issued and outstanding voting shares of the financial holding company;

• when it changes its corporate name;

• when there is a cause for its dissolution; and

• when it or its subsidiaries cease to control any of their respective direct or indirect subsidiaries by disposing of their shares of such direct or indirect subsidiary.

Capital Adequacy

The Financial Holding Company Act does not provide for a minimum paid-in capital requirement related to financial holding companies. However, all financial holding companies are required to maintain a specified level

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of solvency. In addition, with respect to the allocation of net profit earned in a fiscal term, a financial holding company must set aside in its legal reserve an amount equal to at least 10% of its net income after tax each time it pays dividends on its net profits earned until its legal reserve reaches at least the aggregate amount of its paid-in capital.

A bank holding company, which is a financial holding company controlling banks or other financial institutions conducting banking business as prescribed in the Financial Holding Company Act, is required to maintain a total minimum consolidated capital adequacy ratio of 11.5% (including applicable additional capital buffers and requirements as described below) as of January 1, 2019. “Consolidated capital adequacy ratio” is defined as the ratio of equity capital as a percentage of risk-weighted assets on a consolidated basis, determined in accordance with the Financial Services Commission requirements that have been formulated based on Bank of International Settlements (or BIS) standards. “Equity capital,” as applicable to bank holding companies, is defined as the sum of common equity Tier I capital, additional Tier I capital and Tier II capital less any deductible items, each as defined under the Regulation on the Supervision of Financial Holding Companies. “Risk-weighted assets” is defined as the sum of credit risk-weighted assets and market risk-weighted assets.

Pursuant to amended regulations promulgated by the Financial Services Commission commencing in 2013 to implement Basel III, Korean bank holding companies were required to maintain a minimum ratio of common equity Tier I capital to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to 4.5% and 6.0%, respectively, from January 1, 2015. Such requirements are in addition to the pre-existing requirement for a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets of 8.0%, which remains unchanged. The amended regulations also require an additional capital conservation buffer of 1.875% in 2018 and 2.5% in 2019, as well as a potential counter-cyclical capital buffer of up to 2.5%, which is determined on a quarterly basis by the Financial Services Commission. Furthermore, we were designated as one of five domestic systemically important banks for 2018 by the Financial Services Commission and were subject to an additional capital requirement of 0.75% in 2018. In June 2018, we were again designated as a domestic systemically important bank for 2019, which would subject us to an additional capital requirement of 1.0% in 2019.

Liquidity

All financial holding companies are required to match the maturities of their assets and liabilities on a non-consolidated basis in accordance with the Financial Holding Company Act in order to ensure liquidity. Financial holding companies must:

• maintain a Won liquidity ratio (defined as Won assets due within one month, including marketable securities, divided by Won liabilities due within one month) of not less than 100% on a non-consolidated basis;

• maintain a foreign currency liquidity ratio (defined as foreign currency liquid assets due within three months divided by foreign currency liabilities due within three months) of not less than 80% on a non-consolidated basis (except that such requirement is not applicable to a financial holding company whose foreign currency liabilities constitute less than 1% of its total assets);

• maintain a ratio of foreign currency liquid assets due within seven days less foreign currency liabilities due within seven days as a percentage of total foreign currency assets of not less than 0% on a non-consolidated basis (except that such requirement is not applicable to a financial holding company whose foreign currency liabilities constitute less than 1% of its total assets);

• maintain a ratio of foreign currency liquid assets due within a month less foreign currency liabilities due within a month as a percentage of total foreign currency assets of not less than negative 10% on a non-consolidated basis (except that such requirement is not applicable to a financial holding company whose foreign currency liabilities constitute less than 1% of its total assets); and

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• make quarterly reports regarding their Won liquidity and foreign currency liquidity to the Financial Supervisory Service.

Financial Exposure to Any Individual Customer and Major Investor

Subject to certain exceptions, the aggregate credit (as defined in the Financial Holding Company Act, the Bank Act, the Financial Investment Services and Capital Markets Act, the Insurance Business Act, the Mutual Savings Bank Act and the Specialized Credit Financial Business Act, respectively) of a financial holding company and its direct and indirect subsidiaries that are banks, merchant banks, financial investment companies, insurance companies, savings banks or specialized credit financial business companies (which we refer to as “Financial Holding Company Total Credit”) to a single group of companies that belong to the same conglomerate as defined in the Monopoly Regulations and Fair Trade Act will not be permitted to exceed 25% of net aggregate equity capital (as defined below).

“Net aggregate equity capital” is defined under the Enforcement Decree of the Financial Holding Company Act as the sum of:

(1) in case of a financial holding company, the capital amount as defined in Article 24-3(7), Item 2 of the Enforcement Decree of the Financial Holding Company Act;

(2) in case of a bank, the capital amount as defined in Article 2(1), Item 5 of the Bank Act;

(3) in case of a merchant bank, the capital amount as defined in Article 342(1) of the Financial Investment Services and Capital Markets Act; and

(4) in case of a financial investment company, the capital amount as defined in Article 37(3) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act;

(5) in case of an insurance company, the capital amount as defined in Article 2, Item 15 of the Insurance Business Act;

(6) in case of a savings bank, the capital amount as defined in Article 2, Item 4 of the Mutual Savings Bank Act; and

(7) in case of a specialized credit financial business company, the capital amount as defined in Article 2, Item 19 of the Specialized Credit Financial Business Act;

less the sum of:

(1) the amount of shares of direct and indirect subsidiaries held by the financial holding company;

(2) the amount of shares that are cross-held by each direct and indirect subsidiary that is a bank, merchant bank, financial investment company, insurance company, savings bank or specialized credit financial business company; and

(3) the amount of shares of a financial holding company held by such direct and indirect subsidiaries that are banks, merchant banks, financial investment companies, insurance companies, savings banks or specialized credit financial business companies.

The Financial Holding Company Total Credit to a single individual or judicial person may not exceed 20% of the net aggregate equity capital. In addition, the Financial Holding Company Total Credit to a shareholder holding (together with the persons who have a “special relationship” with the shareholder, as defined in the Enforcement Decree of the Financial Holding Company Act) in aggregate more than 10% of the total issued and outstanding voting shares of a financial holding company generally may not exceed the lesser of (x) 25% of the net aggregate equity capital and (y) the amount of the equity capital of the financial holding company multiplied by the shareholding ratio of the shareholder (together with the persons who have a special relationship with the shareholder).

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Further, the total sum of credits (as defined in the Financial Holding Company Act, the Bank Act, the Financial Investment Services and Capital Markets Act, the Insurance Business Act, the Mutual Savings Bank Act and the Specialized Credit Financial Business Act, respectively) of a bank holding company and its direct and indirect subsidiaries that are banks, merchant banks, financial investment companies, insurance companies, savings banks or specialized credit financial business companies as applicable (“Bank Holding Company Total Credit”) extended to a “major investor” (as defined below) (together with the persons who have a special relationship with that major investor) will not be permitted to exceed the lesser of (x) 25% of the net aggregate equity capital and (y) the amount of the equity capital of the bank holding company multiplied by the shareholding ratio of the major investor, except for certain cases.

“Major investor” is defined as:

• a shareholder holding (together with persons who have a special relationship with that shareholder), in excess of 10% (or in the case of a bank holding company controlling regional banks only, 15%) in the aggregate of the bank holding company’s total issued and outstanding voting shares; or

• a shareholder holding (together with persons who have a special relationship with that shareholder), more than 4% in the aggregate of the total issued and outstanding voting shares of the bank holding company controlling nationwide banks, where the shareholder is the largest shareholder or has actual control over the major business affairs of the bank holding company through, for example, appointment and dismissal of the officers pursuant to the Enforcement Decree of the Financial Holding Company Act.

In addition, the total sum of the Bank Holding Company Total Credit granted to all of a bank holding company’s major investor must not exceed 25% of the bank holding company’s net aggregate equity capital. Furthermore, any bank holding company that, together with its direct and indirect subsidiaries, intends to extend credit to the bank holding company’s major investor in an amount equal to or exceeding the lesser of (x) the amount equivalent to 0.1% of the net aggregate equity capital and (y) ￦5 billion, in any single transaction, must obtain prior unanimous board resolutions and then, immediately after providing the credit, must file a report to the Financial Services Commission and publicly disclose the filing of the report.

Restrictions on Transactions Among Direct and Indirect Subsidiaries and Financial Holding Company

Generally, a direct or indirect subsidiary of a financial holding company may not extend credits (excluding the amount of corporate credit card payments issued by a direct or indirect subsidiary of a financial holding company that is engaged in the banking business) to that financial holding company. In addition, a direct or indirect subsidiary of a financial holding company may not extend credits (excluding the amount of corporate credit card payments issued by a direct or indirect subsidiary of a financial holding company that is engaged in the banking business) to other direct or indirect subsidiaries of the financial holding company in excess of 10% of its capital amount on an individual basis or to those subsidiaries in excess of 20% of its capital amount on an aggregate basis. The subsidiary extending the credit must also obtain an adequate level of collateral depending on the type of such collateral from the other subsidiaries unless the credit is otherwise approved by the Financial Services Commission. The adequate level of collateral for each type of collateral is as follows:

(1) for deposits and installment savings, obligations of the Korean government or the Bank of Korea, obligations guaranteed by the Korean government or the Bank of Korea, obligations secured by securities issued or guaranteed by the Korean government or the Bank of Korea, 100% of the credit extended;

(2) for obligations of municipal governments under the Local Autonomy Act, local public enterprise under the Local Public Enterprises Act and investment institutions and other quasi-investment institutions under the Basic Act on the Management of Government-Invested Institution or for obligations guaranteed by, or secured by the securities issued or guaranteed by, the aforementioned entities pursuant to the relevant regulations, 110% of the credit extended; and

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(3) for any property other than those set forth in paragraphs (1) and (2) above, 130% of the credit extended.

Subject to certain exceptions, a direct or indirect subsidiary of a financial holding company is prohibited from owning the shares of any other direct or indirect subsidiaries (other than those directly controlled by that direct or indirect subsidiary) under the common control of the financial holding company.

Subject to certain exceptions, a direct or indirect subsidiary of a financial holding company is also prohibited from owning the shares of the financial holding company controlling that direct or indirect subsidiary. The transfer of certain assets classified as precautionary or below between a financial holding company and its direct or indirect subsidiary or between the direct and indirect subsidiaries of a financial holding company is prohibited except for:

(1) transfers to a special purpose company, or entrustment with a trust company, for an asset-backed securitization transaction under the Asset-Backed Securitization Act;

(2) transfers to a mortgage-backed securities issuance company for a mortgage securitization transaction;

(3) transfers or in-kind contributions to a corporate restructuring vehicle under the Corporate Restructuring Investment Companies Act; and

(4) transfers to a corporate restructuring company under the Industry Promotion Act.

Disclosure of Management Performance

For the purpose of protecting the depositors and investors in the subsidiaries of financial holding companies, the Financial Services Commission requires financial holding companies to disclose certain material matters including:

(1) financial condition and profit and loss of the financial holding company and its direct and indirect subsidiaries;

(2) fund-raising by the financial holding company and its direct and indirect subsidiaries and the appropriation of such funds;

(3) any sanctions levied on the financial holding company and its direct and indirect subsidiaries under the Financial Holding Company Act or any corrective measures or sanctions under the Law on Improvement of Structure of Financial Industry; and

(4) occurrence of any non-performing assets or financial incident that may have a material adverse effect, or any other event as prescribed in the applicable regulations.

Restrictions on Shareholdings in Other Companies

Generally, a financial holding company may not own (i) more than 5% of the total issued and outstanding shares of another finance-related company, (ii) any shares of its affiliates, other than its direct or indirect subsidiaries or (iii) any shares of a non-finance-related company.

Restrictions on Shareholdings by Direct and Indirect Subsidiaries

Generally, a direct subsidiary of a financial holding company may not control any other company other than, as an indirect subsidiary of the financial holding company:

• financial institutions established in foreign jurisdictions;

• certain financial institutions which are engaged in any business that the direct subsidiary may conduct without any licenses or permits;

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• certain financial institutions whose business is related to the business of the direct subsidiary as described by the Enforcement Decree of the Financial Holding Company Act (for example, a bank subsidiary may control only credit information companies, credit card companies and financial investment companies with a dealing, brokerage, collective investment, investment advice, discretionary investment management and/or trust license);

• certain financial institutions whose business is related to the financial business as prescribed by the regulations of the Ministry of Economy and Finance; and

• certain companies which are not financial institutions but whose business is related to the financial business of the financial holding company as prescribed by the Enforcement Decree of the Financial Holding Company Act (for example, a finance-related research company or a finance-related information technology company).

Acquisition of such indirect subsidiaries by direct subsidiaries of a financial holding company requires prior permission from the Financial Services Commission or the submission of a report to the Financial Services Commission, depending on the types of the indirect subsidiaries and the amount of total assets of the indirect subsidiaries.

Subject to certain exceptions, an indirect subsidiary of a financial holding company may not control any other company. If an indirect subsidiary of a financial holding company had control over another company at the time it became such an indirect subsidiary, the indirect subsidiary is required to dispose of its interest in the other company within two years from such time.

Restrictions on Transactions between a Bank Holding Company and its Major Investor

A bank holding company and its direct and indirect subsidiaries may not acquire (including through their respective trust accounts) shares issued by the bank holding company’s major investor in excess of 1% of the net aggregate equity capital (as defined above). In addition, if those entities intend to acquire shares issued by that major investor in any single transaction equal to or exceeding the lesser of (x) the amount equivalent to 0.1% of the net aggregate equity capital and (y) ￦5 billion, that entity must obtain prior unanimous board resolutions and then, immediately after the acquisition, file a report to the Financial Services Commission and publicly disclose the filing of the report.

Restrictions on Ownership of a Financial Holding Company

Under the Financial Holding Company Act, a financial institution generally may not control a financial holding company. In addition, any single shareholder and persons who have a special relationship with that shareholder may acquire beneficial ownership of up to 10% of the total issued and outstanding shares with voting rights of a bank holding company that controls nationwide banks or 15% of the total issued and outstanding shares with voting rights of a bank holding company that controls only regional banks, subject to certain exceptions. Among others, the Korean government and the Korea Deposit Insurance Corporation are not subject to this limit. “Non-financial business group companies” (as defined below), however, may not acquire the beneficial ownership of shares of a bank holding company controlling nationwide banks in excess of 4% of that bank holding company’s outstanding voting shares unless they obtain the approval of the Financial Services Commission and agree not to exercise voting rights in respect of shares in excess of the 4% limit, in which case they may acquire beneficial ownership of up to 10%. Any other person (whether a Korean national or a foreign investor) may acquire no more than 10% of total voting shares issued and outstanding of a bank holding company controlling nationwide banks unless they obtain approval from the Financial Services Commission in each instance where the total holding will exceed 10% (or 15% in the case of a bank holding company controlling only regional banks), 25% or 33% of the total voting shares issued and outstanding of that bank holding company controlling nationwide banks.

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Furthermore, in the case where a person (including Korean and foreign investors, but excluding certain persons prescribed under the Enforcement Decree of the Financial Holding Company Act) (i) acquires in excess of 4% of the total issued and outstanding voting shares of any bank holding company (other than a bank holding company controlling only regional banks), (ii) becomes the largest shareholder of such bank holding company in which such person has acquired in excess of 4% of the total issued and outstanding voting shares, (iii) changes its shareholding in such bank holding company, in which it has acquired in excess of 4% of the total issued and outstanding voting shares, by 1% or more of the total issued and outstanding voting shares of such bank holding company or (iv) is a private equity fund or an investment purpose company holding in excess of 4% of the total outstanding voting shares of a bank holding company and changes its members or shareholders, such person must file a report on such change with the Financial Services Commission (x) in case of (i) and (iii), by the last day of the month immediately following the month in which such change occurred, or (y) in case of (ii) and (iv), within ten days after the end of the month in which such change occurred.

“Non-financial business group companies” as defined under the Financial Holding Company Act include:

(1) any same shareholder group where the aggregate net assets of all non-financial business companies belonging to that group equals or exceeds 25% of the aggregate net assets of all members of that group;

(2) any same shareholder group where the aggregate assets of all non-financial business companies belonging to that group equals or exceeds ￦2 trillion;

(3) any mutual fund where a same shareholder group identified in (1) or (2) above beneficially owns and/or exercises the voting rights of more than 4% of the total issued and outstanding voting shares of that mutual fund;

(4) any private equity fund (a) where a person falling under any of items (1) through (3) above is a limited partner holding not less than 10% of the total amount of contributions to the private equity fund, or (b) where a person falling under any of items (1) through (3) above is a general partner, or (c) where the total equity of the private equity fund acquired by each affiliate belonging to several enterprise groups subject to the limitation on mutual investment is 30% or more of the total amount of contributions to the private equity fund; or

(5) the investment purpose company concerned, where a private equity fund falling under item (4) above acquires or holds stocks in excess of 4% of the stock or equity of such company or exercises de facto control over significant managerial matters of such company through appointment or dismissal of executives or in any other manner.

Sharing of Customer Information among Financial Holding Company and its Subsidiaries

Under the Act on Use and Protection of Credit Information, any individual customer’s credit information must be disclosed or otherwise used by financial institutions only to determine, establish or maintain existing commercial transactions with them and only after obtaining written consent to use that information. In addition, under the Act on Real Name Financial Transactions and Confidentiality, an individual working at a financial institution may not provide or reveal information or data concerning the contents of financial transactions to other persons unless such individual receives a request or consent in writing from the holder of a title deed, except under certain exceptions stipulated in the Act. Under the Financial Holding Company Act, a financial holding company and its direct and indirect subsidiaries, however, may share certain credit information of individual customers among themselves for internal management purposes outlined in the Enforcement Decree of the Financial Holding Company Act (such as credit risk management, internal control and customer analysis), without the customers’ written consent, subject to the methods and procedures for provision of such information set forth therein. A subsidiary financial investment company with a dealing and/or brokerage license of a financial holding company may provide that financial holding company and its other direct and indirect subsidiaries information relating to the aggregate amount of cash or securities that a customer of the financial

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investment company with a dealing and/or brokerage license has deposited, for internal management purposes outlined in the Enforcement Decree of the Financial Holding Company Act, subject to the methods and procedures for provision of such information set forth therein. Recent amendments to the Financial Holding Company Act, which became effective on November 29, 2014, limit the scope of credit information that may be shared without the customers’ prior consent and require certain procedures for provision of customer information as prescribed by the Financial Services Commission. Beginning in November 29, 2014, notice must be given to customers at least once a year regarding (i) the provider of customer information, (ii) the recipient of customer information, (iii) the purpose of providing the information and (iv) the categories of the information provided.

Principal Regulations Applicable to Banks

The banking system in Korea is governed by the Bank Act and the Bank of Korea Act of 1950, as amended (the “Bank of Korea Act”). In addition, Korean banks are subject to the regulations and supervision of the Bank of Korea, the Monetary Policy Committee of the Bank of Korea, the Financial Services Commission and its executive body, the Financial Supervisory Service.

The Bank of Korea, established in June 1950 under the Bank of Korea Act, performs the customary functions of a central bank. It seeks to contribute to the sound development of the national economy by price stabilization through establishing and implementing efficient monetary and credit policies with a focus on financial stability. The Bank of Korea acts under instructions of the Monetary Policy Committee, the supreme policy-making body of the Bank of Korea.

Under the Bank of Korea Act, the Monetary Policy Committee’s primary responsibilities are to formulate monetary and credit policies and to determine the operations, management and administration of the Bank of Korea.

The Financial Services Commission, established in April 1998, regulates commercial banks pursuant to the Bank Act, including establishing guidelines on capital adequacy of commercial banks, and promulgates regulations relating to supervision of banks. Furthermore, the Financial Services Commission regulates market entry into the banking business.

The Financial Supervisory Service, established in January 1999, is subject to the instructions and directives of the Financial Services Commission and carries out supervision and examination of commercial banks. In particular, the Financial Supervisory Service sets requirements both for the prudent control of liquidity and for capital adequacy and establishes reporting requirements pursuant to the authority delegated to it under the Financial Services Commission regulations, pursuant to which banks are required to submit annual reports on financial performance and shareholdings, regular reports on management strategy and non-performing loans, including write-offs, and management of problem companies and plans for the settlement of bad loans.

Under the Bank Act, approval to commence a commercial banking business or a long-term financing business must be obtained from the Financial Services Commission. Commercial banking business is defined as the lending of funds acquired predominantly from the acceptance of demand deposits for a period not exceeding one year or subject to the limitation established by the Financial Services Commission, for a period between one year and three years. Long-term financing business is defined as the lending, for periods in excess of one year, of funds acquired predominantly from paid-in capital, reserves or other retained earnings, the acceptance of time deposits with maturities of at least one year, or the issuance of debentures or other bonds. A bank wishing to enter into any business other than commercial banking and long-term financing businesses, such as a trust business, must obtain approval from the Financial Services Commission. Approval to merge with any other banking institution, to liquidate, spin off or close a banking business or to transfer all or a part of a business must also be obtained from the Financial Services Commission.

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If the Financial Services Commission deems a bank’s financial condition to be unsound or if a bank fails to meet the applicable capital adequacy ratio set forth under Korean law, the Financial Services Commission may order:

• admonitions or warnings with respect to its officers;

• capital increases or reductions;

• assignments of contractual rights and obligations relating to financial transactions;

• a suspension of performance by its officers of their duties and the appointment of receivers;

• disposals of property holdings or closures of subsidiaries or branch offices or downsizing;

• stock cancelations or consolidations;

• mergers with other financial institutions;

• acquisition of such bank by a third party; and

• suspensions of a part or all of its business operations for not more than six months.

Capital Adequacy

The Bank Act requires nationwide banks, such as us, to maintain a minimum paid-in capital of ￦100 billion and regional banks to maintain a minimum paid-in capital of ￦25 billion. All banks, including foreign bank branches in Korea, are also required to maintain a prescribed solvency position. A bank must also set aside in its legal reserve an amount equal to at least 10% of the net income after tax each time it pays dividends on net profits earned until its legal reserve reaches at least the aggregate amount of its paid-in capital.

Under the Detailed Regulation on the Supervision of the Banking Business, the capital of a bank is divided into two categories, Tier I and Tier II capital. Tier I capital (core capital) consists of (i) common equity Tier I capital, including paid-in capital, capital surplus and retained earnings related to common equity and accumulated other comprehensive gains and losses, and (ii) additional Tier I capital, including paid-in capital and capital surplus related to hybrid Tier I capital instruments that, among other things, qualify as contingent capital and are subordinated to subordinated debt. Tier II capital (supplementary capital) consists of, among other things, capital and capital surplus from the issuance of Tier II capital, allowances for loan losses on loans classified as “normal” or “precautionary,” subordinated debt and other capital securities which meet the standards prescribed by the governor of the Financial Supervisory Service under Article 26(2) of the Regulation on the Supervision of the Banking Business.

All banks must meet minimum ratios of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets, determined in accordance with Financial Services Commission requirements that have been formulated based on BIS standards. These requirements were adopted and became effective in 1996, and were amended effective January 1, 2008 upon the implementation by the Financial Supervisory Service of Basel II. Under such requirements, all domestic banks and foreign bank branches are required to meet a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets of 8.0%. Commencing in July 2013, the Financial Services Commission promulgated a series of amended regulations implementing Basel III, pursuant to which Korean banks and bank holding companies were required to maintain a minimum ratio of common equity Tier I capital to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to 4.5% and 6.0%, respectively, from January 1, 2015. Such requirements are in addition to the pre-existing requirement for a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets of 8.0%, which remains unchanged. The amended regulations also require an additional capital conservation buffer of 1.875% in 2018 and 2.5% in 2019, as well as a potential counter-cyclical capital buffer of up to 2.5%, which is determined on a quarterly basis by the Financial Services Commission.

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Furthermore, we were designated as one of five domestic systemically important banks for 2018 by the Financial Services Commission and were subject to an additional capital requirement of 0.75% in 2018. In June 2018, we were again designated as a domestic systemically important bank for 2019, which would subject us to an additional capital requirement of 1.0% in 2019.

Under the Detailed Regulation on the Supervision of the Banking Business, the following risk-weight ratios must be applied by Korean banks in respect of home mortgage loans:

(1) for those banks which adopted a standardized approach for calculating credit risk capital requirements, a risk-weight ratio of 35% (only in the case where the loan is fully secured by a first ranking mortgage) and, with respect to high-risk home mortgage loans, 50% or 70%; and

(2) for those banks which adopted an internal ratings-based approach for calculating credit risk capital requirements, a risk-weight ratio calculated with reference to the probability of default, loss given default and exposure at default, each as defined under the Detailed Regulation on the Supervision of the Banking Business.

Liquidity

All banks are required to ensure adequate liquidity by matching the maturities of their assets and liabilities in accordance with the Regulation on the Supervision of the Banking Business. Banks may not invest an amount exceeding 100% of their Tier I and Tier II capital (less any capital deductions) in equity securities and certain other securities with a redemption period of over three years. This stipulation does not apply to Korean government bonds, Monetary Stabilization Bonds issued by the Bank of Korea or debentures and stocks referred to in items 1 and 2, respectively, of paragraph (6) of Article 11 of the Act on the Improvement of the Structure of the Financial Industry. The Financial Services Commission uses the liquidity coverage ratio (described below) as the principal liquidity risk management measure, and currently requires each Korean bank to:

• maintain a liquidity coverage ratio (defined as the ratio of highly liquid assets to total net cash outflows over a 30-day period) of not less than 100%;

• maintain a foreign currency liquidity coverage ratio of not less than 80%; and

• submit monthly reports with respect to the maintenance of these ratios.

The Monetary Policy Committee of the Bank of Korea is empowered to fix and alter minimum reserve requirements that banks must maintain against their deposit liabilities. The current minimum reserve ratios are:

• 7% of average balances for Won currency demand deposits outstanding;

• 0% of average balances for Won currency employee asset establishment savings deposits, employee long-term savings deposits, employee house purchase savings deposits, long-term house purchase savings deposits, household long-term savings deposits and employee preferential savings deposits outstanding (with respect to employee-related deposits, only if such deposits were made prior to February 28, 2013); and

• 2% of average balances for Won currency time deposits, installment savings deposits, mutual installments, housing installments and certificates of deposit outstanding.

For foreign currency deposit liabilities, a 2% minimum reserve ratio is applied to time deposits with a maturity of one month or longer, certificates of deposit with a maturity of 30 days or longer and savings deposits with a maturity of six months or longer and a 7% minimum reserve ratio is applied to other deposits. A 1% minimum reserve ratio applies to deposits in offshore accounts, immigrant accounts and resident accounts opened by foreign exchange banks as well as foreign currency certificates of deposit held by account holders of such offshore accounts, immigrant accounts and resident accounts opened by foreign exchange banks.

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Furthermore, under the Regulation on the Supervision of the Banking Business, Kookmin Bank is required to maintain a minimum “mid- to long-term foreign exchange funding ratio” of 100%. “Mid-to long term foreign exchange funding ratio” refers to the ratio of (1) the total outstanding amount of foreign exchange borrowing with a maturity of more than one year to (2) the total outstanding amount of foreign exchange lending with a maturity of one year or more.

Amendments Relating to Net Stable Funding Ratio and Leverage Ratio Requirements

Effective January 31, 2018, the Financial Services Commission implemented amendments to the Regulation on Supervision of the Banking Business that impose certain liquidity- and leverage-related ratio requirements on banks in Korea, in accordance with Basel III. Pursuant to these amendments, each Korean bank is required to:

• maintain a net stable funding ratio (defined as the ratio of the available amount of stable funding to the required amount of stable funding) of not less than 100%, where (i) the available amount of stable funding generally refers to the portion of liabilities and capital expected to be reliable over a one-year time horizon and (ii) the required amount of stable funding generally refers to the portion of assets requiring stable funding over a time horizon of one year or longer, each as calculated in accordance with the Detailed Regulation on Supervision of the Banking Business;

• maintain a leverage ratio (defined as the ratio of core capital to total exposures) of not less than 3%, where (i) core capital includes paid-in capital, capital surplus, retained earnings and hybrid Tier I capital instruments and (ii) total exposures include on-balance sheet exposures and off-balance sheet exposures, each as calculated in accordance with the Detailed Regulation on Supervision of the Banking Business; and

• submit monthly reports with respect to the maintenance of these ratios.

Financial Exposure to Any Individual Customer or Major Shareholder

Under the Bank Act, subject to certain exceptions, the sum of large exposures by a bank—in other words, the total sum of its credits to single individuals, juridical persons or business groups that exceed 10% of the sum of Tier I and Tier II capital (less any capital deductions)—generally must not exceed five times the sum of Tier I and Tier II capital (less any capital deductions). In addition, subject to certain exceptions, banks generally may not extend credit (including loans, guarantees, purchases of securities (only in the nature of a credit) and any other transactions that directly or indirectly create credit risk) in excess of 20% of the sum of Tier I and Tier II capital (less any capital deductions) to a single individual or juridical person, or grant credit in excess of 25% of the sum of Tier I and Tier II capital (less any capital deductions) to a single group of companies as defined in the Monopoly Regulations and Fair Trade Act.

The Bank Act also provides for certain restrictions on extending credits to a major shareholder. A “major shareholder” is defined as:

• a shareholder holding (together with persons who have a special relationship with that shareholder) in excess of 10%; (or 15% in the case of regional banks) in the aggregate of the bank’s total issued and outstanding voting shares; or

• a shareholder holding (together with persons who have a special relationship with such shareholder) in excess of 4% in the aggregate of the bank’s (excluding regional banks) total issued and outstanding voting shares of a bank (excluding shares subject to the shareholding restrictions on “non-financial business group companies” as described below), where such shareholder is the largest shareholder or has actual control over the major business affairs of the bank through, for example, appointment and dismissal of the officers pursuant to the Enforcement Decree of the Bank Act. Non-financial business group companies primarily consist of: (i) any single shareholding group whose non-financial company assets comprise no less than 25% of its aggregate net assets; (ii) any single shareholding group whose

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non-financial company assets comprise no less than ￦2 trillion in aggregate; or (iii) any investment company under the Financial Investment Services and Capital Markets Act of which any single shareholding group identified in (i) or (ii) above, owns more than 4% of the total issued and outstanding shares.

Under these restrictions, banks may not extend credits to a major shareholder (together with persons who have a special relationship with that shareholder) in an amount greater than the lesser of (x) 25% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) and (y) the relevant major shareholder’s shareholding ratio multiplied by the sum of the bank’s Tier I and Tier II capital (less any capital deductions). In addition, the total sum of credits granted to all major shareholders must not exceed 25% of the bank’s Tier I and Tier II capital (less any capital deductions).

Interest Rates

Korean banks generally depend on deposits as their primary funding source. Under the Act on Registration of Credit Business and Protection of Finance Users and the regulations thereunder, interest rates on loans made by registered banks in Korea to individuals or small corporations, as defined under the Framework Act on Small and Medium Enterprises, may not exceed 24% per annum. Historically, interest rates on deposits and lending were regulated by the Monetary Policy Committee. There are no controls on deposit interest rates in Korea, except for the prohibition on interest payments on current account deposits.

Lending to Small- and Medium-sized Enterprises

In order to obtain funding from the Bank of Korea at concessionary rates for their small- and medium-sized enterprise loans, banks are required to allocate a certain minimum percentage of any quarterly increase in their Won currency lending to small- and medium-sized enterprises. Currently, this minimum percentage is 45% in the case of nationwide banks and 60% in the case of regional banks. If a bank does not comply with this requirement, the Bank of Korea may:

• require the bank to prepay all or a portion of funds provided to that bank in support of loans to small- and medium-sized enterprises; or

• lower the bank’s credit limit.

Disclosure of Management Performance

For the purpose of protecting depositors and investors in commercial banks, the Financial Services Commission requires commercial banks to publicly disclose certain material matters, including:

• financial condition and profit and loss of the bank and its subsidiaries;

• fund raising by the bank and the appropriation of such funds;

• any sanctions levied on the bank under the Bank Act or any corrective measures or sanctions under the Law on Improvement of Structure of Financial Industry; and

• except as may otherwise have been disclosed by a bank or its financial holding company listed on the KRX KOSPI Market in accordance with the Financial Investment Services and Capital Markets Act, occurrence of any of the following events or any other event as prescribed by the applicable regulations:

(i) loans bearing no profit made to a single business group in an amount exceeding 10% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) as of the end of the previous month (where the loan exposure to that borrower is calculated pursuant to the criteria under the Detailed Regulation on the Supervision of the Banking Business), unless the loan exposure to that group is not more than ￦4 billion; and

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(ii) any loss due to court judgments or similar decisions in civil proceedings in an amount exceeding 1% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) as of the end of the previous month, unless the loss is not more than ￦1 billion.

Restrictions on Lending

Pursuant to the Bank Act and its sub-regulations, commercial banks may not provide:

• loans directly or indirectly secured by a pledge of a bank’s own shares;

• loans directly or indirectly to enable a natural or juridical person to buy the bank’s own shares;

• loans to any of the bank’s officers or employees, other than de minimis loans of up to (i) ￦20 million in the case of a general loan, (ii) ￦50 million in the case of a general loan plus a housing loan or (iii) ￦60 million in the aggregate for general loans, housing loans and loans to pay damages arising from wrongful acts of employees in financial transactions;

• credit (including loans) secured by a pledge of shares of a subsidiary corporation of the bank or to enable a natural or juridical person to buy shares of a subsidiary corporation of the bank; or

• loans to any officers or employees of a subsidiary corporation of the bank, other than general loans of up to ￦20 million or general and housing loans of up to ￦50 million in the aggregate.

Regulations Relating to Retail Household Loans

The Financial Services Commission has implemented a number of changes in recent years to the regulations relating to retail household lending by banks. Under the currently applicable regulations:

• as to loans secured by collateral of housing (including apartments) located nationwide, the loan-to-value ratio (the aggregate principal amount of loans secured by such collateral over the appraised value of the collateral) should not exceed 70%;

• as to loans secured by collateral of housing (including apartments) located in areas of excessive investment or housing (including apartments) located in areas of high speculation, in each case, as designated by the government, the loan-to-value ratio should not exceed 40%, except that such maximum loan-to-value ratio is 50% for low-income households that (i) have an annual income of less than ￦70 million (or ￦80 million for first-home buyers), (ii) do not currently own any housing and (iii) are using the loan to purchase low-price housing valued at less than ￦600 million;

• as to any new loans secured by collateral of housing to be extended to a household, any member of which has already received one or more loans secured by collateral of housing, the maximum loan-to-value ratio is 10% lower than the applicable loan-to-value ratio described above;

• as to loans secured by collateral of housing (including apartments) located in areas of excessive investment or housing (including apartments) located in areas of high speculation, in each case, as designated by the government, the borrower’s debt-to-income ratio (calculated as (1) the aggregate annual total payment amount of (x) the principal of and interest on loans secured by such housing and (y) the interest on other debts of the borrower over (2) the borrower’s annual income) should not exceed 40%, except that such maximum debt-to-income ratio is 50% for low-income households that (i) have an annual income of less than ￦70 million (or ￦80 million for first-home buyers), (ii) do not currently own any housing and (iii) are using the loan to purchase low-price housing valued at less than ￦600 million;

• as to any new loans secured by collateral of housing to be extended to a household, any member of which has already received one or more loans secured by collateral of housing, the maximum debt-to-income ratio is 10% lower than the applicable debt-to-income ratio described above;

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• as to apartments located in areas of high speculation as designated by the government, a household is permitted to have only one new loan secured by such apartment; and

• where a household has two or more loans secured by apartments located in areas of high speculation as designated by the government, the loan with the earliest maturity date must be repaid first and the number of loans must be eventually reduced to one.

Restrictions on Investments in Property

A bank may not invest in securities set forth below in excess of 100% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions):

• debt securities (within the meaning of paragraph (3) of Article 4 of the Financial Investment Services and Capital Markets Act) the maturity of which exceeds three years, but excluding government bonds, monetary stabilization bonds issued by the Bank of Korea and bonds within the meaning of item 2, paragraph (6) of Article 11 of the Act on the Improvement of the Structure of the Financial Industry;

• equity securities, but excluding securities within the meaning of item 1, paragraph (6) of Article 11 of the Act on the Improvement of the Structure of the Financial Industry;

• derivatives linked securities (within the meaning of paragraph (7) of Article 4 of the Financial Investment Services and Capital Markets Act) the maturity of which exceeds three years; and

• beneficiary certificates, investment contracts and depositary receipts (within the meaning of paragraph (2) of Article 4 of the Financial Investment Services and Capital Markets Act) the maturity of which exceeds three years.

A bank may possess real estate property only to the extent necessary for the conduct of its business. The aggregate value of such property may not exceed 60% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions). Any property that a bank acquires by exercising its rights as a secured party, or which a bank is prohibited from acquiring under the Bank Act, must be disposed of within three years, unless specified otherwise by the regulations thereunder.

Restrictions on Shareholdings in Other Companies

Under the Bank Act, a bank may not own more than 15% of shares outstanding with voting rights of another corporation, except where, among other reasons:

• that corporation engages in a category of financial businesses set forth by the Financial Services Commission; or

• the acquisition of shares by the bank is necessary for the corporate restructuring of such corporation and is approved by the Financial Services Commission.

In the above exceptional cases, the total investment in corporations in which the bank owns more than 15% of the outstanding shares with voting rights may not exceed (i) 20% of the sum of Tier I and Tier II capital (less any capital deductions) or (ii) 30% of the sum of Tier I and Tier II capital (less any capital deductions) where the acquisition satisfies the requirements determined by the Financial Services Commission.

The Bank Act provides that a bank using its bank accounts and its trust accounts is not permitted to acquire the shares issued by the major shareholder of such bank in excess of an amount equal to 1% of the sum of Tier I and Tier II capital (less any capital deductions).

Restrictions on Bank Ownership

Under the Bank Act, a single shareholder and persons who have a special relationship with that shareholder generally may acquire beneficial ownership of no more than 10% of a nationwide bank’s total issued and

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outstanding shares with voting rights and no more than 15% of a regional bank’s total issued and outstanding shares with voting rights. The Korean government, the Korea Deposit Insurance Corporation and bank holding companies qualifying under the Financial Holding Company Act are not subject to this limit. However, pursuant to an amendment to the Bank Act which became effective on February 14, 2014, non-financial business group companies may not acquire beneficial ownership of shares of a nationwide bank in excess of 4% (or 15% in the case of a regional bank) of that bank’s outstanding voting shares, unless they satisfy certain requirements set forth by the Enforcement Decree of the Bank Act, obtain the approval of the Financial Services Commission and agree not to exercise voting rights in respect of shares in excess of the 4% limit (or the 15% limit in the case of a regional bank), in which case they may acquire beneficial ownership of up to 10% of a nationwide bank’s outstanding voting shares. Such amendment grants an exception for non-financial business group companies which, at the time of the enactment of the amended provisions, held more than 4% of the shares of a bank.

In addition, if a foreign investor, as defined in the Foreign Investment Promotion Act, owns in excess of 4% of a nationwide bank’s outstanding voting shares, non-financial business group companies may acquire beneficial ownership of up to 10% (or 15% in the case of a regional bank) of that bank’s outstanding voting shares, and in excess of 10% (or 15% in the case of a regional bank), 25% or 33% of that bank’s outstanding voting shares with the approval of the Financial Services Commission in each instance, up to the number of shares owned by the foreign investor. Any other person (whether a Korean national or a foreign investor), with the exception of non-financial business group companies described above, may acquire no more than 10% of a nationwide bank’s total voting shares issued and outstanding, unless they obtain approval from the Financial Services Commission in each instance where the total holding will exceed 10% (or 15% in the case of regional banks), 25% or 33% of the bank’s total voting shares issued and outstanding provided that, in addition to the foregoing threshold shareholding ratios, the Financial Services Commission may, at its discretion, designate a separate and additional threshold shareholding ratio.

Deposit Insurance System

The Depositor Protection Act provides insurance for certain deposits of banks in Korea through a deposit insurance system. Under the Depositor Protection Act, all banks governed by the Bank Act are required to pay an insurance premium to the Korea Deposit Insurance Corporation on a quarterly basis and the rate is determined under the Enforcement Decree to the Depositor Protection Act. If the Korea Deposit Insurance Corporation makes a payment on an insured amount, it will acquire the depositors’ claims with respect to that payment amount. The Korea Deposit Insurance Corporation insures a maximum of ￦50 million per individual for deposits and interest in a single financial institution, regardless of when the deposits were made and the size of the deposits.

Restrictions on Foreign Exchange Position

Under the Korean Foreign Exchange Transaction Law, each of a bank’s net overpurchased and oversold positions may not exceed 50% of its shareholder’s equity as of the end of the prior month.

Laws and Regulations Governing Other Business Activities

A bank must register with the Ministry of Economy and Finance to enter the foreign exchange business, which is governed by the Foreign Exchange Transaction Act of Korea. A bank must obtain the permission of the Financial Services Commission to enter the securities business, which is governed by regulations under the Financial Investment Services and Capital Markets Act. Under these laws, a bank may engage in the foreign exchange business, securities repurchase business, governmental/public bond underwriting business and governmental bond dealing business.

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Trust Business

A bank must obtain approval from the Financial Services Commission to engage in trust businesses. The Trust Act and the Financial Investment Services and Capital Markets Act govern the trust activities of banks, and they are subject to various legal and accounting procedures and requirements, including the following:

• under the Trust Act, assets accepted in trust by a bank in Korea must be segregated from other assets in the accounts of that bank; and

• depositors and other general creditors cannot obtain or assert claims against the assets comprising the trust accounts in the event the bank is liquidated or wound-up.

The bank must make a special reserve of 25% or more of fees from each unspecified money trust account for which a bank guarantees the principal amount and a fixed rate of interest until the total reserve for that account equals 5% of the trust amount. Since January 1999, the Korean government has prohibited Korean banks from offering new guaranteed fixed rate trust account products whose principal and interest are guaranteed.

Under the Financial Investment Services and Capital Markets Act, which became effective in February 2009, a bank with a trust business license (such as Kookmin Bank) is permitted to offer both specified money trust account products and unspecified money trust account products. Previously, banks were not permitted to offer unspecified money trust account products pursuant to the Indirect Investment Asset Management Act, which is no longer in effect following the effectiveness of the Financial Investment Services and Capital Markets Act. Due to changes in applicable regulations, new sales of pension savings trusts, a form of unspecified money trust account product, have been suspended starting in January 2018. Transactions involving existing pension savings trusts, however, are still permitted.

Credit Card Business

General

In order to enter the credit card business, a company must obtain a license from the Financial Services Commission. Credit card businesses are governed by the Specialized Credit Financial Business Act, which sets forth specific requirements with respect to the credit card business as well as generally prohibiting unsound business practices relating to the credit card business which may infringe on the rights of credit card holders or negatively affect the soundness of the credit card industry. Credit card companies, including our wholly-owned subsidiary, KB Kookmin Card Co., Ltd., are regulated by the Financial Services Commission and the Financial Supervisory Service.

Disclosure and Reports

Under the Specialized Credit Financial Business Act and the regulations thereunder, a credit card company is required to disclose on a periodic and on-going basis certain material matters and events. In addition, a credit card company must submit periodic reports with respect to its results of operations to the Governor of the Financial Supervisory Service, in accordance with the guidelines of the Financial Supervisory Service.

Restrictions on Funding

Under the Specialized Credit Financial Business Act and the regulations thereunder, a credit card company must ensure that its total assets do not exceed an amount equal to six times its equity capital and that the ratio of its adjusted equity capital to its adjusted total assets is not less than 8.0%. However, if a credit card company is unable to comply with such limit upon the occurrence of unavoidable events, such as drastic changes in the domestic and global financial markets, such limit may be adjusted through a resolution of the Financial Services Commission.

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Risk of Loss Due to Lost, Stolen, Forged or Altered Credit Cards

Under the Specialized Credit Financial Business Act, a credit card company is liable for any loss arising from the unauthorized use of credit cards or debit cards after it has received notice from the holder of the loss or theft of the card. A credit card company is also responsible for any losses resulting from the use of forged or altered credit cards, debit cards and pre-paid cards. A credit card company may, however, transfer all or part of this latter risk of loss to holders of credit card in the event of willful misconduct or gross negligence by holders of credit card if the terms and conditions of the agreement entered between the credit card company and members of such cards specifically provide for that transfer.

For these purposes, disclosure of a customer’s password that is made intentionally or through gross negligence, or the transfer of or giving as collateral of the credit card or debit card, is considered willful misconduct or gross negligence. However, a disclosure of a cardholder’s password that is made under irresistible force or threat to cardholder or his/her relatives’ life or health will not be deemed as willful misconduct or negligence of the cardholder.

Each credit card company must institute appropriate measures to fulfill these obligations, such as establishing provisions, purchasing insurance or joining a cooperative association.

Pursuant to the Enforcement Decree to Specialized Credit Financial Business Act, a credit card company will be liable for any losses arising from loss or theft of a credit card (which was not from the holder’s willful misconduct or negligence) during the period beginning 60 days before the notice by the holder to the credit card company.

Pursuant to the Specialized Credit Financial Business Act, the Financial Services Commission may either restrict the limit or take other necessary measures against the credit card company with respect to such matters as the maximum limits on the amount per credit card, details of credit card terms and conditions, management of credit card merchants and collection of claims, including the following:

• maximum limits for cash advances on credit cards;

• use restrictions on debit cards with respect to per day or per transaction usage;

• aggregate issuance limits and maximum limits on the amount per card on pre-paid cards; and

• other matters prescribed by the Enforcement Decree to the Specialized Credit Financial Business Act.

Lending Ratio in Ancillary Business

Pursuant to the Enforcement Decree to the Specialized Credit Financial Business Act, a credit card company must maintain an aggregate quarterly average outstanding lending balance to credit cardholders (including cash advances and credit card loans, but excluding restructured loans) no greater than the sum of (i) its aggregate quarterly average outstanding credit card balance arising from the purchase of goods and services and (ii) the aggregate quarterly debit card transaction volume.

Issuance of New Cards and Solicitation of New Cardholders

The Enforcement Decree to the Specialized Credit Financial Business Act establishes the conditions under which a credit card company may issue new cards and solicit new members. New credit cards may be issued only to the following persons:

• persons who are at least 19 years old when they apply for a credit card;

• persons whose capability to pay bills as they come due has been verified using standards established by the credit card company; and

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• in the case of minors who are 18 years old, persons who submit documents evidencing employment as of the date of the credit card application, such as an employment certificate, or persons for whom the issuance of a credit card is necessitated by governmental policies, such as financial aid.

In addition, a credit card company may not solicit credit card members by:

• providing economic benefits or promising to provide economic benefits in excess of 10% of the annual credit card fee (in the case of credit cards with annual fees that are less than the average of the annual fees charged by major credit cards in Korea, the annual fee will be deemed to be equal to such average annual fee) in connection with issuing a credit card; provided, however, that providing economic benefits or promising to provide economic benefits not exceeding the amount of the annual credit card fee to an applicant that becomes a credit card member through an online platform is permissible;

• soliciting applicants on roads, public places or along corridors used by the general public;

• soliciting applicants through visits, except those visits made upon prior consent and visits to a business area;

• soliciting applicants through the Internet without verifying whether the applicant is who he or she purports to be, by means of a certified digital signature under the Digital Signature Act; and

• soliciting applicants through pyramid sales methods.

Compliance Rules on Collection of Receivable Claims

Pursuant to Supervisory Regulation on the Specialized Credit Financial Business, a credit card company may not:

• exert violence or threaten violence;

• inform a related party (a guarantor of the debtor, blood relative or fiancé(e) of the debtor, a person living in the same household as the debtor or a person working in the same workplace as the debtor) of the debtor’s obligations without just cause;

• provide false information relating to the debtor’s obligation to the debtor or his or her related parties;

• threaten to sue or sue the debtor for fraud despite lack of affirmative evidence to establish that the debtor has submitted forged or false documentation with respect to his or her ability to make payment;

• visit or telephone the debtor during late evening hours (between the hours of 9:00 p.m. and 8:00 a.m.); and

• utilize other uncustomary methods to collect the receivables that interfere with the privacy or the peace in the workplace of the debtor or his or her related parties.

Principal Regulations Applicable to Insurance Companies

General

Under the Insurance Business Act, a company seeking to engage in the insurance business in Korea is required to obtain business authorizations and licenses from the Financial Services Commission, and such company is required to comply with the Insurance Business Act and the regulations thereunder. These rules and regulations cover, among other things: (i) the requirements for obtaining business authorizations and licenses to operate an insurance company; (ii) the scope of business an insurance company may undertake; (iii) the operations of an insurance company, including its asset management activities; (iv) the methods of insurance solicitation; (v) the supervision of the insurance business; and (vi) the disciplinary actions for violation of the Insurance Business Act, which may include revocation of a license, imprisonment, suspension of operations, fines, surcharges and penalties.

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The Financial Services Commission has the authority to oversee matters involving licenses necessary for, and supervision of, the operation of an insurance business. Pursuant to the Regulation on Supervision of Insurance Business and the Regulation on Corporate Governance of Financial Companies, the Financial Services Commission sets forth detailed criteria for obtaining the authorization necessary to engage in the insurance business, as well as various comprehensive standards required to be met by an insurance company. The Financial Services Commission entrusts the Financial Supervisory Service with certain matters pursuant to the Regulation on Supervision of Insurance Business, as specified under the Detailed Enforcement Regulations on Insurance Supervision.

Since an insurance company falls within the scope of a financial institution under the Act on the Structural Improvement of the Financial Industry, special provisions thereunder apply to an insurance company in the event (i) it merges with, or converts into, another financial institution, (ii) it becomes bankrupt or insolvent or is dissolved or (iii) members of its business group acquire shares of another company in excess of a certain percentage. In addition, an insurance company that offers and sells investment-type insurance products, such as variable insurance products, and manages assets under special accounts for variable insurance policies is deemed a financial investment company under the Financial Investment Services and Capital Markets Act. Such insurance company is subject to certain provisions under the Financial Investment Services and Capital Markets Act, such as regulations on the control of conflicts of interest as well as the establishment and maintenance of firewalls for asset management of special accounts related to variable insurance policies. In addition, pursuant to the Foreign Exchange Transactions Act, an insurance company is required to obtain prior approval from the Ministry of Economy and Finance, the Bank of Korea, the Financial Supervisory Service or a foreign exchange bank and may be required to file periodic reports if the company engages in any of the following: (a) a transaction involving a foreign currency; (b) a transaction with a non-resident involving either the Won or a foreign currency; (c) a transaction that requires an outgoing overseas payment; (d) a transaction that requires receipt of an overseas payment; and (e) any other transaction prescribed under the Foreign Exchange Transactions Act. Furthermore, an insurance company is required to comply with the Act on the Corporate Governance of Financial Companies.

Scope of Business of Insurance Companies

Under the Insurance Business Act, an insurance company is prohibited from concurrently operating a life insurance business and a non-life insurance business (including property, marine and cargo and liability insurance), provided that an insurance company may concurrently operate a “type three” insurance business (including casualty, disease and health care insurance) and provide reinsurance to other insurance companies. However, limited cross-selling of life insurance and non-life insurance products by insurance sales agents working for life insurance or non-life insurance companies in Korea is permitted by the Financial Services Commission.

Upon approval by the Financial Services Commission, a life insurance company may operate (i) a life insurance business, (ii) a pension insurance (including retirement insurance) business and (iii) type three insurance businesses, while a non-life insurance company may operate (i) various types of non-life insurance businesses (including property, marine and cargo, automobile, guarantee, reinsurance and certain other enumerated non-life insurance as designated under the Enforcement Decree of the Insurance Business Act as well as liability insurance) and (ii) type three insurance businesses.

Both life insurance and non-life insurance companies may also operate certain financial businesses and incidental businesses designated under the Enforcement Decree of the Insurance Business Act.

Requirements Relating to Insurance Solicitation

The Insurance Business Act limits entities that may engage in insurance solicitation to insurance sales agents, insurance agencies (including those of financial institutions), insurance brokers and officers and

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employees of an insurance company. Any person or entity wishing to act as an insurance sales agent, insurance agency (including those of financial institutions) or insurance broker must register with the Financial Services Commission and report promptly to the Financial Services Commission the occurrence of certain changes prescribed under the Insurance Business Act.

Insurance brochures used for insurance solicitation must clearly specify the terms required under the Insurance Business Act in an easy-to-understand manner. Where an insurance company or any person engaging in insurance solicitation persuades an ordinary policyholder to enter into an insurance contract, it must explain to such ordinary policyholder about certain critical matters of the insurance contract prescribed by the Enforcement Decree of the Insurance Business Act, including insurance premiums, coverage scope and restrictions on the payment of insurance proceeds, in a manner the policyholder can easily understand.

Where an insurance company or any person engaging in insurance solicitation advertises an insurance product, it must include the details of such insurance product in such advertisement as prescribed under the Insurance Business Act and must not engage in any act which, among other things, may lead to a misunderstanding that such insurance product would provide a large amount of insurance proceeds by emphasizing selective terms and conditions of such product or introducing cases where a large amount of insurance proceeds were paid.

In connection with the execution or solicitation of an insurance contract, any person engaging in insurance solicitation must not engage in any act prohibited under the Insurance Business Act, including acts of providing a policyholder with false information regarding an insurance product and acts intended to interrupt or prevent a policyholder from notifying an insurance company of an important matter relevant to an insurance policy.

Any person engaging in insurance solicitation is prohibited from providing special benefits (including, but not limited to, cash over a certain amount and discounts on insurance premiums) in connection with the execution of an insurance contract unless such special benefits are stipulated in the underlying documents for such insurance product. In addition, an insurance company is prohibited from entrusting any person other than those who are eligible under the Insurance Business Act to engage in insurance solicitation or paying any compensation to any ineligible persons for his or her insurance solicitation. The Insurance Business Act and the Enforcement Decree of the Insurance Business Act also prescribe in detail certain practices that insurance agencies of financial institutions are restricted from engaging in, including, but not limited to:

• offering additional services, such as providing a loan, on condition that the individual purchase a life insurance policy; and

• including insurance premiums in loan transactions without the prior consent of the borrower.

The Insurance Business Act permits insurance sales agents working for life insurance companies to cross-sell non-life insurance products of one non-life insurance company, and insurance sales agents working for non-life insurance companies are correspondingly permitted to cross-sell the life insurance products of one life insurance company.

Capital Adequacy

Pursuant to the risk-based capital adequacy requirements implemented by the Financial Services Commission, insurance companies in Korea are required to maintain a statutory ratio of available regulatory capital to risk-weighted assets of not less than 100% on a consolidated basis (although a risk-based capital adequacy ratio of not less than 150% is still considered standard in the Korean insurance industry). Risk based capital adequacy requirements require insurance companies to hold adequate capital to cover their exposures to interest rate risk, market risk, credit risk and operational risk as well as insurance risk by reflecting such risks in their calculation of risk-weighted assets. The statutory risk-based capital adequacy ratio for insurance companies is computed by dividing available capital by required capital. Available capital of an insurance company is

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computed as the sum of, among other things, capital stock, reserve for policyholder dividends and bad debt allowance after deducting, among other things, deferred acquisition costs, goodwill, and prepaid expenses. Required capital is computed based on the sum of (i) the square root of the sum of the squares of (w) insurance risk amounts, (x) interest rate risk amounts, (y) credit risk amounts and (z) market risk amounts, and (ii) the operating risk amounts, with each risk amount being calculated in accordance with the detailed criteria set forth under the Regulation on Supervision of Insurance Business and the Detailed Enforcement Regulations on Insurance Supervision.

The Financial Supervisory Service has announced that it plans to introduce a new regulatory solvency regime for insurance companies by 2022 based on the International Capital Standard developed by the International Association of Insurance Supervisors, which would be similar in substance to the Solvency II Directive of the European Union. The Solvency II Directive, which has been in effect in the European Union since January 1, 2016, is a comprehensive program of regulatory requirements for insurance companies, covering authorization, corporate governance, supervisory reporting, public disclosure and risk assessment and management, as well as solvency. Under the Financial Supervisory Service’s planned new solvency regime in Korea, among other things, insurance contract liabilities are expected to be measured based on market value, rather than book value, which would require a number of insurance companies in Korea with a large portfolio of high guaranteed rate of return products to obtain additional capital to meet their capital adequacy requirements. The Financial Supervisory Service has also announced its plans to implement a series of incremental changes to the calculation methodology for the risk-based capital adequacy ratio of insurance companies, as interim measures. Such changes implemented in 2017 included increasing the maximum statutory duration of insurance liabilities recognized for purposes of such calculation, as well as reducing the coefficient applied in calculating interest rate risk and adjusting the methods used to assess the risk of guaranteed benefits of variable insurance policies. The details of the new solvency regime in Korea have not yet been finalized and are likely to be further amended in the future.

Regulations on Class Actions Regarding Securities

The Law on Class Actions Regarding Securities was enacted as of January 20, 2004 and last amended on May 28, 2013. The Law on Class Actions Regarding Securities governs class actions suits instituted by one or more representative plaintiff(s) on behalf of 50 or more persons who claim to have been damaged in a capital markets transaction involving securities issued by a listed company in Korea.

Applicable causes of action with respect to such suits include:

• claims for damages caused by misleading information contained in a securities statement;

• claims for damages caused by the filing of a misleading business report, semi-annual report, or quarterly report;

• claims for damages caused by insider trading or market manipulation; and

• claims instituted against auditors for damages caused by accounting irregularities.

Any such class action may be instituted upon approval from the presiding court and the outcome of such class action will have a binding effect on all potential plaintiffs who have not joined the action, with the exception of those who have filed an opt out notice with such court.

Financial Investment Services and Capital Markets Act

The Financial Investment Services and Capital Markets Act, which became effective in February 2009, regulates and governs the financial investment business in Korea. The entities that regulate and supervise financial investment companies are the Financial Services Commission, the Financial Supervisory Service and the Securities and Futures Commission.

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Under the Financial Investment Services and Capital Markets Act, a company must obtain a license from the Financial Services Commission to commence a financial investment business such as a brokerage business, a dealing business or an underwriting business, or register with the Financial Services Commission to commence a financial investment business such as an investment advisory business or a discretionary investment management business. A bank is permitted to engage in certain types of financial investment business as specified under the Enforcement Decree of the Bank Act. Prior to commencing a financial investment business, a bank must file a report with the Financial Services Commission and apply for a license pursuant to the Financial Investment Services and Capital Markets Act.

Consolidation of Capital Markets-Related Laws

Prior to the effectiveness of the Financial Investment Services and Capital Markets Act, there were separate laws regulating various types of financial institutions depending on the type of financial institution (for example, securities companies, futures companies, trust business companies and asset management companies) and subjecting financial institutions to different licensing and ongoing regulatory requirements (for example, the Korean Securities Exchange Act, the Futures Business Act and the Indirect Investment Asset Management Business Act). By applying one uniform set of rules to the same financial business having the same economic function, the Financial Investment Services and Capital Markets Act attempts to improve and address issues caused by the previous regulatory system under which the same economic function relating to capital markets-related businesses are governed by multiple regulations. To this end, the Financial Investment Services and Capital Markets Act categorizes capital markets-related businesses into six different functions, as follows:

• dealing, trading and underwriting of “financial investment products” (as defined below);

• brokerage of financial investment products;

• establishment of collective investment schemes and the management thereof;

• investment advice;

• discretionary investment management; and

• trusts (together with the five businesses set forth above, the “Financial Investment Businesses”).

Accordingly, all financial businesses relating to financial investment products have been reclassified as one or more of the Financial Investment Businesses described above, and financial institutions are subject to the regulations applicable to their relevant Financial Investment Businesses, regardless of the type of the financial institution. For example, under the Financial Investment Services and Capital Markets Act, derivative businesses conducted by former securities companies and future companies will be subject to the same regulations.

Banking and insurance businesses are not subject to the Financial Investment Services and Capital Markets Act and will continue to be regulated under separate laws. However, they may become subject to the Financial Investment Services and Capital Markets Act if their activities involve any financial investment businesses requiring a license pursuant to the Financial Investment Services and Capital Markets Act.

Comprehensive Definition of Financial Investment Products

In an effort to encompass the various types of securities and derivative products available in the capital markets, the Financial Investment Services and Capital Markets Act sets forth a comprehensive term “financial investment products,” defined to mean all financial products with a risk of loss in the invested amount (in contrast to “deposits,” which are financial products for which the invested amount is protected or preserved). Financial investment products are classified into two major categories: (i) “securities” (financial investment products in which the risk of loss is limited to the invested amount) and (ii) “derivatives” (financial investment products in which the risk of loss may exceed the invested amount). As a result of the general and broad definition of financial investment products, a variety of financial products may be defined as a financial

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investment product, which would enable Financial Investment Companies (defined below) to handle a broader range of financial products. Under the Financial Investment Services and Capital Markets Act, entities formerly licensed as securities companies, asset management companies, futures companies and other entities engaging in any Financial Investment Business are classified as “Financial Investment Companies.”

New License System and the Conversion of Existing Licenses

Under the Financial Investment Services and Capital Markets Act, Financial Investment Companies are able to choose the type of Financial Investment Business in which to engage (through a “check the box” method set forth in the relevant license application), by specifying the desired (i) Financial Investment Business, (ii) financial investment product and (iii) target customers to which financial investment products may be sold or distributed (that is, general investors or professional investors). Licenses will be issued under the specific business sub-categories described in the foregoing sentence. For example, it would be possible for a Financial Investment Company to obtain a license to engage in the Financial Investment Business of (i) dealing (ii) over the counter derivatives products (iii) only with sophisticated investors.

Financial institutions that engage in business activities constituting a Financial Investment Business are required to take certain steps, such as renewal of their license or registration, in order to continue engaging in such business activities. Financial institutions that are not licensed Financial Investment Companies are not permitted to engage in any Financial Investment Business, subject to the following exceptions: (i) banks and insurance companies are permitted to engage in certain categories of Financial Investment Business for a period not exceeding six months commencing on the effective date of the Financial Investment Services and Capital Markets Act; and (ii) other financial institutions that engaged in any Financial Investment Business prior to the effective date of the Financial Investment Services and Capital Markets Act (whether in the form of a concurrent business or an incidental business) are permitted to continue such Financial Investment Business for a period not exceeding six months commencing on the effective date of the Financial Investment Services and Capital Markets Act.

Expanded Business Scope of Financial Investment Companies

Under the previous regulatory regime in Korea, it was difficult for a financial institution to explore a new line of business or expand upon its existing line of business. For example, previously a financial institution licensed as a securities company generally was not permitted to engage in the asset management business. In contrast, under the Financial Investment Services and Capital Markets Act, pursuant to the integration of its current businesses involving financial investment products into a single Financial Investment Business, a licensed Financial Investment Company is permitted to engage in all types of Financial Investment Businesses, subject to satisfying relevant regulations (for example, maintaining an adequate “Chinese Wall,” to the extent required). As to incidental businesses (that is, a financial related business which is not a Financial Investment Business), the Financial Investment Services and Capital Markets Act generally allows a Financial Investment Company to freely engage in such incidental businesses by shifting away from the previous positive-list system towards a more comprehensive system. In addition, a Financial Investment Company is permitted to (i) outsource marketing activities by contracting “introducing brokers” that are individuals but not employees of the Financial Investment Company, (ii) engage in foreign exchange businesses related to their Financial Investment Business and (iii) participate in the settlement network, pursuant to an agreement among the settlement network participants.

Improvement in Investor Protection Mechanism

While the Financial Investment Services and Capital Markets Act widens the scope of financial businesses in which financial institutions are permitted to engage, a more rigorous investor-protection mechanism is also imposed upon Financial Investment Companies dealing in financial investment products. The Financial Investment Services and Capital Markets Act distinguishes general investors from sophisticated investors and

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provides new or enhanced protections to general investors. For instance, the Financial Investment Services and Capital Markets Act expressly provides for a strict know-your-customer rule for general investors and imposes an obligation that Financial Investment Companies should market financial investment products suitable to each general investor, using written explanatory materials. Under the Financial Investment Services and Capital Markets Act, a Financial Investment Company could be liable if a general investor proves (i) damage or losses relating to such general investor’s investment in financial investment products solicited by such Financial Investment Company and (ii) the absence of the requisite written explanatory materials, without having to prove fault or causation. With respect to conflicts of interest between Financial Investment Companies and investors, the Financial Investment Services and Capital Markets Act expressly requires (i) disclosure of any conflict of interest to investors and (ii) mitigation of conflicts of interest to a comfortable level or abstention from the relevant transaction.

Other Changes to Securities / Fund Regulations

The Financial Investment Services and Capital Markets Act changed various securities regulations including those relating to public disclosure, insider trading and proxy contests, which were previously governed by the Korean Securities Exchange Act. For example, the 5% and 10% reporting obligations under the Korean Securities Exchange Act have become more stringent. The Indirect Investment and Asset Management Business Act strictly limited the kind of vehicles that could be utilized under a collective investment scheme, restricting the range of potential vehicles to trusts and corporations, and the type of funds that can be used for investments. However, under the Financial Investment Services and Capital Markets Act, these restrictions have been significantly liberalized, permitting all vehicles that may be created under Korean law, such as limited liability companies or partnerships, to be used for the purpose of collective investments and allowing investment funds to be more flexible as to their investments.

Act on the Corporate Governance of Financial Companies

The Act on the Corporate Governance of Financial Companies, which became effective on August 1, 2016, was enacted to address the need for strengthened regulations on corporate governance of financial institutions and to serve as a uniform set of regulations on corporate governance matters applicable to financial institutions across a variety of industry sectors. It contains several key measures, including (i) eligibility requirements for officers of financial institutions and standards for determining whether officers of financial institutions may hold concurrent positions in other companies, (ii) standards for composition and operation of the board of directors of financial institutions, (iii) standards for establishment, composition and operation of various committees of the board of directors of financial institutions, (iv) regulations on internal control and risk management, (v) requirements and procedures for the approval of a change of major shareholders and (vi) special regulations to protect the rights of minority shareholders of financial institutions.

Environment

In 2015, our operations became subject to the Framework Act on Low Carbon, Green Growth, which was enacted in April 2010, and the Greenhouse Gas Emissions Trading System Act, which was enacted in May 2012. The Framework Act on Low Carbon, Green Growth and the regulations thereunder establish the greenhouse gas target management system, which requires companies to establish and achieve greenhouse gas emissions and energy consumption targets on an annual basis. The Greenhouse Gas Emissions Trading System Act and the regulations thereunder establish the Korean emissions trading scheme, under which companies are allocated a limited volume of emission allowances and are allowed to trade excess emission allowances.

We actively seek to engage in environmentally responsible management of our operations. We have developed a program for our operations to achieve energy efficiency objectives and reduce our greenhouse gas emissions to lessen our impact on the environment.

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Item 4.C. Organizational Structure

The following chart provides an overview of our structure, including our significant subsidiaries and our ownership of such subsidiaries as of the date of this annual report:

Our largest subsidiary is Kookmin Bank, the assets of which represented approximately 74.4% of our total assets as of December 31, 2018. The following table provides summary information for our operating subsidiaries that are consolidated in our consolidated financial statements as of and for the year ended December 31, 2018, including their consolidated total assets, operating revenue, profit (loss) and total equity:

Subsidiaries	Total Assets		Operating Revenue		Profit (Loss)		Total Equity
	(in millions of Won)
Kookmin Bank	￦	356,959,258	￦	18,089,885	￦	2,259,198	￦	26,667,866
KB Securities Co., Ltd.		45,086,292		6,667,005		178,850		4,472,869
KB Insurance Co., Ltd.		34,785,551		11,977,601		262,266		3,495,845
KB Kookmin Card Co., Ltd.		20,528,951		3,045,039		286,599		3,958,671
KB Life Insurance Co., Ltd.		9,680,379		1,305,231		14,824		552,231
KB Asset Management Co., Ltd.		254,256		130,027		39,586		146,752
KB Capital Co., Ltd.		9,517,239		734,499		111,939		1,000,401
KB Savings Bank Co., Ltd.		1,388,844		85,346		11,018		201,973
KB Real Estate Trust Co., Ltd.		293,063		114,660		47,004		235,834
KB Investment Co., Ltd.		528,701		114,914		14,532		153,776
KB Credit Information Co., Ltd.		26,276		35,219		185		15,235
KB Data Systems Co., Ltd.		40,197		131,374		2,942		16,409

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Further information regarding our subsidiaries is provided below:

• Kookmin Bank was established in Korea in 2001 as a result of the merger of the former Kookmin Bank (established in 1963) and H&CB (established in 1967). Kookmin Bank provides a wide range of banking and other financial services to individuals, small- and medium-sized enterprises and large corporations in Korea. As of December 31, 2018, Kookmin Bank was one of the largest commercial banks in Korea based upon total assets (including loans) and deposits. As of December 31, 2018, Kookmin Bank had approximately 31.0 million customers, with 1,057 branches nationwide.

• KB Securities Co., Ltd., formerly known as Hyundai Securities Co., Ltd., was established in Korea in 1962 to provide various securities brokerage and investment banking services. In 2016, we acquired 100% of the outstanding shares of Hyundai Securities, merged another subsidiary, KB Investment & Securities Co., Ltd., with and into Hyundai Securities and changed the name of the surviving entity to KB Securities Co., Ltd.

• KB Insurance Co., Ltd., formerly known as LIG Insurance Co., Ltd., was established in Korea in January 1959 to provide non-life insurance products. KB Insurance became our wholly-owned subsidiary in July 2017 after a series of stock purchases, a tender offer and a comprehensive stock swap.

• KB Kookmin Card Co., Ltd. was established in March 2011 as a separate entity upon the completion of a horizontal spin-off of Kookmin Bank’s credit card business, to provide credit card services.

• KB Life Insurance Co., Ltd. was established in Korea in April 2004 to provide life insurance and wealth management products primarily through our branch network.

• KB Asset Management Co., Ltd. was established in Korea in April 1988 as a subsidiary of Citizens Investment Trust Company to provide investment advisory services.

• KB Capital Co., Ltd., which provides leasing services and installment finance services, was formerly known as Woori Financial Co., Ltd. and was acquired by us in March 2014. KB Capital became our wholly-owned subsidiary in July 2017 after a tender offer followed by a comprehensive stock swap.

• KB Savings Bank Co., Ltd. was established in Korea in January 2012 to provide small-loan finance services. KB Savings Bank was established in connection with our purchase of assets and assumption of liabilities of Jeil Savings Bank in January 2012. We acquired Yehansoul Savings Bank, which provided small-loan finance services, in September 2013 and merged it with KB Savings Bank in January 2014, with KB Savings Bank as the surviving entity.

• KB Real Estate Trust Co., Ltd. was established in Korea in December 1996 to provide real estate development and brokerage services by managing trusts related to the real estate industry.

• KB Investment Co., Ltd. was established in Korea in March 1990 to invest in and finance small- and medium-sized enterprises.

• KB Credit Information Co., Ltd. was established in Korea in October 1999 to collect delinquent loans and to check credit history.

• KB Data Systems Co., Ltd. was established in Korea in September 1991 to provide software services to us and other financial institutions.

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Item 4.D. Property, Plants and Equipment

Our registered office and corporate headquarters are located at 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea. The following table presents information regarding certain of our properties in Korea:

Type of facility/building	Location	Area (square meters)
Registered office and corporate headquarters and Kookmin Bank headquarters	26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331		5,354
KB Kookmin Card headquarters building	Jongno-gu, Seoul		3,923
Kookmin Bank training institute	Ilsan		207,560
Kookmin Bank training institute	Daecheon		4,158
Kookmin Bank training institute	Sokcho		15,559
Kookmin Bank training institute	Cheonan		196,649
Kookmin Bank IT center	Gangseo-gu, Seoul		13,116
Kookmin Bank IT center	Yeouido, Seoul		5,928
Kookmin Bank IT center	Yeouido, Seoul		2,006
Kookmin Bank support center	Seongbuk-gu, Seoul		9,939
KB Securities training institute	Kiheung-gu, Yongin		64,600

In addition, we entered into a land purchase agreement in March 2016 to purchase a site of approximately 4,727 square meters located in Yeouido, Seoul, on which we plan to construct a new headquarters building for Kookmin Bank (with a floor space of approximately 67,683 square meters). We anticipate that our total capital expenditures for the construction of the building, which is scheduled to be completed in 2020, will amount to approximately ￦425 billion, of which an aggregate amount of ￦171 billion was incurred as of December 31, 2018. We also entered into a land purchase agreement in August 2016 to purchase a site of approximately 13,144 square meters located in Gimpo, in the outskirts of Seoul, in order to construct a new IT center for Kookmin Bank (with a floor space of approximately 40,232 square meters). We anticipate that our total capital expenditures for the construction of the IT center, which is scheduled to be completed in 2019, will amount to approximately ￦229 billion, of which an aggregate amount of ￦78 billion was incurred as of December 31, 2018.

As of December 31, 2018, we had a countrywide network of 1,057 banking branches and sub-branches, as well as 520 branches and sub-branches and 58 representative offices for our other operations including our credit card, securities brokerage, insurance and consumer finance businesses. Approximately one-quarter of these facilities are housed in buildings owned by us, while the remaining branches are leased properties. Lease terms are generally from two to three years and seldom exceed five years. We have subsidiaries in Cambodia, Singapore, Hong Kong, China, Myanmar, Vietnam, Laos, Indonesia and the United States. We also have branches of Kookmin Bank in Tokyo in Japan, Auckland in New Zealand, New York in the United States, London in the United Kingdom, Ho Chi Minh City in Vietnam and Hong Kong, branches of Kookmin Bank Cambodia PLC in Toul Kork, Toul Tom Pounh, Tuek Thla, Stueng Meanchey and Chbar Ampov in Cambodia, branches of KB Microfinance Myanmar Co., Ltd. in Hlaingtharya, Shwepyithar, Thanlyin, Pyinmana, Twantay, Magway and Thaketa in Myanmar, branches of Kookmin Bank (China) Ltd. in Beijing, Guangzhou, Harbin, Shanghai and Suzhou in China, branches of KB Securities Vietnam Joint Stock Company in Hanoi and Ho Chi Minh City in Vietnam, a branch of Kookmin Best Insurance Co., Ltd. in New Jersey in the United States, a branch of LIG Insurance (China) Co., Ltd. in Guangzhou in China and branches of PT. KB Insurance Indonesia in Kebon Jeruk and Jayakarta in Indonesia. Kookmin Bank International Ltd., previously one of our operating subsidiaries, was converted to a branch in May 2018. We also have representative offices of Kookmin Bank in Gurgaon in India, Yangon in Myanmar and Hanoi in Vietnam, a representative office of KB Securities in Shanghai in China, a representative office of KB Kookmin Card in Yangon in Myanmar and liaison offices of KB Insurance in Los Angeles in the United States and in Hanoi and Ho Chi Minh City in Vietnam. We do not own any material properties outside of Korea.

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The net carrying amount of all the properties owned by us at December 31, 2018 was ￦3,762 billion.

Item 4A. UNRESOLVED STAFF COMMENTS

We do not have any unresolved comments from the U.S. Securities and Exchange Commission staff regarding our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Item 5.A. Operating Results

Overview

The following discussion is based on our consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB. The consolidated financial statements include the accounts of subsidiaries over which substantive control is exercised through majority ownership of voting stock and/or other means. Investments in jointly controlled entities and associates (which are companies over which we have the ability to exercise significant influence) are accounted for by the equity method of accounting.

Trends in the Korean Economy

Our financial position and results of operations have been and will continue to be significantly affected by financial and economic conditions in Korea. In recent years, commercial banks, consumer finance companies and other financial institutions in Korea have made significant investments and engaged in aggressive marketing in retail lending (including mortgage and home equity loans), leading to substantially increased competition in this segment. From the second half of 2016 to 2018, the Korean government introduced various measures to tighten regulations on mortgage lending and housing subscription in response to the rapid growth in consumer debt and concerns over speculative investments in real estate in certain areas. Notwithstanding such measures, demand for residential property in certain areas, including Seoul, has continued to increase, and our portfolio of retail loans increased from ￦134,956 billion as of December 31, 2016 to ￦146,150 billion as of December 31, 2017 and ￦158,761 billion as of December 31, 2018. Nevertheless, a decrease in housing prices as a result of the implementation of such measures, together with the high level of consumer debt and rising interest rate levels, could result in declines in consumer spending and reduced economic growth, which may lead to increases in delinquency levels of our portfolio of retail loans. In 2018, we recorded charge-offs of ￦381 billion and reversal of provisions for loan losses of ￦270 billion in respect of our retail loan portfolio, compared to charge-offs of ￦342 billion and provision for loan losses of ￦233 billion in 2017 and charge-offs of ￦295 billion and provision for loan losses of ￦82 billion in 2016. See “Item 3.D. Risk Factors—Risks relating to our retail credit portfolio.”

Our loans to small- and medium-sized enterprises increased from ￦86,065 billion as of December 31, 2016 to ￦106,015 billion as of December 31, 2018. Substantial growth in lending in Korea to small- and medium-sized enterprises in recent years, and financial difficulties experienced by such enterprises as a result of, among other things, adverse changes in economic conditions in Korea and globally, may lead to increasing delinquencies and a deterioration in overall asset quality in the credit exposures of Korean banks to small- and medium-sized enterprises. In 2018, we recorded charge-offs of ￦35 billion in respect of our loans to small- and medium-sized enterprises, compared to charge-offs of ￦308 billion in 2017 and ￦467 billion in 2016. See “Item 3.D. Risk Factors—Risks relating to our small- and medium-sized enterprise loan portfolio—We have significant exposure to small- and medium-sized enterprises, and any financial difficulties experienced by these customers may result in a deterioration of our asset quality and have an adverse impact on us.”

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The Korean economy is closely tied to, and is affected by developments in, the global economy. The overall prospects for the Korean and global economy remain uncertain. In recent years, the global financial markets have experienced significant volatility as a result of, among other things:

• a deterioration in economic and trade relations between the United States and its major trading partners, including China;

• uncertainty regarding the timing and method of Brexit;

• financial and social difficulties affecting many countries worldwide, in particular in Latin America and Europe;

• the slowdown of economic growth in China and other major emerging market economies;

• interest rate fluctuations as well as the possibility of further increases in policy rates by the U.S. Federal Reserve and other central banks; and

• political and social instability in various countries in the Middle East, including Syria, Iraq and Yemen.

In addition, the global economy faces a number of uncertainties in 2019, including due to the possibility of higher inflation pressures in the United States and elsewhere, which may lead to corrections in the global financial markets, and credit risks arising from yield-seeking investors increasing their exposure to lower-rated corporate and sovereign borrowers, as well as escalations in trade protectionism globally and geopolitical tensions in East Asia and the Middle East. In light of the high level of interdependence of the global economy, unfavorable changes in the global financial markets, including as a result of any of the foregoing developments, could have a material adverse effect on the Korean economy and financial markets, and in turn on our business, financial condition and results of operations.

We are also exposed to adverse changes and volatility in the global and Korean financial markets as a result of our liabilities and assets denominated in foreign currencies and our holdings of trading and investment securities, including structured products. The value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has fluctuated widely in recent years. A depreciation of the Won will increase our cost in Won of servicing our foreign currency-denominated debt, while continued exchange rate volatility may also result in foreign exchange losses for us. Furthermore, as a result of changes in global and Korean economic conditions, there has been volatility in securities prices, including the stock prices of Korean and foreign companies in which we hold an interest. Such volatility has resulted in and may lead to further trading and valuation losses on our trading and investment securities portfolio as well as impairment losses on our investments accounted for under the equity method.

As a result of uncertain conditions in the Korean and global economies and financial markets, as well as factors such as fluctuations in oil and commodity prices, interest and exchange rate fluctuations, higher unemployment, lower consumer confidence, stock market volatility, potential tightening of fiscal and monetary policies and continued tensions with North Korea, the economic outlook for the financial services sector in Korea in 2019 and for the foreseeable future remains uncertain.

Acquisitions

In recent years, we have engaged in a number of acquisitions, which have affected, and may continue to affect, our results of operations and their comparability from period to period.

In March 2014, we acquired 52.02% of the outstanding shares of Woori Financial Co., Ltd., a publicly listed Korean consumer finance company, from Woori Finance Holdings Co., Ltd. for ￦280 billion, and subsequently renamed the entity KB Capital Co., Ltd. As a result, KB Capital became a consolidated subsidiary. We conducted a tender offer in May 2017, through which we acquired 5,949,300 shares of KB Capital at ￦27,500 per share, increasing our shareholding in KB Capital to 79.70%. We subsequently acquired the remaining outstanding

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shares of KB Capital in exchange for 2,269,057 shares of common stock of our company through a comprehensive stock swap effected in July 2017, as a result of which KB Capital became a wholly-owned subsidiary. As of December 31, 2018, KB Capital had total assets of ￦9,517 billion and total equity of ￦1,000 billion, and in 2018, its total revenues amounted to ￦734 billion and its profit for the year amounted to ￦112 billion.

In June 2015, we acquired 19.47% of the outstanding shares of LIG Insurance Co., Ltd., a publicly listed Korean non-life insurance company, from a group of individual shareholders for ￦651 billion, and subsequently renamed the entity KB Insurance Co., Ltd. In November 2015, we increased our shareholding in KB Insurance to 33.29% by acquiring its treasury shares for ￦231 billion, and in December 2016, we further increased our shareholding to 39.81% by purchasing new shares of KB Insurance for ￦171 billion in a rights offering. Subsequently, through a tender offer conducted in May 2017, we acquired 36,237,649 shares of KB Insurance at ￦33,000 per share, increasing our shareholding to 94.30%, as a result of which KB Insurance became a consolidated subsidiary. In July 2017, we effected a comprehensive stock swap to acquire the remaining outstanding shares of KB Insurance in exchange for 2,170,943 shares of common stock of our company, as a result of which KB Insurance became a wholly-owned subsidiary. In connection with our acquisition of additional shares of KB Insurance in May 2017, we recognized ￦2,434 billion of intangible assets, consisting mainly of the value of business acquired, which represents the difference between the fair value of KB Insurance’s insurance contract liabilities acquired and their book value as of the acquisition date. The value of business acquired is amortized over an estimated useful life of 60 years using the declining balance method, and the related amortization expense is recorded as part of our insurance expense. See Notes 3.10 and 15 of the notes to our consolidated financial statements included elsewhere in this annual report. As of December 31, 2018, KB Insurance had total assets of ￦34,786 billion and total equity of ￦3,496 billion, and in 2018, its total revenues amounted to ￦11,978 billion and its profit for the year amounted to ￦262 billion.

In addition, in May 2016, we acquired 22.56% of the outstanding shares of Hyundai Securities Co., Ltd., a publicly listed Korean securities firm, from Hyundai Merchant Marine Co., Ltd. and other shareholders for ￦1,242 billion, and further increased our shareholding in Hyundai Securities to 29.62% in June 2016 by acquiring treasury shares of Hyundai Securities for ￦107 billion. In October 2016, we increased our shareholding in Hyundai Securities to 100% by effecting a comprehensive stock swap of the outstanding shares of Hyundai Securities for 31,759,844 newly issued shares of common stock of our company, as a result of which Hyundai Securities became a consolidated subsidiary. In connection with such comprehensive stock swap, we recognized gains on bargain purchase of ￦629 billion, representing the excess of the total identifiable net assets of Hyundai Securities over the total consideration transferred (consisting of the sum of the fair value of our holdings of Hyundai Securities shares at the time of the comprehensive stock swap and the value of our common shares issued in the comprehensive stock swap), which was recorded as part of our non-operating income for 2016. Following such transaction, we merged an existing subsidiary, KB Investment & Securities, with and into Hyundai Securities in December 2016 and changed the name of the surviving entity to KB Securities Co., Ltd. As of December 31, 2018, KB Securities had total assets of ￦45,086 billion and total equity of ￦4,473 billion, and in 2018, its total revenues amounted to ￦6,667 billion and its profit for the year amounted to ￦179 billion.

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Changes in Securities Values, Exchange Rates and Interest Rates

Fluctuations of exchange rates, interest rates and stock prices affect, among other things, the demand for our products and services, the value of and rate of return on our assets, the availability and cost of funding and the financial condition of our customers. The following table shows, for the dates indicated, the stock price index of all equities listed on the KRX KOSPI Market as published in the KOSPI, the Won to U.S. dollar exchange rates and benchmark Won borrowing interest rates.

	June 30, 2014			Dec. 31, 2014			June 30, 2015			Dec. 31, 2015			June 30, 2016			Dec. 30, 2016			June 30, 2017			Dec. 28, 2017			June 30, 2018			Dec. 31, 2018
KOSPI		2,002.21			1,915.59	(4)		2,074.20			1,961.31	(5)		1,970.35			2,026.46	(6)		2,391.79			2,467.49	(7)		2,326.13			2,041.04	(8)
￦/US$ exchange rates(1)	￦	1,011.6		￦	1,090.9		￦	1,117.3		￦	1,169.3		￦	1,154.2		￦	1,203.7		￦	1,143.8		￦	1,067.4		￦	1,111.8		￦	1,112.9
Corporate bond rates(2)		3.42	%		2.87	%		2.51	%		2.64	%		2.26	%		2.79	%		2.84	%		3.08	%		2.93	%		2.58	%
Treasury bond rates(3)		2.68	%		2.10	%		1.79	%		1.66	%		1.25	%		1.64	%		1.70	%		2.10	%		2.12	%		1.82	%

⁽¹⁾ Represents the noon buying rate on the dates indicated.

⁽²⁾ Measured by the yield on three-year Korean corporate bonds rated as A+ by the Korean credit rating agencies.

⁽³⁾ Measured by the yield on three-year treasury bonds issued by the Ministry of Economy and Finance of Korea.

⁽⁴⁾ As of December 30, 2014, the last day of trading for the KRX KOSPI Market in 2014.

⁽⁵⁾ As of December 30, 2015, the last day of trading for the KRX KOSPI Market in 2015.

⁽⁶⁾ As of December 29, 2016, the last day of trading for the KRX KOSPI Market in 2016.

⁽⁷⁾ As of December 28, 2017, the last day of trading for the KRX KOSPI Market in 2017.

⁽⁸⁾ As of December 31, 2018, the last day of trading for the KRX KOSPI Market in 2018.

Changes in Accounting Policies

Adoption of IFRS 9

IFRS 9, issued by the IASB in July 2014, is a new IFRS accounting standard aimed at improving and simplifying the accounting treatment of financial instruments and is effective for annual periods beginning on or after January 1, 2018. IFRS 9, which replaces IAS 39, requires all financial assets to be classified and measured on the basis of an entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial assets. A new impairment model is introduced which requires recording of allowance for credit losses based on expected credit losses instead of incurred losses (as was the case under IAS 39), and recognition of any subsequent changes in expected credit losses in profit or loss. Also, hedge accounting rules are amended to allow more hedging instruments and hedged items to qualify for hedge accounting. The impact on our financial statements due to the application of IFRS 9 depends on judgments made by us in applying the new standard, the nature of financial instruments held by us and macroeconomic variables.

We have applied IFRS 9 in our consolidated financial statements as of and for the year ended December 31, 2018 included elsewhere in this annual report. As permitted by the transition rules of IFRS 9, our consolidated financial statements as of and for the years ended December 31, 2016 and 2017 included elsewhere in this annual report have not been restated to retroactively apply IFRS 9.

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The classification of financial assets in accordance with IAS 39 and IFRS 9 as of January 1, 2018 is as follows:

Classification according to IAS 39 (as of December 31, 2017)(1)			Classification according to IFRS 9 (as of January 1, 2018)(1)
(in billions of Won)			(in billions of Won)
Cash and due from financial institutions	￦	19,818	Financial assets at amortized cost	￦	17,021
			Financial assets at fair value through profit or loss		2,783
Financial assets held for trading: debt securities		25,168	Financial assets at fair value through profit or loss		32,227
Financial assets held for trading: equity securities		4,935
Financial assets held for trading: others		74
Financial assets designated at fair value through profit or loss(2)		2,050
Derivative financial instruments held for trading		2,998	Derivative financial instruments held for trading		2,954
Derivative instruments designated for hedging		312	Derivative instruments designated for hedging		312
Loans		290,123	Financial assets at amortized cost		288,970
			Financial assets at fair value through profit or loss		629
Available-for-sale financial assets: debt securities		38,959	Financial assets at fair value through other comprehensive income		33,612
			Financial assets at fair value through profit or loss		2,512
			Financial assets at amortized cost		2,840
Available-for-sale financial assets: equity securities		9,157	Financial assets at fair value through other comprehensive income		2,368
			Financial assets at fair value through profit or loss		6,801
Held-to-maturity financial assets		18,492	Financial assets at amortized cost		18,222
			Financial assets at fair value through profit or loss		270
Other financial assets		10,195	Financial assets at amortized cost		10,188
	￦	422,281		￦	421,709

⁽¹⁾ Net of allowance.

⁽²⁾ Financial assets amounting to ￦2,050 billion under IAS 39, which were classified as financial assets designated at fair value through profit or loss prior to January 1, 2018, have been reclassified as financial assets at fair value through profit or loss by applying IFRS 9 without the designation of fair value option.

For additional information regarding IFRS 9 and the impact of its application to our consolidated financial statements, see Notes 2.1 and 45 of the notes to our consolidated financial statements.

Among other things, the application of IFRS 9 resulted in a one-off increase of ￦544 billion in our allowance for credit losses (and related decreases within our retained earnings) in the opening balances as of January 1, 2018 for our consolidated statement of financial position. The application of IFRS 9 may continue to result in higher impairment loss allowances that are recognized earlier, on a forward-looking basis and on a broader scope of financial instruments than was the case under IAS 39. In addition, the move from incurred to expected credit losses

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will have the potential to impact our performance under stressed economic conditions. Measurement requires increased complexity in our impairment modelling as it involves a greater degree of management judgment with respect to forward-looking information. We expect that impairment charges will tend to be more volatile as a result.

Presentation of Interest Income from Financial Assets at Fair Value through Profit or Loss

Prior to 2018, we recorded interest income from financial assets at fair value through profit or loss as part of net gains (losses) on financial assets/liabilities at fair value through profit or loss in our consolidated statements of comprehensive income. Pursuant to a change in our accounting policies which became effective as of January 1, 2018, commencing in such year, we record interest income from financial assets at fair value through profit or loss as part of interest income in our statements of comprehensive income. Interest income from financial assets at fair value through profit or loss for the years ended December 2016 and 2017 has been reclassified accordingly in our consolidated financial statements included elsewhere in this annual report.

For additional information regarding such change in our accounting policies, see Note 2.1 of the notes to our consolidated financial statements.

Critical Accounting Policies

The notes to our consolidated financial statements contain a summary of our significant accounting policies, including a discussion of recently issued accounting pronouncements. Certain of these policies are critical to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. We discuss these critical accounting policies below.

Impairment of Loans and Allowances for Loan Losses

We evaluate our loan portfolio for impairment on an ongoing basis. We have established allowances for loan losses, which are available to absorb losses in our loan portfolio. If we believe that additions or changes to the allowances for loan losses are required, we record a provision for loan losses (as part of our provision for credit losses), which is treated as a charge against current income. Loan exposures that we deem to be uncollectible, including actual loan losses, net of recoveries of previously written-off amounts, are charged directly against the allowances for loan losses.

We have established our allowance for loan losses as of December 31, 2018 in accordance with IFRS 9 and as of December 31, 2016 and 2017 in accordance with IAS 39. See “—Overview—Changes in Accounting Standards—Adoption of IFRS 9.”

Our accounting policies under IFRS 9 for losses arising from the impairment of loans and allowances for loan losses are described in Note 3.6 of the notes to our consolidated financial statements. The new impairment model under IFRS 9 requires recording of allowance for credit losses based on expected losses instead of incurred losses (as was the case under IAS 39), and recognition of any subsequent changes in expected credit losses in profit or loss. Under IFRS 9, the allowance required to be established with respect to a loan or receivable is the amount of the 12-month expected credit loss or the lifetime expected credit loss for the applicable loan or receivable, according to the three stages of credit risk deterioration since initial recognition, as follows:

• Stage 1 (loans and receivables for which credit risk has not significantly increased since initial recognition): the allowance for credit losses must cover expected credit losses due to possible defaults on the relevant loan or receivable within a 12-month period from the reporting date.

• Stage 2 (loans and receivables for which credit risk has significantly increased since initial recognition): the allowance for credit losses must cover expected credit losses from all possible defaults during the expected lifetime of the relevant loan or receivable.

• Stage 3 (credit-impaired loans and receivables): the allowance for credit losses must cover expected credit losses from all possible defaults during the expected lifetime of the relevant loan or receivable.

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At the end of every reporting period, we evaluate whether the credit risk with respect to our loans and receivables, after taking into account forward-looking information, has significantly increased since the date of their initial recognition. We distinguish between loans and receivables that are individually significant (which we assess on an individual basis) and those that are not (which we assess collectively based on homogeneous credit risk profiles) in performing such evaluation, and consider factors such as the following as indicators of a significant increase in credit risk:

• payment obligations that are more than 30 days past due;

• a decline in the borrower’s credit rating in excess of certain levels as compared to that at initial recognition;

• a decline in ratings below certain levels in our early warning system;

• the occurrence of a debt restructuring (except for impaired financial assets); and

• publication of credit delinquency information regarding the borrower by the Korea Federation of Banks or certain other sources.

Expected credit losses are a probability-weighted estimate of credit losses (i.e., the present value of all cash shortfalls) over the expected life of the loan or receivable. We measure expected credit losses by reflecting supportable information that is reasonably available at the reporting date without undue cost or effort, including information about past events, current conditions and forecasts of future economic conditions.

Our consolidated financial statements for the year ended December 31, 2018 included a total allowance for credit losses of ￦2,610 billion as of that date. Our total loan charge-offs, net of recoveries, amounted to ￦651 billion, and we recorded provisions for credit losses of ￦653 billion in 2018.

We believe that the accounting estimates related to impairment of loans and receivables and our allowance for credit losses are a “critical accounting policy” because: (1) they are highly susceptible to change from period to period based on our estimates of expected credit losses relating to our loan portfolio; and (2) any significant difference between expected credit losses on loans and receivables (as reflected in our allowance for credit losses) and actual losses on loans and receivables could require us to record additional provisions for credit losses or charge-offs which, if significant, could have a material impact on our profit. Our estimates of expected credit losses require significant management judgment regarding matters such as the significance of changes in credit risk and probability of default since initial recognition. Actual losses have fluctuated in the past and are expected to continue to do so, based on a variety of factors.

Valuation of Financial Instruments

Our accounting policy for determining the fair value of financial instruments is described in Notes 3.3 and 6 of the notes to our consolidated financial statements.

The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active, a valuation technique is used. The majority of valuation techniques employ only observable market data and, as such, the reliability of the fair value measurement is high. However, certain financial instruments are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable. Valuation techniques that rely to a greater extent on unobservable inputs require a higher level of management judgment to calculate a fair value than those based wholly on observable inputs.

Valuation techniques used to calculate fair values are discussed in Note 6.1 of the notes to our consolidated financial statements. The main assumptions and estimates which our management considers when applying a model with valuation techniques are:

• The likelihood and expected timing of future cash flows on the instrument. These cash flows are usually governed by the terms of the instrument, although judgment may be required when the ability

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of the counterparty to service the instrument in accordance with the contractual terms is in doubt. Future cash flows may be sensitive to changes in market rates.

• Selecting an appropriate discount rate for the instrument. The determination of this rate is based on an assessment of what a market participant would regard as the appropriate spread of the rate for the instrument over the appropriate risk-free rate.

• Judgment to determine what model to use to calculate fair value in areas where the choice of valuation model is particularly subjective (for example, valuation of complex derivative products).

The financial instruments carried at fair value have been categorized under the three levels of the IFRS fair value hierarchy as follows:

• Level 1: Quoted prices in active markets for identical assets or liabilities.

• Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities.

• Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is a market-based measure considered from the perspective of a market participant. As such, even when market assumptions are not readily available, our own assumptions are intended to reflect those that market participants would use in pricing the asset or liability at the measurement date.

For financial instruments traded in the over-the-counter market, we measure the fair value of such instruments as the arithmetic mean of prices obtained from Korea Asset Pricing (an affiliate of Fitch Ratings), KIS Pricing (an affiliate of Moody’s Investors Service), NICE Pricing and Information and FN Pricing, all four of which are recognized as major qualified independent pricing services in Korea. There are extremely rare cases where we do not receive price quotes from all four of the pricing services described above. In such cases, we contact the pricing service which did not submit a price quote to discuss the reason why it cannot provide a price and, following such discussion, we use the arithmetic mean of only the prices obtained from the other pricing services so long as there is no reason to believe that the prices that have been submitted are inadequate. We generally do not adjust the prices we obtain from these independent pricing services, as the variance among such prices is insignificant in most cases (primarily because most of the financial instruments we hold consist of government bonds and highly-rated corporate bonds, there is a high volume of transactions in the over-the-counter market and actual transaction prices are monitored and referenced by the pricing services).

Our consolidated financial statements for the year ended December 31, 2018 included financial assets measured at fair value using a valuation technique of ￦68,307 billion, representing 75.1% of total financial assets measured at fair value, and financial liabilities measured at fair value using a valuation technique of ￦14,925 billion, representing 81.9% of total financial liabilities measured at fair value. As used herein, the fair value using a valuation technique means the fair value at Level 2 and Level 3 in the fair value hierarchy.

We believe that the accounting estimates related to the determination of the fair value of financial instruments are a “critical accounting policy” because: (1) they may be highly susceptible to change from period to period based on factors beyond our control; and (2) any significant difference between our estimate of the fair value of these financial instruments on any particular date and either their estimated fair value on a different date or the actual proceeds that we receive upon sale of these financial instruments could result in valuation losses or losses on disposal which may have a material impact on our profit. Our assumptions about the fair value of financial instruments we hold require significant judgment because actual valuations have fluctuated in the past and are expected to continue to do so, based on a variety of factors.

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Deferred Income Tax Assets

Our accounting policy for the recognition of deferred income tax assets is described in Notes 3.22 and 16 of the notes to our consolidated financial statements. The recognition of deferred income tax assets relies on an assessment of the probability and sufficiency of future taxable profits, future reversals of existing taxable temporary differences and ongoing tax planning strategies.

We recognize deferred income tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, unused tax losses and unused tax credits. Deferred income tax assets are recognized only to the extent it is probable that sufficient taxable profit will be available against which those deductible temporary differences, unused tax losses or unused tax credits can be utilized. This assessment requires significant management judgment and assumptions. In determining the amount of deferred income tax assets, we use historical tax capacity and profitability information and, if relevant, forecasted operating results, based upon approved business plans, including a review of the eligible carry-forward periods, available tax planning opportunities and other relevant considerations.

Our consolidated financial statements for the year ended December 31, 2018 included deferred income tax assets and liabilities of ￦4 billion and ￦493 billion, respectively, as of that date, after offsetting of ￦1,558 billion of deferred income tax liabilities and assets.

We believe that the estimates related to our recognition and measurement of deferred income tax assets are a “critical accounting policy” because: (1) they may be highly susceptible to change from period to period based on our assumptions regarding our future profitability; and (2) any significant difference between our estimates of future profits on any particular date and estimates of such future profits on a different date could result in an income tax expense or benefit which may have a material impact on our profit from period to period. Our assumptions about our future profitability require significant judgment and are inherently subjective.

Uncertain Tax Positions

Our accounting policy for the recognition of uncertain tax positions is described in Note 3.22 of the notes to our consolidated financial statements.

We recognize our uncertain tax positions in our financial statements based on the guidance in International Accounting Standard 12, Income Taxes, which allows recognition of tax payments as current income tax assets to the extent it is probable that they will be recovered from the tax authorities.

We believe that the estimates related to our recognition and measurement of uncertain tax positions are a “critical accounting policy” because they are measured upon the facts and circumstances that exist as of each reporting period and involve significant management judgment. Subsequent changes in judgment based upon new information may lead to changes in recognition, derecognition and measurement of uncertain tax positions. 

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Results of Operations

Net Interest Income

The following table shows, for the periods indicated, the principal components of our net interest income:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won, except percentages)									(%)
Interest income
Deposits at amortized cost(1)	￦	—		￦	—		￦	109			N/A	(5)		N/A	(5)
Due from financial institutions (IAS 39)(1)		111			126			—			13.5	%		N/A	(5)
Financial assets at fair value through profit or loss(2)		—			—			749			N/A	(5)		N/A	(5)
Financial assets at fair value through profit or loss (IAS 39)		313			537			—			71.6			N/A	(5)
Loans		—			—			11,552			N/A	(5)		N/A	(5)
Loans (IAS 39)		9,021			10,096			—			11.9			N/A	(5)
Financial investments (debt securities)(3)		—			—			1,325			N/A	(5)		N/A	(5)
Financial investments (debt securities) (IAS 39)(3)		890			1,160			—			30.3			N/A	(5)
Total interest income		10,335			11,919			13,735			15.3			15.2
Interest expense
Deposits		2,477			2,345			3,042			(5.3	)		29.7
Debts		289			446			639			54.3			43.3
Debentures		853			880			1,149			3.2			30.6
Total interest expense		3,619			3,672			4,830			1.5			31.5
Net interest income	￦	6,716		￦	8,247		￦	8,905			22.8			8.0
Net interest margin(4)		2.13	%		2.27	%		2.23	%

⁽¹⁾ Consists of cash and interest earning deposits in other banks.

⁽²⁾ Includes deposits and loans at fair value through profit or loss. For information on interest income arising from such financial instruments, see Note 27 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽³⁾ Consists of our financial assets at fair value through other comprehensive income and at amortized cost (or our available-for-sale and held to maturity financial asset) portfolios. For 2018 only, includes loans at fair value through other comprehensive income. For information on interest income arising from such financial instruments, see Note 27 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽⁴⁾ The ratio of net interest income to average interest earning assets. See “Item 3.A. Selected Financial Data—Profitability ratios and other data.”

⁽⁵⁾ “N/A” means not applicable.

Comparison of 2018 to 2017

Interest income. Interest income increased 15.2% from ￦11,919 billion in 2017 to ￦13,735 billion in 2018, primarily as a result of a 14.4% increase in interest on loans, which was enhanced by a 39.3% increase in interest on financial assets at fair value through profit or loss and a 14.3% increase in interest on financial investments. The average volume of our interest earning assets increased 10.0% from ￦363,203 billion in 2017 to ￦399,368 billion in 2018, principally due to growth in our loan and financial investments portfolios. The effect of this increase was enhanced by a 16 basis point increase in the average yields on our interest earning assets from 3.28% in 2017 to 3.44% in 2018, which mainly reflected an increase in the general level of interest rates in Korea in 2018 compared to 2017.

A substantial majority of loans that were previously classified as “loans” under IAS 39 are classified since 2018 as “loans at amortized cost” under IFRS 9, while a small portion of loans that were previously classified as “loans” under IAS 39 are classified since 2018 as “financial assets at fair value through profit or loss” or

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“financial investments (debt securities).” See “—Overview—Changes in Accounting Policies—Adoption of IFRS 9.” The 14.4% increase in interest on loans from ￦10,096 billion in 2017 to ￦11,552 billion in 2018 was primarily the result of:

• a 9.7% increase in the average volume of corporate loans from ￦123,004 billion in 2017 to ￦134,938 billion in 2018, which was enhanced by a 9 basis point increase in the average yields on such loans from 3.22% in 2017 to 3.31% in 2018;

• a 13.0% increase in the average volume of other consumer loans from ￦46,325 billion in 2017 to ￦52,333 billion in 2018, which was enhanced by a 19 basis point increase in the average yields on such loans from 4.57% in 2017 to 4.76% in 2018;

• a 27 basis point increase in the average yields on mortgage loans from 2.76% in 2017 to 3.03% in 2018, which was enhanced by an 8.0% increase in the average volume of such loans from ￦60,944 billion in 2017 to ￦65,799 billion in 2018; and

• a 12.4% increase in the average volume of credit card receivables from ￦14,881 billion in 2017 to ￦16,725 billion in 2018, which was partially offset by a 16 basis point decrease in the average yields on such receivables from 8.45% in 2017 to 8.29% in 2018.

The increase in the average volumes of corporate loans, other consumer loans and mortgage loans was mainly due to increased demand from borrowers in anticipation of further increases in the general level of interest rates in Korea, as well as the full-year effect of the addition of such loans of KB Insurance (which became a consolidated subsidiary in May 2017) to our loan portfolio. The increase in the average volume of credit card receivables was attributable primarily to an increase in the number of credit cards issued, as well as in the use of credit cards by our customers. The average yields on corporate loans, other consumer loans and mortgage loans increased mainly as a result of the increase in the general level of interest rates in Korea in 2018 compared to 2017, while the average yields on credit card receivables decreased primarily due to a decrease in the maximum interest rates allowed by the Korean government to be charged by credit card issuers on their credit card receivables, as well as our launch of lower interest rate credit card loan products in the second half of 2018.

Overall, the average volume of our loans increased 8.9% from ￦281,538 billion in 2017 to ￦306,710 billion in 2018, while the average yields on our loans increased by 18 basis points from 3.59% in 2017 to 3.77% in 2018.

Interest on financial assets at fair value through profit or loss under IFRS 9, compared to interest on financial assets at fair value through profit or loss under IAS 39, increased 39.3% from ￦537 billion in 2017 to ￦748 billion in 2018, primarily due to a 21.8% increase in the average volume of such financial assets from ￦22,908 billion in 2017 to ￦27,911 billion in 2018, which was enhanced by a 34 basis point increase in the average yields on such financial assets from 2.34% in 2017 to 2.68% in 2018. The increase in the average volume of such financial assets was principally due to an increase in the volume of such financial assets held by KB Securities and, to a lesser extent, the full-year effect of the addition of such financial assets of KB Insurance commencing in May 2017 to our financial assets at fair value through profit or loss portfolio. The increase in the average yields on such financial assets mainly reflected the higher interest rate environment in Korea in 2018 compared to 2017.

Our financial investments portfolio consists of financial assets at fair value through other comprehensive income (or available-for-sale financial assets) and financial assets at amortized cost (or held-to-maturity financial assets), including debt securities issued by government-owned or -controlled enterprises or financial institutions and debt securities issued by Korean banks and other financial institutions. A substantial majority of financial investments that were previously classified as “available-for-sale financial assets” under IAS 39 are classified since 2018 as “financial assets at fair value through other comprehensive income” under IFRS 9, while a small portion of financial investments that were previously classified as “available-for-sale financial assets” under IAS 39 are classified since 2018 as “financial assets at fair value through profit or loss” or “financial assets at

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amortized cost” under IFRS 9. A substantial majority of financial investments that were previously classified as “held-to-maturity financial assets” under IAS 39 are classified since 2018 as “financial assets at amortized cost” under IFRS 9, while a small portion of financial investments that were previously classified as “held-to-maturity financial assets” under IAS 39 are classified since 2018 as “financial assets at fair value through profit or loss” under IFRS 9. See “—Overview—Changes in Accounting Policies—Adoption of IFRS 9.” Interest on financial investments under IFRS 9, compared to interest on financial investments under IAS 39, increased 14.2% from ￦1,160 billion in 2017 to ￦1,325 billion in 2018, primarily due to a 15.2% increase in the average volume of such financial investments from ￦49,137 billion in 2017 to ￦56,585 billion in 2018, which was offset in part by a 2 basis point decrease in the average yields on such financial investments from 2.36% in 2017 to 2.34% in 2018. The increase in the average volume of such financial investments was principally due to the full-year effect of the addition of such financial investments of KB Insurance commencing in May 2017 to our financial investments portfolio. The decrease in the average yields on such financial investments mainly reflected a general decrease in the interest rates applicable to such financial investments in Korea commencing in the second half of 2018.

Interest expense. Interest expense increased 31.5% from ￦3,672 billion in 2017 to ￦4,830 billion in 2018 primarily due to a 29.7% increase in interest expense on deposits, which was enhanced by a 30.6% increase in interest expense on debentures and a 43.3% increase in the interest on debts. The average cost of interest bearing liabilities increased by 22 basis points from 1.17% in 2017 to 1.39% in 2018, which was driven mainly by an increase in the general level of interest rates in Korea in 2018 compared to 2017. The effect of this increase was enhanced by a 10.5% increase in the average volume of interest bearing liabilities from ￦314,118 billion in 2017 to ￦347,045 billion in 2018, which principally reflected increases in the average volumes of deposits and debentures.

The 29.7% increase in interest expense on deposits from ￦2,345 billion in 2017 to ￦3,042 billion in 2018 was primarily due to a 29 basis point increase in the average cost of time deposits from 1.58% in 2017 to 1.87% in 2018, which was enhanced by a 10.6% increase in the average volume of such deposits from ￦127,478 billion in 2017 to ￦141,021 billion in 2018. The increase in the average cost of time deposits mainly reflected the higher interest rate environment in Korea in 2018 compared to 2017. The increase in the average volume of time deposits was principally due to customers’ continuing preference for low-risk products and institutions in Korea in light of the continuing uncertainty in financial markets in 2018. Overall, the average cost of our deposits increased by 19 basis points from 0.97% in 2017 to 1.16% in 2018, while the average volume of our deposits increased 8.3% from ￦241,286 billion in 2017 to ￦261,333 billion in 2018.

The 30.6% increase in interest expense on debentures from ￦880 billion in 2017 to ￦1,149 billion in 2018 was primarily due to a 21.1% increase in the average volume of debentures from ￦39,767 billion in 2017 to ￦48,147 billion in 2018, which was enhanced by a 17 basis point increase in the average cost of debentures from 2.22% in 2017 to 2.39% in 2018. The increase in the average volume of debentures was principally due to our increased use of debentures to meet our funding needs. The increase in the average cost of debentures mainly reflected the higher interest rate environment in Korea in 2018 compared to 2017.

The 43.3% increase in interest expense on debts from ￦446 billion in 2017 to ￦639 billion in 2018 was principally attributable to a 35 basis point increase in the average cost of debts from 1.35% in 2017 to 1.70% in 2018, which was enhanced by a 13.6% increase in the average volume of debts from ￦33,065 billion in 2017 to ￦37,565 billion in 2018. The increase in the average cost of debts mainly reflected the higher interest rate environment in Korea in 2018 compared to 2017, while the increase in the average volume of debts was primarily due to our increased use of debts to meet our funding needs.

Net interest margin. Net interest margin represents the ratio of net interest income to average interest earning assets. Our overall net interest margin decreased from 2.27% in 2017 to 2.23% in 2018, as an 8.0% increase in our net interest income from ￦8,247 billion in 2017 to ￦8,905 billion in 2018 was outpaced by a 10.0% increase in the average volume of our interest earnings assets from ￦363,203 billion in 2017 to

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￦399,368 billion in 2018. The growth in average interest earning assets outpaced a 10.5% increase in average interest bearing liabilities from ￦314,118 billion in 2017 to ￦347,045 billion in 2018, while the increase in interest income outpaced an increase in interest expense, resulting in an increase in net interest income. However, our net interest spread, which represents the difference between the average yield on our interest earning assets and the average cost of our interest bearing liabilities, decreased from 2.11% in 2017 to 2.05% in 2018. The decrease in our net interest spread reflected a larger increase in the average cost of our interest bearing liabilities, relative to the increase in the average yield of our interest earning assets, primarily due to the earlier adjustment of interest rates on interest earning assets compared to interest rates on interest bearing liabilities in the context of general interest rate levels in Korea which increased commencing in the second half of 2017 but started to decrease in the second half of 2018.

Comparison of 2017 to 2016

Interest income. Interest income increased 15.3% from ￦10,335 billion in 2016 to ￦11,919 billion in 2017, primarily as a result of an 11.9% increase in interest on loans, as well as a 30.3% increase in interest on financial investments and a 71.6% increase in interest on financial assets at fair value through profit or loss. The average volume of our interest earning assets increased 15.4% from ￦314,747 billion in 2016 to ￦363,203 billion in 2017, principally due to growth in our loan and financial investments portfolios. The average yields on our interest earning assets remained constant at 3.28% as an increase in interest rates for loans commencing in the second half of 2017 was offset by the effects of a decrease in the general level of interest rates in Korea in 2017 compared to 2016.

The 11.9% increase in interest on loans from ￦9,021 billion in 2016 to ￦10,096 billion in 2017 was primarily the result of:

• a 9.2% increase in the average volume of corporate loans from ￦112,657 billion in 2016 to ￦123,004 billion in 2017, which was enhanced by a 14 basis point increase in the average yields on such loans from 3.08% in 2016 to 3.22% in 2017;

• a 17.3% increase in the average volume of other consumer loans from ￦39,506 billion in 2016 to ￦46,325 billion in 2017, which was partially offset by a 7 basis point decrease in the average yields on such loans from 4.64% in 2016 to 4.57% in 2017;

• a 9.5% increase in the average volume of mortgage loans from ￦55,638 billion in 2016 to ￦60,944 billion in 2017, which was enhanced by a 2 basis point increase in the average yields on such loans from 2.74% in 2016 to 2.76% in 2017; and

• a 16.0% increase in the average volume of credit card receivables from ￦12,827 billion in 2016 to ￦14,881 billion in 2017, which was partially offset by a 31 basis point decrease in the average yields on such receivables from 8.76% in 2016 to 8.45% in 2017.

The increase in the average volume of corporate loans mainly reflected our increased marketing efforts and increased demand for such loans from corporate borrowers in Korea, as well as the addition of the corporate loans of KB Insurance (which became a consolidated subsidiary in May 2017) to our corporate loan portfolio. The increase in the average volume of other consumer loans and mortgage loans mainly reflected higher demand for such loans among consumers in Korea, as well as the addition of the other consumer loans (including policy loans) and mortgage loans of KB Insurance commencing in May 2017, and the full-year effect of the addition of the other consumer loans (including margin loans) of Hyundai Securities (which became a consolidated subsidiary in October 2016), to our other consumer and mortgage loan portfolios. The increase in the average volume of credit card receivables was attributable primarily to an increase in the number of credit cards issued, as well as in the use of credit cards by our customers. The average yields on corporate loans and mortgage loans increased mainly as a result of an increase in interest rates for such loans in Korea commencing in the second half of 2017, while the average yields on other consumer loans and credit card receivables decreased primarily due to a decrease in the general level of interest rates in Korea in 2017 compared to 2016.

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Overall, the average yields on our loans increased by 9 basis points from 3.50% in 2016 to 3.59% in 2017, while the average volume of our loans increased 9.3% from ￦257,687 billion in 2016 to ￦281,538 billion in 2017.

The 30.3% increase in interest on financial investments from ￦890 billion in 2016 to ￦1,160 billion in 2017 was primarily the result of a 40.9% increase in the average volume of financial investments from ￦34,868 billion in 2016 to ￦49,137 billion in 2017, which was partially offset by a 19 basis point decrease in average yields on financial investments from 2.55% in 2016 to 2.36% in 2017. The increase in the average volume of financial investments was principally due to the addition of the financial investments of KB Insurance commencing in May 2017, and the full-year effect of the addition of the financial investments of Hyundai Securities commencing in October 2016, to our financial investments portfolio. The decrease in average yields on financial investments mainly reflected the lower interest rate environment in Korea in 2017 compared to 2016.

The 71.6% increase in interest on financial assets at fair value through profit or loss from ￦313 billion in 2016 to ￦537 billion in 2017 was primarily the result of a 68.9% increase in the average volume of such financial assets from ￦13,562 billion in 2016 to ￦22,908 billion in 2017, which was enhanced by a 3 basis point increase in average yields on such financial assets from 2.31% in 2016 to 2.34% in 2017. The increase in the average volume of such financial assets was principally due to the full-year effect of the addition of such financial assets of Hyundai Securities commencing in October 2016 to our financial assets at fair value through profit or loss portfolio. The increase in average yields on such financial assets mainly reflected an increase in interest rates for such financial assets in Korea commencing in the second half of 2017.

Interest expense. Interest expense increased 1.5% from ￦3,619 billion in 2016 to ￦3,672 billion in 2017 primarily due to a 54.3% increase in interest expense on debts, which was mostly offset by a 5.3% decrease in interest expense on deposits. The average volume of interest bearing liabilities increased 10.7% from ￦283,868 billion in 2016 to ￦314,118 billion in 2017, which mainly reflected an increase in the average volume of deposits and debts. The effect of this increase was mostly offset by a 10 basis point decrease in the average cost of interest bearing liabilities from 1.27% in 2016 to 1.17% in 2017, which was driven mainly by a decrease in the general level of interest rates in Korea in 2017 compared to 2016.

The 54.3% increase in interest expense on debts from ￦289 billion in 2016 to ￦446 billion in 2017 was primarily due to a 45.0% increase in the average volume of debts from ￦22,798 billion in 2016 to ￦33,065 billion in 2017, which was enhanced by an 8 basis point increase in the average cost of such debts from 1.27% in 2016 to 1.35% in 2017. The increase in the average volume of debts was principally due to the full-year effect of the addition of the debts (particularly repurchase agreements) of Hyundai Securities to our debts commencing in October 2016. The increase in the average cost of debts mainly reflected an increase in interest rates for borrowings in Korea commencing in the second half of 2017.

The 5.3% decrease in interest expense on deposits from ￦2,477 billion in 2016 to ￦2,345 billion in 2017 was primarily due to an 11 basis point decrease in the average cost of time deposits from 1.69% in 2016 to 1.58% in 2017, which was offset in part by a 1.5% increase in the average volume of such deposits from ￦125,612 billion in 2016 to ￦127,478 billion in 2017. The decrease in the average cost of time deposits mainly reflected the lower interest rate environment in Korea in 2017 compared to 2016. The increase in the average volume of time deposits was principally due to an increase in time deposits for corporate customers. Overall, the average cost of our deposits decreased by 12 basis points from 1.09% in 2016 to 0.97% in 2017, while the average volume of our deposits increased 6.4% from ￦226,857 billion in 2016 to ￦241,286 billion in 2017.

Net interest margin. Our overall net interest margin increased from 2.13% in 2016 to 2.27% in 2017, as a 22.8% increase in our net interest income from ￦6,716 billion in 2016 to ￦8,247 billion in 2017 outpaced a 15.4% increase in the average volume of our interest earnings assets from ￦314,747 billion in 2016 to ￦363,203 billion in 2017. The growth in average interest earning assets outpaced a 10.7% increase in average

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interest bearing liabilities from ￦283,868 billion in 2016 to ￦314,118 billion in 2017, while the increase in interest income outpaced an increase in interest expense, resulting in an increase in net interest income. The magnitude of this increase was enhanced by an increase in our net interest spread from 2.01% in 2016 to 2.11% in 2017. The increase in our net interest spread reflected a decrease in the average cost of our interest bearing liabilities compared to no change in the average yield of our interest earning assets, primarily due to the earlier adjustment of interest rates on interest earning assets compared to interest rates on interest bearing liabilities in the context of general interest rate levels in Korea which decreased in 2016 but started to increase in the second half of 2017.

Provision for Credit Losses

Provision for credit losses includes provision for loan losses, provision for unused loan commitments, provision for payment guarantees, provision for financial guarantee contracts and provision for other financial assets, in each case net of reversal of provisions. For a discussion of our loan loss provisioning policy, see “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Provisioning Policy.”

In accordance with the guidelines of the Financial Supervisory Service, if our provision for loan losses is deemed insufficient for regulatory purposes, we compensate for the difference by recording a regulatory reserve for credit losses, which is segregated within retained earnings. See “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Regulatory Reserve for Credit Losses” and Note 26.4 of the notes to our consolidated financial statements included elsewhere in this annual report.

Comparison of 2018 to 2017

Our provision for credit losses increased 23.0% from ￦548 billion in 2017 to ￦674 billion in 2018, primarily due to increases in provisions for loan losses in respect of our credit card receivables and, to a lesser extent, our retail loans. Such increases resulted mainly from an overall deterioration in the asset quality of our credit card receivables and retail loans, as well as increases in the outstanding volumes of such receivables and loans. Such increases were offset in part by a decrease in provision for loans losses in respect of our corporate loans, which resulted primarily from an improvement in the overall asset quality of our corporate loan portfolio.

Our write-offs decreased 5.1% from ￦1,137 billion in 2017 to ￦1,079 billion in 2018, primarily due to a decrease in write-offs of corporate loans.

Our reversal of provision for payment guarantees and unused loan commitments decreased 74.9% from ￦44 billion in 2017 to ￦11 billion in 2018, due mainly to a change in provision for unused loan commitments from a reversal of provision of ￦10 billion in 2017 to a provision of ￦15 billion in 2018.

Comparison of 2017 to 2016

Our provision for credit losses increased 1.7% from ￦539 billion in 2016 to ￦548 billion in 2017, primarily due to an increase in provision for loan losses in respect of our retail loans. Such increase resulted mainly from an increase in the volume of our outstanding retail loans, as well as higher net write-offs of such loans. Such increase was offset in part by a decrease in provision for loan losses in respect of our corporate loans, which resulted primarily from an improvement in the overall asset quality of our corporate loan portfolio, including a decrease in impaired corporate loans.

Our write-offs, net of recoveries, decreased 34.5% from ￦884 billion in 2016 to ￦578 billion in 2017, primarily due to a decrease in write-offs of corporate loans and an increase in recoveries from written-off corporate loans.

Our reversal of provision for acceptances and guarantees and unused loan commitments increased 12.8% from ￦39 billion in 2016 to ￦44 billion in 2017, due mainly to an increase in reversal of provision for unused loan commitments.

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Allowances for Loan Losses

We establish allowances for loan losses with respect to loans to absorb such losses. We assess individually significant loans on a case-by-case basis and other loans on a collective basis. For further information on allowances for loan losses, see “—Critical Accounting Policies—Impairment of Loans and Allowances for Loan Losses” and “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Allocation and Analysis of Allowances for Loan Losses.”

Corporate Loans. The following table shows, for the periods indicated, certain information regarding our impaired corporate loans:

	As of December 31,
	2016			2017			2018
Impaired corporate loans as a percentage of total corporate loans		1.4	%		1.1	%		0.8	%
Allowances for loan losses for corporate loans as a percentage of total corporate loans		1.2			0.9			0.9
Allowances for loan losses for corporate loans as a percentage of impaired corporate loans		83.4			86.7			110.0
Net charge-offs of corporate loans as a percentage of total corporate loans		0.4			0.1			0.0

During 2018, impaired corporate loans as a percentage of total corporate loans decreased primarily due to a decrease in our impaired corporate loans, which mainly reflected our efforts to improve the asset quality of our corporate loan portfolio, as well as an increase in our total corporate loans. Allowances for loan losses for corporate loans as a percentage of total corporate loans remained constant, while allowances for loan losses for corporate loans as a percentage of impaired corporate loans increased during 2018, reflecting an increase in allowances for loan losses principally as a result of the application of the expected loss methodology in establishing such allowances under IFRS 9.

During 2017, both impaired corporate loans and allowances for loan losses for corporate loans, as a percentage of total corporate loans, decreased primarily due to a decrease in our impaired corporate loans, which mainly reflected our efforts to improve the asset quality of our corporate loan portfolio, as well as an increase in our total corporate loans. Such decrease in our impaired corporate loans outpaced a decrease in allowances for loan losses for corporate loans, which caused the level of allowances for loan losses for corporate loans as a percentage of impaired corporate loans to increase during 2017.

During 2016, both impaired corporate loans and allowances for loan losses for corporate loans, as a percentage of total corporate loans, decreased primarily due to a decrease in our impaired corporate loans, which mainly reflected our efforts to improve the asset quality of our corporate loan portfolio, as well as an increase in our total corporate loans. Such decrease in our impaired corporate loans outpaced a decrease in allowances for loan losses for corporate loans, which caused the level of allowances for loan losses for corporate loans as a percentage of impaired corporate loans to increase during 2016.

Retail Loans. The following table shows, for the periods indicated, certain information regarding our impaired retail loans:

	As of December 31,
	2016			2017			2018
Impaired retail loans as a percentage of total retail loans		0.4	%		0.3	%		0.3	%
Allowances for loan losses for retail loans as a percentage of total retail loans		0.4			0.3			0.4
Allowances for loan losses for retail loans as a percentage of impaired retail loans		83.6			86.6			119.9
Net charge-offs of retail loans as a percentage of total retail loans		0.1			0.1			0.2

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During 2018, impaired retail loans as a percentage of total retail loans remained constant, as an increase in our impaired retail loans, which reflected a deterioration in the overall asset quality of our retail loan portfolio, was matched by an increase in the amount of our total retail loans. Allowances for loan losses for retail loans as a percentage of both total retail loans and impaired retail loans increased during 2018, as an increase in such allowances outpaced the increases in our total retail loans and our impaired retail loans, primarily due to the application of the expected loss methodology in establishing such allowances under IFRS 9.

During 2017, both impaired retail loans and allowances for loan losses for retail loans, as a percentage of total retail loans, decreased primarily due to a decrease in our impaired retail loans, which mainly reflected higher write-offs of such loans, as well as an increase in the amount of our total retail loans. Allowances for loan losses for retail loans as a percentage of impaired retail loans increased during 2017, as the decrease in our impaired retail loans outpaced a decrease in allowances for loan losses for retail loans.

During 2016, impaired retail loans as a percentage of total retail loans decreased slightly as the effect of a decrease in our impaired retail loans, which reflected an improvement in the asset quality of our retail loan portfolio, was enhanced by an increase in the amount of our total retail loans. Allowances for loan losses for retail loans as a percentage of total retail loans remained constant, while allowances for loan losses for retail loans as a percentage of impaired retail loans increased during 2016, as the decrease in our impaired retail loans outpaced a decrease in allowances for loan losses for retail loans.

Credit Card Balances. The following table shows, for the periods indicated, certain information regarding our impaired credit card balances:

	As of December 31,
	2016			2017			2018
Impaired credit card balances as a percentage of total credit card balances		2.2	%		2.3	%		2.4	%
Allowances for loan losses for credit card balances as a percentage of total credit card balances		3.1			3.0			4.1
Allowances for loan losses for credit card balances as a percentage of impaired credit card balances		137.1			128.6			169.5
Net charge-offs as a percentage of total credit card balances		1.6			1.8			1.9

During 2018, impaired credit card balances as a percentage of total credit card balances increased as the rate of increase in our impaired credit card balances outpaced the rate of increase in the amount of our total credit card balances. Allowances for loan losses for credit card balances as a percentage of both total credit card balances and impaired credit card balances increased in 2018, primarily as a result of a deterioration in the asset quality of our credit card balances, including existing impaired credit card balances. Such increases also reflected the application of the expected loss methodology in establishing allowances for loan losses under IFRS 9.

During 2017, impaired credit card balances as a percentage of total credit card balances increased as the rate of increase in our impaired credit card balances outpaced the rate of increase in the amount of our total credit card balances. Allowances for loan losses for credit card balances as a percentage of both total credit card balances and impaired credit card balances decreased during 2017, primarily as a result of an improvement in the asset quality of our credit card balances that were neither past due nor impaired.

During 2016, both impaired credit card balances and allowances for loan losses for credit card balances, as a percentage of total credit card balances, decreased as the rate of increase in our impaired credit card balances and such allowances was outpaced by the rate of increase in the amount of our total credit card balances. Such increase in our impaired credit card balances outpaced the increase in allowances for loan losses for credit card balances, which caused the level of allowances for loan losses for credit card balances as a percentage of impaired credit card balances to decrease during 2016.

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Net Fee and Commission Income

The following table shows, for the periods indicated, the components of our net fee and commission income:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Fee and commission income	￦	3,151		￦	3,988		￦	3,718			26.6	%		(6.8	)%
Fee and commission expense		(1,566	)		(1,938	)		(1,474	)		23.8			(23.9	)
Net fee and commission income	￦	1,585		￦	2,050		￦	2,243			29.3			9.4

Comparison of 2018 to 2017

Our net fee and commission income increased 9.4% from ￦2,050 billion in 2017 to ￦2,243 billion in 2018, primarily due to a 23.9% decrease in fee and commission expense from ￦1,938 billion in 2017 to ￦1,474 billion in 2018, which outpaced a 6.8% decrease in fee and commission income from ￦3,988 billion in 2017 to ￦3,718 billion in 2018.

The 23.9% decrease in fee and commission expense was principally attributable to a 38.7% decrease in credit and debit card related fees and commissions paid from ￦1,482 billion in 2017 to ￦908 billion in 2018. The decrease in credit and debit card related fees and commissions paid mainly reflected the impact of our adoption of IFRS 15 in 2018, pursuant to which expenses related to fixed benefits provided to cardholders are deducted from both expenses and revenue as they are considered as consideration provided to customers. See Notes 2.1 and 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

The 6.8% decrease in fee and commission income was primarily due to a 26.4% decrease in credit and debit card related fees and commissions received from ￦1,848 billion in 2017 to ￦1,361 billion in 2018. The decrease in credit and debit card related fees and commissions received mainly reflected the impact of our adoption of IFRS 15, as discussed above. Such decrease in credit and debit card related fees and commissions received was partially offset by a 71.5% increase in lease fees received from ￦144 billion in 2017 to ￦247 billion in 2018, principally as a result of an increase in automobile rental and lease fees received by KB Capital.

Comparison of 2017 to 2016

Our net fee and commission income increased 29.3% from ￦1,585 billion in 2016 to ￦2,050 billion in 2017, primarily due to a 26.6% increase in fee and commission income from ￦3,151 billion in 2016 to ￦3,988 billion in 2017, which was offset in part by a 23.8% increase in fee and commission expense from ￦1,566 billion in 2016 to ￦1,938 billion in 2017.

The 26.6% increase in fee and commission income was mainly the result of increases in securities brokerage fees, credit card related fees and commissions and trust and other fiduciary fees. Securities brokerage fees increased 190.3% from ￦155 billion in 2016 to ￦450 billion in 2017 primarily due to the full-year effect of the addition of the securities brokerage fees of Hyundai Securities (which became a consolidated subsidiary in October 2016) to our fee and commission income, as well as the continued growth of our securities brokerage business in 2017. Credit card related fees and commissions received increased 15.0% from ￦1,259 billion in 2016 to ￦1,448 billion in 2017 primarily as a result of an increase in the number of credit cards issued, as well as in the use of credit cards by our customers. Trust and other fiduciary fees increased 61.6% from ￦219 billion in 2016 to ￦354 billion in 2017 mainly due to an increase in trust fees, primarily reflecting an increase in our sales of money trust products.

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The 23.8% increase in fee and commission expense was primarily due to a 22.5% increase in credit card related fees and commissions paid from ￦1,210 billion in 2016 to ￦1,482 billion in 2017. The increase in credit card related fees and commissions paid mainly reflected the increases in the number and use of our credit cards, as well as an increase in credit card marketing expenses.

For further information regarding our net fee and commission income, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

Net Insurance Income

The following table shows, for the periods indicated, the components of our net insurance income:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Insurance income(1)	￦	1,201		￦	8,971		￦	11,975			647.0	%		33.5	%
Insurance expense(1)		(1,319	)		(8,377	)		(11,485	)		535.1			37.1
Net insurance income (expense)(1)	￦	(118	)	￦	594		￦	490			N/M	(2)		(17.5	)

⁽¹⁾  Commencing in 2017, insurance income and expense (comprising insurance income and expense of KB Life Insurance and KB Kookmin Card, as well as insurance income and expense of KB Insurance from the date of its consolidation in May 2017) are recorded as separate line items, instead of as part of other operating income and expenses. Insurance income and expense of KB Life Insurance and KB Kookmin Card for prior years have been reclassified accordingly.

⁽²⁾ “N/M” means not meaningful.

Comparison of 2018 to 2017

Our net insurance income decreased 17.5% from ￦594 billion in 2017 to ￦490 billion in 2018, primarily due to a 37.1% increase in insurance expense from ￦8,377 billion in 2017 to ￦11,485 billion in 2018, which outpaced a 33.5% increase in insurance income from ￦8,971 billion in 2017 to ￦11,975 billion in 2018.

The increase in insurance expense was principally attributable to increases in insurance claims paid and refunds of surrender value of our insurance policies. Insurance claims paid increased 49.9% from ￦2,945 billion in 2017 to ￦4,416 billion in 2018, and refunds of surrender value of our insurance policies increased 30.2% from ￦2,194 billion in 2017 to ￦2,856 billion in 2018, primarily due to the full-year effect of the addition of such claims paid and refunds of KB Insurance commencing in May 2017 to our insurance expense.

The increase in insurance income was mainly due to an increase in premium income. Premium income increased 30.3% from ￦8,235 billion in 2017 to ￦10,730 billion in 2018, principally as a result of the full-year effect of the addition of the premium income of KB Insurance commencing in May 2017 to our insurance income.

Comparison of 2017 to 2016

Our net insurance income (expense) changed from an expense of ￦118 billion in 2016 to income of ￦594 billion in 2017, primarily due to a significant increase in insurance income from ￦1,201 billion in 2016 to ￦8,971 billion in 2017, which was offset in part by a significant increase in insurance expense from ￦1,319 billion in 2016 to ￦8,377 billion in 2017.

The increase in insurance income was mainly due to increases in premium income and reinsurance income. Premium income increased significantly from ￦1,190 billion in 2016 to ￦8,235 billion in 2017, while reinsurance income increased significantly from ￦11 billion in 2016 to ￦565 billion in 2017. Such increases were attributable primarily to the addition of the premium and reinsurance income of KB Insurance (which became a consolidated subsidiary in May 2017) to our insurance income.

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The increase in insurance expense was primarily due to increases in insurance claims paid, refunds of surrender value and provision of policy reserves. Insurance claims paid increased significantly from ￦159 billion in 2016 to ￦2,945 billion in 2017, refunds of surrender value increased 218.0% from ￦690 billion in 2016 to ￦2,194 billion in 2017, and provision of policy reserves increased 349.2% from ￦366 billion in 2016 to ￦1,644 billion in 2017. Such increases were attributable mainly to the addition of the insurance claims paid, refunds of surrender value and provision of policy reserves of KB Insurance to our insurance expense commencing in May 2017.

Net Gain (Loss) on Financial Assets and Liabilities at Fair Value through Profit or Loss

The following table shows, for the periods indicated, the components of our net gain on financial assets and liabilities at fair value through profit or loss:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Net gain on financial assets at fair value through profit or loss	￦	—		￦	—		￦	790			N/A	(1)		N/A	(1)
Net gain (loss) on financial assets held-for-trading		(115	)		67			—			N/M	(2)		N/A	(1)
Net gain (loss) on derivatives held-for-trading		173			906			(283	)		423.7	%		N/M	(2)
Net loss on financial liabilities at fair value through profit or loss		—			—			(62	)		N/A	(1)		N/A	(1)
Net gain (loss) on financial liabilities held-for-trading		1			(29	)		—			N/M	(2)		N/A	(1)
Net loss on financial instruments designated at fair value through profit or loss (IFRS 9)		—			—			(93	)		N/A	(1)		N/A	(1)
Net loss on financial instruments designated at fair value through profit or loss (IAS 39)		(381	)		(741	)		—			(94.5	)		N/A	(1)
Net gain (loss) on financial assets and liabilities at fair value through profit or loss	￦	(322	)	￦	203		￦	352			N/M	(2)		73.4	%

⁽¹⁾ “N/A” means not applicable.

⁽²⁾ “N/M” means not meaningful.

Comparison of 2018 to 2017

Our net gain (loss) on financial assets and liabilities at fair value through profit or loss increased 73.4% from ￦203 billion in 2017 to ￦352 billion in 2018. Such increase was attributable to an increase in net gain on financial assets at fair value through profit or loss in 2018, compared to net gain on financial assets held-for-trading in 2017, as well as a decrease in net loss on financial instruments designated at fair value through profit or loss under IFRS 9 in 2018, compared to net loss on financial instruments designated at fair value through profit or loss under IAS 39 in 2017, the effects of which were partially offset by a change in net gain (loss) on derivatives held-for-trading from a net gain in 2017 to a net loss in 2018.

• Financial assets at fair value through profit or loss under IFRS 9 include all financial assets that were classified as financial assets held-for-trading under IAS 39 in 2017, as well as certain other financial assets that were classified as available-for-sale financial assets, cash and due from financial institutions, loans and held-to-maturity financial assets under IAS 39 in 2017. See “—Overview—Changes in Accounting Standards—Adoption of IFRS 9.” Our net gain on financial assets at fair value through profit or loss increased significantly to ￦790 billion in 2018, compared to net gain on financial assets held-for-trading of ￦67 billion in 2017, mainly due to a change in net gain (loss) on debt securities from a net loss of ￦125 billion in 2017 to a net gain of ￦695 billion in 2018, which was partially offset by a 50.5% decrease in net gain on equity securities from ￦192 billion in 2017 to ￦95 billion in 2018.

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• Our net loss on financial instruments designated at fair value through profit or loss under IFRS 9 decreased 87.9% to ￦93 billion in 2018, compared to net loss on financial instruments designated at fair value through profit or loss under IAS 39 of ￦741 billion in 2017, principally as a result of an 88.3% decrease in net loss on financial liabilities designated at fair value through profit or loss from ￦792 billion in 2017 to ￦93 billion in 2018.

• Our net gain (loss) on derivatives held-for-trading changed from a net gain of ￦906 billion in 2017 to a net loss of ￦283 billion in 2018, primarily due to a change in net gain (loss) on stock or stock index derivatives held-for-trading from a net gain of ￦649 billion in 2017 to a net loss of ￦243 billion in 2018, which was enhanced by a change in net gain (loss) on interest rate derivatives held-for-trading from a net gain of ￦127 billion in 2017 to a net loss of ￦281 billion in 2018.

Comparison of 2017 to 2016

Our net gain (loss) on financial assets and liabilities at fair value through profit or loss changed from a net loss of ￦322 billion in 2016 to a net gain of ￦203 billion in 2017. Such change was primarily attributable to an increase in net gain on derivatives held-for-trading and a change from a net loss on financial assets held-for-trading to a net gain on financial assets held-for-trading, the effects of which were offset in part by an increase in net loss on financial instruments designated at fair value through profit or loss.

• Our net gain on derivatives held-for-trading increased more than five-fold from ￦173 billion in 2016 to ￦906 billion in 2017, primarily due to a 170.4% increase in net gain on stock or stock index derivatives held-for-trading from ￦240 billion in 2016 to ￦649 billion in 2017.

• Our net gain (loss) on financial assets held-for-trading changed from a net loss of ￦115 billion in 2016 to a net gain of ￦67 billion in 2017, mainly as a result of an increase in net gain on equity securities from ￦6 billion in 2016 to ￦192 billion in 2017.

• Our net loss on financial instruments designated at fair value through profit or loss increased 94.5% from ￦381 billion in 2016 to ￦741 billion in 2017, mainly due to a 61.3% increase in net loss on financial liabilities designated at fair value through profit or loss from ￦491 billion in 2016 to ￦792 billion in 2017.

Such changes were attributable in part to the full-year effect of the addition of the net gain (loss) on financial assets and liabilities at fair value through profit or loss of Hyundai Securities (which became a consolidated subsidiary in October 2016) to our net gain (loss) on such assets and liabilities.

For further information regarding our net gain (loss) on financial assets and liabilities at fair value through profit or loss, see Note 29 of the notes to our consolidated financial statements included elsewhere in this annual report.

General and Administrative Expenses

The following table shows, for the periods indicated, the components of our general and administrative expenses:

	Year Ended December 31,						Percentage Change
	2016		2017		2018		2017/2016			2018/2017
	(in billions of Won)						(%)
Employee compensation and benefits	￦	3,756	￦	3,769	￦	3,874		0.3	%		2.8	%
Depreciation and amortization		289		370		409		28.0			10.5
Other general and administrative expenses		1,184		1,490		1,635		25.8			9.7
General and administrative expenses	￦	5,229	￦	5,629	￦	5,919		7.6			5.2

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Comparison of 2018 to 2017

Our general and administrative expenses increased 5.2% from ￦5,629 billion in 2017 to ￦5,919 billion in 2018, primarily as a result of a 9.7% increase in other general and administrative expenses from ￦1,490 billion in 2017 to ￦1,635 billion in 2018, as well as a 2.8% increase in employee compensation and benefits from ￦3,769 billion in 2017 to ￦3,874 billion in 2018. The increase in other general and administrative expenses was attributable mainly to a 12.5% increase in rental expense from ￦321 billion in 2017 to ￦361 billion in 2018, and a 17.3% increase in service fees from ￦179 billion in 2017 to ￦210 billion in 2018, which were primarily due to an increase in such expense and fees of KB Securities, as well as the full-year effect of the addition of such expense and fees of KB Insurance commencing in May 2017 to our other general and administrative expenses.

The increase in employee compensation and benefits was attributable mainly to a 50.3% increase in termination benefits from ￦161 billion in 2017 to ￦242 billion in 2018, mainly due to an increase in the number of employees participating in the voluntary early retirement program implemented by Kookmin Bank. Such increase was offset in part by an 84.9% decrease in share-based payments from ￦73 billion in 2017 to ￦11 billion in 2018, which resulted mainly from a decrease in stock grants provided to employees of Kookmin Bank.

Comparison of 2017 to 2016

Our general and administrative expenses increased 7.6% from ￦5,229 billion in 2016 to ￦5,629 billion in 2017, primarily as a result of a 25.8% increase in other general and administrative expenses from ￦1,184 billion in 2016 to ￦1,490 billion in 2017, as well as a 28.0% increase in depreciation and amortization expenses from ￦289 billion in 2016 to ￦370 billion in 2017. The increase in other general and administrative expenses was attributable mainly to a 45.3% increase in taxes and dues from ￦135 billion in 2016 to ￦196 billion in 2017, a 40.0% increase in service fees from ￦129 billion in 2016 to ￦179 billion in 2017, and a 14.3% increase in rental expense from ￦281 billion in 2016 to ￦321 billion in 2017. Such increases were primarily due to the full-year effect of the addition of such expenses of Hyundai Securities (which became a consolidated subsidiary in October 2016), as well as the addition of such expenses of KB Insurance (which became a consolidated subsidiary in May 2017), to our general and administrative expenses. The increase in depreciation and amortization expenses was primarily due to the full-year effect of the addition of such expenses of Hyundai Securities commencing in October 2016, as well as the addition of such expenses of KB Insurance commencing in May 2017, to our depreciation and amortization expenses.

Our employee compensation and benefits increased 0.3% from ￦3,756 billion in 2016 to ￦3,769 billion, principally due to a 31.5% increase in salaries from ￦1,874 billion in 2016 to ￦2,465 billion in 2017, as well as a 12.0% increase in other short-term employee benefits from ￦734 billion in 2016 to ￦823 billion in 2017. Such increases were attributable mainly to the full-year effect of the addition of such expenses of Hyundai Securities commencing in October 2016, as well as the addition of such expenses of KB Insurance commencing in May 2017, to our employee compensation and benefits. Such increases were offset in large part by an 82.2% decrease in termination benefits from ￦903 billion in 2016 to ￦161 billion in 2017, which resulted mainly from a significant decrease in the number of employees participating in the voluntary early retirement program implemented by Kookmin Bank.

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Net Other Operating Expenses

The following table shows, for the periods indicated, the components of our net other operating expenses:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Other operating income(1)	￦	4,218		￦	3,237		￦	2,127			(23.3	)%		(34.3	)%
Other operating expenses(1)		(4,634	)		(4,139	)		(3,257	)		(10.7	)		(21.3	)
Net other operating expenses(1)	￦	(416	)	￦	(902	)	￦	(1,130	)		116.8			25.3

⁽¹⁾  Commencing in 2017, insurance income and expense (comprising insurance income and expense of KB Life Insurance and KB Kookmin Card, as well as insurance income and expense of KB Insurance from the date of its consolidation in May 2017) are recorded as separate line items, instead of as part of other operating income and expenses. Insurance income and expense of KB Life Insurance and KB Kookmin Card for prior years have been reclassified accordingly.

Comparison of 2018 to 2017

Our net other operating expenses increased 25.3% from ￦902 billion in 2017 to ￦1,130 billion in 2018 as a 34.3% decrease in other operating income from ￦3,237 billion in 2017 to ￦2,127 billion in 2018 outpaced a 21.3% decrease in other operating expenses from ￦4,139 billion in 2017 to ￦3,257 billion in 2018.

Other operating income includes principally gain on foreign exchange transactions, gain on sale of financial assets at fair value through other comprehensive income and other income. The 34.3% decrease in other operating income was primarily attributable to a 36.5% decrease in gain on foreign exchange transactions from ￦2,520 billion in 2017 to ￦1,600 billion in 2018. The decrease in gain on foreign exchange transactions, which was mainly the result of lower exchange rate volatility, was more than offset by a decrease in loss on foreign exchange transactions, which is recorded as part of other operating expenses. On a net basis, our net gain on foreign exchange transactions increased 27.7% from ￦47 billion in 2017 to ￦60 billion in 2018.

Other operating expenses include principally loss on foreign exchange transactions, impairment on financial assets at fair value through other comprehensive income, loss on sale of financial assets at fair value through other comprehensive income and other expenses. The 21.3% decrease in other operating expense was mainly the result of a 37.7% decrease in loss on foreign exchange transactions from ￦2,473 billion in 2017 to ￦1,540 billion in 2018. The decrease in loss on foreign exchange transactions, which was primarily due to lower exchange rate volatility, was partially offset by a decrease in gain on foreign exchange transactions, which is recorded as part of other operating income as discussed above.

Comparison of 2017 to 2016

Our net other operating expenses increased 116.8% from ￦416 billion in 2016 to ￦902 billion in 2017 as a 23.3% decrease in other operating income from ￦4,218 billion in 2016 to ￦3,237 billion in 2017 outpaced a 10.7% decrease in other operating expenses from ￦4,634 billion in 2016 to ￦4,139 billion in 2017.

Other operating income includes principally gain on foreign exchange transactions, gain on sale of available-for-sale financial assets and other income. The 23.3% decrease in other operating income was primarily attributable to a 29.4% decrease in gain on foreign exchange transactions from ￦3,568 billion in 2016 to ￦2,520 billion in 2017. The decrease in gain on foreign exchange transactions, which was mainly the result of lower exchange rate volatility, was partially offset by a decrease in loss on foreign exchange transactions, which is recorded as part of other operating expenses. On a net basis, our net gain on foreign exchange transactions decreased 82.3% from ￦265 billion in 2016 to ￦47 billion in 2017.

Other operating expenses include principally loss on foreign exchange transactions, impairment on available-for-sale financial assets, loss on sale of available-for-sale financial assets and other expenses. The

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10.7% decrease in other operating expense was mainly the result of a 25.1% decrease in loss on foreign exchange transactions from ￦3,303 billion in 2016 to ￦2,473 billion in 2017. The decrease in loss on foreign exchange transactions, which was primarily due to a decrease in the volume of our foreign currency transactions, was more than offset by a decrease in gain on foreign exchange transactions, which is recorded as part of other operating income as discussed above.

For further information regarding our net other operating expenses, see Note 30 of the notes to our consolidated financial statements included elsewhere in this annual report.

Net Non-operating Profit (Loss)

The following table shows, for the periods indicated, the components of our net non-operating profit:

	Year Ended December 31,						Percentage Change
	2016		2017		2018		2017/2016			2018/2017
	(in billions of Won)						(%)
Share of profit of associates	￦	281	￦	84	￦	24		(70.1	)%		(71.4	)%
Net other non-operating income		671		39		10		(94.2	)		(74.4	)
Net non-operating profit	￦	952	￦	123	￦	34		(87.1	)		(72.4	)

Comparison of 2018 to 2017

Our net non-operating profit decreased 72.4% from ￦123 billion in 2017 to ￦34 billion in 2018, primarily as a result of a 71.4% decrease in share of profit of associates from ￦84 billion in 2017 to ￦24 billion in 2018 and, to a lesser extent, a 74.4% decrease in net other non-operating income from ￦39 billion in 2017 to ￦10 billion in 2018.

The 71.4% decrease in share of profit of associates was primarily due to the conversion of KB Insurance from an associate accounted for under the equity method to a consolidated subsidiary in May 2017, as well as a decrease in gains on disposal of investments in associates and joint ventures from 2017 to 2018.

The 74.4% decrease in net other non-operating income was attributable mainly to a 6.1% decrease in other non-operating income from ￦261 billion in 2017 to ￦245 billion in 2018, which was enhanced by a 6.3% increase in other non-operating expenses from ￦222 billion in 2017 to ￦236 billion in 2018. The decrease in other non-operating income was principally due to gains on bargain purchase of ￦123 billion recognized in connection with a tender offer we conducted in May 2017 to increase our shareholding in KB Insurance, compared to no such gains in 2018. See “—Overview—Acquisitions.” The increase in other non-operating expenses primarily reflected a 140.7% increase in donations from ￦54 billion in 2017 to ￦130 billion in 2018.

Comparison of 2017 to 2016

Our net non-operating profit decreased 87.1% from ￦952 billion in 2016 to ￦123 billion in 2017, primarily as a result of a 94.2% decrease in net other non-operating income from ￦671 billion in 2016 to ￦39 billion in 2017 and, to a lesser extent, a 70.1% decrease in share of profit of associates from ￦281 billion in 2016 to ￦84 billion in 2017.

The 94.2% decrease in net other non-operating income was attributable mainly to a 65.0% decrease in other non-operating income from ￦746 billion in 2016 to ￦261 billion in 2017. Such decrease was mainly due to gains on bargain purchase of ￦629 billion recognized in connection with a comprehensive stock swap we effected in October 2016 to increase our shareholding in Hyundai Securities to 100%, which did not recur in 2017. See “—Overview—Acquisitions.”

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The 70.1% decrease in share of profit of associates was primarily due to a 75.8% decrease in gains on equity method accounting recognized with respect to KB Insurance from ￦161 billion in 2016 to ￦39 billion in 2017, principally as a result of it becoming a consolidated subsidiary in May 2017.

Income Tax Expense (Benefit)

Our income tax expense is calculated by adding or subtracting changes in deferred income tax liabilities and assets to income tax amounts payable for the period. Deferred income tax assets are recognized for deductible temporary differences, unused tax losses and unused tax credits, while deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are those between the carrying values of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred income tax assets, including unused tax losses and credits, are recognized only to the extent it is probable that sufficient taxable profit will be available against which such deferred income tax assets can be utilized. See “—Critical Accounting Policies—Deferred Income Tax Assets.”

Comparison of 2018 to 2017

Income tax expense increased 56.0% from ￦795 billion in 2017 to ￦1,240 billion in 2018, primarily due to a significant decrease in tax benefits from non-taxable income from ￦208 billion in 2017 to ￦12 billion in 2018 and a 4.0% increase in our profit before income tax from 2017 to 2018. The effect of such changes was enhanced by an increase in the statutory tax rate applicable to us from 24.2% in 2017 to 27.5% in 2018 as a result of changes in Korean corporate income tax laws that became effective in January 2018. The effect of such changes was partially offset by a 46.2% decrease in expenses relating to the effect of changes in deferred income tax assets and liabilities from ￦212 billion in 2017 to ￦114 billion in 2018. Our effective tax rate was 28.8% in 2018 compared to 19.2% in 2017.

Comparison of 2017 to 2016

Income tax expense increased 81.1% from ￦439 billion in 2016 to ￦795 billion in 2017, primarily due to a 57.4% increase in our profit before income tax from 2016 to 2017, as well as the effect of changes in deferred income tax assets and liabilities from a benefit of ￦201 billion in 2016 to an expense of ￦212 billion in 2017. The statutory tax rate was 24.2% in 2016 and 2017. Our effective tax rate was 19.2% in 2017 compared to 16.7% in 2016.

See Note 33 of the notes to our consolidated financial statements included elsewhere in this annual report.

Profit for the Year

As a result of the factors described above, our profit for the year was ￦3,062 billion in 2018, compared to ￦3,343 billion in 2017 and ￦2,190 billion in 2016.

Results by Principal Business Segment

We compile and analyze financial information for our business segments based upon segment information used by our management for the purposes of resource allocation and performance evaluation. We are organized into seven major business segments: retail banking operations, corporate banking operations, other banking operations, credit card operations, investment and securities operations, life insurance operations and non-life insurance operations.

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The following table shows, for the periods indicated, our results of operations by segment:

	Profit(1) for the Year Ended December 31,						Total Operating Revenue(2) for the Year Ended December 31,
	2016		2017		2018		2016		2017		2018
	(in billions of Won)
Retail banking operations	￦	108	￦	540	￦	609	￦	2,248	￦	2,711	￦	2,989
Corporate banking operations		442		964		1,012		1,803		2,129		2,319
Other banking operations		414		671		638		1,403		1,405		1,271
Credit card operations		317		297		287		1,270		1,277		1,525
Investment and securities operations		642		272		179		185		1,074		998
Life insurance operations		13		21		15		140		130		113
Non-life insurance operations		—		330		262		—		1,121		1,183
Other		338		113		128		397		345		461
Total(3)	￦	2,274	￦	3,208	￦	3,130	￦	7,446	￦	10,192	￦	10,859

⁽¹⁾ After deduction of income tax allocated to each segment.

⁽²⁾ Represents operating revenue from external customers. See Note 5 of the notes to our consolidated financial statements.

⁽³⁾ Prior to adjustments for consolidation, inter-segment transactions and certain differences in classification under our management reporting system.

Our other banking operations, which include treasury activities, provide funding to our retail banking operations and corporate banking operations and receive funds procured through the financing activities of such segments, such as deposit-taking activities. When our retail banking operations or corporate banking operations engage in an investing activity, such as lending, the relevant amount is recognized as an inter-segment borrowing from the other banking operations. When our retail banking operations or corporate banking operations engage in a financing activity, such as deposit-taking, the relevant amount is recognized as an inter-segment lending to the other banking operations (or as a reduction in inter-segment borrowings from the other banking operations). Generally, for our retail banking operations, the amounts procured from financing activities are greater than the amounts used in investing activities, whereas for our corporate banking operations, the amounts used in investing activities are greater than the amounts procured from financing activities. The cost of borrowing from the other banking operations is calculated by multiplying the average balance of the amounts used in investing activities by the applicable internal funding rate on such inter-segment borrowings, whereas the income from lending to the other banking operations is calculated by multiplying the average balance of the amounts procured from financing activities by the applicable internal funding rate on such inter-segment lendings. The applicable internal funding rates on inter-segment borrowings tend to be generally higher than the applicable internal funding rates on inter-segment lendings, primarily due to the difference in the maturity structure of interest rates on the amounts used in investing activities and the amounts procured from financing activities. The cost of borrowing from the other banking operations is offset by the income from lending to the other banking operations, and the difference is recorded as expenses related to inter-segment borrowings, within net other operating expenses, for our retail banking operations and corporate banking operations, while a corresponding amount is recorded as income from inter-segment lending, within net other operating income, for our other banking operations.

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Retail Banking Operations

This segment consists of retail banking services provided by Kookmin Bank. The following table shows, for the periods indicated, our income statement data for this segment:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Income statement data
Interest income	￦	3,740		￦	3,936		￦	4,548			5.2	%		15.5	%
Interest expense		(1,387	)		(1,288	)		(1,587	)		(7.1	)		23.2
Net fee and commission income		504			595			490			18.1			(17.6	)
Net other operating expense		(609	)		(532	)		(462	)		(12.6	)		(13.2	)
General and administrative expenses		(2,102	)		(1,947	)		(1,970	)		(7.4	)		1.2
Provision for credit losses		(3	)		(122	)		(179	)		N/M	(1)		46.7
Profit before income tax		143			642			840			349.0			30.8
Tax expense		(35	)		(102	)		(231	)		191.4			126.5
Profit for the year	￦	108		￦	540		￦	609			400.0			12.8

⁽¹⁾ “N/M” means not meaningful.

Comparison of 2018 to 2017

Our profit before income tax for this segment increased 30.8% from ￦642 billion in 2017 to ￦840 billion in 2018.

Interest income from our retail banking operations increased 15.5% from ￦3,936 billion in 2017 to ￦4,548 billion in 2018. This increase was principally due to increases in the average volume of other consumer and mortgage loans, mainly reflecting higher demand for such loans, the effect of which was enhanced by increases in the average yields on other consumer loans and mortgage loans from 2017 to 2018.

Our largest and most important funding source is deposits from retail customers, which represent more than half of our total deposits. Interest expense for this segment increased 23.2% from ￦1,288 billion in 2017 to ￦1,587 billion in 2018. This increase was mainly due to an increase in the average cost of time deposits held by retail customers, primarily reflecting an increase in the general level of interest rates in Korea in 2018 compared to 2017, which was enhanced by an increase in the average volume of such deposits.

Net fee and commission income attributable to this segment decreased 17.6% from ￦595 billion in 2017 to ￦490 billion in 2018, mainly due to decreases in beneficiary certificate sales commission fees and trust fees received.

Net other operating expense attributable to this segment decreased 13.2% from ￦532 billion in 2017 to ￦462 billion in 2018, mainly as a result of a decrease in expenses related to inter-segment borrowings. While the higher interest rate environment in Korea in 2018 compared to 2017 led to increases in the internal funding rates applicable to both inter-segment borrowings and lendings from 2017 to 2018, the increase in the yield on inter-segment lendings was higher compared to the increase in the cost of inter-segment borrowings, leading to a decrease in expenses related to inter-segment borrowings.

General and administrative expenses attributable to this segment increased 1.2% from ￦1,947 billion in 2017 to ￦1,970 billion in 2018, primarily due to an increase in compensation and other common administrative expenses shared among the banking-related segments.

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Provision for credit losses increased 46.7% from ￦122 billion in 2017 to ￦179 billion in 2018, mainly due to an overall deterioration in the asset quality of our retail loans, as well as an increase in the outstanding volume of such loans.

Comparison of 2017 to 2016

Our profit before income tax for this segment increased 349.0% from ￦143 billion in 2016 to ￦642 billion in 2017.

Interest income from our retail banking operations increased 5.2% from ￦3,740 billion in 2016 to ￦3,936 billion in 2017. This increase was principally due to increases in the average volume of other consumer and mortgage loans, mainly reflecting higher demand for such loans, growth in which were offset in part by a decrease in the average yield on other consumer loans from 2016 to 2017.

Interest expense for this segment decreased 7.1% from ￦1,387 billion in 2016 to ￦1,288 billion in 2017. This decrease was mainly due to a decrease in the average cost of time deposits held by retail customers, primarily reflecting a decrease in the general level of interest rates in Korea in 2017 compared to 2016, which was offset in part by an increase in the average volume of such deposits.

Net fee and commission income attributable to this segment increased 18.1% from ￦504 billion in 2016 to ￦595 billion in 2017, mainly due to increases in trust fees received.

Net other operating expense attributable to this segment decreased 12.6% from ￦609 billion in 2016 to ￦532 billion in 2017, mainly as a result of a decrease in expenses related to inter-segment borrowings. While the lower interest rate environment in Korea in 2017 compared to 2016 led to decreases in the internal funding rates applicable to both inter-segment borrowings and lendings from 2016 to 2017, the decrease in the cost of inter-segment borrowings was higher compared to the decrease in the yield on inter-segment lendings, leading to a decrease in expenses related to inter-segment borrowings.

General and administrative expenses attributable to this segment decreased 7.4% from ￦2,102 billion in 2016 to ￦1,947 billion in 2017, primarily due to decreases in information technology and other common administrative expenses shared among the banking-related segments.

Provision for credit losses increased significantly from ￦3 billion in 2016 to ￦122 billion in 2017, mainly due to an increase in the volume of our outstanding retail loans, as well as higher net write-offs of such loans.

149

Corporate Banking Operations

This segment consists of corporate banking services provided by Kookmin Bank. The following table shows, for the periods indicated, our income statement data for this segment:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Income statement data
Interest income	￦	3,297		￦	3,584		￦	4,268			8.7	%		19.1	%
Interest expense		(1,011	)		(1,028	)		(1,514	)		1.7			47.3
Net fee and commission income		231			236			288			2.2			22.0
Net gain from financial assets and liabilities at fair value through profit or loss		—			—			14			N/A	(1)		N/A	(1)
Net loss from financial assets and liabilities at fair value through profit or loss (under IAS 39)		(1	)		(2	)		—			100.0			N/A	(1)
Net other operating expense		(704	)		(679	)		(642	)		(3.6	)		(5.4	)
General and administrative expenses		(950	)		(974	)		(1,092	)		2.5			12.1
Provision (reversal of provision) for credit losses		(278	)		7			77			N/M	(2)		N/M	(2)
Net other non-operating revenue (expense)		(1	)		2			—			N/M	(2)		N/A	(1)
Profit before income tax		583			1,146			1,399			96.6			22.1
Tax expense		(141	)		(182	)		(387	)		29.1			112.6
Profit for the year	￦	442		￦	964		￦	1,012			118.1			5.0

⁽¹⁾ “N/A” means not applicable.

⁽²⁾ “N/M” means not meaningful.

Comparison of 2018 to 2017

Our profit before income tax for this segment increased 22.1% from ￦1,146 billion in 2017 to ￦1,399 billion in 2018.

Interest income from our corporate banking operations increased 19.1% from ￦3,584 billion in 2017 to ￦4,268 billion in 2018. This increase was principally due to an increase in the average volume of corporate loans, mainly reflecting increased demand for such loans, which was enhanced by an increase in the average yields on such loans.

Interest expense for this segment increased 47.3% from ￦1,028 billion in 2017 to ￦1,514 billion in 2018. This increase was principally due to an increase in the average cost of time deposits held by corporate customers, primarily reflecting an increase in the general level of interest rates in Korea in 2018 compared to 2017, which was enhanced by an increase in the average volume of such deposits.

Net fee and commission income attributable to this segment increased 22.0% from ￦236 billion in 2017 to ￦288 billion in 2018, primarily due to increases in fund transfer fees, agent activity fees and trust fees received.

Net gain (loss) from financial assets and liabilities at fair value through profit or loss attributable to this segment changed from a net loss under IAS 39 of ￦2 billion in 2017 to a net gain of ￦14 billion in 2018, principally as a result of an increase in net gain on derivatives held-for-trading.

Net other operating expense attributable to this segment decreased 5.4% from ￦679 billion in 2017 to ￦642 billion in 2018, mainly as a result of a decrease in expenses related to inter-segment borrowings. While the higher interest rate environment in Korea in 2018 compared to 2017 led to increases in the internal funding rates

150

applicable to both inter-segment borrowings and lendings from 2017 to 2018, the resulting effect on the yield on inter-segment lendings was greater than the effect on the cost of inter-segment borrowings, leading to a decrease in expenses related to inter-segment borrowings.

General and administrative expenses attributable to this segment increased 12.1% from ￦974 billion in 2017 to ￦1,092 billion in 2018, principally due to an increase in compensation and other common administrative expenses shared among the banking-related segments.

Reversal of provision for credit losses increased significantly from ￦7 billion in 2017 to ￦77 billion in 2018, due mainly to an improvement in the asset quality of corporate loans, reflecting a decrease in impaired corporate loans, as well as lower net write-offs of such loans.

Net other non-operating revenue (expense) attributable to this segment changed from a revenue of ￦2 billion in 2017 to an expense of less than ￦1 billion in 2018.

Comparison of 2017 to 2016

Our profit before income tax for this segment increased 96.6% from ￦583 billion in 2016 to ￦1,146 billion in 2017.

Interest income from our corporate banking operations increased 8.7% from ￦3,297 billion in 2016 to ￦3,584 billion in 2017. This increase was principally due to an increase in the average volume of corporate loans, mainly reflecting our increased marketing efforts and increased demand for such loans, which was enhanced by an increase in the average yields on such loans.

Interest expense for this segment increased 1.7% from ￦1,011 billion in 2016 to ￦1,028 billion in 2017. This increase was principally due to an increase in the average volume of time deposits held by corporate customers, primarily reflecting higher demand for such deposits, which was offset in part by a decrease in the average cost of such deposits.

Net fee and commission income attributable to this segment increased 2.2% from ￦231 billion in 2016 to ￦236 billion in 2017, primarily due to increases in fund transfer fees and trust fees received.

Net other operating expense attributable to this segment decreased 3.6% from ￦704 billion in 2016 to ￦679 billion in 2017, mainly as a result of an increase in net gains on sales of corporate loans, as well as a decrease in expenses related to inter-segment borrowings. While the lower interest rate environment in Korea in 2017 compared to 2016 led to decreases in the internal funding rates applicable to both inter-segment borrowings and lendings from 2016 to 2017, the resulting effect on the cost of inter-segment borrowings was greater than the effect on the yield on inter-segment lendings, leading to a decrease in expenses related to inter-segment borrowings.

General and administrative expenses attributable to this segment increased 2.5% from ￦950 billion in 2016 to ￦974 billion in 2017, principally due to increases in salaries and short-term benefits paid, which were offset in part by decreases in information technology and other common administrative expenses shared among the banking-related segments.

Provision (reversal of provision) for credit losses changed from a provision of ￦278 billion in 2016 to a reversal of provision of ￦7 billion in 2017, due mainly to an improvement in the asset quality of corporate loans, reflecting a decrease in impaired corporate loans, as well as lower net write-offs of such loans.

Net other non-operating revenue (expense) attributable to this segment changed from an expense of ￦1 billion in 2016 to a revenue of ￦2 billion in 2017.

151

Other Banking Operations

This segment primarily consists of Kookmin Bank’s banking operations other than retail and corporate banking operations, including treasury activities and Kookmin Bank’s “back office” administrative operations. The following table shows, for the periods indicated, our income statement data for this segment:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Income statement data
Interest income	￦	1,003		￦	989		￦	1,205			(1.4	)%		21.8	%
Interest expense		(666	)		(628	)		(818	)		(5.7	)		30.3
Net fee and commission income		352			394			344			11.9			(12.7	)
Net gain from financial assets and liabilities at fair value through profit or loss		—			—			312			N/A	(1)		N/A	(1)
Net gain (loss) from financial assets and liabilities at fair value through profit or loss (under IAS 39)		50			(70	)		—			N/M	(2)		N/A	(1)
Net other operating income		912			923			407			1.2			(55.9	)
General and administrative expenses		(1,217	)		(745	)		(705	)		(38.8	)		(5.4	)
Reversal of provision for credit losses		27			—			8			N/A	(1)		N/A	(1)
Share of profit of associates		18			38			50			111.1			31.6
Net other non-operating revenue (expense)		51			(75	)		45			N/M	(2)		N/M	(2)
Profit before income tax		530			826			847			55.8			2.5
Tax expense		(116	)		(155	)		(209	)		33.6			34.8
Profit for the year	￦	414		￦	671		￦	638			62.1			(4.9	)

⁽¹⁾ “N/A” means not applicable.

⁽²⁾ “N/M” means not meaningful.

Comparison of 2018 to 2017

Our profit before income tax for this segment increased 2.5% from ￦826 billion in 2017 to ￦847 billion in 2018.

Interest income from our other banking operations increased 21.8% from ￦989 billion in 2017 to ￦1,205 billion in 2018. This increase was attributable primarily to an increase in the average volume of Kookmin Bank’s financial investments portfolio, mainly reflecting higher investments in debt securities issued by Korean financial institutions and corporations, which was enhanced by an increase in the average yields on such investments.

Interest expense for this segment increased by 30.3% from ￦628 billion in 2017 to ￦818 billion in 2018. This increase was principally due to an increase in the average volume of long-term debentures issued by Kookmin Bank, mainly reflecting greater use of debentures by Kookmin Bank to meet its funding needs, which was enhanced by an increase in the average cost of such debentures.

Net fee and commission income attributable to this segment decreased 12.7% from ￦394 billion in 2017 to ￦344 billion in 2018, mainly due to a decrease in agent activity fees received from affiliates.

Net gain (loss) from financial assets and liabilities at fair value through profit or loss attributable to this segment changed from a net loss under IAS 39 of ￦70 billion in 2017 to a net gain of ￦312 billion in 2018, principally as a result of an increase in net gain on currency derivatives held-for-trading.

152

Net other operating income attributable to this segment decreased 55.9% from ￦923 billion in 2017 to ￦407 billion in 2018, mainly as a result of decreases in net gain on foreign currency translation and income related to inter-segment lending, which were offset in part by an increase in net gain on sale of debt securities.

General and administrative expenses attributable to this segment decreased 5.4% from ￦745 billion in 2017 to ￦705 billion in 2018, primarily due to a decrease in share-based payments provided to employees of Kookmin Bank from 2017 to 2018.

Reversal of provision for credit losses attributable to this segment increased from less than ￦1 billion in 2017 to ￦8 billion in 2018, principally due to certain consolidation adjustments relating to provisions.

Share of profit of associates attributable to this segment increased 31.6% from ￦38 billion in 2017 to ￦50 billion in 2018, principally as a result of an increase in profits of equity-method investees of Kookmin Bank, which was partially offset by a decrease in gains on disposal of investments in associates and joint ventures.

Net other non-operating revenue (expense) attributable to this segment changed from an expense of ￦75 billion in 2017 to a revenue of ￦45 billion in 2018, primarily due to the recognition of a gain on disposal of Kookmin Bank’s former headquarters building in Seoul in 2018, as well as a one-time contribution to the Korea Inclusive Finance Agency made by Kookmin Bank (together with other Korean banks) in 2017 relating to income from unclaimed cashiers’ checks, which was not repeated in 2018.

Comparison of 2017 to 2016

Our profit before income tax for this segment increased 55.8% from ￦530 billion in 2016 to ￦826 billion in 2017.

Interest income from our other banking operations decreased 1.4% from ￦1,003 billion in 2016 to ￦989 billion in 2017. This decrease was attributable primarily to a decrease in the average yields on Kookmin Bank’s financial investments portfolio, mainly reflecting the lower interest rate environment in Korea in 2017 compared to 2016, which was offset in part by an increase in the average volume of such investments.

Interest expense for this segment decreased 5.7% from ￦666 billion in 2016 to ￦628 billion in 2017. This decrease was principally due to a decrease in the average cost of long-term debentures issued by Kookmin Bank, mainly reflecting the lower interest rate environment in Korea in 2017 compared to 2016, which was offset in part by an increase in the average volume of such debentures.

Net fee and commission income attributable to this segment increased 11.9% from ￦352 billion in 2016 to ￦394 billion in 2017, mainly due to increases in brand usage fees received from affiliates and underwriting fees received.

Net gain (loss) from financial assets and liabilities at fair value through profit or loss under IAS 39 attributable to this segment changed from a net gain of ￦50 billion in 2016 to a net loss of ￦70 billion in 2017, principally as a result of decreases in net gains on derivatives held-for-trading.

Net other operating income attributable to this segment increased 1.2% from ￦912 billion in 2016 to ￦923 billion in 2017, mainly as a result of an increase in net gain on foreign exchange transactions, which was offset in part by a decrease in net gain on disposals of available-for-sale financial assets.

General and administrative expenses attributable to this segment decreased 38.8% from ￦1,217 billion in 2016 to ￦745 billion in 2017, primarily due to a decrease in termination benefits attributable mainly to a decrease in the number of employees participating in the voluntary early retirement program implemented by Kookmin Bank.

153

Reversal of provision for credit losses attributable to this segment decreased from ￦27 billion in 2016 to less than ￦1 billion in 2017, principally due to a decrease in reversal of provisions for financial guarantees and an increase in provisions for other assets.

Share of profit of associates attributable to this segment increased 111.1% from ￦18 billion in 2016 to ￦38 billion in 2017, principally as a result of an increase in gain on disposal of investments in associates and joint ventures.

Net other non-operating revenue (expense) attributable to this segment changed from a revenue of ￦51 billion in 2016 to an expense of ￦75 billion in 2017, primarily due to a one-time contribution to the Korea Inclusive Finance Agency made by Kookmin Bank (together with other Korean banks) relating to income from unclaimed cashiers’ checks.

Credit Card Operations

This segment consists of credit card activities conducted by KB Kookmin Card. The following table shows, for the periods indicated, our income statement data for this segment:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Income statement data
Interest income	￦	1,261		￦	1,341		￦	1,474			6.3	%		9.9	%
Interest expense		(280	)		(257	)		(306	)		(8.2	)		19.1
Net fee and commission income		92			133			265			44.6			99.2
Net insurance income		21			20			18			(4.8	)		(10.0	)
Net gain from financial assets and liabilities at fair value through profit or loss		—			—			4			N/A	(1)		N/A	(1)
Net other operating expense		(86	)		(154	)		(150	)		79.1			(2.6	)
General and administrative expenses		(348	)		(371	)		(405	)		6.6			9.2
Provision for credit losses		(250	)		(337	)		(431	)		34.8			27.9
Net other non-operating revenue (expense)		2			(7	)		(32	)		N/M	(2)		357.1
Profit before income tax		412			368			437			(10.7	)		18.8
Tax expense		(95	)		(71	)		(150	)		(25.3	)		111.3
Profit for the year	￦	317		￦	297		￦	287			(6.3	)		(3.4	)

⁽¹⁾ “N/A” means not applicable.

⁽²⁾ “N/M” means not meaningful.

Comparison of 2018 to 2017

Our profit before income tax for this segment increased 18.8% from ￦368 billion in 2017 to ￦437 billion in 2018.

Interest income from our credit card operations increased 9.9% from ￦1,341 billion in 2017 to ￦1,474 billion in 2018. This increase was primarily due to an increase in the average volume of credit card receivables, mainly reflecting increases in the number of credit cards issued and in the use of credit cards by customers, which was offset in part by a decrease in the average yields on such receivables.

Interest expense for this segment increased 19.1% from ￦257 billion in 2017 to ￦306 billion in 2018. This increase was primarily due to increased funding costs for this segment in light of the higher interest rate environment in Korea in 2018 compared to 2017, as well as an increase in the average volume of debentures issued by KB Kookmin Card.

154

Net fee and commission income attributable to this segment increased 99.2% from ￦133 billion in 2017 to ￦265 billion in 2018, which resulted mainly from an increase in credit card related fees and commissions received, principally due to increases in the number and use of credit cards.

Net insurance income attributable to this segment decreased slightly from ￦20 billion in 2017 to ￦18 billion in 2018.

Net other operating expense attributable to this segment decreased 2.6% from ￦154 billion in 2017 to ￦150 billion in 2018, primarily due to increases in dividend income from equity investments and net gains on sales of receivables, which were offset in part by an increase in membership reward program-related costs mainly as a result of increases in the number and use of credit cards.

General and administrative expenses attributable to this segment increased 9.2% from ￦371 billion in 2017 to ￦405 billion in 2018, mainly due to increases in salary and employee benefit expenses.

Provision for credit losses increased 27.9% from ￦337 billion in 2017 to ￦431 billion in 2018, mainly due to an overall deterioration in the asset quality of our credit card receivables, including existing impaired credit card receivables, as well as an increase in the outstanding volume of such receivables.

Net other non-operating expense attributable to this segment increased 357.1% from ￦7 billion in 2017 to ￦32 billion in 2018, primarily due to an increase in donations.

Comparison of 2017 to 2016

Our profit before income tax for this segment decreased 10.7% from ￦412 billion in 2016 to ￦368 billion in 2017.

Interest income from our credit card operations increased 6.3% from ￦1,261 billion in 2016 to ￦1,341 billion in 2017. This increase was primarily due to an increase in the average volume of credit card receivables, mainly reflecting increases in the number of credit cards issued and in the use of credit cards by customers, which were offset in part by a decrease in the average yields on such receivables.

Interest expense for this segment decreased 8.2% from ￦280 billion in 2016 to ￦257 billion in 2017. This decrease was primarily due to decreased funding costs for this segment in light of the lower interest rate environment in Korea in 2017 compared to 2016.

Net fee and commission income attributable to this segment increased 44.6% from ￦92 billion in 2016 to ￦133 billion in 2017, which resulted mainly from an increase in credit card related fees and commissions received, principally due to increases in the number and use of credit cards.

Net insurance income attributable to this segment remained relatively stable at ￦20 billion in 2017 compared to ￦21 billion in 2016.

Net other operating expense attributable to this segment increased 79.1% from ￦86 billion in 2016 to ￦154 billion in 2017, primarily due to an increase in membership reward program-related costs mainly as a result of increases in the number and use of credit cards.

General and administrative expenses attributable to this segment increased 6.6% from ￦348 billion in 2016 to ￦371 billion in 2017, mainly due to an increase in salary expenses, primarily reflecting an increase in wage levels.

Provision for credit losses increased 34.8% from ￦250 billion in 2016 to ￦337 billion in 2017, mainly due to an increase in the volume of our outstanding credit card receivables, as well as an increase in impaired credit card receivables.

155

Net other non-operating revenue (expense) attributable to this segment changed from a revenue of ￦2 billion in 2016 to an expense of ￦7 billion in 2017, primarily due to an increase in provisions for litigation and related costs.

Investment and Securities Operations

This segment consists primarily of securities brokerage, investment banking, securities investment and trading and other capital markets activities conducted by KB Securities, including its predecessor entities. KB Securities was the surviving entity in the merger in December 2016 of our former subsidiary, KB Investment & Securities, with and into Hyundai Securities, which had become our consolidated subsidiary in October 2016. See “—Overview—Acquisitions.” The following table shows, for the periods indicated, our income statement data for this segment:

	Year Ended December 31,									Percentage Change
	2016(1)			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Income statement data
Interest income	￦	291		￦	800		￦	819			174.9	%		2.4	%
Interest expense		(70	)		(201	)		(277	)		187.1			37.8
Net fee and commission income		193			551			626			185.5			13.6
Net loss from financial assets and liabilities at fair value through profit or loss		—			—			(222	)		N/A	(2)		N/A	(2)
Net gain (loss) from financial assets and liabilities at fair value through profit or loss (under IAS 39)		(361	)		179			—			N/M	(3)		N/A	(2)
Net other operating income (expense)		134			(256	)		34			N/M	(3)		N/M	(3)
General and administrative expenses		(317	)		(734	)		(735	)		131.5			0.1
Provision (reversal of provision) for credit losses		9			(23	)		(10	)		N/M	(3)		(56.5	)
Share of profit of associates and joint ventures		106			1			—			(99.1	)		N/A	(2)
Net other non-operating revenue		636			2			14			(99.7	)		600.0
Profit before income tax		621			319			249			(48.6	)		(21.9	)
Tax expense (benefit)		21			(47	)		(70	)		N/M	(3)		48.9
Profit for the year	￦	642		￦	272		￦	179			(57.6	)		(34.2	)

⁽¹⁾ Income statement data for 2016 represents (i) for the period before Hyundai Securities became our consolidated subsidiary in October 2016, such data for KB Investment & Securities and for our minority interest in Hyundai Securities, and (ii) for the period after Hyundai Securities became our consolidated subsidiary, the combined income statement data for KB Investment & Securities and Hyundai Securities, which were merged to form KB Securities in December 2016.

⁽²⁾ “N/A” means not applicable.

⁽³⁾ “N/M” means not meaningful.

Comparison of 2018 to 2017

Our profit before income tax for this segment decreased 21.9% from ￦319 billion in 2017 to ￦249 billion in 2018.

Interest income from our investment and securities operations increased 2.4% from ￦800 billion in 2017 to ￦819 billion in 2018. This increase was primarily due to an increase in the volume of interest-earning financial assets at fair value through profit or loss held by KB Securities, which was enhanced by an increase in the average yields on such financial assets.

Interest expense for this segment increased 37.8% from ￦201 billion in 2017 to ￦277 billion in 2018, principally as a result of an increase in the average cost of debts, mainly reflecting the higher interest rate environment in Korea in 2018 compared to 2017, which was enhanced by an increase in the volume of debts of KB Securities.

156

Net fee and commission income attributable to this segment increased 13.6% from ￦551 billion in 2017 to ￦626 billion in 2018, primarily due to increases in securities brokerage commissions as well as investment banking and advisory fees received.

Net gain (loss) from financial assets and liabilities at fair value through profit or loss attributable to this segment changed from a net gain under IAS 39 of ￦179 billion in 2017 to a net loss of ￦222 billion in 2018, principally due to a change in net gain (loss) on derivatives held-for-trading from a net gain in 2017 to a net loss in 2018, which was offset in part by an increase in gains on derivative-linked securities.

Net other operating income (expense) attributable to this segment changed from an expense of ￦256 billion in 2017 to an income of ￦34 billion in 2018, primarily due to an increase in net gain on foreign currency translation with respect to foreign currency assets, mainly as a result of the depreciation of the Won against the U.S. dollar during 2018.

General and administrative expenses attributable to this segment remained relatively stable at ￦735 billion in 2018 compared to ￦734 billion in 2017.

Provision for credit losses decreased 56.5% from ￦23 billion in 2017 to ￦10 billion in 2018, primarily due to an improvement in the overall asset quality of the loan portfolio of KB Securities.

Share of profit of associates and joint ventures attributable to this segment decreased slightly from ￦1 billion in 2017 to less than ￦1 billion in 2018.

Net other non-operating revenue attributable to this segment increased 600.0% from ￦2 billion in 2017 to ￦14 billion in 2018, mainly due to the recognition of a loss on the disposal of Hyundai Savings Bank (a former subsidiary of KB Securities) in 2017, which did not recur in 2018.

Comparison of 2017 to 2016

Our profit before income tax for this segment decreased 48.6% from ￦621 billion in 2016 to ￦319 billion in 2017.

Interest income from our investment and securities operations increased 174.9% from ￦291 billion in 2016 to ￦800 billion in 2017. This increase was primarily due to an increase in the volume of interest-earning financial assets at fair value through profit or loss, mainly reflecting the full-year impact of the addition of Hyundai Securities as a consolidated subsidiary in October 2016.

Interest expense for this segment increased 187.1% from ￦70 billion in 2016 to ￦201 billion in 2017, principally as a result of an increase in the volume of debts, mainly reflecting the full-year impact of the addition of Hyundai Securities as a consolidated subsidiary in October 2016.

Net fee and commission income attributable to this segment increased 185.5% from ￦193 billion in 2016 to ￦551 billion in 2017, primarily due to increases in securities brokerage commissions as well as investment banking and advisory fees received, mainly reflecting the full-year impact of the addition of Hyundai Securities as a consolidated subsidiary in October 2016.

Net gain (loss) from financial assets and liabilities at fair value through profit or loss under IAS 39 attributable to this segment changed from a loss of ￦361 billion in 2016 to a gain of ￦179 billion in 2017, principally due to an increase in net gain on transaction and valuation of derivatives and valuation of hybrid securities, offset in part by a decrease in net gain on disposal of hybrid securities, which mainly reflected the full-year impact of the addition of Hyundai Securities as a consolidated subsidiary in October 2016.

157

Net other operating income (expense) attributable to this segment changed from an income of ￦134 billion in 2016 to an expense of ￦256 billion in 2017, primarily due to a significant decrease in net gain on foreign currency translation with respect to the foreign currency assets of the former Hyundai Securities, mainly as a result of the appreciation of the Won against the U.S. dollar during 2017.

General and administrative expenses attributable to this segment increased 131.5% from ￦317 billion in 2016 to ￦734 billion in 2017, principally due to an increase in employee compensation and benefits, mainly reflecting the full-year impact of an increase in the number of employees as a result of the addition of Hyundai Securities as a consolidated subsidiary in October 2016.

Provision (reversal of provision) for credit losses changed from a reversal of provision of ￦9 billion in 2016 to a provision of ￦23 billion in 2017, primarily due to the recognition in 2016 of a reversal of provisions for credit losses on privately placed bonds, which was not repeated in 2017.

Share of profit of associates and joint ventures attributable to this segment decreased 99.1% from ￦106 billion in 2016 to ￦1 billion in 2017, primarily due to gains on equity method accounting recognized in 2016 with respect to our minority interest in Hyundai Securities for the period prior to its addition as a consolidated subsidiary in October 2016, which did not recur in 2017.

Net other non-operating revenue attributable to this segment decreased 99.7% from ￦636 billion in 2016 to ￦2 billion in 2017, mainly due to gains on bargain purchase recognized in connection with a comprehensive stock swap we effected in October 2016 to increase our shareholding in Hyundai Securities to 100%, which did not recur in 2017.

Life Insurance Operations

This segment consists of the life insurance operations of KB Life Insurance. The following table shows, for the periods indicated, our income statement data for this segment:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Income statement data
Interest income	￦	234		￦	216		￦	185			(7.7	)%		(14.4	)%
Net fee and commission expense		(1	)		(4	)		(13	)		300.0			225.0
Net insurance expense		(166	)		(141	)		(140	)		(15.1	)		(0.7	)
Net gain from financial assets and liabilities at fair value through profit or loss		—			—			63			N/A	(1)		N/A	(1)
Net gain from financial assets and liabilities at fair value through profit or loss (under IAS 39)		8			8			—			—			N/A	(1)
Net other operating income (expense)		39			30			(10	)		(23.1	)		N/M	(2)
General and administrative expenses		(95	)		(72	)		(63	)		(24.2	)		(12.5	)
Provision for credit losses		(2	)		(2	)		—			—			N/A	(1)
Profit before income tax		17			35			21			105.9			(40.0	)
Tax expense(3)		(4	)		(14	)		(6	)		250.0			(57.1	)
Profit for the year	￦	13		￦	21		￦	15			61.5			(28.6	)

⁽¹⁾ “N/A” means not applicable.

⁽²⁾ “N/M” means not meaningful.

⁽³⁾ Represents income tax attributable to KB Life Insurance.

158

Comparison of 2018 to 2017

Our profit before income tax for this segment decreased 40.0% from ￦35 billion in 2017 to ￦21 billion in 2018.

Interest income from our life insurance operations decreased 14.4% from ￦216 billion in 2017 to ￦185 billion in 2018, primarily due to a decrease in the average volume of the financial investments and loan portfolios of KB Life Insurance, which was offset in part by an increase in the average yields on such portfolios.

Net fee and commission expense attributable to this segment increased 225.0% from ￦4 billion in 2017 to ￦13 billion in 2018, primarily due to an increase in outsourcing-related fees and commissions paid.

Net insurance expense attributable to this segment remained relatively stable at ￦140 billion in 2018 compared to ￦141 billion in 2017.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment increased significantly from a net gain under IAS 39 of ￦8 billion in 2017 to a net gain of ￦63 billion in 2018, primarily due to an increase in dividend income from beneficiary certificates, which reflected the reclassification of such beneficiary certificates from available-for-sale financial assets in 2017 under IAS 39 to financial assets at fair value through profit or loss in 2018 under IFRS 9.

Net other operating income (expense) attributable to this segment changed from income of ￦30 billion in 2017 to an expense of ￦10 billion in 2018, principally due to a decrease in dividend income from beneficiary certificates, which reflected the reclassification of such beneficiary certificates under IFRS 9, as discussed above.

General and administrative expenses attributable to this segment decreased 12.5% from ￦72 billion in 2017 to ￦63 billion in 2018, primarily due to decreases in share-based payments, rental expenses and depreciation and amortization expenses.

Provision for credit losses decreased from ￦2 billion in 2017 to less than ￦1 billion in 2018.

Comparison of 2017 to 2016

Our profit before income tax for this segment increased 105.9% from ￦17 billion in 2016 to ￦35 billion in 2017.

Interest income from our life insurance operations decreased 7.7% from ￦234 billion in 2016 to ￦216 billion in 2017, primarily due to a decrease in the average yields on the financial investments and loan portfolios of KB Life Insurance, mainly reflecting the lower interest rate environment in Korea in 2017 compared to 2016, which was offset in part by an increase in the average volume of financial investments.

Net insurance expense attributable to this segment decreased 15.1% from ￦166 billion in 2016 to ￦141 billion in 2017, mainly due to a decrease in provision of policy reserves, which was offset in part by a decrease in premium income from savings-type insurance policies.

Net gain from financial assets and liabilities at fair value through profit or loss under IAS 39 attributable to this segment remained constant at ￦8 billion in 2016 and 2017.

Net other operating income attributable to this segment decreased 23.1% from ￦39 billion in 2016 to ￦30 billion in 2017, principally due to a decrease in net gain on foreign currency translation.

159

General and administrative expenses attributable to this segment decreased 24.2% from ￦95 billion in 2016 to ￦72 billion in 2017, primarily due to decreases in marketing expenses and depreciation and amortization expenses.

Provision for credit losses remained constant at ￦2 billion in 2016 and 2017.

Non-Life Insurance Operations

This segment consists of the non-life insurance operations of KB Insurance. KB Insurance became a consolidated subsidiary in May 2017 and subsequently became a wholly-owned subsidiary in July 2017. See “—Overview—Acquisitions.” The following table shows, for the periods indicated, our income statement data for this segment:

	Year Ended December 31,						Percentage Change
	2017(1)			2018			2018/2017
	(in billions of Won)						(%)
Income statement data
Interest income	￦	465		￦	616			32.5	%
Net fee and commission expense		(98	)		(147	)		50.0
Net insurance income		700			611			(12.7	)
Net gain from financial assets and liabilities at fair value through profit or loss		—			181			N/A	(2)
Net gain from financial assets and liabilities at fair value through profit or loss (under IAS 39)		41			—			N/A	(2)
Net other operating income (expense)		31			(98	)		N/M	(3)
General and administrative expenses		(629	)		(789	)		25.4
Provision for credit losses		(9	)		(14	)		55.6
Net other non-operating revenue		11			7			(36.4	)
Profit before income tax		512			367			(28.3	)
Tax expense		(181	)		(105	)		(42.0	)
Profit for the year	￦	330		￦	262			(20.8	)%

⁽¹⁾ Income statement data for 2017 represents such data for KB Insurance for the period after it became our consolidated subsidiary in May 2017.

⁽²⁾ “N/A” means not applicable.

⁽³⁾ “N/M” means not meaningful.

Comparison of 2018 to 2017

Our profit before income tax for this segment decreased 28.3% from ￦512 billion in 2017 to ￦367 billion in 2018.

Interest income attributable to this segment increased 32.5% from ￦465 billion in 2017 to ￦616 billion in 2018, primarily due to an increase in the average volume of financial investments and loans, mainly reflecting the full-year effect of the addition of KB Insurance as a consolidated subsidiary in May 2017.

Net insurance income attributable to this segment decreased 12.7% from ￦700 billion in 2017 to ￦611 billion in 2018, primarily due to an increase in insurance expenses, mainly reflecting an increase in insurance claims paid on long-term and automobile insurance policies, which outpaced an increase in insurance income.

Net fee and commission expense attributable to this segment increased 50.0% from ￦98 billion in 2017 to ￦147 billion in 2018, due mainly to an increase in the commissions paid to insurance agents, primarily reflecting the full-year effect of the addition of KB Insurance as a consolidated subsidiary in May 2017.

160

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment increased from a net gain under IAS 39 of ￦41 billion in 2017 to a net gain of ￦181 billion in 2018, primarily as a result of an increase in dividend income from beneficiary certificates, which reflected the reclassification of such beneficiary certificates from available-for-sale financial assets in 2017 under IAS 39 to financial assets at fair value through profit or loss in 2018 under IFRS 9.

Net other operating income (expense) attributable to this segment changed from an income of ￦31 billion in 2017 to an expense of ￦98 billion in 2018, due mainly to a decrease in net gain on derivatives held for fair value hedging and a decrease in dividend income from beneficiary certificates, which reflected the reclassification of such beneficiary certificates under IFRS 9, as discussed above. Such decreases were offset in part by an increase in net gain on foreign exchange transactions.

General and administrative expenses attributable to this segment increased 25.4% from ￦629 billion in 2017 to ￦789 billion in 2018, principally due to an increase in salary expenses, mainly reflecting the full-year effect of the addition of KB Insurance as a consolidated subsidiary in May 2017.

Provision for credit losses increased 55.6% from ￦9 billion in 2017 to ￦14 billion in 2018, primarily due to an increase in provisions relating to insurance premium receivables, mainly as a result of an increase in the volume of such receivables.

Net other non-operating revenue attributable to this segment decreased 36.4% from ￦11 billion in 2017 to ￦7 billion in 2018, principally due to an increase in donations.

Other

“Other” includes the operations of our holding company and all of our subsidiaries that were consolidated under IFRS as issued by the IASB as of December 31, 2018 except Kookmin Bank, KB Kookmin Card, KB Securities (including its predecessor entities), KB Life Insurance and KB Insurance, including principally KB Asset Management, KB Real Estate Trust, KB Investment, KB Credit Information, KB Data System, KB Savings Bank and KB Capital. See “—Overview—Acquisitions.” The following table shows, for the periods indicated, our income statement data for this segment:

	Year Ended December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Income statement data
Interest income	￦	519		￦	602		￦	645			16.0	%		7.1	%
Interest expense		(219	)		(286	)		(354	)		30.6			23.8
Net fee and commission income		213			253			386			18.8			52.6
Net gain from financial assets and liabilities at fair value through profit or loss		—			—			89			N/A	(1)		N/A	(1)
Net gain (loss) from financial assets and liabilities at fair value through profit or loss (under IAS 39)		(9	)		1			—			N/M	(2)		N/A	(1)
Net other operating income (expense)		53			(53	)		(137	)		N/M	(2)		158.5
General and administrative expenses		(267	)		(292	)		(309	)		9.4			5.8
Provision for credit losses		(43	)		(63	)		(124	)		46.5			96.8
Share of profit of associates		157			6			3			(96.2	)		(50.0	)
Net other non-operating revenue		—			7			17			N/A	(1)		142.9
Profit before income tax		404			175			216			(56.7	)		23.4
Tax expense(3)		(66	)		(62	)		(88	)		(6.1	)		41.9
Profit for the year	￦	338		￦	113		￦	128			(66.6	)		13.3

161

⁽¹⁾ “N/A” means not applicable.

⁽²⁾ “N/M” means not meaningful.

⁽³⁾ Represents income tax attributable to our holding company and all of our subsidiaries that were consolidated under IFRS as issued by the IASB except Kookmin Bank, KB Kookmin Card, KB Securities (including its predecessor entities), KB Life Insurance and KB Insurance.

Comparison of 2018 to 2017

Our profit before income tax for this segment increased 23.4% from ￦175 billion in 2017 to ￦216 billion in 2018.

Interest income attributable to this segment increased 7.1% from ￦602 billion in 2017 to ￦645 billion in 2018. This increase was primarily due to an increase in interest income on loans of KB Capital.

Interest expense attributable to this segment increased 23.8% from ￦286 billion in 2017 to ￦354 billion in 2018, mainly due to an increase in interest expense on debentures of KB Capital and our holding company.

Net fee and commission income attributable to this segment increased 52.6% from ￦253 billion in 2017 to ￦386 billion in 2018, principally reflecting an increase in automobile rental and lease fees received by KB Capital, as well as increases in trust and other fiduciary fees received by KB Real Estate Trust.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment increased from a net gain under IAS 39 of ￦1 billion in 2017 to a net gain of ￦89 billion in 2018, primarily as a result of an increase in net gain on valuation of equity securities held by KB Investment, which reflected the reclassification of such securities from available-for-sale financial assets in 2017 under IAS 39 to financial assets at fair value through profit or loss in 2018 under IFRS 9.

Net other operating expense attributable to this segment increased 158.5% from ￦53 billion in 2017 to ￦137 billion in 2018, which mainly reflected an increase in depreciation expenses with respect to leased assets of KB Capital.

General and administrative expenses attributable to this segment increased 5.8% from ￦292 billion in 2017 to ￦309 billion in 2018, principally due to increases in depreciation and amortization expenses of real estate funds included in this segment and service fees paid by our holding company.

Provision for credit losses increased 96.8% from ￦63 billion in 2017 to ￦124 billion in 2018, primarily due to an increase in provision for loan losses for KB Capital and KB Real Estate Trust.

Share of profit of associates attributable to this segment decreased 50.0% from ￦6 billion in 2017 to ￦3 billion in 2018, mainly reflecting a decrease in profits of equity-method investees of KB Investment.

Net other non-operating revenue attributable to this segment increased 142.9% from ￦7 billion in 2017 to ￦17 billion in 2018, principally reflecting an increase in rental income of real estate funds included in this segment.

Comparison of 2017 to 2016

Our profit before income tax for this segment decreased 56.7% from ￦404 billion in 2016 to ￦175 billion in 2017.

Interest income attributable to this segment increased 16.0% from ￦519 billion in 2016 to ￦602 billion in 2017. This increase was primarily due to an increase in interest income on loans of KB Capital.

162

Interest expense attributable to this segment increased 30.6% from ￦219 billion in 2016 to ￦286 billion in 2017, mainly due to an increase in interest expense on debentures of our holding company and KB Capital.

Net fee and commission income attributable to this segment increased 18.8% from ￦213 billion in 2016 to ￦253 billion in 2017, principally reflecting an increase in automobile rental and lease fees received by KB Capital, as well as increases in trust and other fiduciary fees received by KB Real Estate Trust.

Net gain (loss) from financial assets and liabilities at fair value through profit or loss under IAS 39 attributable to this segment changed from a net loss of ￦9 billion in 2016 to a net gain of ￦1 billion in 2017, primarily as a result of an increase in net gain related to financial instruments held-for-trading of securities funds included in this segment.

Net other operating income (expense) attributable to this segment changed from an income of ￦53 billion in 2016 to an expense of ￦53 billion in 2017, which mainly reflected a decrease in net gain on disposal of equity interests held by KB Investment, as well as an increase in depreciation expenses with respect to leased assets of KB Capital.

General and administrative expenses attributable to this segment increased 9.4% from ￦267 billion in 2016 to ￦292 billion in 2017, principally due to increases in salary expenses of KB Capital and our holding company.

Provision for credit losses increased 46.5% from ￦43 billion in 2016 to ￦63 billion in 2017, primarily due to an increase in provision for loan losses for KB Capital and KB Investment.

Share of profit of associates attributable to this segment decreased 96.2% from ￦157 billion in 2016 to ￦6 billion in 2017, mainly reflecting a decrease in the share of profit of KB Insurance as a result of it becoming a consolidated subsidiary in May 2017.

Net other non-operating revenue attributable to this segment increased from nil in 2016 to ￦7 billion in 2017, principally reflecting gains on disposal of property recognized by KB Asset Management.

163

Item 5.B. Liquidity and Capital Resources

Financial Condition

Assets

The following table sets forth, as of the dates indicated, the principal components of our assets:

	As of December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Cash and due from financial institutions	￦	17,885		￦	19,818		￦	20,274			10.8	%		2.3	%
Financial assets at fair value through profit or loss		—			—			50,988			N/A	(1)		N/A	(1)
Financial assets at fair value through profit or loss (under IAS 39)		27,858			32,227			—			15.7			N/A	(1)
Derivative financial assets		3,382			3,310			2,026			(2.1	)		(38.8	)
Financial investments		45,148			66,608			61,665			47.5			(7.4	)
Loans:
Loans to banks		5,543			5,315			3,484			(4.1	)		(34.4	)
Loans to customers other than banks:
Loans in Won		231,924			252,645			276,859			8.9			9.6
Loans in foreign currencies		2,758			3,200			4,970			16.0			55.3
Domestic import usance bills		2,963			2,129			2,817			(28.1	)		32.3
Off-shore funding loans		560			731			845			30.5			15.6
Call loans		264			335			1,474			26.9			340.0
Bills bought in Won		6			4			3			(33.3	)		(25.0	)
Bills bought in foreign currencies		2,834			3,876			3,427			36.8			(11.6	)
Guarantee payments under payment guarantee		11			6			4			(45.5	)		(33.3	)
Credit card receivables in Won		13,526			15,201			17,346			12.4			14.1
Credit card receivables in foreign currencies		4			4			8			—			100.0
Bonds purchased under repurchase agreements		1,244			1,198			3,342			(3.7	)		179.0
Privately placed bonds		1,468			1,995			823			35.9			(58.7	)
Factored receivables		829			53			6			(93.6	)		(88.7	)
Lease receivables		1,537			1,834			1,795			19.3			(2.1	)
Loans for installment credit		2,293			3,707			4,608			61.7			24.3
Total loans to customers other than banks		262,221			286,918			318,327			9.4			10.9
Less:
Allowances for loan losses		(2,278	)		(2,110	)		(2,609	)		(7.4	)		23.6
Total loans, net		265,486			290,123			319,202			9.3			10.0
Property and equipment		3,627			4,202			4,271			15.9			1.6
Other assets(2)		12,288			20,498			21,161			66.8			3.2
Total assets	￦	375,674		￦	436,786		￦	479,588			16.3			9.8

⁽¹⁾ “N/A” means not applicable.

⁽²⁾ Includes investments in associates and joint ventures, investment properties, intangible assets, current income tax assets, deferred income tax assets, assets held for sale and other assets.

For further information on our assets, see “Item 4.B. Business Overview—Assets and Liabilities.”

164

Comparison of 2018 to 2017

Our total assets increased 9.8% from ￦436,786 billion as of December 31, 2017 to ￦479,588 billion as of December 31, 2018, principally due to a 9.6% increase in loans in Won from ￦252,645 billion as of December 31, 2017 to ￦276,859 billion as of December 31, 2018, as well as an increase in financial assets at fair value through profit or loss from ￦32,227 billion under IAS 39 as of December 31, 2017 to ￦50,988 billion as of December 31, 2018.

Comparison of 2017 to 2016

Our total assets increased 16.3% from ￦375,674 billion as of December 31, 2016 to ￦436,786 billion as of December 31, 2017, principally due to a 47.5% increase in financial investments from ￦45,148 billion as of December 31, 2016 to ￦66,608 billion as of December 31, 2017, as well as a 8.9% increase in loans in Won from ￦231,924 billion as of December 31, 2016 to ￦252,645 billion as of December 31, 2017.

Liabilities and Equity

The following table sets forth, as of the dates indicated, the principal components of our liabilities and our equity:

	As of December 31,									Percentage Change
	2016			2017			2018			2017/2016			2018/2017
	(in billions of Won)									(%)
Liabilities:
Financial liabilities at fair value through profit or loss	￦	—		￦	—		￦	15,327			N/A	(1)		N/A	(1)
Financial liabilities at fair value through profit or loss (under IAS 39)		12,123			12,023			—			(0.8	)%		N/ A	(1)
Deposits		239,731			255,800			276,770			6.7			8.2
Debts		26,251			28,821			33,005			9.8			14.5
Debentures		34,992			44,993			53,279			28.6			18.4
Provisions		538			568			526			5.6			(7.4	)
Insurance contract liabilities		7,291			31,801			33,413			336.2			5.1
Other liabilities(2)		23,487			28,735			31,556			22.3			9.8
Total liabilities		344,413			402,741			443,875			16.9			10.2
Equity:
Capital stock		2,091			2,091			2,091			—			—
Capital surplus		16,995			17,122			17,122			0.7			—
Accumulated other comprehensive income		405			538			178			32.8			(66.9	)
Retained earnings		12,229			15,044			17,282			23.0			14.9
Treasury shares		(722	)		(756	)		(969	)		4.7			28.2
Equity attributable to stockholders		30,998			34,039			35,704			9.8			4.9
Non-controlling interests		263			6			9			(97.7	)		50.0
Total equity		31,261			34,045			35,713			8.9			4.9
Total liabilities and equity	￦	375,674		￦	436,786		￦	479,588			16.3			9.8

⁽¹⁾ “N/A” means not applicable.

⁽²⁾ Includes derivative financial liabilities, current income tax liabilities, deferred income tax liabilities, defined benefit liabilities and other liabilities.

Comparison of 2018 to 2017

Our total liabilities increased 10.2% from ￦402,741 billion as of December 31, 2017 to ￦443,875 billion as of December 31, 2018. The increase was primarily due to an 8.2% increase in deposits from ￦255,800 billion

165

as of December 31, 2017 to ￦276,770 billion as of December 31, 2018, as well as a 18.4% increase in debentures from ￦44,993 billion as of December 31, 2017 to ￦53,279 billion as of December 31, 2018. Our deposits increased mainly as a result of an increase in time deposits.

Our total equity increased 4.9% from ￦34,045 billion as of December 31, 2017 to ￦35,713 billion as of December 31, 2018. This increase resulted principally from an increase in our retained earnings, which was attributable mainly to the profit we generated in 2018.

Comparison of 2017 to 2016

Our total liabilities increased 16.9% from ￦344,413 billion as of December 31, 2016 to ￦402,741 billion as of December 31, 2017. The increase was primarily due to a 336.2% increase in insurance contract liabilities from ￦7,291 billion as of December 31, 2016 to ￦31,801 billion as of December 31, 2017, mainly reflecting the addition of KB Insurance as a consolidated subsidiary, as well as a 6.7% increase in deposits from ￦239,731 billion as of December 31, 2016 to ￦255,800 billion as of December 31, 2017, and a 28.6% increase in debentures from ￦34,992 billion as of December 31, 2016 to ￦44,993 billion as of December 31, 2017. Our deposits increased mainly as a result of an increase in demand deposits.

Our total equity increased 8.9% from ￦31,261 billion as of December 31, 2016 to ￦34,045 billion as of December 31, 2017. This increase resulted principally from an increase in our retained earnings, which was attributable mainly to the profit we generated in 2017.

Liquidity

Our primary source of funding has historically been and continues to be deposits. Deposits amounted to ￦239,731 billion, ￦255,800 billion and ￦276,770 billion as of December 31, 2016, 2017 and 2018, which represented approximately 79.7%, 77.6% and 76.2% of our total funding, respectively. We have been able to use customer deposits to finance our operations generally, including meeting a portion of our liquidity requirements. Although the majority of deposits are short-term, it has been our experience that the majority of our depositors generally roll over their deposits at maturity, thus providing us with a stable source of funding. However, in the event that a substantial number of our depositors do not roll over their deposits or otherwise decide to withdraw their deposited funds, we would need to place increased reliance on alternative sources of funding, some of which may be more expensive than customer deposits, in order to finance our operations. See “Item 3.D. Risk Factors—Risks relating to liquidity and capital management—Our funding is highly dependent on short-term deposits, which dependence may adversely affect our operations.” In particular, we may increase our utilization of alternative funding sources such as short-term borrowings and cash and cash equivalents (including funds from maturing loans), as well as liquidating our positions in financial assets and using the proceeds to fund parts of our operations, as necessary.

We also obtain funding through debentures and debts to meet our liquidity needs. Debentures represented 11.6%, 13.7% and 14.7% of our total funding as of December 31, 2016, 2017 and 2018, respectively. Debts represented 8.7% of our total funding as of December 31, 2016 and 2017 and 9.1% of our total funding as of December 31, 2018. For further information on our sources of funding, see “Item 4.B. Business Overview—Assets and Liabilities—Funding.”

The Financial Services Commission of Korea requires each financial holding company in Korea to maintain specific Won and foreign currency liquidity ratios and each bank in Korea to maintain a liquidity coverage ratio and a foreign currency liquidity coverage ratio. These ratios require us and Kookmin Bank to keep the ratio of liquid assets to liquid liabilities above certain minimum levels. For a description of these requirements, see “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Liquidity” and “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Banks—Liquidity.”

166

We are exposed to liquidity risk arising from withdrawals of deposits, payments of insurance contract claims and refunds, and maturities of our debentures and debts, as well as the need to fund our lending, trading and investment activities (including our capital expenditures) and the management of our trading positions. The goal of liquidity management is for us to be able, even under adverse conditions, to meet all of our liability repayments on time and fund all investment opportunities. For an explanation of how we manage our liquidity risk, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Liquidity Risk Management.” In March 2016, we entered into a land purchase agreement for the purchase of a site located in Yeouido, Seoul, on which we plan to construct a new headquarters building for Kookmin Bank. We anticipate that our total capital expenditures for the construction of the building, which is scheduled to be completed in 2020, will amount to approximately ￦425 billion, of which an aggregate amount of ￦171 billion was incurred as of December 31, 2018. In addition, in August 2016, we entered into a land purchase agreement for the purchase of a site located in Gimpo, in the outskirts of Seoul, in order to construct a new IT center for Kookmin Bank. We anticipate that our total capital expenditures for the construction of the IT center, which is scheduled to be completed in 2019, will amount to approximately ￦229 billion, of which an aggregate amount of ￦78 billion was incurred as of December 31, 2018.

We are a financial holding company, and substantially all of our operations are in our subsidiaries. Accordingly, we rely on distributions from our subsidiaries (as well as associates), direct borrowings and issuances of debt and equity securities to fund our liquidity obligations at the holding company level. We received aggregate dividends of ￦695 billion, ￦710 billion and ￦1,090 billion from our subsidiaries and associates in 2016, 2017 and 2018, respectively. See “Item 3.D. Risk Factors—Risks relating to our financial holding company structure and strategy.”

Asset Encumbrance

Part of our future funding and collateral needs are supported by assets readily available and unrestricted. The following table sets forth our assets that are available and those that are encumbered and not available to support our future funding and collateral needs as of December 31, 2018.

	December 31, 2018
					Unencumbered Assets
	Assets		Encumbered Asset(1)		Readily Available(2)		Other
	(in billions of Won)
On-balance sheet
Cash and due from financial institutions	￦	20,274	￦	3,783	￦	15,117	￦	1,374
Financial assets at fair value through profit or loss		50,988		19,215		3,936		27,837
Derivative financial assets		2,026		—		—		2,026
Loans		319,202		5,840		—		313,362
Financial investments		61,665		7,174		37,963		16,528
Investments in associates and joint ventures		505		—		—		505
Property and equipment		4,272		209		—		4,063
Investment property		2,120		600		—		1,520
Intangible assets		2,756		—		—		2,756
Current income tax assets		10		—		—		10
Deferred income tax assets		4		—		—		4
Assets held for sale		17		—		—		17
Other assets		15,749		5		—		15,744
Total on-balance sheet	￦	479,588	￦	36,826	￦	57,016	￦	385,746
Off-balance sheet
Fair value of securities accepted as collateral	￦	3,547	￦	—	￦	3,547	￦	—
Total off-balance sheet	￦	3,547	￦	—	￦	3,547	￦	—

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⁽¹⁾ Represent assets that have been pledged as collateral against an existing liability or are otherwise restricted in their use to secure funding.

⁽²⁾ Represent those on- and off-balance sheet assets that are not otherwise encumbered, and which are in freely transferable form.

Contractual Cash Obligations

The following table sets forth our contractual cash obligations (excluding short-term borrowings) as of December 31, 2018.

	Payments Due by Period
	Total		1 Year or Less		1-3 Years		3-5 Years		More Than 5 Years
	(in billions of Won)
Long-term borrowing obligations(1)(2)	￦	58,218	￦	17,278	￦	25,218	￦	12,069	￦	3,653
Operating lease obligations(3)		591		179		214		86		112
Capital lease obligations		11		7		4		—		—
Pension obligations		207		207		—		—		—
Deposits(2)(4)		158,652		144,792		8,983		2,268		2,609
Total	￦	217,679	￦	162,463	￦	34,419	￦	14,423	￦	6,374

⁽¹⁾ Includes debt and debentures with original maturities of one year or more.

⁽²⁾ Includes estimated future interest payments, which have been estimated using contractual interest rates and scheduled contractual maturities of the outstanding debt obligations and borrowings as of December 31, 2018. In order to calculate future interest payments on debt with floating rates, we used contractual interest rates as of December 31, 2018.

⁽³⁾ This line item is not included within our consolidated statements of financial position.

⁽⁴⁾ Excluding demand deposits.

Commitments and Guarantees

The following table sets forth our commitments and guarantees as of December 31, 2018. These commitments and guarantees are not included within our consolidated statements of financial position.

	Payments Due by Period
	Total		1 Year or Less		1-3 Years		3-5 Years		More Than 5 Years
	(in billions of Won)
Financial guarantees(1)	￦	3,627	￦	713	￦	2,547	￦	258	￦	109
Confirmed acceptances and guarantees		4,845		3,302		1,466		75		2
Commitments		138,590		107,659		7,820		1,425		21,686
Total	￦	147,062	￦	111,674	￦	11,833	￦	1,758	￦	21,797

⁽¹⁾ Includes ￦2,884 billion of irrevocable commitments to provide contingent liquidity credit lines to special purpose entities for which we serve as the administrator. See Note 40 of the notes to our consolidated financial statements.

Capital Adequacy

Kookmin Bank is subject to capital adequacy requirements of the Financial Services Commission applicable to Korean banks. The requirements applicable commencing in December 2013 pursuant to amended Financial Services Commission regulations promulgated in July 2013 were formulated based on Basel III, which was first introduced by the Basel Committee on Banking Supervision, Bank for International Settlements in December 2009. Under the amended Financial Services Commission regulations, all banks in Korea are required to maintain certain minimum ratios of common equity Tier I capital, total Tier I capital and total Tier I and Tier II capital to risk-weighted assets. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Banks—Capital Adequacy.”

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As of December 31, 2018, Kookmin Bank’s total Tier I and Tier II capital adequacy ratio was 15.52%.

The following table sets forth a summary of Kookmin Bank’s capital and capital adequacy ratios as of December 31, 2016, 2017 and 2018, based on applicable regulatory reporting standards.

	As of December 31,
	2016			2017			2018
	(in billions of Won, except percentages)
Tier I capital:	￦	22,343		￦	24,040		￦	25,568
Common equity Tier I capital		22,343			24,040			25,568
Paid-in capital		2,022			2,022			2,022
Capital reserves		5,220			5,220			5,219
Retained earnings		15,588			17,404			19,311
Non-controlling interests in consolidated subsidiaries		—			—			—
Others		(487	)		(606	)		(984	)
Additional Tier I capital		—			—			—
Tier II capital:		2,236			1,873			2,126
Revaluation reserves		—			—			—
Allowances for credit losses(1)		49			51			69
Hybrid debt		9			—			—
Subordinated debt		2,178			1,822			2,057
Valuation gain on financial investments		—			—			—
Others		—			—			—
Total core and supplementary capital		24,579			25,913			27,694
Risk-weighted assets		150,648			161,825			178,433
Credit risk:
On-balance sheet		126,988			139,448			154,189
Off-balance sheet		9,482			6,511			9,504
Market risk		3,884			5,747			4,748
Operational risk		10,295			10,119			9,992
Total Tier I and Tier II capital adequacy ratio		16.32	%		16.01	%		15.52	%
Tier I capital adequacy ratio		14.83	%		14.86	%		14.33	%
Common equity Tier I capital adequacy ratio		14.83	%		14.86	%		14.33	%
Tier II capital adequacy ratio		1.48	%		1.16	%		1.19	%

⁽¹⁾ Under the standardized approach, allowances for credit losses in respect of credits classified as normal or precautionary are used to calculate Tier II capital only to the extent they represent up to 1.25% of credit risk-weighted assets. Under the internal ratings-based approach, allowances for credit losses, less estimated losses, are used to calculate Tier II capital only to the extent they represent up to 0.6% of credit risk-weighted assets.

In addition, we, as a bank holding company, are required to maintain certain minimum capital adequacy ratios pursuant to applicable regulations of the Financial Services Commission. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy.”

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The following table sets forth a summary of our consolidated capital adequacy ratio as of December 31, 2016, 2017 and 2018, based on applicable regulatory reporting standards.

	As of December 31,
	2016			2017			2018
	(in billions of Won)
Tier I capital
Common equity Tier I capital	￦	29,014		￦	31,059		￦	32,994
Additional Tier I capital		251			—			—
Total Tier I capital	￦	29,265		￦	31,059		￦	32,994
Tier II capital		1,839			1,342			1,482
Risk-weighted assets	￦	203,649		￦	212,777		￦	236,099
Total Tier I and Tier II capital adequacy ratio		15.27	%		15.23	%		14.60	%
Tier I capital adequacy ratio		14.37	%		14.60	%		13.97	%
Common equity Tier I capital adequacy ratio		14.25	%		14.60	%		14.60	%
Tier II capital adequacy ratio		0.90	%		0.63	%		0.63	%

Recent Accounting Pronouncements

See Note 2.1 of the notes to our consolidated financial statements for a description of other recent accounting pronouncements under IFRS as issued by the IASB that have been issued but are not yet effective.

Item 5.C. Research and Development, Patents and Licenses, etc.

Not applicable.

Item 5.D. Trend Information

These matters are discussed under Item 5.A. and Item 5.B. above where relevant.

Item 5.E. Off-Balance Sheet Arrangements

See “Item 5B. Liquidity and Capital Resources—Financial Condition—Contractual Cash Obligations” and “Item 5B. Liquidity and Capital Resources—Financial Condition—Commitments and Guarantees.”

Item 5.F. Tabular Disclosure of Contractual Obligations

See “Item 5B. Liquidity and Capital Resources—Financial Condition—Contractual Cash Obligations.”

Item 5.G. Safe Harbor

See “Forward-Looking Statements.”

Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Item 6.A. Directors and Senior Management

Board of Directors

Our board of directors, currently consisting of one executive director, one non-standing director and seven non-executive directors, has the ultimate responsibility for the management of our affairs.

Our articles of incorporation provide that:

• we may have no more than 30 directors;

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• the number of executive directors must be less than 50% of the total number of directors; and

• we have five or more non-executive directors.

The term of office for each director is renewable and is subject to the Korean Commercial Code, the Act on the Corporate Governance of Financial Companies and related regulations.

Our board of directors meets on a regular basis to discuss and resolve material corporate matters. Additional extraordinary meetings may also be convened at the request of any director or any committee that serves under the board of directors.

The names and positions of our directors are set forth below. The business address of all of the directors is our registered office at 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea.

Executive Director

The table below identifies our executive director as of the date of this annual report:

Name	Date of Birth	Position	Director Since	End of Term
Jong Kyoo Yoon	October 13, 1955	Chairman and Chief Executive Officer	November 21, 2014	November 20, 2020

Our executive director does not have any significant activities outside KB Financial Group.

Jong Kyoo Yoon is our chairman and chief executive officer. He has been an executive director since November 2014. He previously served as the president and chief executive officer of Kookmin Bank, our deputy president, chief financial officer and chief risk management officer, a senior advisor of Kim & Chang, a senior executive vice president, chief financial officer and chief strategic officer of Kookmin Bank and a senior partner of Samil PricewaterhouseCoopers Korea. Mr. Yoon received a B.A. in business administration from Sungkyunkwan University, an M.B.A. from Seoul National University and a Ph.D. in business administration from Sungkyunkwan University.

Non-standing Director

The table below identifies our non-standing director as of the date of this annual report:

Name	Date of Birth	Position	Director Since	End of Term
Yin Hur	December 19, 1961	Non-standing director; President and Chief Executive Officer of Kookmin Bank	November 21, 2017	March 22, 2020

Yin Hur has been a non-standing director since November 2017. He currently serves as the president and chief executive officer of Kookmin Bank. Mr. Hur previously served as a senior executive vice president of the sales group, a senior managing director of the strategy and finance planning group, and a managing director of the credit analysis division, at Kookmin Bank. Mr. Hur received a B.A. in law and an M.A. in law from Seoul National University.

Non-executive Directors

Our non-executive directors are selected based on the candidates’ knowledge and experience in diverse areas, such as financial business, accounting, finance, law and regulation, risk management and consumer protection. All seven non-executive directors below were nominated by our Non-executive Director Nominating Committee and approved by our shareholders.

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The table below identifies our non-executive directors as of the date of this annual report:

Name	Date of Birth	Position	Director Since	Date Term Ends(1)
Suk Ryul Yoo	April 21, 1950	Chairman of the Board and Non-executive Director	March 27, 2015	March 26, 2020
Stuart B. Solomon	July 17, 1949	Non-executive Director	March 24, 2017	March 26, 2020
Suk Ho Sonu	September 16, 1951	Non-executive Director	March 23, 2018	March 22, 2020
Myung Hee Choi	February 22, 1952	Non-executive Director	March 23, 2018	March 22, 2020
Kouwhan Jeong	September 30, 1953	Non-executive Director	March 23, 2018	March 22, 2020
Kyung Ho Kim	December 21, 1954	Non-executive Director	March 27, 2019	March 26, 2021
Jae Ha Park	November 25, 1957	Non-executive Director	March 27, 2015	March 26, 2020

⁽¹⁾  The date on which each term will end will be the date of the general stockholders’ meeting in the relevant year unless otherwise specified.

Suk Ryul Yoo has been a non-executive director since March 2015. Mr. Yoo previously served as an advisor to Samsung Electronics Co., Ltd., chairman of the Credit Finance Association and the president and chief executive officer of Samsung Total Petrochemicals Co., Ltd., Samsung Card Co., Ltd., Samsung Life Insurance Co., Ltd., Samsung Securities Co., Ltd. and Samsung Capital Co., Ltd. He received a B.A. in business administration from Seoul National University and an M.S. in industrial engineering from Korea Advanced Institute of Science and Technology.

Stuart B. Solomon has been a non-executive director since March 2017. Mr. Solomon previously served as the chairman, president and chief executive officer of MetLife Korea. He received an undergraduate degree from Syracuse University.

Suk Ho Sonu has been a non-executive director since March 2018. Mr. Sonu previously served as a visiting professor at Seoul National University Business School, the dean of Hongik Graduate School of Business Administration, president of the Korea Money and Finance Association and president of the Korea Finance Association. Mr. Sonu received a B.A. in applied mathematics from Seoul National University, an M.B.A. from the Kellogg School of Management of Northwestern University and a Ph.D. in finance from the Wharton School of the University of Pennsylvania.

Myung Hee Choi has been a non-executive director since March 2018. She is currently a vice president at the Korea Internal Control Assessment Institute. Ms. Choi previously served as an auditor at the Korea Exchange Bank, a director of the Financial Supervisory Service and senior operations officer of Citibank Korea, Seoul Branch. Ms. Choi received a B.A. in English from Yonsei University.

Kouwhan Jeong has been a non-executive director since March 2018. He is currently the president attorney-at-law of Nambujeil Law and Notary Office Inc. He previously served as the chairperson of the Consumer Dispute Settlement Commission of the Korea Consumer Agency, a standing mediator at Korea Medical Dispute Mediation and Arbitration Agency and the branch chief prosecutor at the Bucheon Branch Office of the Incheon District Prosecutor’s Office. Mr. Jeong received a B.A. in law from Seoul National University.

Kyung Ho Kim has been a non-executive director since March 2019. He is currently a professor at Hongik University School of Business. Mr. Kim previously served as the vice president of Hongik University, an outside director of Shinhan Investment Corp., an outside director of Citibank Korea Inc., a vice chairman of the Korea Accounting Standards Board and president of the Korea Association for Government Accounting. Mr. Kim received a B.A. in business administration from Seoul National University and an M.S. and a Ph.D. in management from Purdue University.

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Jae Ha Park has been a non-executive director since March 2015. He is currently a senior research fellow at the Korea Institute of Finance. Mr. Park previously served as a deputy dean of the Asian Development Bank Institute, a vice president of the Korea Institute of Finance, a vice chairman of the Korea Money and Finance Association and a senior counselor to the Minister of the former Ministry of Finance and Economy. He has also served as a non-executive director of Shinhan Bank, Daewoo Securities Co., Ltd. and Jeonbuk Bank. Mr. Park received a B.A. in economics from Seoul National University and a Ph.D. in economics from Pennsylvania State University.

Any director having an interest in a transaction that is subject to approval by the board of directors may not vote at the meeting during which the board approves the transaction.

Executive Officers

The table below identifies our executive officers who are not executive directors as of the date of this annual report:

Name	Date of Birth	Position
Ki-Hwan Kim	March 20, 1963	Deputy President and Chief Finance Officer
Pil Kyu Im	March 20, 1964	Deputy President and Chief Human Resources Officer
Kyung Yup Cho	September 9, 1961	Deputy President; KB Research
Young Hyuk Jo	April 22, 1963	Deputy President; Audit Department
Chang Kwon Lee	November 15, 1965	Senior Managing Director and Chief Strategy Officer
Hyun Jin Shin	February 10, 1965	Senior Managing Director and Chief Risk Management Officer
Nam Hoon Cho	June 28, 1968	Managing Director and Chief Global Strategy Officer
Chan Il Park	March 19, 1963	Managing Director and Chief Compliance Officer
Soon Bum Kwon	October 20, 1966	Managing Director
Jeong Rim Park	November 27, 1963	Head of Capital Markets Business Unit
Jong Hee Yang	June 10, 1961	Head of Insurance Business Unit
Dong Cheol Lee	October 4, 1961	Head of Retail Customer Business Unit
Bo Youl Oh	January 25, 1962	Head of Corporate and Investment Banking Business Unit
Young Gil Kim	January 3, 1963	Head of Wealth Management Business Unit
Deok Soon Shin	February 20, 1963	Head of Small and Medium Enterprise Business Unit
Chai Hyun Sung	September 12, 1965	Chief Public Relation Officer
Dong Whan Han	January 30, 1965	Chief Digital Innovation Officer
Woo Yeul Lee	November 21, 1964	Chief Information Technology Officer
Jin Soo Yoon	February 29, 1964	Chief Data Officer
Jin Gyu Maeng	January 15, 1966	General Manager of Planning and Coordination Office

None of the executive officers has any significant activities outside KB Financial Group.

Ki-Hwan Kim is a deputy president and our chief finance officer. Mr. Kim previously served as our chief risk management officer and as a managing director of Kookmin Bank’s consumer protection group. He received a B.A. in economics from Seoul National University.

Pil Kyu Im is a deputy president and our chief human resources officer. He previously served as our chief compliance officer and as the branch manager of Kookmin Bank’s Gwanghwamoon branch and Star Tower branch. Mr. Im received a B.A. in agricultural economics from Korea University.

Kyung Yup Cho is a deputy president and heads KB Research. He previously served as a senior editor at MaeKyung Media Group and the head of financial news, political news, social affairs and international news at Maeil Business Newspaper. Mr. Cho received a B.A. and a Ph.D. in business administration from Yonsei University.

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Young Hyuk Jo is a deputy president and heads the Audit Department. He previously served as the head of Kookmin Bank’s Ansan financial center branch. Mr. Jo received a B.A. in economics from Dong-A University.

Chang Kwon Lee is a senior managing director and our chief strategy officer. He previously served as a general manager of KB Kookmin Card’s strategic planning department. Mr. Lee received a B.A. in applied statistics from Korea University.

Hyun Jin Shin is a senior managing director and our chief risk management officer. He previously served as a chief risk management officer of KB Insurance and as the general manager of our risk management department. Mr. Shin received a B.A. in economics from Korea University and an M.B.A. from the Korea Advanced Institute of Science and Technology.

Nam Hoon Cho is a managing director and our chief global strategy officer. He previously served as a managing director of KB Securities’ global business division and management supporting division. Mr. Cho received a B.A. in economics from Sungkyunkwan University.

Chan Il Park is a managing director and our chief compliance officer. He previously served as the head of Kookmin Bank’s Guro-dong financial center branch and Seoyeouido branch.

Soon Bum Kwon is a managing director. He previously served as an executive secretary for our company and Kookmin Bank, as well as a general manager of Kookmin Bank’s human resources department. Mr. Kwon received a B.A. in science of public administration from Korea University.

Jeong Rim Park is the head of our capital markets business unit and also serves as the chief executive officer of KB Securities. She previously served as a senior executive vice president of Kookmin Bank and the head of its wealth management group, as well as a deputy president of KB Securities in charge of its wealth management division. Ms. Park received a B.A. in business administration and an M.B.A. from Seoul National University.

Jong Hee Yang is the head of our insurance business unit and also serves as the chief executive officer of KB Insurance. He previously served as a deputy president in charge of our finance, human resources and investor relations divisions. Mr. Yang received a B.A. in history from Seoul National University.

Dong Cheol Lee is the head of our retail customer business unit and also serves as the chief executive officer of KB Kookmin Card. He previously served as a deputy president in charge of our strategy planning department. Mr. Lee received a B.A. in law from Korea University.

Bo Youl Oh is the head of our corporate and investment banking business unit. He also serves as a senior executive vice president of Kookmin Bank and heads its corporate investment banking customer group, as well as a deputy president of KB Securities in charge of its investment banking division. He previously served as the head of Kookmin Bank’s credit analysis division and corporate analysis department. Mr. Oh received a B.A. in global management from Hanyang Cyber University.

Young Gil Kim is the head of our wealth management business unit. He also serves as a senior managing director of Kookmin Bank’s wealth management group and as a deputy president of KB Securities’ wealth management division. He previously served as the head of Kookmin Bank’s investment product & service division. Mr. Kim received a B.S. in statistical computation from Chungnam National University.

Deok Soon Shin is the head of our small and medium enterprise business unit. He also serves as a senior managing director of Kookmin Bank’s small and medium enterprise customer group. He previously served as the representative of Kookmin Bank’s southern regional sales group. Mr. Shin received a B.A. in trade from Kyunghee University.

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Chai Hyun Sung is our chief public relation officer. He also serves as a senior managing director of Kookmin Bank and heads its consumer brand strategy group. He previously served as our chief human resources officer and as an executive secretary for our company and Kookmin Bank. Mr. Sung received a B.A. in accounting from Chonbuk National University.

Dong Whan Han is our chief digital innovation officer. He also serves as a senior managing director of Kookmin Bank’s digital business group. He previously served as the head of our office of the board of directors and a general manager of Kookmin Bank’s strategic planning department. Mr. Han received an M.S. in geography from Seoul National University and an M.B.A. from the University of Washington.

Woo Yeul Lee is our chief information technology officer. He also serves as a senior managing director of Kookmin Bank’s information technology group. He previously served as the representative of Kookmin Bank’s northern regional sales group. Mr. Lee received a B.A. in agricultural economics from Korea University.

Jin Soo Yoon is our chief data officer. He also serves as a senior managing director of the data strategy division at Kookmin Bank and KB Kookmin Card. He previously served as the head of N division of Hyundai Card Co., Ltd. and Hyundai Capital Services, Inc. Mr. Yoon received a B.S. in computer science from Seoul National University and an M.S. and a Ph.D. from the Korea Advanced Institute of Science and Technology.

Jin Gyu Maeng is a general manager of our planning and coordination office. He also serves as a general manager of Kookmin Bank’s planning and coordination office. He previously served as the head of Kookmin bank’s Yeouido financial center branch. Mr. Maeng received a B.A. in economics from Dongguk University.

Item 6.B. Compensation

The aggregate remuneration paid and benefits-in-kind granted, excluding stock grants, by us and our subsidiaries to our chairman and chief executive officer, our other executive and non-standing directors, our non-executive directors and our executive officers for the year ended December 31, 2018 was ￦13,694 million. For the year ended December 31, 2018, we set aside ￦470 million for allowances for severance and retirement benefits for our chairman and chief executive officer, the other executive directors and our executive officers.

The compensation of our directors and executive officers who received total annual compensation exceeding ￦500 million in 2018 was as follows:

Name	Position	Total Compensation in 2018 (in millions of Won)(1)	Incentive Compensation for Payment Subsequent to 2018 (number of shares)(2)
Jong Kyoo Yoon	Chairman and Chief Executive Officer	￦1,952(3)	45,068
Yin Hur	Non-standing director; President and Chief Executive Officer of Kookmin Bank	1,502	7,023
Pil Kyu Im	Deputy President and Chief Human Resources Officer	665	6,561
Kyung Yup Cho	Deputy President; KB Research	818	13,692
Young Hyuk Jo	Deputy President; Audit Department	702	4,605
Jeong Rim Park	Head of Capital Markets Business Unit	1,266(4)	6,562

⁽¹⁾  Includes annual salary and performance-based incentive payments paid by us and our subsidiaries.

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⁽²⁾  Consists of performance-based shares expected to be granted by us and our subsidiaries in the future. The actual payment amount will be determined at the time of payment based on the then-current market price of our common shares.

⁽³⁾  Also includes a performance-based stock grant pursuant to a performance evaluation over a three-year period from November 21, 2014 to November 20, 2017.

⁽⁴⁾  Also includes retirement payments from Kookmin Bank.

We do not have service contracts with any of our directors or executive officers providing for benefits upon termination of their employment with us.

In 2008, we established a stock grant plan. Pursuant to this plan, we have entered into performance share agreements with certain of our and our subsidiaries’ directors and executive officers, whereby we may grant shares of our common stock (or the equivalent monetary amount based on the market value of such shares) within specified periods as long-term incentive performance shares in accordance with pre-determined performance targets. See “Item 6.E. Share Ownership—Performance Share Agreements.” In 2018, we incurred ￦10,930 million of compensation costs relating to stock grants under such agreements. See Note 31.2 of the notes to our consolidated financial statements included elsewhere in this annual report.

Item 6.C. Board Practices

See “Item 6.A. Directors and Senior Management” above for information concerning the terms of office and contractual employment arrangements with our directors and executive officers.

Committees of the Board of Directors

We currently have the following committees that serve under the board:

• the Audit Committee;

• the Risk Management Committee;

• the Evaluation & Compensation Committee;

• the Non-Executive Director Nominating Committee;

• the Audit Committee Member Nominating Committee;

• the CEO Nominating Committee; and

• the Subsidiaries’ CEO Director Nominating Committee.

Each committee member is appointed by the board of directors, except for members of the Audit Committee, who are elected at the general meeting of stockholders.

Audit Committee

The committee currently consists of four non-executive directors, Suk Ho Sonu, Kouwhan Jeong, Jae Ha Park and Kyung Ho Kim. The chairperson of the Audit Committee is Kyung Ho Kim. The committee oversees our financial reporting and approves the appointment of our independent registered public accounting firm. The committee also reviews our financial information, auditor’s examinations, key financial statement issues, the plans and evaluation of internal control and the administration of our financial affairs by the board of directors. In connection with the general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors to each general meeting of stockholders. The committee holds regular meetings every quarter.

Risk Management Committee

The committee currently consists of four non-executive directors, Stuart B. Solomon, Suk Ho Sonu, Myung Hee Choi and Kyung Ho Kim. The chairperson of the committee is Suk Ho Sonu. The Risk Management

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Committee oversees and makes determinations on all issues relating to our comprehensive risk management function. In order to ensure our stable financial condition and to maximize our profits, the committee monitors our overall risk exposure and reviews our compliance with risk policies and risk limits. In addition, the committee reviews risk and control strategies and policies, evaluates whether each risk is at an adequate level, establishes or abolishes risk management divisions and reviews risk-based capital allocations. The committee holds regular meetings every quarter.

Evaluation & Compensation Committee

The committee currently consists of four non-executive directors, Suk Ryul Yoo, Myung Hee Choi, Kouwhan Jeong and Jae Ha Park. The chairperson of the committee is Myung Hee Choi. The Evaluation and Compensation Committee reviews compensation schemes and compensation levels of us and our subsidiaries. The committee is also responsible for deliberating and deciding the compensation of directors, evaluating management’s performance and implementing management training programs, as well as deciding and supervising the performance-based annual salary of the president and the executive officers of us and our subsidiaries. The committee holds regular meetings semi-annually.

Non-executive Director Nominating Committee

The committee currently consists of four non-executive directors, Suk Ryul Yoo, Suk Ho Sonu, Myung Hee Choi and Jae Ha Park. The chairperson of the committee is Jae Ha Park. The committee is responsible for the management and evaluation of a pool of non-executive director candidates and recommendation of the non-executive director candidates to be nominated at the annual general meeting of shareholders.

Audit Committee Member Nominating Committee

The committee is non-standing and currently has no members. The last meeting of the committee was held in February 2019 to nominate new Audit Committee members. The committee oversees the selection of Audit Committee member candidates and recommends them annually sometime prior to the general stockholders meeting. The term of office of its members is from the first meeting of the committee held to nominate the Audit Committee members until the Audit Committee members are appointed.

CEO Nominating Committee

The committee currently consists of all seven of our non-executive directors. The chairperson of the CEO Nominating Committee is Suk Ryul Yoo. The committee is responsible for establishing and monitoring procedures for our CEO candidate cultivation and succession program pursuant to our “CEO Succession Regulations,” which cover, among other things, the qualifications of CEO candidates, continued maintenance of the candidate pool and the CEO candidate nomination process. The committee holds regular meetings semi-annually.

Subsidiaries’ CEO Director Nominating Committee

The committee currently consists of one non-standing director, Yin Hur, and three non-executive directors, Suk Ryul Yoo, Stuart B. Solomon and Kouwhan Jeong, together with our chairman and chief executive officer, Jong Kyoo Yoon. The chairperson of the Subsidiaries’ CEO Director Nominating Committee is Jong Kyoo Yoon. The committee is responsible for candidate cultivation and succession programs for chief executive officers of our subsidiaries. The committee holds regular meetings semi-annually.

Item 6.D. Employees

As of December 31, 2018, we had a total of 170 full-time employees, excluding 15 executive officers, at our financial holding company.

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The following table sets forth information regarding our employees at both our financial holding company and our subsidiaries as of the dates indicated:

		As of December 31,
		2016		2017		2018
KB Financial Group	Full-time employees(1)		159		164		170
	Contractual employees		—		—		—
	Managerial employees		135		147		151
	Members of Korea Financial Industry Union		—		—		—
Kookmin Bank	Full-time employees(1)		19,458		16,925		16,802
	Contractual employees		1,218		1,422		1,309
	Managerial employees		11,023		9,799		9,615
	Members of Korea Financial Industry Union		16,406		14,501		14,697
Other subsidiaries	Full-time employees(1)		8,366		8,231		8,753
	Contractual employees		1,366		1,600		1,290
	Managerial employees		4,467		4,554		4,675
	Members of Korea Financial Industry Union		4,433		6,043		6,005

⁽¹⁾  Excluding executive officers.

We consider our relations with our employees to be satisfactory. We and our subsidiaries each have a joint labor-management council which serves as a forum for ongoing discussions between our management and employees. At seven of our subsidiaries, Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card, KB Capital, KB Real Estate Trust and KB Credit Information, our employees have a labor union. Every year, the unions at Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card, KB Capital, KB Real Estate Trust and KB Credit Information and their respective managements negotiate and enter into new collective bargaining agreements and negotiate annual wage adjustments.

Our compensation packages consist of base salary and base bonuses. We also provide performance-based compensation to employees and management officers, including those of our subsidiaries, depending on level of responsibility of the employee or officer and business of the relevant subsidiary. Typically, executive officers, heads of regional headquarters and employees in positions that require professional skills, such as fund managers and dealers, are compensated depending on their individual annual performance evaluation. Also, Kookmin Bank has implemented a profit-sharing system in order to enhance the performance of Kookmin Bank’s employees. Under this system, Kookmin Bank pays bonuses to its employees, in addition to the base salary and depending on Kookmin Bank’s annual performance.

In January 2016, we implemented a “mileage stock” program, pursuant to which we may grant to our and our subsidiaries’ employees performance-based cash payments that correspond to the market value of our common shares. The accumulated “miles” of common shares can be exercised for cash during a two-year period commencing on the one-year anniversary of the grant date.

We provide a wide range of benefits to our employees, including our executive directors. Specific benefits provided may vary for each of our subsidiaries but generally include medical insurance, employment insurance, workers compensation, employee and spouse life insurance, free medical examinations, child tuition and fee reimbursement, disabled child financial assistance and reimbursement for medical expenses, and other benefits may be provided depending on the subsidiary.

In accordance with the National Pension Act, we contribute an amount equal to 4.5% of employee wages, and each employee contributes 4.5% of his or her wages, into each employee’s personal pension account. In addition, in accordance with the Guarantee of Worker’s Retirement Benefits Act, we have adopted a retirement pension plan for our employees. Contributions under the retirement pension plan are deposited annually into a

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financial institution, and an employee may elect to receive a monthly pension or a lump-sum amount upon retirement. Our retirement pension plans are provided in the form of a defined benefit plan and a defined contribution plan. The defined benefit plan guarantees a certain payout at retirement, according to a fixed formula based on the employee’s average salary and the number of years for which the employee has been a plan member. The defined contribution plan, in which the employer’s contribution is determined in advance based on one twelfth of an employee’s total annual pay, is managed directly by the employees. Under Korean law, we may not terminate the employment of full-time employees except under certain limited circumstances. However, from time to time, we invite our employees to apply for our early retirement programs, which provide for varying amounts of severance pay based on the duration of time an employee has worked for us, along with several other key features. We believe that such programs enhance our productivity and efficiency by improving our labor structure.

In June 2009, we established an employee stock ownership association. All of our employees are eligible to participate in this association. We are not required to, and do not, make cash contributions to this plan. Members of our employee stock ownership association have pre-emptive rights to acquire up to 20% of our shares issued in public offerings by us pursuant to the Financial Investment Services and Capital Markets Act. In August 2009, we offered to members of our employee stock ownership association 6,000,000 of the 30,000,000 new shares of common stock to be issued in our rights offering to our existing shareholders, and the entire amount was subscribed by members of our employee stock ownership association. The employee stock ownership association held 2,490,746 shares of our common stock as of December 31, 2018.

Employees of Kookmin Bank have been eligible to participate in its employee stock ownership association, which will be terminated once all of our common stock held by the association (which the association received following the transfer of Kookmin Bank shares held by it as a result of the comprehensive stock transfer pursuant to which we were established) have been distributed to the relevant Kookmin Bank employees at the requests of such employees following the expiration of the required holding periods. As of December 31, 2018, such employee stock ownership association held 463,615 shares of our common stock.

In order to develop our next generation of leaders and enhance the operational capability of our employees at each of our subsidiaries, we operate various employee training programs. These programs, which are aimed at cultivating financial specialists with higher levels of management and business skills, developing regional experts for increased global capabilities and enhancing employee loyalty, comprise a number of customized programs such as training courses for employees of different positions, domestic and foreign MBA courses and intensive human resources development programs for high performers to cultivate future leaders. For example, Kookmin Bank offers training programs at its employees’ worksites to facilitate access to training, as well as a foreign regional expert training program and a global language training course. We also provide financial and other support for our employees to develop their finance-related knowledge and skills by enrolling in training courses or engaging in self-study programs. The broad spectrum of training programs, combined with the state-of-the-art technologies such as cyber training, satellite broadcasting and mobile-learning, maximizes the level of exposure of the trainees to the contents of the programs. We also believe that our training scheme based on classified training courses and a development evaluation system has facilitated systemic development of employee skills and a spontaneous learning environment.

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Item 6.E. Share Ownership

Common Stock

As of March 31, 2019, the persons who are currently our directors or executive officers, as a group, held an aggregate of 42,555 shares of our common stock, representing approximately 0.01% of the issued shares of our common stock as of such date. None of these persons individually held more than 1% of the outstanding shares of our common stock as of such date. The following table presents information regarding our directors and executive officers who beneficially owned our shares as of March 31, 2019:

Name of Executive Officer or Director	Number of Shares of Common Stock
Jong Kyoo Yoon		21,000
Yin Hur		5,062
Ki-Hwan Kim		439
Pil Kyu Im		1,005
Kyung Yup Cho		1,500
Young Hyuk Jo		961
Chang Kwon Lee		500
Hyun Jin Shin		1,000
Nam Hoon Cho		1,000
Chan Il Park		913
Soon Bum Kwon		1,255
Jeong Rim Park		540
Jong Hee Yang		914
Dong Cheol Lee		1,010
Bo Youl Oh		463
Young Gil Kim		152
Deok Soon Shin		1,155
Chai Hyun Sung		1,022
Dong Whan Han		1,100
Woo Yeul Lee		1,064
Jin Gyu Maeng		500
Total		42,555

Performance Share Agreements

Pursuant to a stock grant plan we established in 2008, we have entered into performance share agreements with certain of our and our subsidiaries’ directors and executive officers, pursuant to which we may grant shares of our common stock (or the equivalent monetary amount based on the market value of such shares) within specified periods as long-term incentive performance shares in accordance with pre-determined performance targets. Since January 2010, in accordance with the best practice guidelines for outside directors of banking institutions announced by the Korea Federation of Banks, which have been replaced with the Financial Corporate Governance Code issued by the Financial Services Commission in December 2014, we have not entered into any performance share agreements with our non-executive directors.

Actual disbursements under the performance share agreements with our and our subsidiaries’ directors and executive officers have generally been in the form of cash disbursements of equivalent monetary amounts based on the market value of our shares.

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Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Item 7.A. Major Shareholders

The following table presents information regarding the beneficial ownership of our shares at December 31, 2018 by each person or entity known to us to own beneficially more than 5% of our issued and outstanding shares.

Except as otherwise indicated, each stockholder identified by name has:

• sole voting and investment power with respect to its shares; and

• record and beneficial ownership with respect to its shares.

Beneficial Owner	Number of Shares of Common Stock		Percentage of Total Outstanding Shares of Common Stock (%)(1)
Korean National Pension Service		39,704,733		9.50	%
JPMorgan Chase Bank, N.A.(2)		26,726,442		6.39	%

⁽¹⁾  Calculated based on 418,111,537 shares of our common stock issued as of December 31, 2018.

⁽²⁾ As depositary bank.

Other than as set forth above, no other person or entity known by us to be acting in concert, directly or indirectly, jointly or separately, owned 5.0% or more of the issued shares of our common stock or exercised control or could exercise control over us as of December 31, 2018. None of our major stockholders has different voting rights from our other stockholders.

As of December 31, 2018, there were 395,551,297 shares of common stock outstanding. Of the total outstanding shares, 26,726,442 shares were held in the form of ADSs and 96,153,910 shares were held of record in the form of common stock by residents in the United States. As of December 31, 2018, the number of registered holders of our ADSs was 18 and the number of holders of our common stock in the United States was 626.

Item 7.B. Related Party Transactions

As of December 31, 2018, we had an aggregate of ￦2,340 million in loans outstanding to our executive officers and directors, executive officers and directors of Kookmin Bank and chief executive officers of our other subsidiaries, including family members of such individuals. In addition, as of such date, we had loans outstanding to various companies whose directors or executive officers were serving concurrently as our directors or executive officers. See Note 43 of the notes to our consolidated financial statements included elsewhere in this annual report. All of these loans were made in the ordinary course of business, on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features.

None of our directors or officers have or had any interest in any transactions effected by us that are or were unusual in their nature or conditions or significant to our business which were effected during the current or immediately preceding year or were effected during an earlier year and remain in any respect outstanding or unperformed.

Item 7.C. Interests of Experts and Counsel

Not applicable.

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Item 8. FINANCIAL INFORMATION

Item 8.A. Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements” and pages F-1 through F-244.

Legal Proceedings

Excluding the legal proceedings discussed below, we and our subsidiaries are not a party to any legal or administrative proceedings and no proceedings are known by any of us or our subsidiaries to be contemplated by governmental authorities or third parties, which, if adversely determined, may have a material adverse effect on our consolidated financial condition or results of operations.

In June 2010, Fairfield Sentry Limited, or Fairfield, which is currently in liquidation and whose assets were directly or indirectly invested with Bernard L. Madoff Investment Securities LLC, or BLMIS, filed a lawsuit in the Supreme Court of the State of New York against Kookmin Bank, which acted as a trustee bank for its clients who invested in Fairfield. Fairfield seeks recovery of approximately US$42 million paid to Kookmin Bank by its clients in connection with share redemptions on the ground that such payments were made by mistake, based on inflated values resulting from BLMIS’ fraud. In September 2010, the case was transferred to the United States Bankruptcy Court for the Southern District of New York, which in turn ordered that the case be returned to a state court in September 2011. While the transfer of the case is still pending, the United States Bankruptcy Court for the Southern District of New York issued an opinion in December 2018 holding that the claims against Kookmin Bank were deficient, although an order implementing such opinion has not been entered. Fairfield has filed similar actions against numerous other fund investors to seek recovery of redemption payments.

In May 2012, the trustee appointed for the liquidation of BLMIS filed a lawsuit against Kookmin Bank in the United States Bankruptcy Court for the Southern District of New York. The trustee seeks recovery of approximately US$42 million, the amount of funds that were allegedly redeemed by Kookmin Bank from Fairfield between June 2004 and January 2006. The trustee alleges that Fairfield was a “feeder fund” that invested in BLMIS and that redemptions from such BLMIS feeder fund are avoidable and recoverable under the U.S. Bankruptcy Code and New York law. The United States Bankruptcy Court for the Southern District of New York dismissed the case in March 2017, and the trustee appealed such decision to the United States Court of Appeals for the Second Circuit, which vacated the judgment and remanded the case to the Bankruptcy Court in February 2019, for which Kookmin Bank filed a motion to reconsider. The trustee has filed similar clawback actions against numerous other institutions.

In November 2012, Kookmin Bank filed a lawsuit against the Export-Import Bank of Korea and other creditor financial institutions comprising the creditors’ committee of a Korean shipbuilding company which was a borrower of Kookmin Bank and was in workout. Kookmin Bank voted against extending new credit to such borrower and exercised its appraisal rights. Kookmin Bank sought ￦103 billion as compensation for damages and payment of the purchase price of debt held by Kookmin Bank. In November 2012, the Export-Import Bank of Korea and other creditor financial institutions of the borrower filed a counter lawsuit against Kookmin Bank seeking ￦46 billion in damages in connection with the borrower’s debt restructuring plan. In August 2014, the Seoul Central District Court ruled partially in favor of Kookmin Bank in its lawsuit against the Export-Import Bank of Korea and other creditor financial institutions of the borrower, but ruled against Kookmin Bank in the counter lawsuit brought against Kookmin Bank. Both cases were appealed to the Seoul High Court, which dismissed the appeals in February 2016. Both cases were further appealed to the Supreme Court of Korea, which dismissed the appeals in early 2019.

In February 2014, the Financial Services Commission suspended the new credit card issuance and other related activities of KB Kookmin Card for three months from February to May 2014, in response to an incident

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involving the misappropriation of the personal information of a large number of its customers by an employee of the Korea Credit Bureau in the first half of 2013. Specifically, during such suspension period, KB Kookmin Card was prohibited from engaging in the following activities:

• adding new subscribers for credit cards, prepaid cards and debit cards or issuing such types of cards (except as permitted by the chairman of the Financial Services Commission for public policy purposes);

• providing new or additional credit lines to credit card customers; and

• providing new services through mail order or telemarketing channels or related to travel or insurance products.

In connection with the misappropriation incident, as of December 31, 2018, certain of KB Kookmin Card’s customers had filed a total of 113 lawsuits against KB Kookmin Card with the aggregate amount of claimed damages amounting to approximately ￦6.9 billion. The final outcome of such lawsuits remains uncertain. In addition, KB Kookmin Card could become subject to additional litigation and may incur significant costs relating to the compensation of customers for losses incurred as a result of the fraudulent use of the misappropriated personal information.

In February 2018, pursuant to a request by the Financial Supervisory Service, the Supreme Prosecutors’ Office of Korea commenced an investigation into alleged irregularities in hiring practices at certain Korean banks, including Kookmin Bank. According to the allegations made by the Financial Supervisory Service, Kookmin Bank unfairly gave favorable treatment to certain individuals, including relatives of the former president of Kookmin Bank (our current chairman and chief executive officer) and our former non-executive director, in connection with their hiring in 2015 and 2016. Following the investigation, in October 2018, the Seoul Southern District Court sentenced four current and former Kookmin Bank employees involved in such hiring to probation and ordered Kookmin Bank to pay a fine in the amount of ￦5 million. The individuals and Kookmin Bank have since appealed such ruling to the Seoul High Court.

In May 2008, Kookmin Bank, in its capacity as a trustee for, and pursuant to instructions from, an asset management company, facilitated the investment of ￦53.9 billion (in the form of a loan) by a real estate fund managed by such asset management company to a real estate developer in Cambodia. Upon the failure of such real estate developer to repay such loan in 2012, Kookmin Bank obtained four orders of provisional attachment from 2014 to 2017 with respect to properties in Cambodia owned by the real estate developer, in accordance with instructions from the asset management company. The property that had been subject to the first provisional attachment was changed in February 2014, and the second to fourth provisional attachments were canceled in February 2017. Subsequently, the real estate developer filed two lawsuits against Kookmin Bank in Cambodian courts for damages in the amount of US$12.1 million and US$44.4 million, respectively, on the ground that the provisional attachments were excessive. The first lawsuit is currently pending in the Cambodian supreme court, following the issuance of rulings against Kookmin Bank by the trial court and the appellate court in December 2017 and September 2018, respectively, while the second lawsuit is currently pending in the appellate court, following the issuance of a ruling against Kookmin Bank by the trial court in October 2018.

Dividends

Dividends must be approved by the stockholders at the annual general meeting of stockholders. Cash dividends may be paid out of retained earnings that have not been appropriated to statutory reserves. See “Item 10.B. Memorandum and Articles of Association—Description of Capital Stock—Dividends and Other Distributions.”

The table below sets forth, for the periods indicated, the dividend per share of common stock and the total amount of dividends declared and paid by us in respect of the years ended December 31, 2016, 2017 and 2018.

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The dividends set out for each of the years below were paid within 30 days after our annual stockholders meeting, which was held no later than March of the following year.

Fiscal Year	Dividends per Common Share(1)				Dividends per Preferred Share			Total Amount of Cash Dividends Paid
								(in millions of Won)
2016(2)	￦	1,250	US$	1.04		—	—	￦	497,969
2017(3)		1,920		1.80		—	—		766,728
2018(4)		1,920		1.73		—	—		759,736

⁽¹⁾  Won amounts are expressed in U.S. dollars at the noon buying rate in effect at the end of the relevant periods as quoted by the Federal Reserve Bank of New York in the United States.

⁽²⁾  On February 9, 2017, our board of directors passed a board resolution recommending a cash dividend of ￦1,250 per common share (before dividend tax), representing 25.0% of the par value of each share, for the fiscal year ended December 31, 2016. This resolution was approved and ratified by our stockholders on March 24, 2017.

⁽³⁾  On February 8, 2018, our board of directors passed a board resolution recommending a cash dividend of ￦1,920 per common share (before dividend tax), representing 38.4% of the par value of each share, for the fiscal year ended December 31, 2017. This resolution was approved and ratified by our stockholders on March 23, 2018.

⁽⁴⁾  On February 8, 2019, our board of directors passed a board resolution recommending a cash dividend of ￦1,920 per common share (before dividend tax), representing 38.4% of the par value of each share, for the fiscal year ended December 31, 2018. This resolution was approved and ratified by our stockholders on March 27, 2019.

Future dividends will depend upon our revenues, cash flow, financial condition and other factors. As an owner of ADSs, you will be entitled to receive dividends payable in respect of the shares of common stock represented by such ADSs.

For a description of the tax consequences of dividends paid to our stockholders, see “Item 10.E. Taxation—United States Taxation” and “—Korean Taxation—Taxation of Dividends.”

Item 8.B. Significant Changes

Not applicable.

Item 9. THE OFFER AND LISTING

Item 9.A. Offering and Listing Details

Principal Trading Market

The principal trading market for our common stock is the KRX KOSPI Market. Our common stock has been listed on the KRX KOSPI Market since October 10, 2008 under the identifying code 105560, and the ADSs have been listed on the New York Stock Exchange under the symbol “KB” since September 29, 2008. The ADSs are identified by the CUSIP number 48241A105.

Restrictions Applicable to ADSs

No Korean governmental approval is necessary for the sale and purchase of our ADSs in the secondary market outside Korea or for the withdrawal of shares of our common stock underlying the ADSs and the delivery inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the Financial Supervisory Service as described below. The acquisition of the shares by a foreigner must be immediately reported to the governor of the Financial Supervisory Service, either by the foreigner or by his standing proxy in Korea.

Persons who have acquired shares of our common stock as a result of the withdrawal of shares underlying our ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further Korean governmental approval.

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Under current Korean laws and regulations, the depositary is required to obtain our prior consent for the number of shares of our common stock to be deposited in any given proposed deposit that exceeds the difference between:

(1) the aggregate number of shares of our common stock deposited by us for the issuance of our ADSs (including deposits in connection with the initial issuance and all subsequent offerings of our ADSs and stock dividends or other distributions related to these ADSs); and

(2) the number of shares of our common stock on deposit with the depositary at the time of such proposed deposit.

We have agreed to grant such consent to the extent that the total number of shares on deposit with the depositary would not exceed 116,583,985 at any time.

Restrictions Applicable to Shares

As a result of amendments to the Foreign Exchange Transaction Act of Korea, the regulations thereunder and Financial Services Commission regulations (which we refer to collectively as the “Investment Rules”), foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or on the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or on the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including:

• odd-lot trading of shares;

• acquisition of shares (which we refer to as “Converted Shares”) by exercise of warrants, conversion rights or exchange rights under bonds with warrants, convertible bonds or exchangeable bonds or withdrawal rights under depositary receipts issued outside of Korea by a Korean company;

• acquisition of shares as a result of inheritance, donation, bequest or exercise of stockholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends;

• over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners has been reached or exceeded subject to certain exceptions; and

• sale and purchase of shares at fair value between foreigners who are part of an investor group comprised of foreign companies investing under the control of a common investment manager pursuant to applicable laws or contract.

The Investment Rules require a foreign investor who wishes to invest in shares on the KRX KOSPI Market or the KRX KOSDAQ Market (including Converted Shares) to register its identity with the Financial Supervisory Service prior to making any such investment. The registration requirement does not, however, apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration card, which must be presented each time the foreign investor opens a brokerage account with a financial investment company with a brokerage license. Foreigners eligible to obtain an investment registration card include foreign nationals who have not been residing in Korea for a consecutive period of six months or more, foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by the Enforcement Decree of the Financial Investment Services and Capital Markets Act. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea for the purpose of investment registration. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.

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Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market (as discussed above) must be reported by the foreign investor or his standing proxy to the governor of the Financial Supervisory Service at the time of each such acquisition or sale. In particular, if a foreign investor acquires or sells his shares in connection with a tender offer or odd-lot trading of shares, such foreign investor or his standing proxy must ensure that the financial investment company that was engaged to facilitate the transaction reports such transaction to the governor of the Financial Supervisory Service. A foreign investor may appoint a standing proxy from among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing and/or brokerage license (including domestic branches of foreign financial investment companies with such license), financial investment companies with a collective investment license (including domestic branches of foreign financial investment companies with such license) and internationally recognized custodians which will act as a standing proxy to exercise stockholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. Generally, a foreign investor may not permit any person, other than its standing proxy, to exercise rights relating to his shares or perform any tasks related thereto on his behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the governor of the Financial Supervisory Service in cases deemed inevitable, including by reason of conflict between laws of Korea and the home country of the foreign investor.

Certificates evidencing shares of Korean companies must be kept in the custody of an eligible custodian in Korea. The same entities eligible to act as a standing proxy are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that its custodian deposits its shares with the Korea Securities Depository. A foreign investor may be exempted from complying with this deposit requirement with the approval of the governor of the Financial Supervisory Service in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the foreign investors’ home country.

An investment by a foreign investor in 10% or more of the issued and outstanding shares with voting rights of a Korean company is defined as a foreign direct investment under the Foreign Investment Promotion Act of Korea. Generally, a foreign direct investment must be reported to the Ministry of Trade, Industry and Energy of Korea. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign or other shareholding restrictions in the event that the restrictions are prescribed in a specific law that regulates the business of the Korean company. For a description of such restrictions applicable to Korean banks and bank holding companies (such as us), see “Item 4.B. Business Overview—Supervision and Regulation.”

Item 9.B. Plan of Distribution

Not applicable.

Item 9.C. Markets

See “Item 9.A. Offering and Listing Details.”

Item 9.D. Selling Shareholders

Not applicable.

Item 9.E. Dilution

Not applicable.

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Item 9.F. Expenses of the Issue

Not applicable.

Item 10. ADDITIONAL INFORMATION

Item 10.A. Share Capital

Not applicable.

Item 10.B. Memorandum and Articles of Association

Description of Capital Stock

Set forth below is information relating to our capital stock, including brief summaries of certain provisions of our articles of incorporation, the Korean Commercial Code, Financial Investment Services and Capital Markets Act and certain related laws of Korea, all as currently in effect. The following summaries do not purport to be complete and are subject to the articles of incorporation and the applicable provisions of the Financial Investment Services and Capital Markets Act, the Korean Commercial Code, and certain other related laws of Korea.

As of December 31, 2018, our authorized share capital is 1,000,000,000 shares. Pursuant to our articles of incorporation, we are authorized to issue shares with preferred dividend, non-voting shares, class shares with conversion rights, class shares with redemption rights and shares with a combination of all or any of the foregoing characteristics (which we refer to collectively as “Class Shares”), as well as common shares. Subject to applicable laws and regulations, we are authorized to issue Class Shares up to one-half of all of our issued and outstanding shares.

Under our articles of incorporation, dividends on non-voting shares with preferred dividend are required to be at least 1% per annum of the par value and the board of directors must determine at the time of issuance of such shares the dividend rate, type of distributable properties, method of determining the value of distributable properties and conditions on payment of dividends. Also, we may, pursuant to a resolution of the board of directors, issue such non-voting shares with preferred dividend as redeemable shares that may be redeemed with profits at the relevant shareholder’s or our discretion, up to one-half of all of our issued and outstanding shares.

In addition, pursuant to a resolution of the board of directors, we may issue shares that are convertible into common shares or Class Shares at the request of the relevant shareholders, up to 20% of all of our issued and outstanding shares. The period during which a relevant shareholder may make a request for conversion may be determined by a resolution of the board of directors and must be a period between one and ten years from the issue date.

Furthermore, through an amendment of the articles of incorporation, we may create new classes of shares, which may be common shares or Class Shares having additional features as prescribed under the Korean Commercial Code. See “—Voting Rights.”

As of the date of this annual report, 418,111,537 shares of common stock were issued and 395,551,297 shares of common stock were outstanding. No Class Shares are currently outstanding. All of the issued and outstanding shares are fully-paid and non-assessable, and are in registered form. Our authorized but unissued share capital consists of 581,888,463 shares. We may issue the unissued shares without further stockholder approval, subject to a board resolution as provided in the articles of incorporation. See “—Preemptive Rights and Issuances of Additional Shares” and “—Dividends and Other Distributions—Distribution of Free Shares.”

Our articles of incorporation provide that our stockholders may, by special resolution, grant to our and our subsidiaries’ officers and employees stock options exercisable for up to 15% of the total number of our issued

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and outstanding shares. Our board of directors may also grant stock options to officers and employees other than directors exercisable for up to 1% of our issued and outstanding shares, provided that such grant must be approved by a resolution of the subsequent general meeting of stockholders. As of March 31, 2019, none of our officers, directors and employees held options to purchase shares of our common stock.

Share certificates are issued in denominations of one, five, ten, 50, 100, 500, 1,000 and 10,000 shares.

Organization and Register

We are a financial holding company established under the Financial Holding Company Act. We are registered with the commercial registry office of Seoul Central District Court.

Dividends and Other Distributions

Dividends

Dividends are distributed to stockholders in proportion to the number of shares of the relevant class of capital stock owned by each stockholder following approval by the stockholders at an annual general meeting of stockholders. Subject to the requirements of the Korean Commercial Code and other applicable laws and regulations, we expect to pay full annual dividends on newly issued shares for the year in which the new shares are issued.

We declare our dividend annually at the annual general meeting of stockholders, which are held within three months after the end of each fiscal year. Once declared, the annual dividend must be paid to the stockholders of record as of the end of the preceding fiscal year within one month after the annual general meeting unless otherwise resolved thereby. Annual dividends may be distributed either in cash or in shares provided that shares must be distributed at par value and, if the market price of the shares is less than their par value, dividends in shares may not exceed one-half of the total annual dividend (including dividends in shares).

Under the Korean Commercial Code and our articles of incorporation, we do not have an obligation to pay any annual dividend unclaimed for five years from the payment date.

The Financial Holding Company Act and related regulations require that each time a Korean financial holding company pays an annual dividend, it must set aside in its legal reserve to stated capital an amount equal to at least one-tenth of its net income after tax until the amount set aside reaches at least the aggregate amount of its stated capital. Unless it sets aside this amount, a Korean financial holding company may not pay an annual dividend. We intend to set aside allowances for loan losses and reserves for severance pay in addition to this legal reserve.

For information regarding Korean taxes on dividends, see “Item 10.E. Taxation—Korean Taxation.”

Distribution of Free Shares

In addition to permitting dividends in the form of shares to be paid out of retained or current earnings, the Korean Commercial Code permits a company to distribute to its stockholders, in the form of free shares, an amount transferred from the capital surplus or legal reserve to stated capital. These free shares must be distributed pro rata to all stockholders. Our articles of incorporation provide that the types of shares to be distributed to the holders of non-voting shares with preferred dividend will be the same type of non-voting shares with preferred dividend held by such holders.

Preemptive Rights and Issuances of Additional Shares

Unless otherwise provided in the Korean Commercial Code, a company may issue authorized but unissued shares at such times and upon such terms as the board of directors of the company may determine. The company

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must offer the new shares on uniform terms to all stockholders who have preemptive rights and who are listed on the stockholders’ register as of the applicable record date. Our stockholders will be entitled to subscribe for any newly issued shares in proportion to their existing shareholdings. However, as provided in our articles of incorporation, new shares may be issued to persons other than existing stockholders if such shares are:

(1) publicly offered pursuant to the Financial Investment Services and Capital Markets Act, (2) issued to an employee stock ownership association, (3) issued upon exercise of stock options pursuant to the Financial Investment Services and Capital Markets Act, (4) issued for the issuance of our depositary receipts, (5) issued to certain foreign or domestic financial institutions or institutional investors to raise funds to meet urgent needs for our management or operations or (6) issued primarily to a third party who has contributed to the management of our business, including by providing financing, credit, advanced financing technique, know-how or entering into close business alliances, except that, in the case of issuances of new shares under (1), (4), (5) and (6) above, the number of new shares issued to persons other than existing stockholders may not exceed 50% of our total issued and outstanding capital stock.

Public notice of the preemptive rights to new shares and the transferability thereof must be given not less than two weeks (excluding the period during which the stockholders’ register is closed) prior to the record date. We will notify the stockholders or persons other than existing stockholders, who are entitled to subscribe for newly issued shares of the deadline for subscription at least two weeks prior to the deadline. If such stockholders or persons fail to subscribe on or before such deadline, their preemptive rights will lapse. Our board of directors may determine how to distribute shares in respect of which preemptive rights have not been exercised or where fractions of shares occur.

Under the Financial Investment Services and Capital Markets Act, members of a company’s employee stock ownership association, whether or not they are stockholders, will have a preemptive right, subject to certain exceptions, to subscribe for up to 20% of the shares publicly offered pursuant to the Financial Investment Services and Capital Markets Act. This right is exercisable only to the extent that the total number of shares so acquired and held by such members does not exceed 20% of the total number of shares then issued and outstanding.

Voting Rights

Each outstanding share of our common stock is entitled to one vote per share. However, voting rights with respect to shares of common stock that we hold or any of our subsidiaries holds may not be exercised. Unless stated otherwise in a company’s articles of incorporation, the Korean Commercial Code permits holders of an aggregate of 1% or more of the issued and outstanding shares with voting rights to request cumulative voting when electing two or more directors. Our articles of incorporation do not prohibit cumulative voting. The Korean Commercial Code and our articles of incorporation provide that an ordinary resolution may be adopted if approval is obtained from the holders of at least a majority of those shares of common stock present or represented at such meeting and such majority also represents at least one-fourth of the total of our issued and outstanding voting shares. Holders of non-voting shares (other than enfranchised non-voting shares) will not be entitled to vote on any resolution or to receive notice of any general meeting of stockholders unless the agenda of the meeting includes consideration of a resolution on which such holders are entitled to vote. The Korean Commercial Code provides that a company’s articles of incorporation may prescribe conditions for the enfranchisement of non-voting shares. For example, if our annual general stockholders’ meeting resolves not to pay to holders of non-voting shares with preferred dividend the annual dividend as determined by the board of directors at the time of issuance of such shares, the holders of non-voting shares with preferred dividend will be entitled to exercise voting rights from the general stockholders’ meeting following the meeting adopting such resolution to the end of a meeting to declare to pay such dividend with respect to the non-voting shares with preferred dividend. Holders of such enfranchised non-voting shares with preferred dividend will have the same rights as holders of common stock to request, receive notice of, attend and vote at a general meeting of stockholders.

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The Korean Commercial Code provides that to amend the articles of incorporation, which is also required for any change to the authorized share capital of the company, and in certain other instances, including removal of a director of a company, dissolution, merger or consolidation of a company, transfer of the whole or a significant part of the business of a company, acquisition of all of the business of any other company, acquisition of a part of the business of any other company having a material effect on the business of the company or issuance of new shares at a price lower than their par value, a special resolution must be adopted by the approval of the holders of at least two-thirds of those shares present or represented at such meeting and such special majority also represents at least one-third of the total issued and outstanding shares with voting rights of the company.

In addition, in the case of amendments to the articles of incorporation or any merger or consolidation of a company or in certain other cases, where the rights or interest of the holders of Class Shares are adversely affected, a resolution must be adopted by a separate meeting of holders of Class Shares. Such a resolution may be adopted if the approval is obtained from stockholders of at least two-thirds of the Class Shares present or represented at such meeting and such shares also represent at least one-third of the total issued and outstanding Class Shares of the company.

A stockholder may exercise his voting rights by proxy given to another stockholder. The proxy must present the power of attorney prior to the start of a meeting of stockholders.

Liquidation Rights

In the event we are liquidated, the assets remaining after the payment of all debts, liquidation expenses and taxes will first be distributed to holders of Class Shares which have a preference right in respect of the distribution of residual properties as determined by our board of directors at the time of their issuance, and the residue thereafter will be distributed to the other stockholders in proportion to the number of shares held by them.

General Meetings of Stockholders

There are two types of general meetings of stockholders: annual general meetings and extraordinary general meetings. We are required to convene our annual general meeting within three months after the end of each fiscal year. Subject to a board resolution or court approval, an extraordinary general meeting of stockholders may be held when necessary or at the request of the holders of an aggregate of 3% or more of our issued and outstanding shares, or the holders of an aggregate of 1.5% or more of our issued and outstanding stock with voting rights, who have held those shares at least for six months, under the Act on the Corporate Governance of Financial Companies and its sub-regulations. Under the Korean Commercial Code, an extraordinary general meeting of stockholders may also be convened at the request of our Audit Committee, subject to a board resolution or court approval. Holders of non-voting shares may be entitled to request a general meeting of stockholders only to the extent the non-voting shares have become enfranchised as described under the section entitled “—Voting Rights” above, hereinafter referred to as “enfranchised non-voting shares.” Meeting agendas will be determined by the board of directors or proposed by holders of an aggregate of 3% or more of the issued and outstanding shares with voting rights, or by holders of an aggregate of 0.1% or more of our issued and outstanding shares with voting rights, who have held those shares for at least six months, by way of a written proposal to the board of directors at least six weeks prior to the meeting, under the Act on the Corporate Governance of Financial Companies and its sub-regulations. Written notices or e-mail notices stating the date, place and agenda of the meeting must be given to the stockholders at least two weeks prior to the date of the general meeting of stockholders. Notice may, however, be given to holders of 1% or less of the total number of issued and outstanding shares which are entitled to vote, either by placing at least two public notices at least two weeks in advance of the meeting in at least two daily newspapers or by placing a notice through the electronic disclosure system operated by the Financial Supervisory Service or the Korea Exchange. Stockholders who are not on the stockholders’ register as of the record date will not be entitled to receive notice of the general meeting of stockholders, and they will not be entitled to attend or vote at such meeting. Holders of enfranchised non-voting

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shares who are on the stockholders’ register as of the record date will be entitled to receive notice of the general meeting of stockholders and they will be entitled to attend and vote at such meeting. Otherwise, holders of non-voting shares will not be entitled to receive notice of or vote at general meetings of stockholders.

The general meeting of stockholders will be held at our head office, which is our registered head office, or, if necessary, may be held anywhere in the vicinity of our head office.

Rights of Dissenting Stockholders

Pursuant to the Financial Investment Services and Capital Markets Act and the Act on the Improvement of the Structure of the Financial Industry, in certain limited circumstances (including, without limitation, if we transfer all or any significant part of our business, if we acquire a part of the business of any other company and such acquisition has a material effect on our business or if we merge or consolidate with another company), dissenting holders of shares of our common stock and our stock with preferred dividends will have the right to require us to purchase their shares. To exercise such a right, stockholders must submit to us a written notice of their intention to dissent prior to the general meeting of stockholders. Within 20 days (10 days in the case of a stock transfer or exchange for the purposes of establishing a financial holding company or acquiring all issued shares of an existing subsidiary under the Financial Holding Company Act) after the date on which the relevant resolution is passed at such meeting, such dissenting stockholders must request in writing that we purchase their shares. We are obligated to purchase the shares from dissenting stockholders within one month after the end of such request period at a price to be determined by negotiation between the stockholder and us. If we cannot agree on a price with the stockholder through such negotiations, the purchase price will be the arithmetic mean of:

• the weighted average of the closing stock prices on the KRX KOSPI Market for the two-month period prior to the date of the adoption of the relevant board of directors’ resolution;

• the weighted average of the closing stock prices on the KRX KOSPI Market for the one-month period prior to the date of the adoption of the relevant board of directors’ resolution; and

• the weighted average of the closing stock prices on the KRX KOSPI Market for the one-week period prior to the date of the adoption of the relevant board of directors’ resolution.

However, any dissenting stockholder who wishes to contest the purchase price may bring a claim in court.

Required Disclosure of Ownership

Any person whose direct or beneficial ownership of our common stock with voting rights, whether in the form of shares of common stock or ADSs, certificates representing the rights to subscribe for shares or equity-related debt securities including convertible bonds and bonds with warrants (which we refer to collectively as “Equity Securities”), together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person, accounts for 5% or more of the total issued and outstanding shares (Equity Securities of us held by such persons and treasury stock) is required to report the status and purpose (in terms of whether the purpose of the shareholding is to exercise control over our management) of the holdings to the Financial Services Commission and the KRX KOSPI Market within five business days after reaching the 5% ownership interest. In addition, any change in (i) the ownership interest subsequent to the report that equals or exceeds 1% of the total issued and outstanding Equity Securities of us or (ii) the purpose of the shareholding is required to be reported to the Financial Services Commission and the KRX KOSPI Market within five business days from the date of the change.

Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment, an administrative fine of up to 0.001% of the aggregate market value of the total issued and outstanding stock or ￦500 million, whichever is lower, and/or a loss of voting rights with respect to the ownership of Equity Securities exceeding 5% of the total issued and outstanding Equity Securities with respect to which the reporting requirements were violated. Furthermore, the Financial Services Commission may order the disposal of the unreported Equity Securities.

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In addition to the reporting requirements described above, any person whose direct or beneficial ownership of our stock accounts for 10% or more of the total issued and outstanding stock (which we refer to as a “major stockholder”) must report the status of his/her shareholding to the Korea Securities and Futures Commission and the KRX KOSPI Market within five days after becoming a major stockholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Korea Securities and Futures Commission and the KRX KOSPI Market within five days of the occurrence of the change, provided that such reporting obligation would not apply if the change in the ownership interest consists of less than 1,000 shares and the amount of such change is less than ￦10 million. Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment.

Other Provisions

Register of Stockholders and Record Dates

We maintain the register of our stockholders at our principal office in Seoul, Korea. We register transfers of shares on the register of stockholders upon presentation of the share certificates.

The record date for annual dividends is December 31. For the purpose of determining the holders of shares entitled to annual dividends, the register of stockholders will be closed for the period beginning from January 1 and ending on January 31. Further, the Korean Commercial Code and our articles of incorporation permit us upon at least two weeks’ public notice to set a record date and/or close the register of stockholders for not more than three months for the purpose of determining the stockholders entitled to certain rights pertaining to the shares. However, in the event that the register of stockholders is closed for the period beginning from January 1 and ending on January 31 for the purpose of determining the holders of shares entitled to attend the annual general meeting of stockholders, the Korean Commercial Code and our articles of incorporation waive the requirement to provide at least two weeks’ public notice. The trading of shares and the delivery of certificates in respect thereof may continue while the register of stockholders is closed. Also, we may distribute dividends to stockholders on a quarterly basis, and the record dates for these quarterly dividends are the end of March, June and September of each year.

Annual Reports

At least one week before the annual general meeting of stockholders, we must make our management report to shareholders and audited financial statements available for inspection at our head office and at all of our branch offices. Copies of this report, the audited financial statements and any resolutions adopted at the general meeting of stockholders are available to our stockholders.

Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission and the KRX KOSPI Market an annual business report within 90 days after the end of each fiscal year, a half-year business report within 45 days after the end of the first six months of each fiscal year and quarterly business reports within 45 days after the end of the first three months and nine months of each fiscal year, respectively. Copies of such business reports will be available for public inspection at the Financial Services Commission and the KRX KOSPI Market.

Transfer of Shares

Under the Korean Commercial Code, the transfer of shares is effected by the delivery of share certificates. The Financial Investment Services and Capital Markets Act provides, however, that in case of a company listed on the KRX KOSPI Market such as us, share transfers can be effected by the book-entry method. In order to assert stockholders’ rights against us, the transferee must have his name and address registered on the register of stockholders. For this purpose, stockholders are required to file with us their name, address and seal. Non-resident stockholders must notify us of the name of their proxy in Korea to which our notice can be sent.

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Under current Korean regulations, the following entities may act as agents and provide related services for foreign stockholders:

• the Korea Securities Depository;

• internationally recognized foreign custodians;

• financial investment companies with a dealing license (including domestic branches of foreign financial investment companies with such license);

• financial investment companies with a brokerage license (including domestic branches of foreign financial investment companies with such license);

• foreign exchange banks (including domestic branches of foreign banks); and

• financial investment companies with a collective investment license (including domestic branches of foreign financial investment companies with such license).

In addition, foreign stockholders may appoint a standing proxy among the foregoing and generally may not allow any person other than the standing proxy to exercise rights to the acquired shares or perform any tasks related thereto on their behalf. Certain foreign exchange controls and securities regulations apply to the transfer of shares by non-residents or non-Koreans. See “Item 9.A. Offering and Listing Details” and “Item 10.D. Exchange Controls.” Except as provided in the Financial Holding Company Act, the ceiling on the aggregate shareholdings of a single stockholder and persons who stand in a special relationship with such stockholder is 10% of our issued and outstanding voting shares. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Restrictions on Ownership of a Financial Holding Company.”

Acquisition of Our Shares

Under the Korean Commercial Code, we may acquire our own shares upon a resolution of a general meeting of shareholders by either (i) purchasing them on a stock exchange or (ii) purchasing a number of shares, other than redeemable shares as set forth in Article 345, Paragraph (1) of the Korean Commercial Code, from each shareholder in proportion to their existing shareholding ratio through the methods set forth in the Presidential Decree, provided that the total purchase price does not exceed the amount of our profit that may be distributed as dividends in respect of the immediately preceding fiscal year.

Additionally, pursuant to the Financial Investment Services and Capital Markets Act and regulations under the Financial Holding Company Act and after submission of certain reports to the Financial Services Commission, we may purchase our own shares on the KRX KOSPI Market or through a tender offer, subject to the restrictions that:

• the aggregate purchase price of such shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year; and

• the purchase of such shares shall meet the risk-weighted capital adequacy ratio requirements prescribed in the regulations under the Financial Holding Company Act based on Bank for International Settlements standards.

Subject to certain limited exceptions, our subsidiaries will not be permitted to acquire our shares pursuant to the Financial Holding Company Act.

Item 10.C. Material Contracts

None.

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Item 10.D. Exchange Controls

General

The Foreign Exchange Transaction Act of Korea and the Enforcement Decree and regulations under that Act and Decree, which we refer to collectively as the “Foreign Exchange Transaction Laws,” regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Non-residents may invest in Korean securities pursuant to the Foreign Exchange Transaction Laws. The Financial Services Commission has also adopted, pursuant to its authority under the Financial Investment Services and Capital Markets Act, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies.

Under the Foreign Exchange Transaction Laws, (1) if the Korean government deems that it is inevitable due to the outbreak of natural calamities, wars, conflict of arms or grave and sudden changes in domestic or foreign economic circumstances or other situations equivalent thereto, the Ministry of Economy and Finance may temporarily suspend payment, receipt or the whole or part of transactions to which the Foreign Exchange Transaction Laws apply, or impose an obligation to safe-keep, deposit or sell means of payment in or to certain Korean governmental agencies or financial institutions; and (2) if the Korean government deems that international balance of payments and international finance are confronted or are likely to be confronted with serious difficulty or the movement of capital between Korea and abroad brings or is likely to bring about serious obstacles in carrying out its currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Economy and Finance may take measures to require any person who intends to perform capital transactions to obtain permission or to require any person who performs capital transactions to deposit part of the payments received in such transactions at certain Korean governmental agencies or financial institutions, in each case subject to certain limitations.

Restrictions Applicable to Shares

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a financial investment company with a dealing and/or brokerage license. Funds in the foreign currency account may be remitted abroad without any Korean governmental approval.

Dividends on shares of Korean companies are paid in Won. No Korean governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s financial investment company with a dealing and/or brokerage license or in his Won account. Funds in the investor’s Won account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the Won account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Financial investment companies with dealing and/or brokerage licenses are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, such financial investment companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.

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Item 10.E. Taxation

United States Taxation

This summary describes certain U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of common shares or ADSs. This summary applies to you only if you hold the common shares or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:

• a dealer in securities or currencies;

• a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;

• a bank;

• a life insurance company;

• a tax-exempt organization;

• an entity treated as a partnership for U.S. federal income tax purposes or a partner in such partnership;

• a person that holds common shares or ADSs that are a hedge or that are hedged against interest rate or currency risks;

• a person that holds common shares or ADSs as part of a straddle or conversion transaction for tax purposes;

• a person whose functional currency for tax purposes is not the U.S. dollar; or

• a person that owns or is deemed to own 10% or more of our stock, measured by voting power or value.

This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, and published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.

This summary does not discuss the application of the U.S. federal estate and gift taxes, the Medicare net investment income tax or the alternative minimum tax.

Please consult your own tax advisers concerning the U.S. federal, state, local, and other tax consequences of purchasing, owning, and disposing of common shares or ADSs in your particular circumstances.

For purposes of this summary, you are a “U.S. holder” if you are the beneficial owner of a common share or an ADS and are:

• a citizen or resident of the United States;

• a U.S. domestic corporation; or

• otherwise subject to U.S. federal income tax on a net income basis with respect to income from the common share or ADS.

In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the common shares represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the common share represented by that ADS.

Dividends

The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source “passive category” dividend income and will not be

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eligible for the dividends received deduction. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your receipt of the dividend, in the case of common shares, or the depositary’s receipt, in the case of ADSs, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at reduced rates if the dividends are “qualified dividends.” Dividends paid on the common shares or ADSs will be treated as qualified dividends if (i) the common shares or ADSs are readily tradable on an established securities market in the United States or we are eligible for the benefits of a comprehensive tax treaty with the United States that the U.S. Treasury determines is satisfactory for purposes of this provision and that includes an exchange of information program; and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company as defined for U.S. federal income tax purposes (“PFIC”). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. In addition, the U.S. Treasury has determined that the Korea-United States income tax treaty meets the requirements for reduced rates of taxation, and we believe we are eligible for the benefits of that treaty. Based on our audited financial statements, we believe that we were not a PFIC in our 2017 or 2018 taxable year. In addition, based on our audited financial statements and current expectations regarding our income, assets and activities, we do not anticipate becoming a PFIC for our 2019 taxable year. Therefore, we believe that dividends received by U.S. holders with respect to either common shares or ADSs will be “qualified dividends.” Holders should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.

Distributions of additional shares in respect of common shares or ADSs that are made as part of a pro-rata distribution to all of our stockholders generally will not be subject to U.S. federal income tax.

Sale or Other Disposition

For U.S. federal income tax purposes, gain or loss you realize on a sale or other disposition of common shares or ADSs generally will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the common shares or ADSs were held for more than one year. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at reduced rates.

If a U.S. holder sells or otherwise disposes of our common shares or ADSs in exchange for currency other than U.S. dollars, the amount realized generally will be the U.S. dollar value of the currency received at the spot rate on the date of sale or other disposition (or, if the shares are traded on an established securities market at such time, in the case of cash basis and electing accrual basis U.S. holders, the settlement date). An accrual basis U.S. holder that does not elect to determine the amount realized using the spot exchange rate on the settlement date will recognize foreign currency gain or loss equal to the difference between the U.S. dollar value of the amount received based on the spot exchange rates in effect on the date of the sale or other disposition and the settlement date. If an accrual basis U.S. holder makes the election described in the first sentence of this paragraph, it must be applied consistently from year to year and cannot be revoked without the consent of the Internal Revenue Service. A U.S. holder should consult its own tax advisors regarding the treatment of any foreign currency gain or loss realized with respect to any currency received in a sale or other disposition of the common shares or ADSs.

Foreign Tax Credit Considerations

You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to

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take advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from dividends on the common shares or ADSs, so long as you have owned the common shares or ADSs (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, if you so elect, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law. Korean taxes withheld from a distribution of additional shares that is not subject to U.S. tax may be treated for U.S. federal income tax purposes as imposed on “general category” income. Such treatment could affect your ability to utilize any available foreign tax credit in respect of such taxes.

Any Korean securities transaction tax or agriculture and fishery special surtax that you pay will not be creditable for foreign tax credit purposes.

Similarly, a U.S. holder will not be able to claim a foreign tax credit against its U.S. federal income tax liability for any Korean inheritance or gift tax imposed in respect of the common shares or ADSs.

Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit is insubstantial.

The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.

Specified Foreign Financial Assets

Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer (which would include the common shares or ADSs) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. Prospective investors should consult their own tax advisers concerning the application of these rules to their investment in the common shares or ADSs, including the application of the rules to their particular circumstances.

U.S. Information Reporting and Backup Withholding Rules

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (i) is a corporation or other exempt recipient and demonstrates this when required or (ii) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.

Korean Taxation

The following summary of Korean tax considerations applies to you so long as you are not:

• a resident of Korea;

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• a corporation with its head office, principal place of business or place of effective management in Korea; or

• engaged in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income is attributable or with which the relevant income is effectively connected.

Taxation of Dividends on Common Shares or ADSs

We will deduct Korean withholding tax from dividends paid to you (whether payable in cash or in shares) at a rate of 22.0% (inclusive of local income surtax). If you are a qualified resident and a beneficial owner of the dividends in a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax. See “—Tax Treaties” below for a discussion on treaty benefits. If we distribute to you free shares representing a transfer of earning surplus or certain capital reserves into paid-in capital, that distribution may be subject to Korean withholding tax.

Taxation of Capital Gains from Transfer of Common Shares or ADSs

As a general rule, capital gains earned by non-residents upon transfer of our common shares or ADSs are subject to Korean withholding tax at the lower of (1) 11.0% (inclusive of local income surtax) of the gross proceeds realized or (2) subject to the production of satisfactory evidence of acquisition costs and certain direct transaction costs of the common shares or ADSs, 22.0% (inclusive of local income surtax) of the net realized gain, unless exempt from Korean income taxation under the applicable Korean tax treaty with the non-resident’s country of tax residence. See “—Tax Treaties” below for a discussion on treaty benefits. Even if you do not qualify for an exemption under a tax treaty, you will not be subject to the foregoing withholding tax on capital gains if you qualify under the relevant Korean domestic tax law exemptions discussed in the following paragraphs.

In regards to the transfer of our common shares through the Korea Exchange, you will not be subject to the withholding tax on capital gains (as described in the preceding paragraph) if you (1) have no permanent establishment in Korea and (2) did not own or have not owned (together with any shares owned by any person with which you have a certain special relationship) 25% or more of the total issued and outstanding shares, which may include the common shares represented by the ADSs, at any time during the calendar year in which the sale occurs and during the five consecutive calendar years prior to the calendar year in which the sale occurs.

Under Korean tax law, ADSs are viewed as shares of common stock for capital gains tax purposes. Accordingly, capital gains from the sale or disposition of ADSs are taxed (if such sale or disposition constitutes a taxable event) as if such gains are from the sale or disposition of the underlying common shares. Capital gains that you earn (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside of Korea will generally be exempt from Korean income taxation by virtue of the Special Tax Treatment Control Law of Korea, or the STTCL, provided that the issuance of the ADSs is deemed to be an overseas issuance under the STTCL. However, if you transfer ADSs after having converted the underlying common shares, such exemption under the STTCL will not apply and you will be required to file a corporate income tax return and pay tax in Korea with respect to any capital gains derived from such transfer unless the purchaser or a financial investment company with a brokerage license, as applicable, withholds and pays such tax.

If you are subject to tax on capital gains with respect to the sale of ADSs, or of our common shares you acquired as a result of a withdrawal, the purchaser or, in the case of the sale of the common shares on the Korea Exchange or through a financial investment company with a brokerage license in Korea, such financial investment company is required to withhold Korean tax on capital gains from the sales price in an amount equal to the lower of (1) 11.0% (inclusive of local income surtax) of the gross realization proceeds or (2) subject to the production of satisfactory evidence of acquisition costs and certain direct transaction costs of the common shares or ADSs, 22.0% (inclusive of local income surtax) of the net realized gain, and to make payment of these

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amounts to the Korean tax authority, unless you establish your entitlement to an exemption under an applicable tax treaty or domestic tax law. See the discussion under “—Tax Treaties” below for an additional explanation on claiming treaty benefits.

Tax Treaties

Korea has entered into a number of income tax treaties with other countries (including the United States), which would reduce or exempt Korean withholding tax on dividends on, and capital gains on transfer of, the common shares or ADSs. For example, under the Korea-United States income tax treaty, reduced rates of Korean withholding tax of 16.5% or 11.0% (depending on your shareholding ratio and inclusive of local income surtax) on dividends and an exemption from Korean withholding tax on capital gains are available to residents of the United States that are beneficial owners of the relevant dividend income or capital gains, subject to certain exceptions. However, under Article 17 (Investment or Holding Companies) of the Korea-United States income tax treaty, such reduced rates and exemption do not apply if (i) you are a United States corporation, (ii) by reason of any special measures, the tax imposed on you by the United States with respect to such dividend income or capital gains is substantially less than the tax generally imposed by the United States on corporate profits and (iii) 25% or more of your capital is held of record or is otherwise determined, after consultation between competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not individual residents of the United States. Also, under Article 16 (Capital Gains) of the Korea-United States income tax treaty, the exemption on capital gains does not apply if (a) you have a permanent establishment in Korea and any shares of common stock in which you hold an interest and which gives rise to capital gains are effectively connected with such permanent establishment, (b) you are an individual and you maintain a fixed base in Korea for an aggregate of 183 days or more during a given taxable year and your ADSs or common shares giving rise to capital gains are effectively connected with such fixed base or (c) you are an individual and you are present in Korea for an aggregate of 183 days or more during a given taxable year.

You should inquire for yourself whether you are entitled to the benefit of a tax treaty between Korea and the country where you are a resident. It is the responsibility of the party claiming the benefits of an income tax treaty in respect of dividend payments or capital gains to submit to us, the purchaser or the financial investment company, as applicable, a certificate as to his tax residence. In the absence of sufficient proof, we, the purchaser or the financial investment company, as applicable, must withhold tax at the normal rates. Furthermore, in order for you to claim the benefit of a tax rate reduction or tax exemption on certain Korean source income (such as dividends or capital gains) under an applicable tax treaty, Korean tax law requires you (or your agent) to submit an application (for reduced withholding tax rate, “application for entitlement to reduced tax rate,” and in the case of exemptions from withholding tax, “application for tax exemption,” along with a certificate of your tax residency issued by a competent authority of your country of tax residence, subject to certain exceptions) as the beneficial owner of such Korean source income (“BO application”). For example, a U.S. resident would be required to provide Form 6166 as a certificate of tax residency together with the application for entitlement to reduced tax rate or the application for tax exemption. Such application should be submitted to the withholding agent prior to the payment date of the relevant income. Subject to certain exceptions, where the relevant income is paid to an overseas investment vehicle (which is not the beneficial owner of such income) (“OIV”), a beneficial owner claiming the benefit of an applicable tax treaty with respect to such income must submit its BO application to such OIV, which must submit an OIV report and a schedule of beneficial owners to the withholding agent prior to the payment date of such income. In the case of a tax exemption application, the withholding agent is required to submit such application (together with the applicable OIV report in the case of income paid to an OIV) to the relevant district tax office by the ninth day of the month following the date of the payment of such income.

Inheritance Tax and Gift Tax

If you die while holding an ADS or donate an ADS, it is unclear whether, for Korean inheritance tax and gift tax purposes, you will be treated as the owner of the common shares underlying the ADSs. If the tax

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authority interprets depositary receipts as the underlying share certificates, you may be treated as the owner of the common shares and your heir or the donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance tax or gift tax presently at the rate of 10% to 50%, provided that the value of the ADSs or the common shares is greater than a specified amount.

If you die while holding a common share or donate a common share, your heir or donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance tax or gift tax at the same rate as indicated above.

At present, Korea has not entered into any tax treaty relating to inheritance tax or gift tax.

Securities Transaction Tax

If you transfer our common shares on the Korea Exchange, you will be subject to securities transaction tax at the rate of 0.15% (which rate will be decreased to 0.1% starting on June 3, 2019 pursuant to an amendment to the Enforcement Decree of the Securities Transaction Tax Act) and an agriculture and fishery special surtax at the rate of 0.15% of the sale price of the common shares. If your transfer of the common shares is not made on the Korea Exchange, subject to certain exceptions, you will be subject to securities transaction tax at the rate of 0.5% and will not be subject to an agriculture and fishery special surtax.

Under the Securities Transaction Tax Law, depositary receipts (such as American depositary receipts) constitute share certificates subject to the securities transaction tax. However, the transfer of depositary receipts listed on the New York Stock Exchange, the Nasdaq Global Market, or other qualified foreign exchanges is exempt from the securities transaction tax.

In principle, the securities transaction tax, if applicable, must be paid by the transferor of the common shares or ADSs. When the transfer is effected through a securities settlement company, such settlement company is generally required to withhold and pay the tax to the tax authorities. When such transfer is made through a financial investment company only, such financial investment company is required to withhold and pay the tax. Where the transfer is effected by a non-resident without a permanent establishment in Korea, other than through a securities settlement company or a financial investment company, the transferee is required to withhold the securities transaction tax.

Non-reporting or under-reporting of securities transaction tax will generally result in penalties equal to 20% to 60% of the non-reported tax amount or 10% to 60% of under-reported tax amount. Also, a failure to timely pay securities transaction tax will result in a penalty equal to 9.125% per annum of the due but unpaid tax amount. The penalties are imposed on the party responsible for paying the securities transaction tax or, if such tax is required to be withheld, on the party that has the obligation to withhold.

Item 10.F. Dividends and Paying Agents

Not applicable.

Item 10.G. Statement by Experts

Not applicable.

Item 10.H. Documents on Display

We are subject to the information requirements of the Exchange Act, and, in accordance therewith, are required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be

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inspected and copied at the Commission’s public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. As a foreign private issuer, we are also required to make filings with the Commission by electronic means. Any filings we make electronically will be available to the public over the Internet at the Commission’s web site at http://www.sec.gov.

Item 10.I. Subsidiary Information

Not applicable.

Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Overview

As a financial services provider, we are exposed to various risks related to our lending and trading businesses, our funding activities and our operating environment, principally through Kookmin Bank, our banking subsidiary. Our goal in risk management is to ensure that we identify, measure, monitor and control the various risks that arise, and that our organization adheres strictly to the policies and procedures which we establish to address these risks. Under our internal regulations pertaining to our consolidated capital adequacy ratio and internal standards for risk appetite and internal capital under Basel III, we identify the following eight separate categories of risk inherent in our business activities: credit risk, market risk, operational risk, interest rate risk, liquidity risk, credit concentration risk, reputation risk and strategic risk. Of these, the principal risks to which we are exposed are credit risk, market risk, liquidity risk and operational risk, and we strive to manage these and other risks within acceptable limits.

Organization

We have a multi-tiered risk management governance structure. Our Risk Management Committee is ultimately responsible for group-wide risk management, and directs our various subordinate risk management entities. The Risk Management Council coordinates the implementation of policies set forth by the Risk Management Committee with the relevant risk management units of our subsidiaries. The Subsidiary Risk Management Committee of each of our subsidiaries, based on the Risk Management Committee’s policies, determines risk management strategies and implements risk management policies and guidelines for such subsidiary and directs the activities of the subsidiary’s risk management units within the risk guidelines set at the group level. Each Subsidiary Risk Management Committee generally receives inputs from the respective risk management units of such subsidiary, which report to the Risk Management Committee.

The following chart sets out our risk management governance structure as of the date of this annual report:

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Risk Management Committee

Our Risk Management Committee is a board-level committee that is responsible for overseeing all risks and advising the board of directors with respect to risk management-related issues. The committee consists of four non-executive directors (one of whom serves as the chairman of the committee), and convenes on a quarterly basis. Its major roles include:

• establishing risk management strategies in accordance with the directives of the board of directors;

• determining our target risk appetite;

• allocating risk capital to each subsidiary and approving our subsidiaries’ risk limits; and

• reviewing the level of risks we are exposed to and the appropriateness of our risk management policies, systems and operations.

Risk Management Council

Our Risk Management Council is responsible for coordinating with the risk management units of our subsidiaries to ensure that they implement the policies, guidelines and limits established by the Risk Management Committee. The Risk Management Council is comprised of our chief risk management officer and the chief risk management officers of all of our subsidiaries. It operates independently from all business units and convenes on a quarterly basis. Its responsibilities include:

• analyzing our risk status by using information provided by our subsidiary-level risk management units;

• deliberating adjustments to the integrated risk capital allocation plan and risk limits for each of our subsidiaries; and

• coordinating issues relating to the group-wide integration of our risk management functions.

Subsidiary Risk Management Committees

Each of our subsidiaries has delegated risk management authority to its Subsidiary Risk Management Committee. Each Subsidiary Risk Management Committee measures and monitors the various risks faced by the relevant subsidiary and reports to that subsidiary’s board of directors regarding decisions that it makes on risk management issues. It also makes certain strategic risk-related decisions regarding the operations of the relevant subsidiary, such as setting total exposure limits, allocating credit risk limits and market risk-related limits and determining which market risk derivatives instruments the subsidiary can trade. The major activities of each Subsidiary Risk Management Committee include:

• determining and monitoring risk policies, guidelines, limits and tolerance levels and the level of subsidiary risk in accordance with group policy;

• reviewing and analyzing the subsidiary’s risk profile;

• setting limits for and adjusting the risk capital allocation plan and risk levels for each business unit within the subsidiary; and

• monitoring compliance with our group-wide risk management policies and practices at the business unit and subsidiary level.

Each Subsidiary Risk Management Committee is comprised of the subsidiary’s non-executive directors on its board of directors.

Credit Risk Management

Credit risk is the risk of expected and unexpected losses in the event of borrower or counterparty defaults. Credit risk management aims to improve asset quality and generate stable profits while reducing risk through

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diversified and balanced loan portfolios. We determine the creditworthiness of each type of borrower or counterparty through reviews conducted by our credit experts and through our credit rating systems, and we set a credit limit for each borrower or counterparty.

We assess and manage all credit exposures. We measure expected losses and internal capital on assets (whether on- or off-balance sheet) that are subject to credit risk management and use expected losses and internal capital as management indicators. We manage credit risk by allocating credit risk internal capital limits. In addition, we control credit concentration risk exposure by applying and managing total exposure limits to prevent excessive risk concentration to particular industries or borrowers. Credit exposures that we assess and manage include loans to borrowers and counterparties, investments in securities, letters of credit, bankers’ acceptances, derivatives and commitments. Our risk appetite, which is the ratio of our required internal capital to our estimated available book capital, is approved by the Risk Management Committee once a year. Thereafter, we calculate internal capital every month for all of our subsidiaries and on a holding company level based on attributed internal capital in accordance with the risk appetite as approved by the Risk Management Committee, and measure and report profiles of credit risk on a holding company level and by subsidiary regularly to our senior management, including our Risk Management Committee.

We use expected default rates and recovery rates to determine the expected loss rate of a borrower or counterparty. We use the expected loss rate to make credit related decisions, including pricing, loan approval and establishment of standards to be followed at each level of decision making. These rates are calculated using information gathered from our internal database. With respect to large corporate borrowers, we also use information provided by external credit rating services to calculate default rates and recovery rates.

Our credit risk management processes include:

• establishing credit policy;

• credit evaluation and approval;

• industry assessment;

• total exposure management;

• collateral evaluation and monitoring;

• credit risk assessment;

• early warning and credit review; and

• post-credit extension monitoring.

Credit Evaluation

Kookmin Bank evaluates the ability of all loan applicants to repay their debts before it approves any loans, except for loans fully guaranteed by letters of guarantee issued by the Credit Guarantee Fund and the Korea Technology Credit Guarantee Fund, for loans fully secured by deposits and for other loans similarly guaranteed or secured. Kookmin Bank assigns each borrower or guarantor a credit rating based on the judgment of its experts or scores calculated using the appropriate credit rating system. Factors that Kookmin Bank considers in assigning credit ratings include both financial factors and non-financial factors, such as its perception of a borrower’s reliability, management and operational risk and risk relating to the borrower’s industry. The credit rating process differs according to the type, size and characteristics of a borrower.

Kookmin Bank uses its internally developed credit rating systems to rate potential borrowers. As the characteristics of each customer segment differ, Kookmin Bank uses several credit rating systems for its customers. The nature of the credit rating system used for a particular borrower depends on whether the borrower is an individual, a “small office/home office” customer, a small- and medium-sized enterprise or a large

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company. For large companies and small- and medium-sized enterprises, Kookmin Bank has 17 credit ratings ranging from AAA to D for risk management purposes. For retail customers, it has 13 credit ratings ranging from grade 1 to grade 13.

Based on the credit rating of a borrower, Kookmin Bank applies different credit policies, which affect factors such as credit limit, loan period, loan pricing, loan classification and provisioning. Kookmin Bank also uses these credit ratings in evaluating its bank-wide risk management strategy. Factors Kookmin Bank considers in making this evaluation include the profitability of each company or transaction, performance of each business unit and portfolio management. Kookmin Bank monitors the credit status of borrowers and collect information to adjust its ratings appropriately. If Kookmin Bank changes a borrower’s credit rating, it will also change the credit policies relating to that borrower and may also change the policies underlying its loan portfolio.

Retail Loan Approval Process

Mortgage Loans and Secured Retail Loans. Branch staff employees of Kookmin Bank forward loan applications to processing centers and Kookmin Bank’s processing center staff reviews mortgage loans and retail loans secured by real estate or guarantees. However, in the case of loans secured by deposits with Kookmin Bank, its branch staff approves such loans. Kookmin Bank makes lending decisions based on its assessment of the value of the collateral, debt service capability and the borrower’s score generated from its credit scoring systems.

For mortgage loans and loans secured by real estate, Kookmin Bank evaluates the value of the real estate offered as collateral using a database it has developed that contains information about real estate values throughout Korea. Kookmin Bank also uses information from a third party provider about the real estate market in Korea, which gives it up-to-date market value information for Korean real estate. In addition, Kookmin Bank’s processing center staff employees review the value of real estate provided by the evaluation system to ensure there are no significant discrepancies. Kookmin Bank bases decisions regarding the approval of such loans primarily on the results of its credit scoring systems.

For loans secured by deposits, Kookmin Bank will generally grant loans up to 95% of the deposit amount if it holds the deposit.

With respect to mortgage loans and secured retail loans, Kookmin Bank screens customers based on various criteria that indicate whether the customer may have deteriorating credit using internal information and rating information from credit bureaus. Kookmin Bank also evaluates debt service capability for eligible customers pursuant to certain checklist items, such as profession, annual income, credit card overdue information, transaction history (with both it and other financial institutions) and other relevant credit information.

Kookmin Bank generally decides whether to evaluate a loan application within three to five days after recording the relevant information in its credit scoring systems.

Unsecured Retail Loans. Kookmin Bank reviews applications for unsecured retail loans in accordance with its credit scoring systems. These automated systems evaluate loan applications and determine an appropriate pricing for the loan. The major benefits of using a credit scoring system are that it yields uniform results regardless of the user and that it can be used effectively by employees who do not necessarily have extensive experience in credit evaluation. The staff of Kookmin Bank’s processing centers reviews the results of the credit scoring system based on information input by its branch staff and, if approved, issues the loan.

Kookmin Bank’s credit scoring systems take into account factors including borrower’s income, assets, profession, transaction history (with both it and other financial institutions) and other relevant credit information. The systems rank each borrower in an appropriate grade, and that grade is used as a factor in deciding whether to approve loans as well as to determine loan amounts. Kookmin Bank generally bases its decisions on the results of its credit scoring systems to evaluate applications.

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Corporate Loan Approval Process

We approve corporate loans at different levels of our organization depending on the size and type of the loan, the credit risk level assessed by the credit rating system, whether the loan is secured by collateral and, if secured, the value of the collateral. The lowest level of authority is the branch staff employee of Kookmin Bank, who can approve small loans and loans that have the lowest range of credit risk. Larger loans and loans with higher credit risk are approved by higher levels of authority depending on where they fall in a matrix of loan size and credit risk. Depending on the size and terms of any particular loan or the credit risk relating to a particular borrower, more than one entity may review the application, although generally loan applications are reviewed only by the entity having corresponding authority to approve the loan.

Kookmin Bank evaluates all of its corporate borrowers by using credit rating systems, except for applicants whose borrowings are fully secured by deposits or applicants who have obtained third-party guarantees from the government or certain other very highly rated guarantors. See “—Credit Evaluation.”

For owner-operated enterprises (which we refer to as SOHOs) with total outstanding loans of ￦1 billion or less, Kookmin Bank has put in place a retail SOHO credit rating system, which adopts simplified credit evaluation modeling procedures and has the same structure and process as the credit rating system for individual retail borrowers. This system consists of a scoring model and a preliminary examination checklist. The scoring model analyzes information with respect to the customer’s personal information and bank transaction history, as well as information from credit bureaus. The preliminary examination checklist is based on information regarding the customer’s credit delinquencies and history of write-offs. This system classifies customers into 13 possible credit ratings.

For SOHOs with total outstanding loans of more than ￦1 billion, Kookmin Bank has put in place a separate credit rating system known as “SOHO CRS.” For other small- and medium-sized enterprises, Kookmin Bank has put in place a similar credit rating system known as CRS. For large corporations, Kookmin Bank has put in place a similar credit rating system known as LCRS. For financial institutions, certain non-profit organizations and public institutions, Kookmin Bank has put in place a credit rating system known as FNP CRS. The SOHO CRS, the CRS, the LCRS and the FNP CRS models consist of the following three parts:

• Financial Model. The financial model uses the borrower’s current status and trend of financial ratios calculated using its financial statements. The financial model classifies potential borrowers into one of three size categories and one of five types of industry. This model incorporates logistic regression and statistical methods, which use financial ratios such as stability ratio, cash flow ratio, profitability ratio and turnover ratio to make credit determinations.

• Non-financial Model. The non-financial model uses various qualitative and quantitative factors, such as future repayment capability, market prospects, management capability and business capability, to evaluate borrowers. The factors that are evaluated and the weighting given to each factor vary by type of industry and size of company.

• Default Signal Check Model. The default signal check model checks factors that have low frequency of occurrence but are highly likely to lead to a default in the event of an occurrence. The results of the default signal check model may be used to cap a borrower’s credit grade.

In addition to the three parts outlined above, the SOHO CRS also includes a “CEO Evaluation Model,” which analyzes information with respect to personal information and bank transaction history of the individual owner of such SOHO.

We often refer to corporate information gathered or ratings assigned by external credit rating agencies, such as Korea Information Service, National Information & Credit Evaluation Inc. and Korea Management Consulting & Credit Rating Corporation, in order to improve the accuracy of our credit ratings.

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Credit Card Approval Process

We make decisions on all credit card approvals based on the Financial Supervisory Service standard of review for payment ability (such as the occupation and income of the applicant), as well as a combination of KB Kookmin Card’s internal application scoring system and a credit scoring system developed by independent credit bureaus.

KB Kookmin Card’s application scoring system reflects various credit information, including basic customer information (such as credit history), transaction history with it, if any, delinquency and transaction history with other card companies and financial institutions and credit information provided by the Korea Federation of Banks and other credit bureaus. KB Kookmin Card also considers repayment ability, total assets, total outstanding debts and the length of the applicant’s relationship, if any, and past contribution to our profitability, if any.

The credit scoring system developed by credit bureaus, reflects various sources of information regarding the credit risk of customers, including delinquency and transaction history with other credit card companies and financial institutions.

On the basis of the standard of review for payment ability and the combination of the scores from our application scoring system and the credit scoring system developed by independent credit bureaus, KB Kookmin Card establishes, among other things, the term of any new approvals, initial limits and differentiation of fee rates with respect to its credit cards. KB Kookmin Card’s systems allow it to differentiate applicants into groups that receive immediate credit card approval or rejection, or that may require it to further investigate that applicant’s credit qualifications. The initial limits of new applicants are based on their estimated disposable income, which is based on their occupation and the value of their personal assets. KB Kookmin Card applies its fee rates to applicants differently according to risk premium and profitability.

Total Exposure Management

We establish and manage total exposure limits for corporations, chaebols and industries, as well as certain small- and medium-sized enterprises, in order to optimize the use of credit availability and avoid excessive risk concentration. Kookmin Bank establishes total exposure limits for (i) main debtor groups designated by the Financial Supervisory Service, (ii) groups to which Kookmin Bank has total exposure of ￦50 billion or more, (iii) enterprises that belong to a main debtor group or large enterprises, in both cases to which Kookmin Bank has total exposure of ￦30 billion or more, (iv) small- and medium-sized enterprises to which Kookmin Bank has total exposure of ￦20 billion or more and (v) other groups or individual enterprises designated by the head of Kookmin Bank’s Risk Management Council as necessary. Kookmin Bank establishes total exposure limit by reviewing factors such as industry, size, cash flows, financial ratios and credit ratings, while establishing exposure limits for industries by reviewing the sales growth rate and risk concentration for each industry. These total exposure limits are set following approval by Kookmin Bank’s Risk Management Council after review by the Credit Risk Management Subcommittee.

Kookmin Bank’s maximum exposure limit is within 25% of its Tier I and Tier II capital for a single chaebol, and within 10% of its Tier I and Tier II capital for an individual large corporation.

We manage and control exposure limits on a daily basis. The principal system that we use for this purpose is the Total Exposure Management System. This system allows us to monitor and control our total exposure to large corporations, chaebols and industries. Kookmin Bank monitors its exposure to large corporations to which it has an exposure of ￦30 billion or more, individual corporations to which it has an exposure of ￦20 billion or more, and also its exposure to 128 business groups, which comprise the 31 largest highly-indebted business groups among chaebols in Korea designated as such by the Financial Supervisory Service based on their outstanding exposures as well as 97 business groups to which it has exposures (in the form of securities or loans)

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of ￦50 billion or more. We also monitor our exposure to industries by peer groups. Our Total Exposure Management System integrates all of our credit-related risk including credit extended by our overseas branches and affiliates. The assets subject to the system include all Won-denominated and foreign currency-denominated loans, all assets in trust accounts except specified money trusts, guarantees, trade-related credits, commercial paper, corporate bonds and other securities and derivatives.

Collateral Evaluation and Monitoring System

Kookmin Bank uses the Collateral Evaluation and Monitoring System to manage the liquidation value of collateral it holds. The Collateral Evaluation and Monitoring System is a computerized collateral management system that can be accessed from Kookmin Bank’s headquarters and its branches. Using this system, Kookmin Bank can more accurately assess the actual liquidation value of collateral, determine the recovery rate on its loans and use this information in setting its credit risk management and loan policies. Kookmin Bank can monitor the value of all the collateral a borrower provides and the value of that collateral based on its liquidation value. When appraising the value of real estate collateral, which makes up the largest part of Kookmin Bank’s collateral, Kookmin Bank consults a regularly updated database provided by a third party that tracks the prices at which various types of real estate in various regions of Korea are sold. Kookmin Bank appraises the value of collateral when it makes a loan, when the loan is due for renewal and when events occur that may change the value of the collateral.

Credit Risk Management and Monitoring

Kookmin Bank’s Credit Risk Department manages and regulates our loan portfolio policies. It also analyzes and monitors our loan portfolios and monitors our compliance with the applicable limits for credit risk. Moreover, it separately manages high-risk products, such as real estate project financing loans and over-the-counter derivative products, by setting appropriate limits.

Credit Review

Kookmin Bank’s credit review function is independent of the business groups which manage our assets. Its Credit Review Department:

• reviews internal credit regulations, policies and systems;

• analyzes the credit status of selected loan assets and verifies the appropriateness of the credit evaluations/approvals made by branches and headquarters; and

• evaluates the corporate credit risk of potentially insolvent companies.

More specifically, Kookmin Bank’s Credit Review Department continuously reviews the financial condition of selected borrowers with respect to their current debt, collateral, business, transactions with related parties and debt service capability. Based on such review, Kookmin Bank may adjust the borrower’s credit rating, lending policy or asset quality classification of the loan provided to the borrower, depending on the applicable circumstances. Kookmin Bank also regularly reviews other aspects of the lending process, including industries and regions in which its borrowers operate and the quality of its domestic and overseas assets. Kookmin Bank’s industry reviews focus on growth, stability, competition and ability to adapt to a changing environment. Based on the results of a particular industry review, Kookmin Bank may revise the total exposure limit assigned to that industry and lending policy for each company within that industry. When a review takes place, Kookmin Bank may adjust not only credit ratings of its borrowers based on a variety of factors, but also asset quality classification, credit limits and applied interest rates or its credit policies. Credit review results are reported to Kookmin Bank’s chief risk management officer and its Risk Management Committee on a quarterly basis.

Kookmin Bank’s Credit Review Department also conducts on-site reviews of selected branches that are experiencing increasing delinquency ratios and bad debts. During these visits Kookmin Bank examines the loan processes and recommends improvement plans and appropriate follow-up measures.

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Also, based on guidelines provided by the Financial Supervisory Service to all Korean banks, Kookmin Bank operates a corporate credit risk assessment program to facilitate the identification of weak companies and possible commencement of corporate restructuring. Through this program, Kookmin Bank, together with other banks, is able to detect symptoms of financially troubled companies at an early stage, assess related credit risk and support the normalization of companies that are likely to turnaround through a workout process, or seek to liquidate those companies that are not likely to recover.

Kookmin Bank’s Credit Review Department also analyzes issues related to credit risk and provides information necessary for the formulation of effective credit policies and strategies and for effective credit risk management.

Market Risk Management

The major risk to which we are exposed is interest rate risk on debt instruments and interest bearing securities and, to a lesser extent, stock price risk and foreign exchange risk. The financial instruments that expose us to these risks are securities and financial derivatives. We are also exposed to interest rate risk and liquidity risk in Kookmin Bank’s banking book. We divide market risk into risks arising from trading activities and risks arising from non-trading activities.

Kookmin Bank’s Risk Management Council establishes overall market risk management principles. It has delegated the responsibility for the market risk management for trading activities to the Market Risk Management Subcommittee of Kookmin Bank, which is chaired by Kookmin Bank’s chief risk management officer. This subcommittee meets on a regular basis each month and as required to respond to developments in the market and the economy. Based on the policies approved by Kookmin Bank’s Risk Management Council, the Market Risk Management Subcommittee reviews and approves reports as required that include trading profits and losses, position reports, limit utilization, sensitivity analysis and VaR results for our trading activities.

Kookmin Bank’s Risk Management Council is responsible for interest rate and liquidity risk management for its non-trading activities. The council meets on a regular basis and as required to respond to developments in the market and the economy. Members of the Risk Management Council, acting through Kookmin Bank’s Risk Management Department, review Kookmin Bank’s interest rate and liquidity gap position monthly, as well as the business profile and its impact on asset and liability management.

To ensure adequate interest rate and liquidity risk management, we have assigned the responsibilities for our asset and liability risk management to Kookmin Bank’s Risk Management Department in Kookmin Bank’s Risk Management Group, which monitors and reviews the asset and liability operating procedures and activities of Kookmin Bank’s Financial Planning Department and Asset and Liability Risk Management Department, and independently reports to the management on the related issues.

Market Risk Management for Trading Activities

Our trading activities consist of:

• trading activities for our own account to realize short-term trading profits in Won-denominated debt and equities markets and foreign exchange markets based on our short-term forecast of changes in the market situation; and

• trading activities involving derivatives, such as swaps, forwards, futures and option transactions, to realize profits primarily from selling derivative products to our customers and to hedge market risk incurred from those activities. In addition, certain derivative products that we use to hedge our own market risk are classified as trading activities as they do not qualify for hedge accounting treatment under IFRS. We believe, however, that certain of these products are effective as economic hedges.

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We use derivative instruments to hedge our market risk and, to a limited extent, to make profits by trading derivative products within acceptable risk limits. The principal objective of our hedging strategy is to manage our market risk within established limits. We use the following hedging instruments to manage relevant risks:

• to hedge interest rate risk arising from its trading activities, the Trading/Capital Markets Department of Kookmin Bank occasionally uses interest rate futures (Korea Treasury Bond Futures) and interest rate swaps;

• to hedge stock price risk arising from its trading activities, the Trading/Capital Markets Department of Kookmin Bank selectively uses stock index futures;

• to hedge interest rate risk and foreign exchange risk arising from our foreign currency-denominated asset and liability positions as well as our trading activities, the Treasury Unit within the Capital Markets Department of Kookmin Bank uses interest rate swaps, cross-currency interest rate swaps, foreign exchange forwards and futures, Euro-dollar futures and currency options; and

• to change the interest rate characteristics of certain assets and liabilities after the original investment or funding, we use swaps. For example, depending on the market situation, we may choose to obtain fixed rate funding instead of floating rate funding if we believe that the terms are more favorable, which we can achieve by entering into interest rate swaps.

We generally manage our market risk at the portfolio level. To control our exposure to market risk, we use internal capital limits set by Kookmin Bank’s Risk Management Committee for Kookmin Bank and at the group level within Kookmin Bank, VaR, position and stop loss limits set by Kookmin Bank’s Risk Management Council for Kookmin Bank and at the group level within Kookmin Bank, and VaR, position, stop loss and sensitivity limits (PVBP, Delta, Gamma, Vega) set by Kookmin Bank’s Market Risk Management Subcommittee at the department level within Kookmin Bank. We prepared our risk control and management guidelines for derivative trading based on the regulations and guidelines promulgated by the Financial Supervisory Service.

In addition, we have implemented internal processes which include a number of key controls designed to ensure that fair value is measured appropriately, particularly where a fair value model is internally developed and used to price a significant product. See “Item 5.A. Operating Results—Critical Accounting Policies—Valuation of Financial Instruments” and Notes 4.4 and 6 of the notes to our consolidated financial statements. For example, each year, Kookmin Bank’s Risk Management Department reviews the existing pricing and valuation models, with a focus on their underlying modeling assumptions and restrictions, to assess the appropriateness of their continued use. In consultation with Kookmin Bank’s Trading Department, the Risk Management Department recommends potential valuation models to Kookmin Bank’s Fair Value Evaluation Committee. Upon approval by Kookmin Bank’s Fair Value Evaluation Committee, the selected valuation models are reported to its Market Risk Management Subcommittee.

We monitor market risk arising from trading activities of our business groups and departments. The market risk measurement model we use for both our Won-denominated trading operations and foreign currency-denominated trading operations is implemented through our integrated market risk management system called Adaptiv, which enables us to generate consistent VaR numbers for all trading activities.

Value at Risk analysis. We use VaR to measure market risk. VaR is a statistically estimated maximum amount of loss that could occur over a given period of time at a given level of confidence. VaR is a commonly used market risk management technique. However, this approach does have some shortcomings. VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movement, however, is not necessarily a good indicator of future events, as there may be conditions and circumstances in the future that the model does not anticipate. As a result, the timing and magnitude of the actual losses can be different depending on the assumptions made at the time of calculation. In addition, the time periods used for the model, generally one or ten days, are assumed to be a sufficient holding period before liquidating the relevant underlying positions. If these holding periods are not sufficient, or too long, the VaR

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results may understate or overstate the potential loss. Different VaR methodologies and distributional assumptions could produce a materially different VaR. VaR is most appropriate as a risk measure for trading positions in liquid capital markets and will understate the risk associated with severe events, such as a period of extreme illiquidity.

We use a 99% single tail confidence level to measure VaR, which means the actual amount of loss may exceed the VaR, on average, once out of 100 business days. Until 2011, we used the “variance-covariance method” or parametric VaR (“PVaR”) methodology to measure our daily VaR, which took into account the diversification effects among different risk categories as well as within the same risk category. In 2012, we received authorization from the Financial Services Commission to use a historical simulation VaR (“HSVaR”) methodology, which we believe to be more accurate and responsive in reflecting market volatilities, to measure market risk. Our ten-day HSVaR method, which is computed using a full valuation and is computationally intensive, uses an archive of historic price data and the VaR for a portfolio is estimated by creating a hypothetical time series of returns on that portfolio, obtained by running the portfolio through actual ten-day historical data and computing the changes that would have occurred in each ten-day period.

The following table shows the volume and types of positions held by Kookmin Bank for which the VaR method is used to measure market risk as of December 31, 2016, 2017 and 2018.

	As of December 31,
	2016		2017		2018
	(in millions of Won)
Securities—Bond(1)	￦	7,700,731	￦	8,179,481	￦	9,167,080
Securities—Equity(1)		34,131		43,214		42,943
Spot exchanges(2)		2,316,311		4,029,675		3,496,671
Derivatives(3)		5,778,082		5,438,917		3,364,318
Total	￦	15,829,255	￦	17,691,288	￦	16,071,012

⁽¹⁾  Represents amounts marked to market and as shown on the balance sheet information that is prepared and submitted to the Financial Supervisory Service for risk management purposes.

⁽²⁾  Represents the overall net open currency position in each currency, which is the greater of (i) the sum of the absolute value of all short positions and (ii) the sum of the absolute value of all long positions.

⁽³⁾  For over-the-counter derivatives, represents the absolute value of over-the-counter derivatives measured at fair value at year end. For exchange-traded derivatives, includes the amount of deposits and the collateral posted for such derivatives.

The following table shows Kookmin Bank’s ten-day HSVaRs (at a 99% confidence level for a ten-day holding period) as of December 31, 2016, 2017 and 2018 for interest risk, stock price risk and foreign exchange risk relating to its trading activities. The following figures were calculated on a consolidated basis.

	As of December 31,
	2016			2017			2018
	(in billions of Won)
Risk categories:
Interest risk	￦	14.9		￦	23.8		￦	7.1
Stock price risk		1.3			1.3			3.3
Foreign exchange risk		10.1			24.3			16.5
Less: diversification		(6.5	)		(29.7	)		(11.9	)
Diversified VaR for overall trading activities	￦	19.8		￦	19.6		￦	14.9

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In 2018, the average, high, low and ending amounts of ten-day HSVaR (at a 99% confidence level for a ten-day holding period) for Kookmin Bank relating to its trading activities were as follows.

	Trading activities VaR for 2018
	Average		Minimum		Maximum		As of December 31, 2018
	(in billions of Won)
Interest risk	￦	12.5	￦	6.0	￦	18.7	￦	7.1
Stock price risk		3.0		1.3		4.8		3.3
Foreign exchange risk		9.4		5.0		16.5		16.5
Less: diversification								(11.9	)
Diversified VaR for overall trading activities		16.2		11.7		23.1	￦	14.9

In 2017, the average, high, low and ending amounts of ten-day HSVaR (at a 99% confidence level for a ten-day holding period) for Kookmin Bank relating to its trading activities were as follows.

	Trading activities VaR for 2017
	Average		Minimum		Maximum		As of December 31, 2017
	(in billions of Won)
Interest risk	￦	22.7	￦	14.3	￦	42.2	￦	23.8
Stock price risk		1.0		0.8		1.3		1.3
Foreign exchange risk		32.7		12.4		44.3		24.3
Less: diversification								(29.8	)
Diversified VaR for overall trading activities		23.3		16.5		30.2	￦	19.6

In 2016, the average, high, low and ending amounts of ten-day HSVaR (at a 99% confidence level for a ten-day holding period) for Kookmin Bank relating to its trading activities were as follows.

	Trading activities VaR for 2016
	Average		Minimum		Maximum		As of December 31, 2016
	(in billions of Won)
Interest risk	￦	15.7	￦	10.8	￦	19.5	￦	14.9
Stock price risk		1.8		0.7		2.3		1.3
Foreign exchange risk		16.5		10.1		22.2		10.1
Less: diversification								(6.5	)
Diversified VaR for overall trading activities		19.0		11.6		28.5	￦	19.8

Standardized Method. Market risk for positions not measured by VaR are measured using the standardized method for measuring market risk-based required equity capital specified by the Financial Supervisory Service, which takes into account certain risk factors. Under the standardized method, the required equity capital is measured using the risk-weighted values for each risk factor. The method used to measure the market risk-based required equity capital for each risk factor is as follows:

• Interest rate risk:

• General market risk: General market risk relates to the risk of losses from macroscopic events which could have an impact on interest rates, stock prices, exchange rates, and market prices of general commodities. General market interest rate risk of a debt security is calculated on its net position, taking into consideration the remaining maturity and coupon rate.

• Specific risk: Specific risk relates to the risk of loss from changes in credit risk of issuers of debt securities or equities, excluding changes in general market prices. Specific interest rate risk of a

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debt security is measured by multiplying the interest rate position appraised based on the market price of such security by the risk-weighted value applicable to the type of debt security, credit rating and the remaining maturity.

• Equity risk: General and specific equity risk are calculated by multiplying the bought or sold position by the relevant risk-weighted values.

• Foreign exchange risk: Foreign exchange risk is measured by multiplying the larger of the absolute values among the net bought or sold positions of each currency by the relevant risk-weighted values.

• Option risk: Option risk is measured using the delta, gamma and vega of the option.

The standardized method is used to measure the market risk of the positions for which the Financial Supervisory Service has not approved the use of the VaR method. In addition, we use the standardized method for positions which are held by certain subsidiaries or for which measuring VaR is difficult due to the lack of daily position data. See Note 4.4.3 of the notes to our consolidated financial statements included elsewhere in this annual report.

The following table shows the volume and types of instruments held by Kookmin Bank for which the standardized method is used to measure its required equity capital as of December 31, 2016, 2017 and 2018.

	As of December 31,
	2016		2017		2018
	(in millions of Won)
Swaps and foreign exchange positions(1)		1,706		14,742		24,366
Derivative-linked securities(2)		129,535		95,357		126,416
Options embedded in convertible bonds(3)		9,183		17,303		0
Total	￦	140,424	￦	127,402	￦	150,783

⁽¹⁾  The overall net open currency position is the greater of (i) the sum of the absolute value of all short positions and (ii) the sum of the absolute value of all long positions. In the first half of 2015, Kookmin Bank received approval from the Financial Supervisory Service to use its internal VaR model, in lieu of the standardized method, to measure the market risk of positions held by Kookmin Bank (China) Ltd. As of December 31, 2015, Kookmin Bank held no currency rate swaps and foreign exchange positions that required the use of the standardized method to measure Kookmin Bank’s required equity capital. Amounts as of December 31, 2016 represent only the value of interest rate swaps held by a special purpose vehicle of Kookmin Bank, for which the standardized method is used to measure Kookmin Bank’s required equity capital. Amounts as of December 31, 2017 and 2018 represent the value of interest rate swaps held by a special purpose vehicle of Kookmin Bank and the foreign exchange positions held by KB Microfinance Myanmar Co., Ltd., for which the standardized method is used to measure Kookmin Bank’s required equity capital.

⁽²⁾  Amounts as of December 31, 2016, 2017 and 2018 represent the value of derivative-linked securities held by the trust accounts of Kookmin Bank subject to consolidation, for which the standardized method is used to measure Kookmin Bank’s required equity capital.

⁽³⁾  Represents the absolute value of over-the-counter derivatives measured at fair value at year end for monitoring purposes.

The following table shows Kookmin Bank’s required equity capital measured using the standardized method as of December 31, 2016, 2017 and 2018.

	As of December 31,
	2016(1)		2017(1)		2018(1)
	(in millions of Won)
Risk categories:
Interest risk	￦	15,161	￦	98,236	￦	112,153
Stock price risk		4,816		1,646		19,756
Foreign exchange risk		—		810		1,338
Total	￦	19,977	￦	100,691	￦	133,248

⁽¹⁾  In the first half of 2015, Kookmin Bank received approval from the Financial Supervisory Service to use its internal VaR model, in lieu of the standardized method, to measure the market risk of certain instruments held by Kookmin Bank, including 30-year government bonds held by Kookmin Bank, as well as positions held by certain subsidiaries of Kookmin Bank, including Kookmin Bank (China) Ltd.

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Back-Testing. We conduct back testing on a daily basis to validate the adequacy of our market risk model. In back testing, we compare both the actual and hypothetical profit and loss with the VaR calculations and analyze any results that fall outside our predetermined confidence interval of 99%. The number of times the actual changes in fair values, earnings or cash flows from the market risk sensitive instruments exceeded the VaR amounts in 2016, 2017 and 2018 was 4, 0 and 2, respectively.

Stress testing. In addition to VaR, which assumes normal market situations, we use stress testing to assess our market risk exposure to abnormal market fluctuations. Abnormal market fluctuations include significant declines in the stock market and significant increases in the general level of interest rates. This is an important way to supplement VaR, as VaR is a statistical expression of possible loss under a given confidence level and holding period. It does not cover potential loss if the market moves in a manner that is outside our normal expectations. Stress testing projects the anticipated change in value of holding positions under certain scenarios assuming that no action is taken during a stress event to change the risk profile of a portfolio. According to Kookmin Bank’s stress testing, we estimate that as of December 31, 2018, Kookmin Bank’s trading portfolio could have lost ￦446 billion for an assumed short-term extreme decline of approximately 25% in the equity market and an approximate 54 basis point increase in the Korean treasury bond rates under an abnormal stress environment.

We monitor the impact of market turmoil or any abnormality by conducting stress tests and confirming that the results are within our market risk limits. If the impact is large, Kookmin Bank’s chief risk management officer may request that our portfolio be restructured or other appropriate action be taken.

Interest Risk

Interest risk from trading activities arises mainly from our trading of Won-denominated debt securities. Our trading strategy is to benefit from short-term movements in the prices of debt securities arising from changes in interest rates. As our trading accounts are marked-to-market daily, we manage the interest risk related to our trading accounts using market value-based tools such as VaR and sensitivity analysis. As of December 31, 2018, the VaR of Kookmin Bank’s interest risk from trading was ￦7.1 billion and the weighted average duration, or weighted average maturity, of its Won-denominated debt securities at fair value through profit or loss was approximately 1.8 years.

Foreign Exchange Risk

Foreign exchange risk arises because we have assets and liabilities that are denominated in currencies other than Won, as well as off-balance sheet items such as foreign exchange forwards and currency swaps. Our assets and liabilities denominated in U.S. dollars, Japanese Yen, Euro and Chinese Renminbi have typically accounted for the majority of our foreign currency assets and liabilities.

The difference between our foreign currency assets and liabilities is offset against forward foreign exchange positions, currency options and currency swaps to obtain our net foreign currency open position. Kookmin Bank’s Risk Management Council and Market Risk Management Subcommittee oversee Kookmin Bank’s foreign exchange exposure for both trading and non-trading purposes by establishing a limit for this net foreign currency open position, together with stop loss limits. VaR limits are established on a combined basis for our domestic operations and foreign branches.

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The following table shows Kookmin Bank’s non-consolidated net open positions at the end of 2016, 2017 and 2018. Positive amounts represent long positions and negative amounts represent short positions. The net open positions held by subsidiaries other than Kookmin Bank are not significant.

	As of December 31,(1)
	2016			2017			2018
	(in millions of US$)
Currency:
U.S. dollars	US$	(530.5	)	US$	(714.4	)	US$	(495.2	)
Japanese Yen		1.3			(0.7	)		(1.6	)
Euro		(5.6	)		(1.3	)		(0.2	)
Kazakhstan Tenge		27.0			—			—
Chinese Renminbi		70.8			47.21			21.9
Others		5.7			7.35			146.9
Total	US$	(431.3	)	US$	(661.8	)	US$	(328.2	)

⁽¹⁾  Amounts prepared on a non-consolidated basis.

Equity Price Risk

Equity price risk results from our equity derivatives trading portfolio in Won since we do not have any trading exposure to shares denominated in foreign currencies other than foreign equity index futures.

The equity derivatives trading portfolio in Won consists of exchange-traded stocks and equity derivatives under strict limits on diversification as well as position limits and stop loss limits.

Kookmin Bank’s Risk Management Council and Market Risk Management Subcommittee set annual and monthly stop loss limits that are monitored by Kookmin Bank’s Risk Management Department. In order to ensure timely action, the stop loss limit of individual securities is monitored by the relevant middle office.

As of December 31, 2018, Kookmin Bank’s equity trading position was ￦43 billion.

Derivative Market Risk

Our derivative trading includes interest rate and cross-currency swaps, foreign exchange forwards, stock index and interest rate futures and currency options. These activities consist primarily of the following:

• sales of tailor-made derivative products that meet various needs of our corporate customers and related transactions to reduce our exposure resulting from those sales;

• taking positions in limited cases when we expect short-swing profits based on our market forecasts; and

• trading to hedge our interest rate and foreign currency risk exposure as described above.

Market risk from trading derivatives is not significant since our derivative trading activities are primarily driven by customer deals with very limited open trading positions.

Market Risk Management for Non-Trading Activities

Interest Rate Risk

Our principal market risk from non-trading activities is interest rate risk. Interest rate risk arises due to mismatches in the maturities or re-pricing periods of these rate-sensitive assets and liabilities. We measure interest rate risk for Won and foreign currency assets and liabilities in our bank accounts (including derivatives)

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and our principal guaranteed trust accounts. Most of our interest earning assets and interest bearing liabilities are denominated in Won and our foreign currency-denominated assets and liabilities are mostly denominated in U.S. dollars.

Our principal interest rate risk management objectives are to generate stable net interest revenues and to protect our asset value against interest rate fluctuations. We principally manage this risk for our non-trading activities by analyzing and managing maturity and duration gaps between our interest earning assets and interest bearing liabilities. In addition, we use hedging instruments for interest rate risk management for our non-trading assets and liabilities.

Interest rate gap analysis measures expected changes in net interest revenues by calculating the difference in the amounts of interest earning assets and interest bearing liabilities at each maturity and interest resetting date. We perform interest rate gap analysis for Won-denominated and foreign currency-denominated assets and trust assets on a monthly basis or more frequently when deemed necessary.

Interest Rate Gap Analysis. We perform interest rate gap analysis based on interest rate repricing maturities of assets and liabilities. However, for some of our assets and liabilities with either no maturities or unique characteristics, we use or assume certain maturities, including the following examples:

• With respect to asset maturities, we assume remaining maturities of prime rate-linked loans with remaining maturities of over one year to be one year and use the actual maturities for prime rate-linked loans with remaining maturities of less than one year.

• With respect to liability maturities, we use last 36 months’ average balance to segregate “non-core” and “core” demand deposits. We assume “non-core” demand deposits to have remaining maturities of one month or less, and we assume “core” demand deposits to have remaining maturities between one month and five years.

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The following table shows Kookmin Bank’s interest rate gap for Won-denominated accounts and foreign currency-denominated accounts as of December 31, 2018.

	As of December 31, 2018
	0-3 Months			3-6 Months			6-12 Months			1-3 Years			Over 3 Years			Total
	(in billions of Won, except percentages)
Won-denominated Interest earning assets:
Loans	￦	107,792		￦	65,840		￦	41,982		￦	24,863		￦	16,519		￦	256,996
Securities		6,165			5,288			8,928			13,797			4,156			38,334
Others		5,249			107			204			15			7			5,582
Total	￦	119,206		￦	71,235		￦	51,114		￦	38,675		￦	20,682		￦	300,912
Interest bearing liabilities:
Deposits	￦	97,255		￦	45,141		￦	60,307		￦	30,171		￦	24,354		￦	257,228
Borrowings		7,637			0			0			120			0			7,757
Others		8,137			2,620			4,750			5,420			3,480			24,407
Total	￦	113,029		￦	47,761		￦	65,057		￦	35,711		￦	27,834		￦	289,392
Sensitivity gap		6,177			23,474			(13,943	)		2,964			(7,152	)		11,520
Cumulative gap		6,177			29,651			15,708			18,672			11,520
% of total assets		2.1	%		9.9	%		5.2	%		6.2	%		3.8	%
Foreign currency-denominated Interest earning assets:
Due from banks	￦	2,329		￦	277		￦	94		￦	6		￦	7		￦	2,713
Loans		11,810			1,620			764			168			230			14,592
Securities		1,158			543			304			1,235			1,029			4,269
Total	￦	15,297		￦	2,440		￦	1,162		￦	1,409		￦	1,266		￦	21,574
Interest bearing liabilities:
Deposits	￦	5,073		￦	5,327		￦	1,289		￦	47		￦	172		￦	11,908
Borrowings		7,146			1,649			210			3			4			9,012
Others		642			274			1,062			917			1,460			4,355
Total	￦	12,861		￦	7,250		￦	2,561		￦	967		￦	1,636		￦	25,275
Sensitivity gap		2,436			(4,810	)		(1,399	)		442			(370	)		(3,701	)
Cumulative gap		2,436			(2,374	)		(3,733	)		(3,331	)		3,701
% of total assets		11.3	%		(11.0	)%		(17.5	)%		(15.4	)%		(17.2	)%

Duration Gap Analysis. We also perform duration gap analysis to measure and manage interest rate risk. Duration gap analysis is a more long-term risk indicator than interest rate gap analysis, as interest rate gap analysis focuses more on accounting income as opposed to the market value of the assets and liabilities. We emphasize duration gap analysis because, in the long run, our principal concern with respect to interest rate fluctuations is the net asset value rather than net interest revenue changes. In 2018, our Won-denominated asset and liability duration gap moved between (-)0.034 years and (+)0.041 years. Accordingly, our net asset value would have declined (or increased) between ￦98 billion and ￦124 billion if interest rates had decreased (or increased) by one percentage point.

For duration gap analysis we use or assume the same maturities for different assets and liabilities that we use or assume for our interest rate gap analysis.

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The following table shows Kookmin Bank’s duration gaps and net asset value changes when interest rates decrease by one percentage point as of the specified dates, on a non-consolidated basis.

Won-denominated	Asset Duration		Liability Duration		Duration Gap			Net Asset Value Change
Date	(in years)		(in years)		(in years)			(in billions of Won)
June 30, 2018		0.806		0.882		(0.034	)	￦	(98)
December 31, 2018		0.853		0.864		0.041			124

Foreign currency-denominated	Asset Duration		Liability Duration		Duration Gap			Net Asset Value Change
Date	(in years)		(in years)		(in years)			(in billions of Won)
June 30, 2018		0.490		0.488		(0.052	)	￦	(11	)
December 31, 2018		0.474		0.449		(0.048	)		(10	)

We set interest rate risk limits using historical interest rate volatility of financial bonds and duration gaps with respect to expected asset and liability positions based on our annual business plans. The Risk Management Department in Kookmin Bank’s Risk Management Group submits interest rate gap analysis reports, duration gap analysis reports and interest rate risk limit compliance reports monthly to Kookmin Bank’s Risk Management Council and quarterly to Kookmin Bank’s Risk Management Committee.

The following table summarizes Kookmin Bank’s interest rate risk, taking into account asset and liability durations as of December 31, 2018.

	As of December 31, 2018
	3 Months or Less			3-6 Months			6-12 Months			1-3 Years			Over 3 Years			Total
	(in billions of Won, except percentages and maturities in years)
Won-denominated:
Asset position	￦	119,206		￦	71,235		￦	51,114		￦	38,675		￦	20,682		￦	300,912
Liability position		113,029			47,761			65,057			35,711			27,834			289,392
Gap		6,177			23,474			(13,943	)		2,964			(7,152	)		11,520
Average maturity		0.245			0.488			0.968			2.813			5.353
Interest rate volatility		(0.58	)%		(0.65	)%		(0.71	)%		(0.79	)%		(0.88	)%
Amount at risk		(25	)		(64	)		79			(97	)		217			110
Foreign currency-denominated:
Asset position	￦	15,297		￦	2,440		￦	1,162		￦	1,409		￦	1,266		￦	21,574
Liability position		12,861			7,250			2,561			967			1,636			25,275
Gap		2,436			(4,810	)		(1,399	)		442			(370	)		(3,701	)
Average maturity		0.244			0.485			0.956			2.710			4.963
Interest rate volatility		(2.22	)%		(2.34	)%		(1.81	)%		(1.74	)%		(1.82	)%
Amount at risk		(5	)		53			16			(21	)		14			57

Interest Rate VaR Analysis. Interest rate VaR is the estimated maximum possible loss on net non-trading assets due to unfavorable changes in interest rates. We calculate interest rate VaR based on interest earning assets and interest bearing liabilities, excluding trading positions, at a 99.9% confidence level. Our method of calculating the interest rate impact is a historical simulation method which uses actual historical price, volatility and yield changes in comparison with the current position to generate hypothetical portfolios and calculate a distribution of position and portfolio market value changes. We believe that our interest rate VaR methodology allows us to benefit from more sophisticated risk measurements using practical scenarios. Using the historical simulation method, Kookmin Bank’s interest rate VaR was ￦76 billion as of December 31, 2016, ￦350 billion

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as of December 31, 2017 and ￦167 billion as of December 31, 2018. See Note 4.4.3 of the notes to our consolidated financial statements included elsewhere in this annual report.

Foreign Exchange Risk

We manage foreign exchange rate risk arising from our non-trading operations together with such risks arising from our trading operations. See “—Market Risk Management for Trading Activities—Foreign Exchange Risk” above.

Liquidity Risk Management

Liquidity risk is the risk of insolvency or loss due to a disparity between the inflow and outflow of funds resulting from, for example, maturity mismatches, obtaining funds at a high price or disposing of securities at an unfavorable price due to lack of available funds. We manage our liquidity in order to meet our financial liabilities from withdrawals of deposits, redemption of matured debentures and repayments at maturity of borrowed funds. We also require sufficient liquidity to fund loans, to extend other credits and to invest in securities. Our liquidity management goal is to meet all our liability repayments on time and fund all investment opportunities even under adverse conditions. To date, we have not experienced significant liquidity risk.

We maintain liquidity by holding sufficient quantities of assets that can be liquidated to meet actual or potential demands for funds from depositors and others. We also manage liquidity by ensuring that the excess of maturing liabilities over maturing assets in any period is kept to manageable levels relative to the amount of funds we believe we could raise by issuing securities. We seek to minimize our liquidity costs by managing our liquidity position on a daily basis and by limiting the amount of cash at any time that is not invested in interest earning assets or securities.

We maintain diverse sources of liquidity to facilitate flexibility in meeting our funding requirements. We fund our operations principally by accepting deposits from retail and corporate depositors, accessing the call loan market (a short-term market for loans with maturities of less than 90 days), issuing debentures and borrowing from the Bank of Korea. We use the majority of funds we raise to extend loans or purchase securities. Generally, deposits are of shorter average maturity than loans or investments.

For Won-denominated assets and liabilities, we manage liquidity using a cash flow structure based on holding short-term liabilities and long-term assets. Generally, the average initial contract maturity of our new Won-denominated time deposits was less than one year, while during the same period most of our new loans and securities had maturities over one year.

We manage liquidity risk within the limits set on Won and foreign currency accounts in accordance with the regulations of the Financial Services Commission. The Financial Services Commission requires Korean banks, including Kookmin Bank, to maintain a liquidity coverage ratio of not less than 100% from January 1, 2019 (compared to not less than 95% from January 1, 2018 to December 31, 2018). The Financial Services Commission defines the liquidity coverage ratio as the ratio of highly liquid assets to total net cash outflows over a 30-day period. The highly liquid assets and total net cash outflows included in the calculation of the liquid coverage ratio are determined in accordance with the “Standards for Calculation of Liquidity Coverage Ratio” under the Detailed Regulation on the Supervision of the Banking Business. In addition, the Financial Services Commission requires Korean banks, including Kookmin Bank, to maintain a foreign currency liquidity coverage ratio of not less than 80% from January 1, 2019 (compared to not less than 70% from January 1, 2018 to December 31, 2018).

Kookmin Bank’s Asset Liability Management Department is responsible for daily liquidity management with respect to its Won and foreign currency exposure. It reports monthly plans for funding and operations to the Asset Liability Management Committee of Kookmin Bank, which discusses factors such as interest rate movements and maturity structures of its deposits, loans and securities and establishes strategies with respect to deposit and lending rates.

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The following table shows Kookmin Bank’s liquidity coverage ratio and foreign currency liquidity coverage ratio on an average balance basis for the month of December 2018 in accordance with Financial Services Commission regulations:

Liquidity coverage ratio:	30 Days or Less
	(in billions of Won, except percentages)
Highly liquid assets (A)	￦	49,575
Cash outflows (B)		62,941
Cash inflows (C)		14,433
Total net cash outflows (D = B-C)		48,508
Liquidity coverage ratio (A/D)		102.20	%
Minimum limit		95	%

Foreign currency liquidity coverage ratio:	30 Days or Less
	(in millions of US$, except percentages)
Highly liquid assets (A)	US$	2,795
Cash outflows (B)		6,518
Cash inflows (C)		4,513
Total net cash outflows (D = B-C)		2,005
Liquidity coverage ratio (A/D)		139.44	%
Minimum limit		70	%

The Risk Management Department in Kookmin Bank’s Risk Management Group reports whether it is complying with these limits monthly to Kookmin Bank’s Risk Management Council and quarterly to Kookmin Bank’s Risk Management Committee.

Operational Risk Management

Overall Status

There is no complete consensus on the definition of operational risk in the banking industry. We define operational risk broadly to include all financial and non-financial risks, other than credit risk, market risk, interest rate risk and liquidity risk, that may arise from our operations that could negatively impact our capital, including the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events as defined under Basel II. Our operational risk management objectives include not only satisfying regulatory requirements, but also providing internal support through the growth of a strong risk management culture, reinforcement of internal controls, improvement of work processes and provision of timely feedback to management members and staff throughout the group.

Each of our subsidiaries manages operational risks related to its own business, and we regularly monitor them. Kookmin Bank, our banking subsidiary, uses an operational risk management framework meeting the Basel II Advanced Measurement Approach, or AMA, under which Kookmin Bank:

• calculates its operational risk VaR on a quarterly basis using the “loss distribution approach VaR” and “scenario based VaR” methodology;

• monitors operational risk in terms of Key Risk Indicators, or KRIs, using tolerance levels for each indicator;

• executes integrated compliance and operational risk Control Self Assessments, or CSAs, that enhance the effect on internal controls, which Kookmin Bank employees are able to access and use for process improvement;

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• collects and analyzes internal and external loss data;

• conducts scenario analyses to evaluate exposure to high-severity events;

• manages certain insurance-related activities relating to insurance strategies established to mitigate operational risk;

• examines operational risks arising in connection with the development of, changes in or discontinuance of products, policies or systems;

• uses a detailed business continuity plan covering all of its operations and locations to prepare against unexpected events, including an alternate back-up site for use in disaster events as well as annual full-scale testing of such site;

• refines bank-wide operational risk policies and procedures;

• provides appropriate training and support to business line operational risk managers; and

• reports overall operational risk status to our senior management.

While Kookmin Bank’s Risk Management Department advises relevant business units with respect to the review of and suggested improvements on related operational processes and procedures, each of Kookmin Bank’s relevant business units has primary responsibility for the management of its own operational risk. In addition, the Operational Risk Unit, which is part of Kookmin Bank’s Risk Management Department, monitors bank-wide operational risk. Kookmin Bank also has business line operational risk managers in all of its subsidiaries, departments and branches who periodically conduct CSAs and monitor KRIs. For example, Kookmin Bank has developed KRIs relating to customer data protection, which are applied and monitored at all domestic branches and offices. In addition, in order to strengthen risk management of its overseas operations, Kookmin Bank designates expert auditors for overseas branches and conducts internal audits designed especially to check key risks identified for each overseas branch. Kookmin Bank has also established a risk CSA system for overseas branches, pursuant to which all employees (including locally hired staff) of such branches are required to perform a risk CSA on a quarterly basis. Furthermore, Kookmin Bank regularly monitors operational risks related to new businesses as well as existing operating processes and seeks to develop appropriate new KRIs and risk CSA measures on an ongoing basis. Through such methods, Kookmin Bank is able to ensure proper monitoring and measurement of operational risk in each of its business groups and overseas operations.

Internal Control

To monitor and control operational risks, we maintain a system of comprehensive policies and have put in place a control framework designed to provide a stable and well-managed operational environment throughout our organization. We have in place regular staff rotation and a mandatory leave policy for employees in certain high-risk categories to safeguard against fraud and to check for weaknesses in internal controls. In addition, we maintain an external whistleblower “ombudsman” channel to encourage whistleblowing and voluntary reporting of fraudulent behavior.

Each of our subsidiaries establishes its own internal control system in accordance with the group-level internal control principles. Our Compliance Supporting Department is responsible for monitoring and advising our subsidiaries regarding their internal control systems. Our Audit Committee, which consists of four non-executive directors, is an independent authority that evaluates the effectiveness and efficiency of our group-wide internal control systems and business processes and monitors our subsidiaries’ compliance with such systems and processes, as well as reviews the reliability of our financial statements to secure the transparency and stability of our management (including through the activities of our independent auditors). In particular, we have established group-wide internal guidelines with respect to our subsidiaries’ reporting requirements. Our subsidiaries review their operations and their level of compliance with internal control systems and business processes on a periodic basis and, as part of this process, they are required to report any problems discovered and

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any remedial actions taken to our chief compliance officer, who is responsible for reporting to our Audit Committee. Based on the results of these reports, or on an ad hoc basis in response to any problem or potential problem that it identifies, the Audit Committee may direct a subsidiary to conduct an audit of its operations or, if it chooses to do so, conduct its own audit of those operations. The Audit Committee interacts on a regular basis with our Audit Department, Compliance Supporting Department and our independent auditors. In carrying out these duties, the Audit Committee ultimately protects our property for the benefit of our shareholders, investors and customers by independently monitoring our management.

Our Audit Department supports our Audit Committee in monitoring our accounting and business operations and overseeing the management of our subsidiaries’ internal control systems by performing the following activities:

• general audits, which include full-scale audits of the overall operations performed according to an annual audit plan, and sectional audits of selected operations; and

• special audits of troubled or weak operations, which are performed when our Audit Committee or executive officer responsible for audits deems it necessary or pursuant to requests by our board, executive officers or supervisory authorities, such as the Financial Supervisory Service.

The Financial Supervisory Service periodically conducts a general examination of our operations. It also performs specific audits on particular aspects of our operations, such as risk management, credit monitoring and liquidity, as the need arises.

Kookmin Bank’s Audit Department is the execution body for its audit committee and supports Kookmin Bank’s management objectives by auditing the operations of its branches using a risk analysis system and reviewing the operations of its headquarters and subsidiaries through the use of “risk-based audit” in accordance with the “business measurement process” audit methodology, which requires that the Audit Department evaluate the risk and process of its business units and concentrate its audit capacity with respect to high risk areas.

As a result of recent regulatory trends, Kookmin Bank’s Audit Department is continuing its efforts to establish an advanced audit system and value-added internal audit by introducing risk-based audit techniques.

Our Compliance Supporting Department operates a compliance system to ensure that all of our employees comply with the relevant laws and regulations. This system’s main function is to establish and manage our compliance program, educate employees and management and improve our internal control process.

Legal Risk

We consider legal risk as a part of our operational risk. The uncertainty of the enforceability of the obligations of our customers and counterparties creates legal risk. Changes in laws and regulations could also adversely affect us. Legal risk is higher in new areas of business where the law is often untested in the courts, although legal risk can also increase in our traditional business to the extent that the legal and regulatory landscape in Korea is changing and many new laws and regulations governing the financial industry remain untested. Our Compliance Supporting Department seeks to minimize legal risk by using stringent legal documentation, employing procedures designed to ensure that transactions are properly authorized and consulting legal advisers.

IT System Operational Risk

The integrity of our IT systems, and their ability to withstand potential catastrophic events, are crucial to our continuing operations. Accordingly, we are continuing to strengthen our disaster recovery capabilities. In order to minimize operational risks relating to our IT systems, we have implemented a multi-CPU system that runs multiple CPUs simultaneously on-site and ensures system continuity in case any of the CPUs fails. This system

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backs up our data systems at an off-site location on a real-time basis to ensure that our operations can be carried out normally and without material interruption in the event of CPU failure. Also, in order to protect our Internet banking services from system failures and cyber attacks, we process our Internet transactions through three separate data processing centers.

We currently test our disaster recovery systems on a quarterly basis, with the comprehensive testing including our branches and the main IT center’s disaster recovery system. Our disaster recovery capabilities involve a number of operations other than our core banking operations, including credit card and call center transactions. Internally, our System Operations Department monitors all of our computerized network processes and IT systems. This department monitors and reports on any unusual delays or irregularities reported by our branches. In addition, Kookmin Bank’s Information Security Department is responsible for the daily monitoring of its information security system. Our business operations regularly conduct IT security inspections with respect to such operations and have implemented measures to identify and respond collectively to security breach attempts, such as hacking attempts.

In particular, at Kookmin Bank, we have taken steps to establish a comprehensive security system aimed at detecting and responding to internal and external threats to its IT system and have implemented network segregation on the computers of all employees so that Intranet and Extranet functions are segregated. We have endeavored to enhance protection of customer data by using personal identification numbers internally generated and managed by Kookmin Bank in all customer financial transaction, in lieu of the resident registration numbers of its customers, and by amending forms and templates to minimize collection of potentially sensitive customer data. Kookmin Bank’s chief information security officer is responsible for ensuring protection of information assets and technologies and reducing IT risks.

At KB Kookmin Card, we have taken steps to strengthen its information security infrastructure by implementing a solution to prevent attacks on its website and a security system to prevent unauthorized access to local networks and information, as well as an anti-photography system to prevent information leaks via photographs taken with smartphones. As part of strengthening its operational processes and procedures for customer information protection, KB Kookmin Card prohibits use of portable devices within the premises, requires managerial approval for all documents sent externally, including via email, and continuously monitors compliance with data protection policies, including through spot inspection of each department.

In 2009, Kookmin Bank obtained ISO 27001 certification, which relates to information security. In 2011, Kookmin Bank also obtained ISO 20000 certification, which relates to IT service management, and BS 25999 certification, which relates to business continuity management. Kookmin Bank is the first Korean bank to have obtained all three such international certifications. In addition, in 2013, 2015 and 2016, Kookmin Bank, we and KB Kookmin Card, respectively, obtained ISMS certification, which relates to information security management. In 2017, KB Kookmin Card obtained PCI DSS certification, which relates to protection of credit card data.

We implement various year-round education programs and training sessions designed to raise the information security awareness of both management and employees.

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Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Fees and Charges

Under the terms of the deposit agreement, as a holder of our ADSs, you are required to pay the following service fees to the depositary:

Services	Fees
Issuance of ADSs	Up to $5.00 per 100 ADSs (or portion thereof) issued
Delivery of deposited shares against surrender of ADSs	Up to $5.00 per 100 ADSs (or portion thereof) surrendered
Distribution of cash dividends or other cash distributions	Up to $0.02 per ADS held
Transfer of ADSs, combination and split-up of American depositary receipts or interchange of certificated and uncertificated ADSs	Up to $1.50 per American depositary receipt transferred
Distribution or sale of securities pursuant to stock dividends, free stock distributions, exercise of rights or any other non-cash distributions	A fee equivalent to the fee that would be payable if securities distributed or sold, as the case may be, had been shares and such shares had been deposited for issuance of ADSs
Depositary Services	Up to $0.02 per ADS (or portion thereof) held on the applicable record date(s) established by the depositary

As a holder of our ADSs, you are also responsible for paying certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as:

• Fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea (i.e., upon deposit and withdrawal of shares).

• Expenses incurred for converting foreign currency into U.S. dollars.

• Expenses for cable, telex and fax transmissions and for delivery of securities.

• Taxes and duties upon the transfer of securities (i.e., when shares are deposited or withdrawn from deposit).

• Fees and expenses incurred in connection with the delivery or servicing of shares on deposit or other deposited securities.

Depositary fees payable upon the issuance and surrender of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for surrender. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.

The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (i.e., stock dividend, rights), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via the Depository Trust Company, or DTC), the depositary generally collects its fees through the systems provided by

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DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.

In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to such holder of ADSs.

Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of such changes.

Fees and Payments from the Depositary to Us

In 2018, we received the following payments from the depositary:

Reimbursement of listing fees:	$	65,000
Reimbursement of SEC filing fees:	$	40,147
Reimbursement of expenses related to our investor relations activities (investor conferences and investor relations agency fees, etc.) and legal fees (expenses related to the preparation of our Form 20-F for fiscal year 2017):	$	311,770

In addition, as part of its service to us, the depositary waives its fees for the standard costs and operating expenses associated with the administration of the ADS facility.

Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

Item 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We have evaluated, with the participation of our chief executive officer and chief finance officer, the effectiveness of our disclosure controls and procedures as of December 31, 2018. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief finance officer concluded that our disclosure controls and procedures as of December 31, 2018 were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief finance officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the

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supervision and with the participation of our management, including our chief executive officer and chief finance officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS as issued by the IASB, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness 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 or procedures may deteriorate.

Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2018.

The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Samil PricewaterhouseCoopers, an independent registered public accounting firm, as stated in its report included herein which expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2018.

Attestation Report of the Registered Public Accounting Firm

The attestation report of our independent registered public accounting firm is included in Item 18 of this Form 20-F.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16. [RESERVED]

Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Kyung Ho Kim and Suk Ho Sonu, our non-executive directors and members of our Audit Committee, qualify as “audit committee financial experts” and are independent within the meaning of this Item 16A.

Item 16B. CODE OF ETHICS

We have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Exchange Act. Our code of ethics applies to our chief executive officer and chief finance officer, as well as to our non-executive directors, non-standing directors and other officers and employees. Our code of ethics is available on our website at http://www.kbfg.com. If we amend the provisions of our code of ethics that apply to our chief executive officer and chief finance officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website at the same address.

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Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit and Non-audit Fees

The following table sets forth the fees billed to us by independent registered public accounting firm Samil PricewaterhouseCoopers during the fiscal years ended December 31, 2017 and 2018:

	Year Ended December 31,
	2017		2018
	(in millions of Won)
Audit fees	￦	7,464	￦	8,298
Audit-related fees		360		62
Tax fees		—		86
Total fees	￦	7,824	￦	8,446

Audit fees in the above table are the aggregate fees billed by Samil PricewaterhouseCoopers in connection with:

• the audits of our annual financial statements and the review of our interim financial statements;

• the audits of our special purpose entities in connection with the Financial Investment Services and Capital Markets Act; and

• our financial debenture offering services.

Audit-related fees in the above table are fees billed by Samil PricewaterhouseCoopers in connection with due diligence services rendered in the ordinary course of our business.

Tax fees in the above table are fees billed by Samil PricewaterhouseCoopers in connection with tax filing services for funds operated by KB Asset Management Co., Ltd.

Audit Committee Pre-Approval Policies and Procedures

Our Audit Committee pre-approves the engagement of our independent auditors for audit services with respect to our financial statements. Our Audit Committee has implemented a policy regarding pre-approval of certain other services provided by our independent auditors to our subsidiaries that the Audit Committee has deemed as not affecting their independence. Under this policy, pre-approvals for the following services to our subsidiaries have been granted by our Audit Committee to each of our subsidiaries’ audit committees: (i) services related to the audit of financial statements prepared in accordance with IFRS as adopted by Korea and internal controls under Korean laws and regulations; (ii) general tax advisory services; (iii) issuance of comfort letters in connection with offering of securities; and (iv) educational services provided to employees.

Any other audit or permitted non-audit service must be pre-approved by the Audit Committee on a case-by-case basis. Our Audit Committee did not pre-approve any non-audit services under the de minimis exception of Rule 2.01(c)(7)(i)(C) of Regulation S-X as promulgated by the Securities and Exchange Commission.

Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

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Item 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The following table sets forth information regarding purchases by us of our common shares during the period covered by this annual report.

Period	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (as of end of period)
January 1 to January 31, 2018		1,034,721	(1)	￦	65,669		1,034,721	$	100,888,200
February 1 to February 28, 2018		1,027,188	(1)		64,277		1,027,188		41,562,012
March 1 to March 31, 2018		742,000	(1)		62,328		742,000		6,042
April 1 to April 30, 2018		—			—		—		—
May 1 to May 31, 2018		—			—		—		—
June 1 to June 30, 2018		—			—		—		—
July 1 to July 31, 2018		—			—		—		—
August 1 to August 31, 2018		—			—		—		—
September 1 to September 30, 2018		—			—		—		—
October 1 to October 31, 2018		—			—		—		—
November 1 to November 30, 2018		—			—		—		—
December 1 to December 31, 2018		682,377	(2)		47,416		682,377		240,492,837
Total		3,486,286			60,975		3,486,286		240,492,837

⁽¹⁾ Comprises common shares that were purchased through a broker in a series of open-market transactions in Korea in the periods indicated above, pursuant to a trust agreement for the acquisition of treasury shares dated November 27, 2017, which expired on November 26, 2018.

⁽²⁾ Comprises common shares that were purchased through a broker in a series of open-market transactions in Korea in the periods indicated above, pursuant to a trust agreement for the acquisition of treasury shares dated December 5, 2018, which will expire on December 4, 2019.

Other than as described above, neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.

Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

Item 16G. CORPORATE GOVERNANCE

Differences in Corporate Governance Practices

Pursuant to the rules of the New York Stock Exchange applicable to foreign private issuers like us that are listed on the New York Stock Exchange, we are required to disclose significant differences between the New York Stock Exchange’s corporate governance standards and those that we follow under Korean law and in accordance with our own internal procedures. The following is a summary of such significant differences:

NYSE Corporate Governance Standards	KB Financial Group
Director Independence
Listed companies must have a majority of independent directors.	The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchange’s standards), as seven out of nine directors are non-executive directors.

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Executive Session
Non-management directors must meet in regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year.	Our non-executive directors hold executive sessions as needed in accordance with the Regulation of the Board of Directors.
Nomination/Corporate Governance Committee
A nomination/corporate governance committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities (including development of corporate governance guidelines) and annual performance evaluation of the committee.	We maintain a Non-executive Director Nominating Committee composed of four non-executive directors. We maintain a CEO Nominating Committee composed of all seven of our non-executive directors.
Compensation Committee
A compensation committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities and annual performance evaluation of the committee. The charter must be made available on the company’s website. In addition, in accordance with the U.S. Securities and Exchange Commission rules adopted pursuant to Section 952 of the Dodd-Frank Act, the New York Stock Exchange listing standards were amended to expand the factors relevant in determining whether a committee member has a relationship with the company that will materially affect that member’s duties to the compensation committee. Additionally, the committee may obtain or retain the advice of a compensation adviser only after taking into consideration all factors relevant to determining that adviser’s independence from management.	We maintain an Evaluation and Compensation Committee composed of four non-executive directors.
Audit Committee
Listed companies must have an audit committee that satisfies the independence and other requirements of Rule 10A-3 under the Exchange Act. All members must be independent. The committee must have a charter addressing the committee’s purpose, an annual performance evaluation of the committee, and the duties and responsibilities of the committee. The charter must be made available on the company’s website.	We maintain an Audit Committee composed of four non-executive directors. Accordingly, we are in compliance with Rule 10A-3 under the Exchange Act.
Audit Committee Additional Requirements
Listed companies must have an audit committee that is composed of at least three directors.	Our Audit Committee has four members, as described above.
Shareholder Approval of Equity Compensation Plan
Listed companies must allow its shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan.	We currently have two equity compensation plans: (i) performance share agreements with certain of our directors and executive officers and (ii) an employee stock ownership plan, or ESOP. Matters related to the performance share agreements or ESOP are not subject to shareholders’ approval under Korean law.

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	Our Articles of Incorporation provide that our stockholders may, by special resolution, grant stock options to officers, directors and employees. All material matters related to stock options are provided in our Articles of Incorporation, and any amendments to the Articles of Incorporation are subject to shareholders’ approval.
Corporate Governance Guidelines
Listed companies must adopt and disclose corporate governance guidelines.	We have adopted corporate governance standards, the Korean-language version of which is available on our website.

Item 16H. MINE SAFETY DISCLOSURE

Not applicable.

Item 17. FINANCIAL STATEMENTS

Not Applicable.

Item 18. FINANCIAL STATEMENTS

Reference is made to Item 19(a) for a list of all financial statements filed as part of this annual report.

Item 19. EXHIBITS

(a) List of Financial Statements:

	Page
Audited consolidated financial statements of KB Financial Group Inc. and subsidiaries, prepared in accordance with IFRS as issued by the IASB
Report of Samil PricewaterhouseCoopers, independent registered public accounting firm		F-1
Consolidated statements of financial position as of December  31, 2017 and 2018		F-3
Consolidated statements of comprehensive income for the years ended December 31, 2016, 2017 and 2018		F-4
Consolidated statements of changes in equity for the years ended December 31, 2016, 2017 and 2018		F-7
Consolidated statements of cash flows for the years ended December  31, 2016, 2017 and 2018		F-11
Notes to consolidated financial statements		F-13

(b) Exhibits

Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, KB Financial Group has filed certain agreements as exhibits to this Annual Report on Form 20-F. These agreements may contain representations and warranties made by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements if those statements turn out to be inaccurate, (ii) may have been qualified by disclosures that were made to such other party or parties and that either have been reflected in the company’s filings or are not required to be disclosed in those filings, (iii) may apply materiality standards different from what may be viewed as material to investors and (iv) were made only

229

as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments. Accordingly, these representations and warranties may not describe KB Financial Group’s actual state of affairs at the date of this annual report.

Number	Description
1.1	Articles of Incorporation of KB Financial Group (translation in English).
2.1*	Form of Share Certificate of KB Financial Group’s common stock, par value ￦5,000 per share (translation in English).
2.2**	Form of Fifth Amended and Restated Deposit Agreement among KB Financial Group, JPMorgan Chase Bank, N.A., as depositary, and all owners and holders from time to time of American depositary receipts issued thereunder, evidencing American depositary shares, including the form of American depositary receipt.
8.1***	List of subsidiaries of KB Financial Group.
11.1****	Code of Ethics.
12.1	Section 302 certifications.
13.1	Section 906 certifications.
101	Interactive Data Files (XBRL-Related Documents).

* Incorporated by reference to the registrant’s filing on Form 20-F (No. 000-53445), filed on June 15, 2009.

** Incorporated by reference to the registrant’s filing on Form F-6 (No. 333-208008), filed on November 13, 2015.

*** Incorporated by reference to Note 41 of the consolidated financial statements of the registrant included in this annual report.

**** Incorporated by reference to the registrant’s filing on Form 20-F (No. 000-53445), filed on April 28, 2016.

230

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

KB FINANCIAL GROUP INC.

(Registrant)

/s/ Jong Kyoo Yoon

(Signature)

Jong Kyoo Yoon

Chairman and Chief Executive Officer

(Name and Title)

Date: April 30, 2019

231

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

KB Financial Group Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of KB Financial Group Inc. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and their cash flows for each of the three years in the period ended December 31, 2018 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

F-1

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness 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 or procedures may deteriorate.

/s/ Samil PricewaterhouseCoopers

Seoul, Korea

April 30, 2019

We have served as the Company’s auditor since 2008.

F-2

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2017 AND 2018

	Dec. 31 2017			Dec. 31 20181			20181
							Translation into U.S. dollars (Note 3)
	(In millions of Korean won)						(In thousands)
ASSETS
Cash and due from financial institutions	￦	19,817,825		￦	20,274,490		US$	18,218,529
Financial assets at fair value through profit or loss		—			50,987,847			45,817,358
Financial assets at fair value through profit or loss (under IAS 39)		32,227,345			—			—
Derivative financial assets		3,310,166			2,025,962			1,820,517
Loans at amortized cost		290,122,838			319,201,603			286,832,550
Financial investments		66,608,243			61,665,094			55,411,865
Investments in associates and joint ventures		335,070			504,932			453,729
Property and equipment		4,201,697			4,272,127			3,838,906
Investment property		848,481			2,119,811			1,904,849
Intangible assets		2,943,060			2,755,783			2,476,329
Net defined benefit assets		894			—			—
Current income tax assets		6,324			10,004			8,990
Deferred income tax assets		3,991			4,158			3,736
Assets held for sale		155,506			16,952			15,233
Other assets		16,204,169			15,749,535			14,152,432
Total assets		436,785,609			479,588,298			430,955,023
LIABILITIES
Financial liabilities at fair value through profit and loss		—			15,326,859			13,772,619
Financial liabilities at fair value through profit or loss (under IAS 39)		12,023,058			—			—
Derivative financial liabilities		3,142,765			2,901,247			2,607,042
Deposits		255,800,048			276,770,449			248,704,182
Debts		28,820,928			33,004,834			29,657,936
Debentures		44,992,724			53,278,697			47,875,902
Provisions		568,033			525,859			472,534
Net defined benefit liabilities		154,702			262,213			235,623
Current income tax liabilities		433,870			698,634			627,788
Deferred income tax liabilities		533,069			492,534			442,588
Insurance contract liabilities		31,801,275			33,412,949			30,024,665
Other liabilities		24,470,308			27,200,996			24,442,643
Total liabilities		402,740,780			443,875,271			398,863,522
TOTAL EQUITY
Share capital		2,090,558			2,090,558			1,878,562
Capital surplus		17,122,228			17,121,660			15,385,416
Accumulated other comprehensive income		537,668			177,806			159,775
Retained earnings		15,044,204			17,282,441			15,529,893
Treasury shares		(755,973	)		(968,549	)		(870,332	)
Equity attributable to shareholders of the company		34,038,685			35,703,916			32,083,314
Non-controlling interests		6,144			9,111			8,187
Total equity		34,044,829			35,713,027			32,091,501
Total liabilities and equity	￦	436,785,609		￦	479,588,298		US$	430,955,023

¹  The consolidated statement of financial position as of December 31, 2018 is prepared in accordance with IFRS 9 and IFRS 15, and the comparatives as of December 31, 2017 has not been restated.

The accompanying notes are an integral part of these consolidated financial statements.

F-3

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018

	2016			2017			20181			20181
										Translation into U.S. dollars (Note 3)
	(In millions of Korean won, except per share amounts)									(In thousands, except per share amounts)
Interest income	￦	10,334,959		￦	11,919,057		￦	13,734,569		US$	12,341,797
Interest income from financial instruments at fair value through other comprehensive income and amortized cost		—			—			12,986,209			11,669,325
Interest income from financial instruments at fair value through profit or loss		—			—			748,360			672,472
Interest income from loans and receivables and investments		10,021,882			11,382,452			—			—
Interest income from financial instruments at fair value through profit or loss (under IAS 39)		313,077			536,605			—			—
Interest expense		(3,619,353	)		(3,672,443	)		(4,829,641	)		(4,339,885	)
Net interest income		6,715,606			8,246,614			8,904,928			8,001,912
Fee and commission income		3,150,877			3,988,250			3,717,720			3,340,720
Fee and commission expense		(1,565,985	)		(1,938,226	)		(1,474,344	)		(1,324,836	)
Net fee and commission income		1,584,892			2,050,024			2,243,376			2,015,884
Insurance income		1,201,352			8,970,992			11,975,070			10,760,722
Insurance expense		(1,319,155	)		(8,377,282	)		(11,484,954	)		(10,320,307	)
Net insurance income(expense)		(117,803	)		593,710			490,116			440,415
Net gains on financial assets/liabilities at fair value through profit or loss		—			—			350,490			314,948
Net gains on overlay adjustment		—			—			813			731
Net gains on financial assets/liabilities at fair value through profit or loss		—			—			351,303			315,679
Net gains on financial assets/liabilities at fair value through profit or loss (under IAS 39)		(321,845	)		203,724			—			—
Net other operating expense		(415,908	)		(901,890	)		(1,130,036	)		(1,015,443	)
General and administrative expenses		(5,228,711	)		(5,628,664	)		(5,918,512	)		(5,318,338	)
Operating profit before provision for credit losses		2,216,231			4,563,518			4,941,175			4,440,109
Provision for credit losses		(539,283	)		(548,244	)		(673,694	)		(605,377	)
Net operating income		1,676,948			4,015,274			4,267,481			3,834,732

(Continued)

F-4

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018

	2016			2017			20181			20181
										Translation into U.S. dollars (Note 3)
	(In millions of Korean won, except per share amounts)									(In thousands, except per share amounts)
Share of profit of associates and joint ventures		280,838			84,274			24,260			21,800
Net other non-operating income		670,869			38,876			9,791			8,798
Net non-operating income		951,707			123,150			34,051			30,598
Profit before income tax		2,628,655			4,138,424			4,301,532			3,865,330
Income tax expense		(438,475	)		(794,963	)		(1,239,586	)		(1,113,885	)
Profit for the year	￦	2,190,180		￦	3,343,461		￦	3,061,946		US$	2,751,445
Items that will not be reclassified to profit or loss
Remeasurements of net defined benefit liabilities	￦	12,671		￦	22,605		￦	(138,016	)	US$	(124,021	)
Share of other comprehensive income of associates and joint ventures		3,623			(145	)		(74	)		(66	)
Revaluation gains on equity instruments at fair value through other comprehensive income		—			—			(31,169	)		(28,009	)
Fair value changes on financial liabilities designated at fair value due to own credit risk		—			—			1,484			1,334
		16,294			22,460			(167,775	)		(150,762	)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations		20,148			(110,037	)		48,820			43,869
Net gains on financial instruments at fair value through other comprehensive income		—			—			119,182			107,096
Valuation gains on financial investments		(47,871	)		89,117			—			—
Shares of other comprehensive income of associates and joint ventures		(10,716	)		100,880			(3,659	)		(3,288	)
Cash flow hedges		4,303			20,959			(9,038	)		(8,121	)
Gain(losses) on hedges of a net investment in a foreign operation		(7,095	)		26,614			(27,134	)		(24,382	)
Other comprehensive income of separate account		—			(13,767	)		28,709			25,797
Net gains on overlay adjustment		—			—			413			371
		(41,231	)		113,766			157,293			141,342

(Continued)

F-5

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018

	2016			2017		20181			20181
									Translation into U.S. dollars (Note 3)
	(In millions of Korean won, except per share amounts)								(In thousands, except per share amounts)
Other comprehensive income(loss) for the year, net of tax		(24,937	)		136,226		(10,482	)		(9,420	)
Total comprehensive income for the year		2,165,243			3,479,687		3,051,464			2,742,025
Profit attributable to:
Shareholders of the parent company		2,143,744			3,311,438		3,061,191			2,750,767
Non-controlling interests		46,436			32,023		755			678
		2,190,180			3,343,461		3,061,946			2,751,445
Total comprehensive income for the year attributable to:
Shareholders of the parent company		2,118,829			3,445,285		3,050,805			2,741,433
Non-controlling interests		46,414			34,402		659			592
	￦	2,165,243		￦	3,479,687	￦	3,051,464			2,742,025
Earnings per share
Basic earnings per share	￦	5,588		￦	8,305	￦	7,721		US$	6.94
Diluted earnings per share		5,559			8,257		7,676			6.90

¹  The consolidated statement of comprehensive income for the year ended December 31, 2018 is prepared in accordance with IFRS 9 and IFRS 15, and the comparatives for the year ended December 31, 2017 has not been restated.

The accompanying notes are an integral part of these consolidated financial statements.

F-6

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018

	Equity attributable to shareholders of the parent company
	Share Capital		Capital surplus			Accumulated other comprehensive income			Retained earnings			Treasury shares			Non-controlling interests			Total equity
	(In millions of Korean won)
Balance at January 1, 2016	￦	1,931,758	￦	15,854,510		￦	430,244		￦	10,464,109		￦	—		￦	222,101		￦	28,902,722
Comprehensive income
Profit for the year		—		—			—			2,143,744			—			46,436			2,190,180
Remeasurements of net defined benefit liabilities		—		—			12,821			—			—			(150	)		12,671
Exchange differences on translating foreign operations		—		—			20,148			—			—			—			20,148
Valuation losses on financial investments		—		—			(47,794	)		—			—			(77	)		(47,871	)
Shares of other comprehensive income of associates		—		—			(7,093	)		—			—			—			(7,093	)
Cash flow hedges		—		—			4,098			—			—			205			4,303
Losses on hedges of a net investment in a foreign operation		—		—			(7,095	)		—			—			—			(7,095	)
Total comprehensive income		—		—			(24,915	)		2,143,744			—			46,414			2,165,243
Transactions with shareholders
Dividends paid to shareholders of the parent company		—		—			—			(378,625	)		—			(5,156	)		(383,781	)
Acquisition of treasury shares		—		—			—			—			(721,973	)		—			(721,973	)
Issue of ordinary shares related to business combination		158,800		1,142,359			—			—			—			—			1,301,159
Others		—		(1,967	)		—			—			—			—			(1,967	)
Total transactions with shareholders		158,800		1,140,392			—			(378,625	)		(721,973	)		(5,156	)		193,438
Balance at December 31, 2016	￦	2,090,558	￦	16,994,902		￦	405,329		￦	12,229,228		￦	(721,973	)	￦	263,359		￦	31,261,403

(Continued)

F-7

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018

	Equity attributable to shareholders of the parent company
	Share Capital		Capital surplus			Accumulated other comprehensive income			Retained earnings			Treasury shares			Non-controlling interests			Total equity
	(In millions of Korean won)
Balance at January 1, 2017	￦	2,090,558	￦	16,994,902		￦	405,329		￦	12,229,228		￦	(721,973	)	￦	263,359		￦	31,261,403
Comprehensive income
Profit for the year		—		—			—			3,311,438			—			32,023			3,343,461
Remeasurements of net defined benefit liabilities		—		—			22,685			—			—			(80	)		22,605
Exchange differences on translating foreign operations		—		—			(109,727	)		—			—			(310	)		(110,037	)
Valuation gains on financial investments		—		—			86,176			—			—			2,941			89,117
Shares of other comprehensive income of associates and joint ventures		—		—			100,735			—			—			—			100,735
Cash flow hedges		—		—			21,055			—			—			(96	)		20,959
Losses on hedges of a net investment in a foreign operation		—		—			26,614			—			—			—			26,614
Other comprehensive income of separate account		—		—			(13,692	)		—			—			(75	)		(13,767	)
Transfer to other accounts		—		—			(1,507	)		1,507			—			—			—
Total comprehensive income		—		—			132,339			3,312,945			—			34,403			3,479,687
Transactions with shareholders
Dividends paid to shareholders of the Parent Company		—		—			—			(497,969	)		—			(5,156	)		(503,125	)
Acquisition of treasury shares		—		—			—			—			(202,051	)		—			(202,051	)
Disposal of treasury shares		—		87,212			—			—			168,051			—			255,263
Changes in interest in subsidiaries		—		41,352			—			—			—			(288,802	)		(247,450	)
Others		—		(1,238	)		—			—			—			2,340			1,102
Total transactions with shareholders		—		127,326			—			(497,969	)		(34,000	)		(291,618	)		(696,261	)
Balance at December 31, 2017	￦	2,090,558	￦	17,122,228		￦	537,668		￦	15,044,204		￦	(755,973	)	￦	6,144		￦	34,044,829

(Continued)

F-8

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018

	Equity attributable to shareholders of the parent company
	Share Capital		Capital surplus			Accumulated other comprehensive income			Retained earnings			Treasury shares			Non-controlling interests			Total equity
	(In millions of Korean won)
Balance at January 1, 2018	￦	2,090,558	￦	17,122,228		￦	537,668		￦	15,044,204		￦	(755,973	)	￦	6,144		￦	34,044,829
The effect of changing of accounting policy		—		—			(349,476	)		(71,724	)		—			—			(421,200	)
Balance after reflecting the effect of accounting policy		2,090,558		17,122,228			188,192			14,972,480			(755,973	)		6,144			33,623,629
Comprehensive income
Profit for the year		—		—			—			3,061,191			—			755			3,061,946
Remeasurements of net defined benefit liabilities		—		—			(138,016	)		—			—			—			(138,016	)
Exchange differences on translating foreign operations		—		—			48,916			—			—			(96	)		48,820
Net gains on financial instruments at fair value through other comprehensive income		—		—			88,013			15,498			—			—			103,511
Shares of other comprehensive income of associates and joint ventures		—		—			(3,733	)		—			—			—			(3,733	)
Cash flow hedges		—		—			(9,038	)		—			—			—			(9,038	)
Losses on hedges of a net investment in a foreign operation		—		—			(27,134	)		—			—			—			(27,134	)
Other comprehensive income of separate account		—		—			28,709			—			—			—			28,709
Fair value changes on financial liabilities designated at fair value due to own credit risk		—		—			1,484			—			—			—			1,484
Net gains on overlay adjustment		—		—			413			—			—			—			413
Total comprehensive income(loss)		—		—			(10,386	)		3,076,689			—			659			3,066,962
Transactions with shareholders
Dividends paid to shareholders of the Parent Company		—		—			—			(766,728	)		—			—			(766,728	)
Acquisition of treasury shares		—		—			—			—			(212,576	)					(212,576	)
Non-controlling interests changes in business combination		—		—			—			—			—			2,238			2,238
Others		—		(568	)		—			—			—			70			(498	)
Total transactions with shareholders		—		(568	)		—			(766,728	)		(212,576	)		2,308			(977,564	)
Balance at December 31, 20181	￦	2,090,558	￦	17,121,660		￦	177,806		￦	17,282,441		￦	(968,549	)	￦	9,111		￦	35,713,027

(Continued)

F-9

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018

	Equity attributable to shareholders of the parent company
	Share Capital		Capital surplus			Accumulated other comprehensive income			Retained earnings			Treasury shares			Non-controlling interests			Total equity
	(Translation into U.S. dollars (Note 3)) (In thousands)
Balance at January 1, 2018	US$	1,878,562	US$	15,385,926		US$	483,146		US$	13,518,627		US$	(679,313	)	US$	5,521		US$	30,592,469
The effect of changing of accounting policy		—		—			(314,037	)		(64,451	)		—			—			(378,488	)
Balance after reflecting the effect of accounting policy		1,878,562		15,385,926			169,109			13,454,176			(679,313	)		5,521			30,213,981
Comprehensive income
Profit for the year		—		—			—			2,750,767			—			678			2,751,445
Remeasurements of net defined benefit liabilities		—		—			(124,021	)		—			—			—			(124,021	)
Exchange differences on translating foreign operations		—		—			43,955			—			—			(86	)		43,869
Net gains on financial instruments at fair value through other comprehensive income		—		—			79,088			13,926			—			—			93,014
Shares of other comprehensive income of associates and joint ventures		—		—			(3,354	)		—			—			—			(3,354	)
Cash flow hedges		—		—			(8,121	)		—			—			—			(8,121	)
Losses on hedges of a net investment in a foreign operation		—		—			(24,382	)		—			—			—			(24,382	)
Other comprehensive income of separate account		—		—			25,797			—			—			—			25,797
Fair value changes on financial liabilities designated at fair value due to own credit risk		—		—			1,334			—			—			—			1,334
Net gains on overlay adjustment		—		—			371			—			—			—			371
Total comprehensive income (loss)		—		—			(9,333	)		2,764,693			—			592			2,755,952
Transactions with shareholders
Dividends paid to shareholders of the Parent Company		—		—			—			(688,976	)		—			—			(688,976	)
Acquisition of treasury shares		—		—			—			—			(191,020	)		—			(191,020	)
Non-controlling interests changes in business combination		—		—			—			—			—			2,011			2,011
Others		—		(510	)		—			—			—			63			(447	)
Total transactions with shareholders		—		(510	)		—			(688,976	)		(191,020	)		2,074			(878,432	)
Balance at December 31, 20181	US$	1,878,562	US$	15,385,416		US$	159,776		US$	15,529,893		US$	(870,333	)	US$	8,187		US$	32,091,501

¹  The consolidated statement of changes in equity for the year ended December 31, 2018 is prepared in accordance with IFRS 9 and IFRS 15, and the comparatives for the year ended December 31, 2016 and 2017 has not been restated.

The accompanying notes are an integral part of these consolidated financial statements.

F-10

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018

	2016			2017			20181			20181
										Translation into U.S. dollars (Note 3)
	(In millions of Korean won)									(In thousands)
Cash flows from operating activities:
Profit for the year	￦	2,190,180		￦	3,343,461		￦	3,061,946		US$	2,751,445
Adjustment for non-cash items
Net gain on financial assets/liabilities at fair value through profit or loss		—			—			(104,755	)		(94,132	)
Net loss (gain) on financial assets/liabilities at fair value through profit or loss (under IAS 39)		401,556			(106,868	)		—			—
Net loss (gain) on derivative financial instruments for hedging purposes		69,573			(135,363	)		186,029			167,164
Adjustment of fair value of derivative financial instruments		338			(1,000	)		410			368
Provision for credit loss		539,283			548,244			673,694			605,377
Net loss (gain) on financial investments		(139,800	)		110,156			(99,253	)		(89,188	)
Share of profit of associates and joint ventures		(280,838	)		(84,274	)		(24,260	)		(21,800	)
Depreciation and amortization expense		289,438			371,150			409,481			367,957
Depreciation and amortization expense on VOBA		—			179,193			214,153			192,437
Other net losses (gains) on property and equipment/intangible assets		5,259			30,893			(138,553	)		(124,503	)
Share-based payments		38,190			73,370			10,930			9,822
Policy reserve appropriation		366,145			1,644,389			1,608,175			1,445,096
Post-employment benefits		197,696			233,501			220,215			197,884
Net interest expense		421,679			363,803			277,152			249,047
Loss (gain) on foreign currency translation		15,931			(70,399	)		(142,586	)		(128,127	)
Gains on bargain purchase		(628,614	)		(122,986	)		—			—
Net other expense		65,412			204,122			207,025			186,032
		1,361,248			3,237,931			3,297,857			2,963,434
Changes in operating assets and liabilities
Financial asset at fair value through profit or loss (under IAS 39)		(1,463,824	)		(3,946,805	)		—			—
Financial asset at fair value through profit or loss		—			—			(8,446,927	)		(7,590,355	)
Derivative financial instruments		147,137			(295,795	)		151,297			135,955
Loans at fair value through other comprehensive income		—			—			(40,413	)		(36,315	)
Loans at amortized cost		(16,423,939	)		(22,465,758	)		(31,334,606	)		(28,157,080	)
Current income tax assets		(8,868	)		59,334			(3,668	)		(3,296	)
Deferred income tax assets		(87,701	)		3,186			(557	)		(501	)
Other assets		1,393,689			(3,938,297	)		(2,292,160	)		(2,059,721	)
Financial liabilities at fair value through profit or loss (under IAS 39)		356,880			66,222			—			—
Financial liabilities at fair value through profit or loss		—			—			3,690,005			3,315,815
Deposits		12,042,422			18,858,210			20,679,844			18,582,779
Current income tax liabilities		—			—			264,765			237,916
Deferred income tax liabilities		(150,333	)		108,355			115,208			103,525
Other liabilities		1,768,096			133,931			1,899,791			1,707,140
		(2,426,441	)		(11,417,417	)		(15,317,421	)		(13,764,138	)
Net cash inflow (outflow) from operating activities	￦	1,124,987		￦	(4,836,025	)	￦	(8,957,618	)	US$	(8,049,259	)

(Continued)

F-11

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2016, 2017 and 2018

	2016			2017			20181			20181
										Translation into U.S. dollars (Note 3)
	(In millions of Korean won)									(In thousands)
Cash flows from investing activities:
Net cash flows from derivative financial instruments for hedging purposes	￦	—		￦	—		￦	42,305		US$	38,015
Disposal of financial asset at fair value through profit or loss		—			—			9,582,940			8,611,170
Acquisition of financial asset at fair value through profit or loss		—			—			(8,707,420	)		(7,824,433	)
Disposal of financial investments		28,066,113			38,050,549			60,773,660			54,610,828
Acquisition of financial investments		(30,737,148	)		(46,538,295	)		(64,729,380	)		(58,165,413	)
Disposal of investments in associates and joint ventures		106,658			141,052			34,717			31,196
Acquisition of investments in associates and joint ventures		(1,558,731	)		(53,375	)		(187,077	)		(168,106	)
Disposal of property and equipment		809			31,167			2,272			2,042
Acquisition of property and equipment		(397,157	)		(298,368	)		(452,270	)		(406,407	)
Disposal of investment property		—			1,593			140,969			126,674
Acquisition of investment property		(1,254	)		(262	)		(1,288,125	)		(1,157,501	)
Disposal of intangible assets		8,330			7,603			10,706			9,620
Acquisition of intangible assets		(111,603	)		(111,894	)		(126,163	)		(113,369	)
Net cash flows from the change in subsidiaries		95,304			(405,817	)		188,140			169,061
Others		90,141			446,628			234,440			210,666
Net cash outflow from investing activities		(4,438,538	)		(8,729,419	)		(4,480,286	)		(4,025,957	)
Cash flows from financing activities:
Net cash flows from derivative financial instruments for hedging purposes		11,035			63,827			15,044			13,518
Net increase in debts		1,849,513			4,272,011			4,216,014			3,788,484
Increase in debentures		99,305,813			139,700,967			143,603,589			129,041,280
Decrease in debentures		(98,484,764	)		(129,235,557	)		(135,180,630	)		(121,472,463	)
Increase in other payables from trust accounts		1,639,104			587,523			267,077			239,994
Dividends paid to shareholders of the Parent Company		(378,625	)		(497,969	)		(766,728	)		(688,977	)
Disposal of treasury shares		—			3,515			—			—
Acquisition of treasury shares		(716,808	)		(185,532	)		(224,700	)		(201,914	)
Dividends paid to non-controlling interests		(5,156	)		(5,156	)		—			—
Increase in non-controlling interests		—			(163,658	)		—			—
Others		(38,786	)		148,775			(185,894	)		(167,042	)
Net cash inflow from financing activities		3,181,326			14,688,746			11,743,772			10,552,880
Effect of exchange rate changes on cash and cash equivalents		89,142			(133,240	)		(67,950	)		(61,059	)
Net increase (decrease) in cash and cash equivalents		(43,083	)		990,062			(1,762,082	)		(1,583,395	)
Cash and cash equivalents at the beginning of the year		7,457,919			7,414,836			8,404,898			7,552,588
Cash and cash equivalents at the end of the year	￦	7,414,836		￦	8,404,898		￦	6,642,816		US$	5,969,193

¹  The consolidated statement of cash flows for the year ended December 31, 2018 is prepared in accordance with IFRS 9 and IFRS 15, and the comparatives for the year ended December 31, 2017 has not been restated.

The accompanying notes are an integral part of these consolidated financial statements.

F-12

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Parent Company

KB Financial Group Inc. (the “Parent Company”) was incorporated on September 29, 2008, under the Financial Holding Companies Act of Korea. KB Financial Group Inc. and its subsidiaries (collectively referred to as the “Group”) derive substantially all of their revenue and income from providing a broad range of banking and related financial services to consumers and corporations primarily in Korea and in selected international markets. The Parent Company’s principal business includes ownership and management of subsidiaries and associated companies that are engaged in financial services or activities. In 2011, Kookmin Bank spun off its credit card business segment and established a new separate credit card company, KB Kookmin Card Co., Ltd., and KB Investment & Securities Co., Ltd. merged with KB Futures Co., Ltd. The Group established KB Savings Bank Co., Ltd. in January 2012, acquired Yehansoul Savings Bank Co., Ltd. in September 2013, and KB Savings Bank Co., Ltd. merged with Yehansoul Savings Bank Co., Ltd. in January 2014. In March 2014, the Group acquired Woori Financial Co., Ltd. and changed the name to KB Capital Co., Ltd. Meanwhile, the Group included LIG Insurance Co., Ltd. as an associate and changed the name to KB Insurance Co., Ltd. in June 2015. Also, the Group included Hyundai Securities Co., Ltd. as an associate in June 2016 and included as a subsidiary in October 2016 by comprehensive exchange of shares. Hyundai Securities Co., Ltd. merged with KB Investment & Securities Co., Ltd. in December 2016 and changed the name to KB Securities Co., Ltd. in January 2017. KB Insurance Co., Ltd. became one of the subsidiaries through a tender offer in May 2017.

The Parent Company’s share capital as of December 31, 2018, is ￦ 2,090,558 million. The Parent Company has been listed on the Korea Exchange (“KRX”) since October 10, 2008, and on the New York Stock Exchange (“NYSE”) for its American Depositary Shares (“ADS”) since September 29, 2008. Number of shares authorized in its Articles of Incorporation is 1,000 million.

2. Basis of Preparation

2.1 Application of IFRS

The Group’s consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS are the standards, subsequent amendments and related interpretations (“IFRICs”) issued by the International Accounting Standards Board (“IASB”).

The preparation of consolidated financial statements requires the use of certain critical accounting estimates. Management also needs to exercise judgment in applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 2.4.

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2018. The adoption of these amendments did not have any significant impact on the current period or any prior period and is not likely to affect future periods, with the exception of the application of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers discussed below.

• Amendments to IAS 28 Investments in Associates and Joint Ventures

Amendments to IAS 28 clarifies that a venture capital organization or a mutual fund, and similar entities may elect, at initial recognition, to measure investments in an associate or joint venture at fair value through profit or loss separately for each associate or joint venture.

F-13

• Amendments to IAS 40 Transfers of Investment Property

Amendments to IAS 40 clarifies that a transfer to, or from, investment property, including property under construction, can only be made if there has been a change in use that is supported by evidence. Paragraph 57 of the standard provides a list of such circumstances as examples.

• Amendments to IFRS 2 Share-based Payment

Amendments to IFRS 2 clarifies accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Also, it clarifies that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award.

• Enactment of IFRIC 22 Foreign Currency Transactions and Advance Consideration

According to the enacted interpretation, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part thereof) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the prepayment or receipt of advance consideration. In case there are multiple payments or receipts in advance, the entity should determine a date of the transaction for each payment or receipt of advance consideration.

• IFRS 9 Financial Instruments

The Group applied IFRS 9 Financial Instruments with a date of initial application of January 1, 2018. As permitted by the transition requirements of IFRS 9, comparative periods have not been restated. The Group recognized the difference between the previous carrying amount and the carrying amount at the beginning of the annual reporting period that includes the date of initial application in the opening retained earnings of the annual reporting period that includes the date of initial application. Also, the Group applied “The Overlay Approach” under IFRS 4 at the initial application of IFRS 9. For details about impacts of the adoption of this IFRS, see Note 45.

• IFRS 15 Revenue from Contracts with Customers

The Group has applied IFRS 15 Revenue from Contracts with Customers. As permitted by the transition requirements of IFRS 15, comparative periods have not been restated.

For details about impacts of the application of this IFRS, see Note 28 and 45.

The Group has changed the accounting policy for their annual reporting period commencing January 1, 2018.

• Presentation of interest income arising from financial assets measured at fair value through profit or loss

The Group previously recognized interest income arising from financial assets at fair value through profit or loss as net gains (losses) on financial assets/liabilities at fair value through profit or loss in the consolidated statements of comprehensive income. From January 1, 2018, the Group changed the accounting policy, and corresponding interest income is presented as a portion of interest income in the consolidated statements of comprehensive income. The Group expects the change in accounting policy provides more relevant information.

The consolidated statement of comprehensive income for year ended December 31, 2017, has been restated by adjusting classification of interest income.

F-14

The Group does not expect the change in accounting policy to have an impact on the consolidated statements of financial position, and total comprehensive income. The results and impact of the change on the consolidated statement of comprehensive income for the year ended December 31, 2016, 2017 and 2018, are as follows:

	2016			2017			2018
	(In millions of Korean won)
Increase in interest income	￦	313,077		￦	536,605		￦	748,360
Decrease in net gains (losses) on financial assets/liabilities at fair value through profit or loss		—			—			(748,360	)
Decrease in net gains (losses) on financial assets/liabilities at fair value through profit or loss (under IAS 39)		(313,077	)		(536,605	)		—

Certain new accounting standards and interpretations that have been published that are not mandatory for annual reporting period commencing January 1, 2018 and have not been early adopted by the Group are set out below. The Group expects the effect on the financial statements applying the new standard will not be significant, with the exception of the adoption of IFRS 16 Lease

• IFRS 16 Leases

IFRS 16 Leases issued in January 2016 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. This standard will replace IAS 17 Leases, Interpretation IFRIC 4 Determining whether an Arrangement contains a Lease, Interpretation IFRIC 15 Operating Leases-Incentives, and Interpretation SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

At inception of a contract, the Group shall assess whether the contract is, or contains, a lease. Also, at the date of initial application, the Group shall assess whether the contract is, or contains, a lease in accordance with the standard. However, the Group may not need to reassess all contracts, if the Group elects to apply the practical expedient not to apply the standard to contracts that were entered into before the date of initial application. At inception of a contract, the Group will assess whether the contract is, or contains, a lease.

For a contract that is, or contains, a lease, the Group shall account for each lease component within the contract as a lease separately from non-lease components of the contract. In addition, as a practical expedient, the lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. For the all (or partial) lease agreements, or the agreements including lease components, the Group plans to apply the practical expedient to account for each lease component and any associated non-lease components as a single lease agreement.

A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The lessee may elect not to apply the requirements to short-term lease (a lease term of 12 months or less at the commencement date) and low value assets (e.g. underlying assets below $ 5,000). The Group plans not to apply the requirements to real estate rent for single-use (a lease for education and others) and low value assets (e.g. underlying assets below ￦ 5 million and $ 5,000).

In relation with sale and leaseback transactions, the Group (the seller-lessee) shall apply the requirements for determining when a performance obligation is satisfied in IFRS 15 ‘Revenue from Contracts with Customers’ to determine whether the transfer of an asset is accounted for as a sale of that asset. However, for those transactions before the date of initial application, the Group shall not reassess them.

The accounting treatment as a lessor did not change significantly from the one under IAS 17 Leases. The Bank expects the effect on the financial statements applying the new standard will not be significant as accounting for the Bank, as a lessor, will not significantly change.

F-15

A lessee shall apply this standard to its leases either (a) retrospectively to each prior reporting period presented applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Full retrospective application); or (b) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application.

The Group plans to apply IFRS 16 retrospectively with the cumulative effect of initially applying the standard and as such will not restate any comparative information.

The Group performed an impact assessment to identify potential financial effects of applying IFRS 16 based on available information as at December 31, 2018 to identify effects on 2019 financial statements.

The total minimum lease payment expected to be paid by the Group in relation to operating leases before discounted to their present value is ￦ 591,190 million. When the payment is discounted at incremental borrowing rate of the lessee, the total minimum lease payment amounts to ￦ 550,322 million. As a result of the financial effects on the financial statements analyzed, the Group expects the underlying leased asset and a lease liability as at December 31, 2018 to be increased by ￦ 580,698 million and ￦ 550,322 million, respectively. The difference between the right-of-use asset and the lease liability has been arising from the adjustments made at the right-of-use asset for the lease contracts entered before the date of the adoption of this standard. On the other hand, the results of the assessment may change due to additional information that the Group may obtain after the assessment.

• Amendments to IFRS 9 Financial Instruments

The narrow-scope amendments made to IFRS 9 Financial Instruments enable entities to measure certain prepayable financial assets with negative compensation at amortized cost. When a modification of a financial liability measured at amortized cost that does not result in derecognition,    a modification gain or loss shall be recognized in profit or loss.

• Amendments to IAS 19 Employee Benefits

The amendments require that an entity shall calculate current service cost and net interest for the remainder of the reporting period after a plan amendment, curtailment or settlement based on updated actuarial assumptions from the date of the change. The amendments also require that a reduction in a surplus must be recognized in profit or loss even if that surplus was not previously recognized because of the impact of the asset ceiling.

• Amendments to IAS 28 Investments in Associates and Joint Ventures

The amendments clarify that an entity shall apply IFRS 9 to financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. These amendments will be applied for annual periods beginning on or after January 1, 2019, with early adoption permitted. In accordance with the transitional provisions in IFRS 9, the restatement of the comparative information is not required and the cumulative effects of initially applying the amendments retrospectively should be recognized in the beginning balance of retained earnings (or other components of equity, as appropriate) at the date of initial application.

• Enactment to Interpretation of IFRIC 23 Uncertainty over Income Tax Treatments

The enactment clarifies the accounting for uncertainties in income taxes in the event that the decision of taxation authorities or courts can change tax treatment. The enactment presents calculating methods of disclosure amount based on the possibility of future recognition of the income tax treatment, and requires disclosure of the uncertainty of the amount.

F-16

• Annual Improvements to IFRS 3 Business Combination

The amendments clarify that when a party to a joint arrangement obtains control of a business that is a joint operation, and had rights to the assets and obligations for the liabilities relating to that joint operation immediately before the acquisition date, the transaction is a business combination achieved in stages. In such cases, the acquirer shall remeasure its entire previously held interest in the joint operation.

• Annual Improvements to IFRS 11 Joint Agreements

The amendments clarify that when a party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business. In such cases, previously held interests in the joint operation are not remeasured.

• Annual Improvements to Paragraph 57A of IAS 12 Income Tax

The amendment is applied to all the income tax consequences of dividends and requires an entity to recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events.

• Annual Improvements to IAS 23 Borrowing Cost

The amendments clarify that if a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use (or sale), it becomes part of general borrowings.

• IFRS 17 Insurance Contracts

IFRS 17 was issued in May 2017 as replacement for IFRS 4 Insurance Contracts and is effective for periods beginning on or after January 1, 2021. It requires a current measurement model where estimates are re-measured each reporting period. Contracts are measured using the building blocks of:

• discounted probability-weighted cash flows

• an explicit risk adjustment, and

• a contractual service margin (“CSM”) representing the unearned profit of the contract which is recognized as revenue over the coverage period.

The standard allows a choice between recognizing changes in discount rates either in the income statement or directly in other comprehensive income. The choice is likely to reflect how insurers account for their financial assets under IFRS 9.

An optional, simplified premium allocation approach is permitted for the liability for the remaining coverage for short duration contracts, which are often written by non-life insurers.

There is a modification of the general measurement model called the ‘variable fee approach’ for certain contracts written by life insurers where policyholders share in the returns from underlying items. When applying the variable fee approach the entity’s share of the fair value changes of the underlying items is included in the contractual service margin. The results of insurers using this model are therefore likely to be less volatile than under the general model.

The new rules will affect the financial statements and key performance indicators of all entities that issue insurance contracts or investment contracts with discretionary participation features.

F-17

2.2 Measurement Basis

The consolidated financial statements have been prepared under the historical cost convention unless otherwise specified.

2.3 Functional and Presentation Currency

Items included in the financial statements of each entity of the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Korean won, which is the Parent Company’s functional and presentation currency (Notes 3.2.1 and 3.2.2).

2.4 Critical Accounting Estimates

The preparation of consolidated financial statements requires the application of accounting policies, certain critical accounting estimates and assumptions that may have a significant impact on the assets (liabilities) and incomes (expenses). Management’s estimates of outcomes may differ from actual outcomes if management’s estimates and assumptions based on management’s best judgment at the reporting date are different from the actual environment.

Estimates and assumptions are continually evaluated and any change in an accounting estimate is recognized prospectively by including it in profit or loss in the period of the change, if the change affects that period only. Alternatively if the change in accounting estimate affects both the period of change and future periods, that change is recognized in the profit or loss of all those periods.

Uncertainty in estimates and assumptions with significant risk that may result in material adjustment to the consolidated financial statements are as follows:

2.4.1 Income taxes

The Group is operating in numerous countries and the income generated from these operations is subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain.

If certain portion of the taxable income is not used for investments, increase in wages, and others in accordance with the Tax System for Promotion of Investment and Collaborative Cooperation (Recirculation of Corporate Income), the Group is liable to pay additional income tax calculated based on the tax laws. The new tax system is effective for three years from 2018. Accordingly, the measurement of current and deferred income tax is affected by the tax effects from the new system. As the Group’s income tax is dependent on the investments, increase in wages, and others, there exists uncertainty with regard to measuring the final tax effects.

2.4.2 Fair value of financial instruments

The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available is determined by using valuation techniques. Financial instruments, which are not actively traded in the market and those with less transparent market prices, will have less objective fair values and require broad judgment on liquidity, concentration, uncertainty in market factors and assumptions in price determination and other risks.

As described in the significant accounting policies in Note 3.3, ‘Recognition and Measurement of Financial Instruments’, diverse valuation techniques are used to determine the fair value of financial instruments, from generally accepted market valuation models to internally developed valuation models that incorporate various types of assumptions and variables.

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2.4.3 Provisions for credit losses (allowances for loan losses, provisions for acceptances and guarantees, and unused loan commitments)

The Group tests impairment and recognizes allowances for losses on financial assets classified at amortized cost, debt instruments measured at fair value through other comprehensive income and lease receivables through impairment testing and recognizes provisions for guarantees, and unused loan commitments. Accuracy of provisions for credit losses is dependent upon estimation of expected cash flows of the borrower for individually assessed allowances of loans, and upon assumptions and methodology used for collectively assessed allowances for groups of loans, guarantees and unused loan commitments.

2.4.4 Net defined benefit liability

The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions (Note 24).

2.4.5 Impairment of goodwill

The recoverable amounts of cash-generating units have been determined based on value-in-use calculations to test whether goodwill has suffered any impairment (Note 15).

3. Significant Accounting Policies

The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. The items related to financial instruments on the consolidated financial statements were stated under IFRS 9 for the current year, and under ISA 39 for the year ended December 31, 2017. And The items related to Revenue from Contracts with Customers were stated under IFRS 15 for the current year, and under IAS 18 for the year ended December 31, 2017. The accounting policies on financial instruments were applied for current period, and comparatives are not restated retrospectively. Except for the changes related to financial instruments, these policies have been consistently applied to all periods presented.

3.1 Consolidation

3.1.1 Subsidiaries

Subsidiaries are companies that are controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The existence and effects of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date when control is transferred to the Group and de-consolidated from the date when control is lost.

If a subsidiary uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to make the subsidiary’s accounting policies conform to those of the Group when the subsidiary’s financial statements are used by the Group in preparing the consolidated financial statements.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Parent Company and to the non-controlling interests, if any. Total comprehensive income is attributed to the owners of the Parent Company and to the non-controlling interests even if this results in the non-controlling interests having a negative balance.

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions; that is, as transactions with the owners exercising their entitlement. The difference between fair

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value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. Amounts previously recognized in other comprehensive income are reclassified to profit or loss.

The Group applies the acquisition method to account for business combinations. The consideration transferred is measured at the fair values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis in the event of liquidation, either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

In a business combination achieved in stages, the Group shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss or other comprehensive income, as appropriate. In prior reporting periods, the Group may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be reclassified as profit or loss, or retained earnings, on the same basis as would be required if the Group had disposed directly of the previously held equity interest.

The Group applies the book amount method to account for business combinations of entities under a common control. Identifiable assets acquired and liabilities assumed in a business combination are measured at their book amounts on the consolidated financial statements of the Group. In addition, the difference between the sum of consolidated book amounts of the assets and liabilities transferred and accumulated other comprehensive income; and the consideration paid is recognized as capital surplus.

3.1.2 Associates and Joint ventures

Associates are entities over which the Group has significant influence in the financial and operating policy decisions. Generally, if the Group holds 20% to 50% of the voting power of the investee, it is presumed that the Group has significant influence, it is presumed that the Group has significant influence.

Joint ventures are investments in which the Group jointly controls over economic activities pursuant to contractual arrangement. Decisions on financial and operating policies require unanimous consent of the parties sharing control.

Under the equity method, investments in associates and joint ventures are initially recognized at cost and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss of the investee and changes in the investee’s equity after the date of acquisition. The Group’s share of the profit or loss of the investee is recognized in the Group’s profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Profit and loss resulting from ‘upstream’ and ‘downstream’ transactions between the Group and associates are eliminated to the extent at the Group’s interest in associates. Unrealized losses are eliminated in the same way as unrealized gains except that they are only eliminated to the extent that there is no evidence of impairment.

If associates and joint ventures use accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made

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to make the associate’s accounting policies conform to those of the Group when the associate’s financial statements are used by the Group in applying equity method.

After the carrying amount of the investment is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee.

The Group determines at each reporting period whether there is any objective evidence that the investments in the associates and joint ventures are impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associates and its carrying value and recognizes the amount as ‘non-operating income (expense)’ in the statements of comprehensive income.

3.1.3 Structured entity

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. When the Group decides whether it has power to the structured entities in which the Group has interests, it considers factors such as the purpose, the form, the practical ability to direct the relevant activities of a structured entity, the nature of its relationship with a structured entity and the amount of exposure to variable returns.

3.1.4 Trusts and funds

The Group provides management services for trust assets, collective investment and other funds. These trusts and funds are not consolidated in the Group’s consolidated financial statements, except for trusts and funds over which the Group has control.

3.1.5 Intra-group transactions

All intra-group balances and transactions, and any unrealized gains arising on intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains except that they are only eliminated to the extent that there is no evidence of impairment.

3.2 Foreign Currency

3.2.1 Foreign currency transactions

A foreign currency transaction is recorded, on initial recognition in the functional currency, by applying the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period, foreign currency monetary items are translated using the closing rate which is the spot exchange rate at the end of the reporting period. Non-monetary items that are measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value was determined and non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous consolidated financial statements are recognized in profit or loss in the period in which they arise, except for exchange differences arising on net investments in a foreign operation and financial liability designated as a hedge of the net investment. When gains or losses on a non-monetary item are recognized in other comprehensive income, any exchange component of those gains or losses are also recognized in other comprehensive income. Conversely, when gains or losses on a non-monetary item are recognized in profit or loss, any exchange component of those gains or losses are also recognized in profit or loss.

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3.2.2 Foreign operations

The financial performance and financial position of all foreign operations, whose functional currencies differ from the Group’s presentation currency, are translated into the Group’s presentation currency using the following procedures.

Assets and liabilities for each statement of financial position presented (including comparatives) are translated at the closing rate at the end of the reporting period, unless the functional currency of the foreign operation is in hyper-inflationary economy. Income and expenses in the statement of comprehensive income presented are translated using the average exchange rates for the period. All resulting exchange differences are recognized in other comprehensive income.

Any goodwill arising from the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising from the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and are translated into the presentation currency at the closing rate.

On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, is reclassified from equity to profit or loss (as a reclassification adjustment) when the gains or losses on disposal are recognized. On the partial disposal of a subsidiary that includes a foreign operation, the Group redistributes the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income to the non-controlling interests in that foreign operation. In any other partial disposal of a foreign operation, the Group reclassifies to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income.

3.2.3 Net investment in a foreign operation

If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, then foreign currency difference arising on the item which in substance is considered to form part of the net investment in the foreign operation, are recognized in the other comprehensive income and shall be reclassified to profit or loss on disposal of the investment.

3.3 Recognition and Measurement of Financial Instruments

3.3.1 Initial recognition

The Group recognizes a financial asset or a financial liability in its statement of financial position when the Group becomes a party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets (a purchase or sale of a financial asset under a contract whose terms require delivery of the financial instruments within the time frame established generally by market regulation or practice) is recognized and derecognized using trade date accounting.

The Group classifies financial assets as financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, or financial assets at amortized cost. The Group classifies financial liabilities as financial liabilities at fair value through profit or loss, or other financial liabilities. The classification depends on the nature and holding purpose of the financial instrument at initial recognition in the consolidated financial statements.

At initial recognition, a financial asset or financial liability is measured at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. The fair value is defined

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as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The fair value of a financial instrument on initial recognition is normally the transaction price (that is, the fair value of the consideration given or received) in an arm’s length transaction.

3.3.2 Subsequent measurement

After initial recognition, financial instruments are measured at amortized cost or fair value based on classification at initial recognition.

Amortized cost

The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition:

• minus the principal repayments

• plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount

• or any reduction (directly or through the use of an allowance account) due to impairment or uncollectibility

Fair value

Fair values, which the Group primarily uses for the measurement of financial instruments, are the published price quotations based on market prices or dealer price quotations of financial instruments traded in an active market where available. These are the best evidence of fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, an entity in the same industry, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

If the market for a financial instrument is not active, fair value is determined either by using a valuation technique or independent third-party valuation service. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, referencing to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.

The Group uses valuation models that are commonly used by market participants and customized for the Group to determine fair values of common over-the-counter (OTC) derivatives such as options, interest rate swaps and currency swaps which are based on the inputs observable in markets. For more complex instruments, the Group uses internally developed models, which are usually based on valuation methods and techniques generally used within the industry, or a value measured by an independent external valuation institution as the fair values if all or some of the inputs to the valuation models are not market observable and therefore it is necessary to estimate fair value based on certain assumptions.

In addition, the fair value information recognized in the statements of financial position is classified into the following fair value hierarchy, reflecting the significance of the input variables used in the fair value measurement.

Level 1 :	quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date
Level 2 :	inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 :	unobservable inputs for the asset or liability.

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The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety shall be determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.

If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

If the valuation technique does not reflect all factors which market participants would consider in setting a price, the fair value is adjusted to reflect those factors. Those factors include counterparty credit risk, bid-ask spread, liquidity risk and others.

The chosen valuation technique makes maximum use of market inputs and relies as little as possible on entity-specific inputs. It incorporates all factors that market participants would consider in setting a price and is consistent with economic methodologies applied for pricing financial instruments. Periodically, the Group calibrates the valuation technique and tests its validity using prices of observable current market transactions of the same instrument or based on other relevant observable market data.

3.3.3 Derecognition

Derecognition is the removal of a previously recognized financial asset or financial liability from the statement of financial position. The Group derecognizes a financial asset or a financial liability when, and only when:

Derecognition of financial assets

Financial assets are derecognized when the contractual rights to the cash flows from the financial assets expire or the financial assets have been transferred and substantially all the risks and rewards of ownership of the financial assets are also transferred, or all the risks and rewards of ownership of the financial assets are neither substantially transferred nor retained and the Group has not retained control. If the Group neither transfers nor disposes of substantially all the risks and rewards of ownership of the financial assets, the Group continues to recognize the financial asset to the extent of its continuing involvement in the financial asset.

If the Group transfers the contractual rights to receive the cash flows of the financial asset, but retains substantially all the risks and rewards of ownership of the financial asset, the Group continues to recognize the transferred asset in its entirety and recognize a financial liability for the consideration received.

The Group writes off financial assets in its entirety or to a portion thereof when the principal and interest on the principal amount outstanding are determined to be no longer recoverable. In general, the Group considers write-off if significant financial difficulties of the debtor, or delinquency in interest or principal payments is indicated. The write-off decision is made in accordance with internal regulations and may require approval from external institution, if necessary. After the write-off, the Group can collect the written-off loans continuously according to the internal policy. Recovered amounts of financial assets previously written-off are recognized at profit or loss.

Derecognition of financial liabilities

Financial liabilities are derecognized from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expires.

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3.3.4 Offsetting

Financial assets and liabilities are offset and the net amount reported in the consolidated statements of financial position where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty.

3.4 Cash and Due from Financial Institutions

Cash and due from financial institutions include cash on hand, foreign currency, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and due from financial institutions. Cash and due from financial institutions are measured at amortized cost.

3.5 Non-derivative Financial Assets

3.5.1 Financial assets at fair value through profit or loss

Financial assets classified as held for trading, financial assets designated by the Group as at fair value through profit or loss upon initial recognition, and financial assets that are required to be mandatorily measured at fair value through profit or loss are classified as financial assets at fair value through profit or loss

The Group may designate certain financial assets upon initial recognition as at fair value through profit or loss when the designation eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.

After initial recognition, a financial asset at fair value through profit or loss is measured at fair value and gains or losses arising from a change in the fair value are recognized in profit or loss. Interest income and dividend income from financial assets at fair value through profit or loss are also recognized in the statement of comprehensive income.

3.5.2 Financial assets at fair value through other comprehensive income

The Group classifies below financial assets as financial assets at fair value through other comprehensive income;

• debt instruments that are a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and consistent with representing solely payments of principal and interest on the principal amount outstanding or;

• equity instruments, not held for trading with the objective of generating a profit from short-term fluctuations in price or dealer’s margin, designated as financial assets at fair value through other comprehensive income

After initial recognition, a financial asset at fair value through other comprehensive income is measured at fair value. Gain and loss from changes in fair value, other than dividend income and interest income amortized using effective interest method and exchange differences arising on monetary items which are recognized directly in income as interest income or expense, are recognized as other comprehensive income in equity.

At disposal of financial assets at fair value through other comprehensive income, cumulative gain or loss is recognized as profit or loss for the reporting period. However, cumulative gain or loss of equity instrument designated as fair value through other comprehensive income are not recycled to profit or loss at disposal.

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Financial assets at fair value through other comprehensive income denominated in foreign currencies are translated at the closing rate. Exchange differences resulting from changes in amortized cost are recognized in profit or loss, and other changes are recognized as equity.

3.5.3 Financial assets measured at amortized cost

A financial asset, which are held within the business model whose objective is to hold assets in order to collect contractual cash flows and consistent with representing solely payments of principal and interest on the principal amount outstanding, are classified as a financial asset at amortized cost.

Financial assets at amortized cost are subsequently measured at amortized cost using the effective interest method after initial recognition and interest income is recognized using the effective interest method.

3.6 Expected Credit Loss of Financial Assets (Debt Instruments)

The Group measures expected credit loss and recognizes loss allowance at the end of the reporting period for financial assets measured at amortized cost and fair value through other comprehensive income with the exception of financial asset measured at fair value through profit or loss.

Expected credit losses are a probability-weighted estimate of credit losses (i.e. the present value of all cash shortfalls) over the expected life of the financial instrument. The Group measures expected credit losses by reflecting reasonable and supportable information that is reasonably available at the reporting date without undue cost or effort, including information about past events, current conditions and forecasts of future economic conditions.

The Group uses the following three measurement techniques in accordance with IFRS:

• General approach: for financial assets and off-balance-sheet unused credit line that are not applied below two approaches

• Simplified approach: for receivables, contract assets and lease receivables

• Credit-impaired approach: for purchased or originated credit-impaired financial assets

Different measurement approaches are applied depending on significant increase in credit risk. 12 month expected credit losses is recognized when credit risk has not significantly increased since initial recognition. A loss allowance at an amount equal to lifetime expected credit losses is recognized when credit risk has significantly increased since initial recognition. Lifetime is presumed to be a period to the contractual maturity date of a financial asset (the expected life of the financial asset).

One or more of the following items is deemed significant increase in credit risk. 30 days past due presumption is applicable for all consolidated subsidiaries, and other standards are selectively applied considering applicability of each subsidiary with its specific indicators. When the contractual cash flows of a financial asset are renegotiated or otherwise modified, the Group determines whether the credit risk has increased significantly since initial recognition using the following information.

• more than 30 days past due;

• decline in credit rating at period end by more than certain notches as compared to that at initial recognition;

• decline in ratings below certain level in the early warning system;

• debt restructuring (except for impaired financial assets); and

• credit delinquency information on Korea Federation of Banks, and etc.

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Under simplified approach, the Group shall always measure the loss allowance at an amount equal to lifetime expected credit losses. Under credit-impaired approach, the Group shall only recognize the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance for purchased or originated credit-impaired financial assets. In assessing credit impairment, the Group uses definition of default as in the new Basel Accord which rules calculation of Capital Adequacy Ratio.

The Group generally deems one or more of the following items credit-impaired:

• no less than 90 days past due;

• legal proceedings related to collection;

• a borrower that has received a warning from the Korea Federation of Banks;

• corporate borrowers that are rated C or D;

• refinancing; and

• debt restructuring.

3.6.1 Forward-looking information

The Group uses forward-looking information, when it determines whether the credit risk has increased significantly since initial recognition and measures expected credit losses.

The Group assumes the risk component has a certain correlation with the business cycle, and calculates the expected credit loss by reflecting the forward-looking information with macroeconomic variables on the measurement inputs.

The correlation between the major macroeconomic variables and the credit risk is as follows;

Key macroeconomic variables	Correlation between the major macroeconomic variables and the credit risk
Domestic GDP growth rate	(-)
Composite stock index	(-)
Construction investment change rate	(-)
Housing transaction price index	(-)
Consumer price index	(+)
Overnight call rate changes compare to previous year(%P)	(+)
Unemployment rate	(+)
Retail loan change rate	(-)

Forward looking information used in calculation of expected credit loss is derived by KB Financial Group Research Institute after comprehensive consideration of a variety of factors including scenario in management planning, third party forecast, and others.

3.6.2 Measuring expected credit losses on financial assets at amortized cost

The amount of the loss on financial assets at amortized cost is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate.

The Group estimates expected future cash flows for financial assets that are individually significant (individual assessment of impairment).

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For financial assets that are not individually significant, the Group collectively estimates expected credit loss by grouping loans with homogeneous credit risk profile (collective assessment of impairment).

Individual assessment of impairment

Individual assessment of impairment losses are calculated using management’s best estimate on present value of expected future cash flows. The Group uses all the available information including operating cash flow of the borrower and net realizable value of any collateral held.

Collective assessment of impairment

Collective assessment of loss allowance involves historical loss experience along with incorporation of forward-looking information. Such process incorporates factors such as type of collateral, product and borrowers, credit rating, size of portfolio and recovery period and applies ‘probability of default’(PD) on a group of assets and ‘loss given default’(LGD) by type of recovery method. Also, the expected credit loss model involves certain assumption to determine input based on loss experience and forward-looking information. These models and assumptions are periodically reviewed to reduce gap between loss estimate and actual loss experience.

Lifetime expected credit loss as at the end of the reporting period is calculated by product of carrying amount net of expected repayment, PD for each period and LGD adjusted by change in carrying amount.

3.6.3 Measuring expected credit losses on financial assets at fair value through other comprehensive income

Measuring method of expected credit losses on financial assets at fair value through other comprehensive income is equal to the method of financial assets at amortized cost, except for loss allowances that are recognized as other comprehensive income. Amounts recognized in other comprehensive income for sale or repayment of financial assets at fair value through other comprehensive income are reclassified to profit or loss.

3.7 Derivative Financial Instruments

The Group enters into numerous derivative financial instrument contracts such as currency forwards, interest rate swaps, currency swaps and others for trading purposes or to manage its exposures to fluctuations in interest rates and currency exchange, amongst others. These derivative financial instruments are presented as derivative financial instruments within the consolidated financial statements irrespective of transaction purpose and subsequent measurement requirement.

The Group designates certain derivatives as hedging instruments to hedge the risk of changes in fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge) and the risk of changes in cash flow (cash flow hedge). The Group designates non-derivatives as hedging instruments to hedge the risk of foreign exchange of a net investment in a foreign operation (hedge of net investment).

At the inception of the hedge, there is formal designation and documentation of the hedging relationship and the Group’s risk management objective and strategy for undertaking the hedge. This documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk.

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

3.7.1 Derivative financial instruments held for trading

All derivative financial instruments, except for derivatives that are designated and qualify for hedge accounting, are measured at fair value. Gains or losses arising from a change in fair value are recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.

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3.7.2 Fair value hedges

If derivatives qualify for a fair value hedge, the change in fair value of the hedging instrument and the change in fair value of the hedged item attributable to the hedged risk are recognized in profit or loss as part of other operating income and expenses. If hedged items are equity instruments and designated to present the change in fair value of the hedging instrument in other comprehensive income, recognized hedge ineffectiveness are presented in other comprehensive income. Fair value hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Once fair value hedge accounting is discontinued, the adjustment to the carrying amount of a hedged item is fully amortized to profit or loss by the maturity of the financial instrument using the effective interest method.

3.7.3 Cash flow hedges

The effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income, limited to the cumulative change in fair value (present value) of the hedged item (the present value of the cumulative change in the future expected cash flows of the hedged item) from the inception of the hedge. The ineffective portion is recognized in gain or loss (other operating income or expense). The associated gains or losses that were previously recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affects profit or loss. The associated gains or losses that were previously recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affects profit or loss. Cash flow hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. When the cash flow hedge accounting is discontinued, the cumulative gains or losses on the hedging instrument that have been recognized in other comprehensive income are reclassified to profit or loss over the year in which the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gains or losses that had been recognized in other comprehensive income are immediately reclassified to profit or loss.

3.7.4 Hedge of net investment

If derivatives and non-derivatives qualify for a net investment hedge, the effective portion of changes in fair value of hedging instrument is recognized in other comprehensive income and the ineffective portion is recognized in profit. The gain or loss on the hedging instrument relating to the effective portion of the hedge that has been recognized in other comprehensive income will be reclassified from other comprehensive income to profit or loss as a reclassification adjustment on the disposal or partial disposal of the foreign operation in accordance with IFRS 9 Financial Instruments.

3.7.5 Embedded derivatives

If a hybrid contract contains a host that is not an asset, an embedded derivative is separated from the host contract and accounted for as a derivative if, and only if the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss. Gains or losses arising from a change in the fair value of an embedded derivative separated from the host contract are recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.

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3.7.6 Day one gain and loss

If the Group uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of the financial instrument, there may be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the difference is deferred and not recognized in profit or loss, and is amortized by using the straight-line method over the life of the financial instrument. If the fair value of the financial instrument is subsequently determined using observable market inputs, the remaining deferred amount is recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss or other operating income and expenses.

3.8 Property and Equipment

3.8.1 Recognition and measurement

All property and equipment that qualify for recognition as an asset are measured at cost and subsequently carried at cost less any accumulated depreciation and any accumulated impairment losses.

The cost of property and equipment includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent expenditures are capitalized only when they prolong the useful life or enhance values of the assets but the costs of the day-to-day servicing of the assets such as repair and maintenance costs are recognized in profit or loss as incurred. When part of an item of an asset has a useful life different from that of the entire asset, it is recognized as a separate asset.

3.8.2 Depreciation

Land is not depreciated, whereas other property and equipment are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The depreciable amount of an asset is determined after deducting its residual value. As for leased assets, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life.

Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The depreciation method and estimated useful lives of the assets are as follows:

Property and equipment	Depreciation method	Estimated useful life
Buildings and structures	Straight-line	20 ~ 40 years
Leasehold improvements	Declining-balance/ Straight-line	4 ~ 15 years
Equipment and vehicles	Declining-balance/ Straight-line	3 ~ 15 years
Finance leased assets	Declining-balance	8 months ~ 5 years and 8 months

The residual value, the useful life and the depreciation method applied to an asset are reviewed at each financial year end. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate.

3.9 Investment Properties

3.9.1 Recognition and Measurement

Properties held to earn rentals or for capital appreciation or both are classified as investment properties. Investment properties are measured initially at their cost and subsequently the cost model is used.

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3.9.2 Depreciation

Land is not depreciated, whereas other investment properties are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The depreciable amount of an asset is determined after deducting its residual value.

The depreciation method and estimated useful lives of the assets are as follows:

Investment property	Depreciation method	Estimated useful life
Buildings	Straight-line	20~40 years

The residual value, the useful life and the depreciation method applied to an asset are reviewed at each financial year end. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate

3.10 Intangible Assets

Intangible assets are measured initially at cost and subsequently carried at their cost less any accumulated amortization and any accumulated impairment losses.

Intangible assets, except for goodwill and membership rights, are amortized using the straight-line method or double declining balance method with no residual value over their estimated useful economic life since the asset is available for use.

Intangible assets	Amortization method	Estimated useful life
Industrial property rights	Straight-line	3~19 years
Software	Straight-line	3~5 years
Finance leased assets	Straight-line	8 months ~ 5 years and 8 months
VOBA	Declining-Balance	60 years
Others	Straight-line	1~10 years

The amortization period and the amortization method for intangible assets with a definite useful life are reviewed at each financial year end. Where an intangible asset is not being amortized because its useful life is considered to be indefinite, the Group carries out a review in each accounting period to confirm whether or not events and circumstances still support the assumption of an indefinite useful life. If they do not, the change from the indefinite to definite useful life is accounted for as a change in an accounting estimate.

3.10.1 Value of Business Acquired (VOBA)

The Group recorded value of business acquired (VOBA) as intangible assets, which are the differences between the fair value of insurance liabilities and book value calculated based on the accounting policy of the acquired company. VOBA is an estimated present value of future cash flow of long-term insurance contracts at the acquisition date. VOBA is amortized over the above estimated useful life using declining balance method, and the depreciation is recognized as insurance expense.

3.10.2 Goodwill

Recognition and measurement

Goodwill arisen from business combinations before January 1, 2010, is stated at its carrying amount which was recognized under the Group’s previous accounting policy, prior to the transition to IFRS.

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Goodwill acquired from business combinations after January 1, 2010, is initially measured as the excess of the aggregate of the consideration transferred, fair value of non-controlling interest and the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the business acquired, the difference is recognized in profit or loss.

For each business combination, the Group decides whether the non-controlling interest in the acquiree is initially measured at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets at the acquisition date.

Acquisition-related costs incurred to effect a business combination are charged to expenses in the periods in which the costs are incurred and the services are received, except for the costs to issue debt or equity securities.

Additional acquisitions of non-controlling interest

Additional acquisitions of non-controlling interests are accounted for as equity transactions. Therefore, no additional goodwill is recognized.

Subsequent measurement

Goodwill is not amortized and is stated at cost less accumulated impairment losses. However, goodwill that forms part of the carrying amount of an investment in associates is not separately recognized and an impairment loss recognized is not allocated to any asset, including goodwill, which forms part of the carrying amount of the investment in the associates.

3.10.3 Subsequent expenditure

Subsequent expenditure is capitalized only when it enhances values of the assets. Internally generated intangible assets, such as goodwill and trade name, are not recognized as assets but expensed as incurred.

3.11 Leases

3.11.1 Finance lease

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. At the commencement of the lease term, the Group recognizes finance leases as assets and liabilities in its statements of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs of the lessee are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the Group adopts for depreciable assets that are owned. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is fully depreciated over the shorter of the lease term and its useful life.

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3.11.2 Operating lease

A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Leases in the financial statements of lessors

Lease income from operating leases are recognized in income on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished. Initial direct costs incurred by lessors in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income.

Leases in the financial statements of lessees

Lease payments are recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the asset’s benefit, and the incentives from operating lease are recognized as a reduction of lease payments over the lease term.

3.12 Greenhouse Gas Emission Rights and Liabilities

The Group measured at zero the emission rights received free of charge from the government following the Enforcement of Allocation and Trading of Greenhouse Gas Emissions Allowances. Emission rights purchased are measured initially at cost and subsequently carried at their costs less any accumulated impairment losses. Emission liabilities are measured as the sum of the carrying amount of emission allowances held by the Group and best estimate of the expenditure required to settle the obligation for any excess emissions at the end of reporting period. The emission rights and liabilities are classified as ‘intangible assets’ and ‘provisions’, respectively, in the consolidated statement of financial position.

The emission rights held for trading are measured at fair value and the changes in fair value are recognized in profit or loss. The changes in fair value and gain or loss on disposal are classified as non-operating income and expenses.

3.13 Impairment of Non-Financial Assets

The Group assesses at the end of each reporting period whether there is any indication that a non-financial asset, except for (i) deferred income tax assets, (ii) assets arising from employee benefits and (iii) non-current assets (or group of assets to be sold) classified as held for sale, may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset. However, irrespective of whether there is any indication of impairment, the Group tests (i) goodwill acquired in a business combination, (ii) intangible assets with an indefinite useful life and (iii) intangible assets not yet available for use for impairment annually by comparing their carrying amount with their recoverable amount.

The recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of the cash-generating unit to which the asset belongs (the asset’s cash-generating unit). A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit that are discounted by a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted.

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If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss and recognized immediately in profit or loss. For the purpose of impairment testing, goodwill arising from in a business combination is allocated to each of the cash-generating units that are expected to benefit from the synergies of the combination. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.

An impairment loss recognized for goodwill is not reversed in a subsequent period. The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset, other than goodwill, may no longer exist or may have decreased, and an impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss cannot exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.

3.14 Non-Current Assets Held for Sale

A non-current asset or disposal group is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. A non-current asset (or disposal group) classified as held for sale is measured at the lower of its carrying amount and fair value less costs to sell which is measured in accordance with the applicable IFRS, immediately before the initial classification of the asset (or disposal group) as held for sale.

A non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale is not depreciated (or amortized).

Impairment loss is recognized for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. Gains are recognized for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognized.

3.15 Financial Liabilities

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities.

The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

3.15.1 Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

In relation to securities lending or borrowing transactions, the Group records transaction using memo value when it borrows securities from Korea Securities Depository etc. The borrowed securities are treated as financial liabilities at fair value through profit and loss when the Group sells them. Changes in fair value at the end of the reporting period and difference between carrying amount at redemption and purchased amount are recognized as profit and loss.

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In addition, for the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability, the Group presents this change in other comprehensive income, and does not recycle this to profit or loss, subsequently. When this treatment creates or enlarges an accounting mismatch, the Group recognizes this change as profit or loss for the current period.

3.15.2 Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. Other financial liabilities include Deposits, Debts, Debentures and others. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost, and its interest expense is recognized, using the effective interest method.

In case an asset is sold under repurchase agreement, the Group continues to recognize the asset with the amount sold being accounted for as borrowing.

The Group derecognizes a financial liability from the consolidated statement of financial position only when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

3.16 Insurance Contracts

KB Life Insurance Co., Ltd., and KB Insurance Co., Ltd., the subsidiaries of the Group, issue insurance contracts.

Insurance contracts are defined as “a contract under which one party (the insurer) accepts significant insurance risk from another party by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder”. A contract that qualifies as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire. Such a contract that does not contain significant insurance risk is classified as an investment contract and is within the scope of IFRS 9, Financial Instruments to the extent that it gives rise to a financial asset or financial liability, except if the investment contract contains a Discretionary Participation Features (DPF). If the contract has a DPF, the contract is subject to IFRS 4, Insurance Contracts. The Group recognizes assets (liabilities) and gains (losses) relating to insurance contracts as other assets (liabilities) in the statements of financial position, and as other operating income (expenses) in the statements of comprehensive income, respectively.

3.16.1 Insurance premiums

The Group recognizes collected premiums as revenue on the due date of collection of premiums from insurance contracts and the collected premium which is not earned at the end of the reporting period is recognized as unearned premium.

3.16.2 Insurance liabilities

The Group recognizes a liability for future claims, refunds, policyholders’ dividends and related expenses as follows:

Premium reserve

Premium reserve refers to an amount based on the net premium method for payment of future claims with respect to events covered by insurance policies which have not yet occurred as of the reporting period. It is calculated as the greater of the amount using standard interest rate and standard loss ratio defined by Financial Supervisory Services and the amount using the actual underlying data that have been used in premium calculation.

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Reserve for outstanding claims

Reserve for outstanding claims refers to the amount not yet paid, out of an amount to be paid or expected to be paid with respect to the insured events which have been reported or which have been incurred but not reported (IBNR) as of the end of each fiscal year.

Unearned premium reserve

The premiums that are due before the end of the reporting period but applicable to the next period are included.

Policyholders’ dividends reserve

Policyholders’ dividends reserve including an interest rate guarantee reserve, a mortality dividend reserve and an interest rate difference dividend reserve is recognized for the purpose of provisioning for policyholders’ dividends in the future in accordance with statutes or insurance terms and conditions.

3.16.3 Liability adequacy test

The Group assesses at each reporting period whether its insurance liabilities are adequate, using current estimates of all future contractual cash flows and related cash flow such as claims handling cost, as well as cash flows resulting from embedded options and guarantees under its insurance contracts in accordance with IFRS 4. If the assessment shows that the carrying amount of its insurance liabilities is insufficient in light of the estimated future cash flows, additional reserve is recognized for the deficient amount. Future cash flows from long-term insurance are discounted at a future rate of return on operating assets, whereas future cash flows from general insurance are not discounted to present value. For liability adequacy tests of premium and unearned premium reserves, the Group considers all cash flow factors such as future insurance premium, deferred acquisition costs, operating expenses and operating premiums. In relation to the reserve for outstanding claims, the Group elects to use a model that best reflects the trend of paid claims among several statistical methods to perform the adequacy test.

3.16.4 Deferred acquisition costs

Acquisition cost is deferred in an amount actually spent for an insurance contract and equally amortized over the premium payment period or the period in which acquisition costs are charged for the relevant insurance contract. Acquisition costs are amortized over the shorter of seven years or premium payment period; if there is any unamortized acquisition costs remaining as of the date of surrender or lapse, such remainder shall be amortized in the period in which the contract is surrendered or lapsed.

3.17 Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of provisions, and where the effect of the time value of money is material, the amount of provisions are the present value of the expenditures expected to be required to settle the obligation.

Provisions on confirmed and unconfirmed acceptances and guarantees, unfunded commitments of credit cards and unused credit lines of consumer and corporate loans are recognized using a valuation model that applies the credit conversion factor, probability of default, and loss given default.

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Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provisions are reversed.

If the Group has an onerous contract, the present obligation under the contract is recognized and measured as provisions. An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the minimum net cost to exit from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it.

3.18 Financial Guarantee Contracts

A financial guarantee contract requires the issuer (the Group) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the original or modified terms of a debt instrument.

Financial guarantee contracts are initially recognized at fair value as other liabilities, and are amortized over the contractual term. After initial recognition, financial guarantee contracts are measured at the higher of:

• The amount determined in accordance with IFRS 9, Financial Instruments or

• The initial amount recognized, less, when appropriate, cumulative amortization recognized in accordance with IFRS 15, Revenue from Contracts with Customers.

3.19 Equity Instruments issued by the Group

An equity instrument is any contract or agreement that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

3.19.1 Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or the exercise of stock option are deducted from the equity, net of any tax effects.

3.19.2 Hybrid capital instruments

The Group classifies issued financial instruments, or their component parts, as a financial liability or an equity instrument depending on the substance of the contractual arrangement of such financial instruments. Hybrid bonds are classified as equity instruments and presented in equity, if the Group has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation.

3.19.3 Treasury shares

If the Group acquires its own equity instruments, these are accounted for as treasury shares and are deducted directly from equity. No gains or losses are recognized in profit or loss on the purchase, sale, issue or cancellation of own equity instruments. If an entity within the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

3.19.4 Hybrid financial instruments

A hybrid financial instrument is classified as a financial liability or an equity instrument depending on the substance of the contractual arrangement of such financial instrument. The liability component of the hybrid financial instrument is measured at fair value of the similar liability without conversion option at initial

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recognition and subsequently measured at amortized cost using effective interest rate method until it is extinguished by conversion or matured. Equity component is initially measured at fair value of hybrid financial instrument in entirety less fair value of liability component net of tax effect and it is not remeasured subsequently.

3.20 Revenue Recognition

The Group recognizes revenues in accordance with the following revenue recognition standard:

• Step 1: Identify the contract with a customer.

• Step 2: Identify the performance obligations in the contract.

• Step 3: Determine the transaction price.

• Step 4: Allocate the transaction price to the performance obligations in the contract.

• Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

3.20.1 Interest income and expense

Interest income of financial assets at amortized cost and financial assets at fair value through other comprehensive income, and expense are recognized in statements of comprehensive income using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or groups of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.

The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid (main components of effective interest rates only) or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. In those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument (or group of financial instruments), the Group uses the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

Interest on impaired financial assets is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

Interest earned arising from debt investments at fair value through profit or loss is also classified as interest income in statements of comprehensive income.

3.20.2 Fee and commission income

The Group recognizes financial service fees in accordance with the accounting standard of the financial instrument related to the fees earned.

Fees that are an integral part of the effective interest of a financial instrument

Such fees are generally treated as adjustments of effective interest. Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating the terms of the instrument, preparing and processing documents and closing the transaction and origination fees received on issuing financial liabilities measured at amortized cost. However, fees relating to the creation or acquisition of a financial instrument at fair value through profit or loss are recognized as revenue immediately.

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Fees earned as services are provided

Such fees are recognized as revenue as the services are provided. Fees which can be earned through the certain periods, including account servicing fees, investment management fees, and etc. are recognized when the related services are provided.

Fees that are earned on the execution of a significant act

Such fees are recognized as revenue when the significant act has been completed.

Commission on the allotment of shares to a client is recognized as revenue when the shares have been allotted and placement fees for arranging a loan between a borrower and an investor is recognized as revenue when the loan has been arranged.

A syndication fee received by the Group that arranges a loan and retains no part of the loan package for itself (or retains a part at the same effective interest rate for comparable risk as other participants) is compensation for the service of syndication. Such a fee is recognized as revenue when the syndication has been completed.

3.20.3 Net gains/losses on financial instruments at fair value through profit or loss

Net gains/losses on financial instruments at fair value through profit or loss include profit or loss (changes in fair value, dividends, and gain/loss from foreign currency translation) from following financial instruments:

• Gain or loss from financial instruments at fair value through profit or loss

• Gain or loss from derivatives for trading, including derivatives for hedging that does not meet the condition of hedge accounting

3.20.4 Dividend income

Dividend income is recognized in profit or loss when the right to receive payment is established. Dividend income is recognized as relevant items on statements of profit or loss and other comprehensive income in accordance with the classification of equity instruments.

3.21 Employee Compensation and Benefits

3.21.1 Post-employment benefits: defined contribution plans

The contributions are recognized as employee benefit expense when they are due.

3.21.2 Post-employment benefits: defined benefit plans

All post-employment benefits, other than defined contribution plans, are classified as defined benefit plans. The amount recognized as a defined benefit liability is the present value of the defined benefit obligation less the fair value of plan assets at the end of the reporting period.

The present value of the defined benefit obligation is calculated annually by independent actuaries using the Projected Unit Credit method. The rate used to discount post-employment benefit obligations is determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The currency and term of the corporate bonds are consistent with the currency and estimated term of the post-employment benefit obligations. Actuarial gains and losses including experience adjustments and the effects of changes in actuarial assumptions are recognized in other comprehensive income.

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When the total of the present value of the defined benefit obligation minus the fair value of plan assets results in an asset, it is recognized to the extent of the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

Past service cost is the change in the present value of the defined benefit obligation, which arises when the Group introduces a defined benefit plan or changes the benefits of an existing defined benefit plan. Such past service cost is immediately recognized as an expense for the reporting period.

3.21.3 Short-term employee benefits

Short-term employee benefits are employee benefits (other than termination benefits) that are due to be settled within 12 months after the end of the period in which the employees render the related service. The undiscounted amount of short-term employee benefits expected to be paid in exchange for that service is recognized as a liability (accrued expense), after deducting any amount already paid.

The expected cost of profit-sharing and bonus payments are recognized as liabilities when the Group has a present legal or constructive obligation to make such payments as a result of past events rendered by employees and a reliable estimate of the obligation can be made.

3.21.4 Share-based payment

The Group has provided its directors and employees with stock grant, and mileage stock programs. When stock grant options are exercised, the Group can either select to issue new shares or distribute treasury shares, or compensate the difference in fair value of shares and exercise price. When mileage stock options are exercised, the Group pays the amount equivalent to KB Financial Group’s share price in cash.

For a share-based payment transaction in which the terms of the arrangement provide the Group with the choice of whether to settle in cash or by issuing equity instruments, the Group determines that it has a present obligation to settle in cash because the Group has a past practice and a stated policy of settling in cash. Therefore, the Group accounts for the transaction in accordance with the requirements of cash-settled share-based payment transactions. For mileage stock option, the Group accounts for the transaction in accordance with cash-settled share-based payment transactions, which are recognized as accrued expenses at the time of vesting.

The Group measures the services acquired and the liability incurred at fair value, and the fair value is recognized as expense and accrued expenses over the vesting period. Until the liability is settled, the Group remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the reporting period.

3.21.5 Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group shall recognize a liability and expense for termination benefits at the earlier of the following dates: when the Group can no longer withdraw the offer of those benefits and when the Group recognizes costs for a restructuring that is within the scope of ISA 37 and involves the payment of termination benefits. Termination benefits are measured by considering the number of employees expected to accept the offer in the case of a voluntary early retirement. Termination benefits over 12 months after the reporting period are discounted to present value.

3.22 Income Tax Expenses

Income tax expense comprises current tax expense and deferred income tax expense. Current and deferred income tax are recognized as income or expense for the period, except to the extent that the tax arises from (a) a

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transaction or an event which is recognized, in the same or a different period outside profit or loss, either in other comprehensive income or directly in equity and (b) a business combination.

3.22.1 Current income tax

Current income tax is the amount of income taxes payable in respect of the taxable profit (loss) for a period. A difference between the taxable profit and accounting profit may arise when income or expense is included in accounting profit in one period, but is included in taxable profit in a different period. Differences may also arise if there is revenue that is exempt from taxation, or expense that is not deductible in determining taxable profit (loss). Current income tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The Group offsets current income tax assets and current income tax liabilities if, and only if, the Group (a) has a legally enforceable right to offset the recognized amounts and (b) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

3.22.2 Deferred income tax

Deferred income tax is recognized, using the asset-liability method, on temporary differences arising between the tax based amount of assets and liabilities and their carrying amount in the financial statements. Deferred income tax liabilities are recognized for all taxable temporary differences and deferred income tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized. However, deferred income tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except for deferred income tax liabilities for which the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period. The Group reduces the carrying amount of a deferred income tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred income tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred income tax liabilities and deferred income tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The Group offsets deferred income tax assets and deferred income tax liabilities when the Group has a legally enforceable right to offset current income tax assets against current income tax liabilities; and the deferred income tax assets and the deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity; or different taxable entities which intend either to settle current income tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred income tax liabilities or assets are expected to be settled or recovered.

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3.22.3 Uncertain tax positions

Uncertain tax positions arise from tax treatments applied by the Group which may be challenged by the tax authorities due to the complexity of the transaction or different interpretation of the tax laws, a claim for rectification brought by the Group, or an appeal for a refund claimed from the tax authorities related to additional assessments. The Group recognizes its uncertain tax positions in the consolidated financial statements based on the guidance in IAS 12. The income tax asset is recognized if a tax refund is probable for taxes paid and levied by the tax authority. However, interest and penalties related to income tax are recognized in accordance with IAS 37.

3.23 Earnings per Share

The Group calculates basic earnings per share amounts and diluted earnings per share amounts for profit or loss attributable to ordinary equity holders of the Parent Company and presents them in the statement of comprehensive income. Basic earnings per share is calculated by dividing profit or loss attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the period. For the purpose of calculating diluted earnings per share, the Group adjusts profit or loss attributable to ordinary equity holders of the Parent Company and the weighted average number of shares outstanding for the effects of all dilutive potential ordinary shares including convertible bonds and share options.

3.24 Operating Segments

Operating segments are components of the Group where separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Segment information includes items which are directly attributable and reasonably allocated to the segment.

3.25 Overlay Approach

The Group applies the overlay approach in accordance with IFRS 4, and financial asset is eligible for designation for the overlay approach if, and only if, the following criteria are met:

• It is measured at fair value through profit or loss applying IFRS 9 but would not have been measured at fair value through profit or loss in its entirety applying IAS 39.

• It is not held in respect of an activity that is unconnected with contracts within the scope of IFRS 4.

The Group reclassifies between profit or loss and other comprehensive income, and the amount reclassified is equal to the difference between:

• The amount reported in profit or loss for the designated financial assets applying IFRS 9.

• The amount that would have been reported in profit or loss for the designated financial assets if the insurer had applied IAS 39.

The Group is permitted to apply this approach either at initial recognition or it may subsequently designate financial assets that newly meet criterion of not being held in respect of activity unconnected with insurance contract, they having previously not met that criterion.

The Group continues to apply the overlay approach to a designated financial asset until that financial asset is derecognized. However, the Group de-designates a financial asset when the financial asset no longer meets the criterion. In this case, the Group reclassifies from accumulated other comprehensive income to profit or loss as a reclassification adjustment any balance relating to that financial asset.

F-42

At the beginning of any annual period, the Group may stop applying the overlay approach to all designated financial assets, and shall not subsequently apply the overlay approach, if it stops using this approach because it is no longer an insurer.

3.26 United States dollar amounts

The Group operates primarily in Korea and its official accounting records are maintained in Korean won. The U.S. dollar amounts are provided herein as supplementary information solely for the convenience of the reader. Korean won amounts are expressed in U.S. dollars at the rate of ￦1,112.85 to U.S. $1.00, the U.S. Federal Reserve Bank of New York buying exchange rate in effect at noon, December 31, 2018. Such convenience translation into US dollars should not be construed as representations that the Korean won amounts have been, could have been, or could in the future be, converted at this or any other rate of exchange.

4. Financial Risk Management

4.1 Summary

4.1.1 Overview of Financial Risk Management Policy

The financial risks that the Group is exposed to are credit risk, market risk, liquidity risk, operational risk and others.

The Group’s risk management system focuses on increasing transparency, developing the risk management environment, preventing transmission of risk to other related subsidiaries, and the preemptive response to risk due to rapid changes in the financial environment to support the Group’s long-term strategy and business decisions efficiently. Credit risk, market risk, liquidity risk, and operational risk have been recognized as the Group’s key risks. These risks are measured and managed in Economic Capital or VaR (Value at Risk) using a statistical method.

4.1.2 Risk Management Organization

Risk Management Committee

The Risk Management Committee establishes risk management strategies in accordance with the directives of the Board of Directors and determines the Group’s target risk appetite. The Committee approves significant risk matters and reviews the level of risks that the Group is exposed to and the appropriateness of the Group’s risk management operations as an ultimate decision-making authority.

Risk Management Council

The Risk Management Council is a consultative group which reviews and makes decisions on matters delegated by the Risk Management Committee, and discusses the detailed issues relating to the Group’s risk management.

Risk Management Division

The Risk Management Division is responsible for monitoring and managing the Group’s economic capital limit and managing detailed policies, procedures and working processes relating to the Group’s risk management.

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4.2 Credit Risk

4.2.1 Overview of Credit Risk

Credit risk is the risk of possible losses in an asset portfolio in the event of a counterparty’s default, breach of contract and deterioration in the credit quality of the counterparty. For risk management reporting purposes, the individual borrower’s default risk, country risk, specific risks and other credit risk exposure components are considered as a whole.

The Group uses definition of default as defined and applied in the calculation of Capital Adequacy Ratio (Basel III) in accordance with the new Basel Accord.

4.2.2 Credit Risk Management

The Group measures expected losses and economic capital on assets that are subject to credit risk management whether on- or off-balance sheet items and uses expected losses and economic capital as a management indicator. The Group manages credit risk by allocating credit risk economic capital limits.

In addition, the Group controls the credit concentration risk exposure by applying and managing total exposure limits to prevent an excessive risk concentration to each industry and borrower.

The Group has organized a credit risk management team that focuses on credit risk management in accordance with the Group’s credit risk management policy. Especially, the loan analysis department of Kookmin Bank, one of the subsidiaries, is responsible for loan policy, loan limit, loan review, credit management, restructuring and subsequent event management, independently of operating department. On the other hand, risk management group of Kookmin Bank is responsible for planning risk management policy, applying limits of credit lines, measuring the credit risk economic capital, adjusting credit limits, reviewing credit and verifying credit evaluation models.

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4.2.3 Maximum Exposure to Credit Risk

The Group’s maximum exposures of financial instruments, excluding equity securities, to credit risk without consideration of collateral values as of December 31, 2017 and 2018, are as follows:

	2017
	(In millions of Korean won)
Financial assets
Due from financial institutions	￦	17,219,661
Financial assets at fair value through profit or loss
Financial assets held for trading1		25,242,193
Financial assets designated at fair value through profit or loss		1,982,224
Derivatives		3,310,166
Loans2		290,122,838
Financial investments
Available-for-sale financial assets		38,959,401
Held-to-maturity financial assets		18,491,980
Other financial assets2		10,195,015
		405,523,478
Off-balance sheet items
Acceptances and guarantees contracts		6,977,468
Financial guarantee contracts		3,683,875
Commitments		102,183,167
		112,844,510
	￦	518,367,988

¹ Including financial instruments indexed to gold amounting to ￦ 73,855 million.

²  Loans and other financial assets are net of allowance.

F-45

	2018
	(In millions of Korean won)
Financial assets
Due from financial institutions at amortized cost1	￦	17,216,288
Financial assets at fair value through profit or loss
Due from financial institutions		381,719
Securities		48,285,482
Loans		954,176
Financial instruments indexed to the price of gold		78,808
Derivatives		2,025,962
Loans at amortized cost1		319,201,603
Financial investments
Securities measured at fair value through other comprehensive income		35,243,634
Securities measured at amortized cost1		23,661,522
Loans measured at fair value through other comprehensive income		389,822
Other financial assets1		8,133,556
		455,572,572
Off-balance sheet items
Acceptances and guarantees contracts		7,277,136
Financial guarantee contracts		3,626,532
Commitments		138,590,372
		149,494,040
	￦	605,066,612

¹  Due from financial institutions, loans at amortized cost, securities measured at amortized cost and other financial assets are net of allowance.

4.2.4 Credit Risk of Loans

The Group maintains an allowance for loan losses associated with credit risk on loans to manage its credit risk.

The Group assesses expected credit loss on financial asset at amortized cost and financial asset at fair value through other comprehensive income other than financial asset at fair value through profit or loss and recognizes loss allowance. Expected credit losses are a probability-weighted estimate of possible credit losses within certain range by reflecting reasonable and supportable information that is reasonably available at the reporting date without undue cost or effort, including information about past events, current conditions and forecasts of future economic conditions. The Group assesses the expected credit losses for loans categorized in financial assets at amortized cost, and presents it with the name of account ‘allowance for loan losses’ netting from the related carrying amounts. For the expected credit losses for loans categorized in financial assets at fair value through other comprehensive income, the Group presents it in other comprehensive income.

F-46

Loans as of December 31, 2017, are classified as follows:

	2017
Loans	Retail					Corporate					Credit card					Total
	Amount			%		Amount			%		Amount			%		Amount			%
	(In millions of Korean won)
Neither past due nor impaired	￦	144,705,621			98.93	￦	129,130,466			98.76	￦	14,496,109			95.34	￦	288,332,196			98.67
Past due but not impaired		1,069,813			0.73		206,925			0.16		359,468			2.36		1,636,206			0.56
Impaired		495,546			0.34		1,419,851			1.08		349,270			2.30		2,264,667			0.77
Sub-total		146,270,980			100.00		130,757,242			100.00		15,204,847			100.00		292,233,069			100.00
Less: Allowances1		(429,299	)		0.29		(1,231,666	)		0.94		(449,266	)		2.95		(2,110,231	)		0.72
Carrying amount	￦	145,841,681				￦	129,525,576				￦	14,755,581				￦	290,122,838

¹ Collectively assessed allowances for loans are included as they are not impaired individually.

Credit quality of loans that are neither past due nor impaired are as follows:

	2017
	Retail		Corporate		Credit card		Total
	(In millions of Korean won)
Grade 1	￦	124,133,056	￦	67,575,021	￦	8,095,629	￦	199,803,706
Grade 2		16,790,644		53,842,610		4,920,767		75,554,021
Grade 3		2,701,697		5,703,159		1,379,409		9,784,265
Grade 4		851,446		1,390,131		71,207		2,312,784
Grade 5		228,778		619,545		29,097		877,420
Total	￦	144,705,621	￦	129,130,466	￦	14,496,109	￦	288,332,196

Loans that are past due but not impaired are as follows:

	2017
	1 ~ 29 days		30 ~ 59 days		60 ~ 89 days		90 days or more		Total
	(In millions of Korean won)
Retail	￦	890,759	￦	117,057	￦	59,632	￦	2,365	￦	1,069,813
Corporate		162,668		27,065		17,192		—		206,925
Credit card		302,871		35,774		20,823		—		359,468
Total	￦	1,356,298	￦	179,896	￦	97,647	￦	2,365	￦	1,636,206

Impaired loans are as follows:

	2017
	Retail			Corporate			Credit card			Total
	(In millions of Korean won)
Loans	￦	495,546		￦	1,419,851		￦	349,270		￦	2,264,667
Allowances under
Individual assessment		(788	)		(791,205	)		—			(791,993	)
Collective assessment		(178,337	)		(90,771	)		(212,729	)		(481,837	)
Total allowances		(179,125	)		(881,976	)		(212,729	)		(1,273,830	)
Carrying amount	￦	316,421		￦	537,875		￦	136,541		￦	990,837

F-47

Loans as of December 31, 2018, are classified as follows:

	2018
	The financial instruments applying 12-month expected credit losses		The financial instruments applying lifetime expected credit losses				Financial instruments not applying expected credit losses		Total
			Non-impaired		Impaired
(In millions of Korean won)
Loans at amortized cost1
Corporate
Grade 1	￦	75,785,147	￦	2,144,175	￦	1,638	￦	—	￦	77,930,960
Grade 2		55,292,251		4,227,041		2,016		—		59,521,308
Grade 3		2,957,463		1,757,607		6,579		—		4,721,649
Grade 4		484,248		965,094		68,271		—		1,517,613
Grade 5		244,593		378,588		1,063,646		—		1,686,827
		134,763,702		9,472,505		1,142,150		—		145,378,357
Retail
Grade 1		133,946,705		4,411,122		9,180		—		138,367,007
Grade 2		7,819,152		7,497,880		17,767		—		15,334,799
Grade 3		1,718,104		1,559,980		6,694		—		3,284,778
Grade 4		706,797		421,800		13,318		—		1,141,915
Grade 5		14,110		447,064		489,196		—		950,370
		144,204,868		14,337,846		536,155		—		159,078,869
Credit card
Grade 1		8,411,723		176,312		—		—		8,588,035
Grade 2		4,449,617		587,254		—		—		5,036,871
Grade 3		1,460,344		1,228,087		—		—		2,688,431
Grade 4		6,004		467,012		—		—		473,016
Grade 5		112		148,149		419,444		—		567,705
		14,327,800		2,606,814		419,444		—		17,354,058
		293,296,370		26,417,165		2,097,749		—		321,811,284
Loans at fair value through other comprehensive income
Corporate
Grade 1		189,501		25,731		—		—		215,232
Grade 2		128,712		45,878		—		—		174,590
Grade 3		—		—		—		—		—
Grade 4		—		—		—		—		—
Grade 5		—		—		—		—		—
		318,213		71,609		—		—		389,822
		318,213		71,609		—		—		389,822
	￦	293,614,583	￦	26,488,774	￦	2,097,749	￦	—	￦	322,201,106

¹ Before netting of allowance.

F-48

Credit quality of loans graded according to internal credit ratings are as follows:

	Range of Probability of Default (%)	Retail	Corporate
Grade 1	0.0 ~ 1.0	1 ~ 5 grade	AAA ~ BBB+
Grade 2	1.0 ~ 5.0	6 ~ 8 grade	BBB ~ BB
Grade 3	5.0 ~ 15.0	9 ~ 10 grade	BB- ~ B
Grade 4	15.0 ~ 30.0	11 grade	B- ~ CCC
Grade 5	30.0 ~	12 grade or under	CC or under

The quantification of the extent to which collateral and other credit enhancements mitigate credit risk as of December 31, 2017 and 2018, are as follows:

	2017
	Impaired Loans				Non-impaired Loans
	Individual		Collective		Past due		Not past due		Total
	(In millions of Korean won)
Guarantees	￦	17,257	￦	113,551	￦	209,180	￦	57,828,611	￦	58,168,599
Deposits and savings		11,857		5,461		40,833		4,149,157		4,207,308
Property and equipment		2,676		30,455		53,647		9,720,857		9,807,635
Real estate		189,480		282,327		688,502		148,183,907		149,344,216
Total	￦	221,270	￦	431,794	￦	992,162	￦	219,882,532	￦	221,527,758

	2018
	The financial instruments applying 12-month expected credit losses		The financial instruments applying lifetime expected credit losses				Total
			Non-impaired		Impaired
	(In millions of Korean won)
Guarantees	￦	60,473,663	￦	5,871,980	￦	151,180	￦	66,496,823
Deposits and savings		4,200,448		77,024		6,485		4,283,957
Property and equipment		8,644,719		616,318		54,492		9,315,529
Real estate		147,682,808		12,828,076		442,287		160,953,171
Total	￦	221,001,638	￦	19,393,398	￦	654,444	￦	241,049,480

4.2.5 Credit Quality of Securities

Financial assets at fair value through profit or loss and financial investments excluding equity securities that are exposed to credit risk as of December 31, 2017 are as follows:

	2017
	(In millions of Korean won)
Securities that are neither past due nor impaired	￦	84,597,074
Impaired securities		4,869
Total	￦	84,601,943

F-49

The credit quality of securities, excluding equity securities, that are neither past due nor impaired as of December 31, 2017, is as follows:

	2017
	Grade 1		Grade 2		Grade 3		Grade 4		Grade 5		Total
	(In millions of Korean won)
Securities that are neither past due nor impaired
Financial assets held for trading	￦	21,002,043	￦	3,958,261	￦	93,887	￦	28,232	￦	85,915	￦	25,168,338
Financial assets designated at fair value through profit or loss		1,550,617		200,633		63,856		60,332		106,786		1,982,224
Available-for-sale financial assets		36,471,247		2,433,685		47,079		2,521		—		38,954,532
Held-to-maturity financial assets		18,466,624		21,113		4,243		—		—		18,491,980
Total	￦	77,490,531	￦	6,613,692	￦	209,065	￦	91,085	￦	192,701	￦	84,597,074

Financial investments excluding equity securities that are exposed to credit risk as of December 31, 2018, are as follows:

	2018
	The financial instruments applying 12-month expected credit losses		The financial instruments applying lifetime expected credit losses				Financial instruments not applying expected credit losses		Total
			Non-impaired		Impaired
(In millions of Korean won)
Securities measured at amortized cost1
Grade 1	￦	23,524,120	￦	—	￦	—	￦	—	￦	23,524,120
Grade 2		120,546		—		—		—		120,546
Grade 3		18,572		—		—		—		18,572
Grade 4		—		—		—		—		—
Grade 5		—		—		—		—		—
		23,663,238		—		—		—		23,663,238
Securities measured at fair value through other comprehensive income
Grade 1		32,498,155		—		—		—		32,498,155
Grade 2		2,740,053		—		—		—		2,740,053
Grade 3		—		—		—		—		—
Grade 4		2,510		—		—		—		2,510
Grade 5		—		—		2,916		—		2,916
		35,240,718		—		2,916		—		35,243,634
	￦	58,903,956	￦	—	￦	2,916	￦	—	￦	58,906,872

¹ Before netting of allowance

F-50

The credit qualities of securities, excluding equity securities according to the credit ratings by external rating agencies as of December 31, 2017 and 2018, are as follows:

Credit quality	Domestic				Foreign
	KIS	NICE P&I	KAP	FnPricing Inc.	S&P	Fitch-IBCA	Moody’s
Grade 1	AA0 to AAA	AA0 to AAA	AA0 to AAA	AA0 to AAA	A- to AAA	A- to AAA	A3 to Aaa
Grade 2	A- to AA-	A- to AA-	A- to AA-	A- to AA-	BBB- to BBB+	BBB- to BBB+	Baa3 to Baa1
Grade 3	BBB0 to BBB+	BBB0 to BBB+	BBB0 to BBB+	BBB0 to BBB+	BB to BB+	BB to BB+	Ba2 to Ba1
Grade 4	BB0 to BBB-	BB0 to BBB-	BB0 to BBB-	BB0 to BBB-	B+ to BB-	B+ to BB-	B1 to Ba3
Grade 5	BB- or under	BB- or under	BB- or under	BB- or under	B or under	B or under	B2 or under

Credit qualities of debt securities denominated in Korean won are based on the lowest credit rating by the domestic credit rating agencies, and those denominated in foreign currencies are based on the lowest credit rating by the foreign credit rating agencies.

4.2.6 Credit risk of due from financial institutions

The credit quality of due from financial institutions as of December 31, 2018, is classified as follows:

	2018
	The financial instruments applying 12-month expected credit losses		The financial instruments applying lifetime expected credit losses				Financial instruments not applying expected credit losses		Total
			Non-impaired		Impaired
	(In millions of Korean won)
Due from financial institutions at amortized cost1
Grade 1	￦	16,374,868	￦	—	￦	—	￦	—	￦	16,374,868
Grade 2		213,903		—		—		—		213,903
Grade 3		608,314		—		—		—		608,314
Grade 4		19,531		—		—		—		19,531
Grade 5		1,691		—		—		—		1,691
	￦	17,218,307	￦	—	￦	—	￦	—	￦	17,218,307

¹ Before netting of allowance

The credit qualities of due from financial institutions according to the credit ratings by external rating agencies as of December 31, 2018 is same as the credit qualities of securities, excluding equity securities.

4.2.7 Credit risk mitigation of derivatives

The quantification of the extent to which collateral and other credit enhancements mitigate credit risk as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Deposits and savings	￦	1,277,851	￦	460,670
	￦	1,277,851	￦	460,670

F-51

4.2.8 Credit risk concentration analysis

Details of the Group’s loans by jurisdiction as of December 31, 2017 and 2018, are as follows:

	2017
	Retail		Corporate		Credit card		Total		%		Allowances			Carrying amount
	(In millions of Korean won)
Korea	￦	146,149,814	￦	127,298,283	￦	15,200,843	￦	288,648,940		98.77	￦	(2,063,919	)	￦	286,585,021
Europe		—		192,980		310		193,290		0.07		(2,327	)		190,963
China		—		1,879,030		1,458		1,880,488		0.64		(31,017	)		1,849,471
Japan		539		127,009		339		127,887		0.04		(6,269	)		121,618
United States		—		866,867		1,001		867,868		0.30		(1,600	)		866,268
Others		120,627		393,073		896		514,596		0.18		(5,099	)		509,497
Total	￦	146,270,980	￦	130,757,242	￦	15,204,847	￦	292,233,069		100.00	￦	(2,110,231	)	￦	290,122,838

	2018
	Retail		Corporate		Credit card		Total		%		Allowances			Carrying amount
	(In millions of Korean won)
Korea	￦	158,760,865	￦	141,864,644	￦	17,346,224	￦	317,971,733		98.40	￦	(2,574,236	)	￦	315,397,497
Europe		—		649,281		—		649,281		0.20		(512	)		648,769
China		—		2,259,202		807		2,260,009		0.70		(20,570	)		2,239,439
Japan		106		354,181		60		354,347		0.11		(1,900	)		352,447
United States		—		997,321		6,967		1,004,288		0.31		(5,706	)		998,582
Others		317,898		597,726		—		915,624		0.28		(6,757	)		908,867
	￦	159,078,869	￦	146,722,355	￦	17,354,058	￦	323,155,282		100.00	￦	(2,609,681	)	￦	320,545,601

¹  The above is the Group’s loans at fair value through profit and loss, other comprehensive income or amortized cost.

Details of the Group’s industrial corporate loans as of December 31, 2017 and 2018, are as follows:

	2017
	Loans		%		Allowances			Carrying amount
	(In millions of Korean won)
Financial institutions	￦	11,093,682		8.48	￦	(47,531	)	￦	11,046,151
Manufacturing		40,201,037		30.74		(449,439	)		39,751,598
Service		54,268,271		41.50		(288,521	)		53,979,750
Wholesale & Retail		15,061,632		11.52		(90,390	)		14,971,242
Construction		3,021,889		2.31		(269,535	)		2,752,354
Public sector		1,056,520		0.81		(15,341	)		1,041,179
Others		6,054,211		4.64		(70,909	)		5,983,302
Total	￦	130,757,242		100.00	￦	(1,231,666	)	￦	129,525,576

F-52

	2018
	Loans		%		Allowances			Carrying amount
	(In millions of Korean won)
Financial institutions	￦	14,193,442		9.67	￦	(45,473	)	￦	14,147,969
Manufacturing		42,672,986		29.08		(449,406	)		42,223,580
Service		61,467,174		41.89		(270,846	)		61,196,328
Wholesale & Retail		16,739,852		11.41		(102,197	)		16,637,655
Construction		3,282,508		2.24		(291,211	)		2,991,297
Public sector		873,281		0.60		(3,301	)		869,980
Others		7,493,112		5.11		(93,409	)		7,399,703
Total	￦	146,722,355		100.00		￦ (1,255,843)		￦	145,466,512

Types of the Group’s retail and credit card loans as of December 31, 2017 and 2018, are as follows:

	2017
	Loans		%		Allowances			Carrying amount
	(In millions of Korean won)
Housing	￦	64,140,941		39.72	￦	(18,646	)	￦	64,122,295
General		82,130,039		50.86		(410,653	)		81,719,386
Credit card		15,204,847		9.42		(449,266	)		14,755,581
Total	￦	161,475,827		100.00	￦	(878,565	)	￦	160,597,262

	2018
	Loans		%		Allowances			Carrying amount
	(In millions of Korean won)
Housing	￦	70,916,004		40.19	￦	(29,369	)	￦	70,886,635
General		88,162,865		49.97		(613,528	)		87,549,337
Credit card		17,354,058		9.84		(710,941	)		16,643,117
Total	￦	176,432,927		100.00	￦	(1,353,838	)	￦	175,079,089

Credit risk concentration of due from financial institutions, securities, excluding equity securities and derivative financial instruments

F-53

Details of the Group’s credit risk of securities, excluding equity securities, and derivative financial instruments by industry as of December 31, 2017, are as follows:

	2017
	Amount		%
	(In millions of Korean won)
Financial assets held for trading
Government and government funded institutions	￦	8,345,463		33.16
Banking and insurance		11,486,321		45.64
Others		5,336,554		21.20
Sub-total		25,168,338		100.00
Financial assets designated at fair value through profit or loss
Banking and insurance and others		1,982,224		100.00
Sub-total		1,982,224		100.00
Derivative financial assets
Government and government funded institutions		12,099		0.37
Banking and insurance		3,098,350		93.60
Others		199,717		6.03
Sub-total		3,310,166		100.00
Available-for-sale financial assets
Government and government funded institutions		9,498,819		24.38
Banking and insurance		23,314,336		59.84
Others		6,146,246		15.78
Sub-total		38,959,401		100.00
Held-to-maturity financial assets
Government and government funded institutions		8,449,839		45.69
Banking and insurance		6,765,593		36.59
Others		3,276,548		17.72
Sub-total		18,491,980		100.00
Total	￦	87,912,109

F-54

Details of the Group’s credit risk concentration of due from financial institutions, securities, excluding equity securities, and derivative financial instruments as of December 31, 2018, are as follows:

	2018
	Amount		%		Allowances			Carrying amount
	(In millions of Korean won)
Due from financial institutions at amortized cost
Banking and insurance	￦	17,218,307		100.00	￦	(2,019	)	￦	17,216,288
Sub-total		17,218,307		100.00		(2,019	)		17,216,288
Due from financial institutions at fair value through profit or loss
Banking and insurance		381,719		100.00		—			381,719
Sub-total		381,719		100.00		—			381,719
Securities measured at fair value through profit or loss
Government and government funded institutions		14,354,157		29.73		—			14,354,157
Banking and insurance		27,273,372		56.48		—			27,273,372
Others		6,657,953		13.79		—			6,657,953
Sub-total		48,285,482		100.00		—			48,285,482
Derivatives
Government and government funded institutions		39,290		1.94		—			39,290
Banking and insurance		1,849,078		91.27		—			1,849,078
Others		137,594		6.79		—			137,594
Sub-total		2,025,962		100.00		—			2,025,962
Securities measured at fair value through other comprehensive income
Government and government funded institutions		9,504,156		26.97		—			9,504,156
Banking and insurance		21,210,983		60.18		—			21,210,983
Others		4,528,495		12.85		—			4,528,495
Sub-total		35,243,634		100.00		—			35,243,634
Securities measured at amortized cost
Government and government funded institutions		10,321,667		43.62		(25	)		10,321,642
Banking and insurance		11,424,418		48.28		(1,399	)		11,423,019
Others		1,917,153		8.10		(292	)		1,916,861
Sub-total		23,663,238		100.00		(1,716	)		23,661,522
Total	￦	126,818,342			￦	(3,735	)	￦	126,814,607

F-55

Credit risk concentrations of due from financial institutions, securities, excluding equity securities and derivative financial instruments by country

Details of the Group’s credit risk concentration of securities, excluding equity securities, and derivative financial instruments by country, as of December 31, 2017, are as follows:

	2017
	Amount		%
	(In millions of Korean won)
Financial assets held for trading
Korea	￦	23,462,909		93.22
United States		643,249		2.56
Others		1,062,180		4.22
Sub-total		25,168,338		100.00
Financial assets designated at fair value through profit or loss
Korea		1,178,197		59.44
United States		120,000		6.05
Others		684,027		34.51
Sub-total		1,982,224		100.00
Derivative financial assets
Korea		1,743,201		52.66
United States		325,909		9.85
Others		1,241,056		37.49
Sub-total		3,310,166		100.00
Available-for-sale financial assets
Korea		36,705,979		94.22
United States		1,110,157		2.85
Others		1,143,265		2.93
Sub-total		38,959,401		100.00
Held-to-maturity financial assets
Korea		16,243,987		87.84
United States		1,076,331		5.82
Others		1,171,662		6.34
Sub-total		18,491,980		100.00
Total	￦	87,912,109

Due from financial institutions, financial assets at fair value through profit or loss and derivatives that linked to gold price are mostly relevant to financial and insurance industry with high credit ratings.

F-56

Details of the Group’s credit risk concentration of due from financial institutions, securities, excluding equity securities, and derivative financial instruments by country, as of December 31, 2018, is as follows:

	2018
	Amount		%		Allowances			Carrying amount
	(In millions of Korean won)
Due from financial institutions at amortized cost
Korea	￦	13,497,329		78.39	￦	(338	)	￦	13,496,991
United States		826,660		4.80		(16	)		826,644
Others		2,894,318		16.81		(1,665	)		2,892,653
Sub-total		17,218,307		100.00		(2,019	)		17,216,288
Due from financial institutions at fair value through profit or loss
Korea		381,719		100.00		—			381,719
Sub-total		381,719		100.00		—			381,719
Securities measured at fair value through profit or loss
Korea		43,697,736		90.50		—			43,697,736
United States		1,813,902		3.76		—			1,813,902
Others		2,773,844		5.74		—			2,773,844
Sub-total		48,285,482		100.00		—			48,285,482
Derivatives
Korea		1,024,392		50.56		—			1,024,392
United States		316,482		15.62		—			316,482
France		237,080		11.70		—			237,080
Singapore		109,101		5.39		—			109,101
Japan		97,351		4.81		—			97,351
Others		241,556		11.92		—			241,556
Sub-total		2,025,962		100.00		—			2,025,962
Securities measured at fair value through other comprehensive income
Korea		33,156,041		94.08		—			33,156,041
United States		1,100,199		3.12		—			1,100,199
Others		987,394		2.80		—			987,394
Sub-total		35,243,634		100.00		—			35,243,634
Securities measured at amortized cost
Korea		21,175,749		89.49		(1,136	)		21,174,613
United States		1,252,426		5.29		(216	)		1,252,210
Others		1,235,063		5.22		(364	)		1,234,699
Sub-total		23,663,238		100.00		(1,716	)		23,661,522
Total	￦	126,818,342			￦	(3,735	)	￦	126,814,607

4.3 Liquidity Risk

4.3.1 Overview of liquidity risk

Liquidity risk is a risk that the Group becomes insolvent due to uncertain liquidity caused by unexpected cash outflows, or a risk of borrowing high interest debts or disposal of liquid and other assets at a substantial discount. The Group manages its liquidity risk through analysis of the contractual maturity of interest-bearing assets and liabilities, assets and liabilities related to the other financing, and off-balance sheet items related to cash flow of currency derivative instruments and others.

F-57

Cash flows disclosed for the maturity analysis are undiscounted contractual principal and interest to be received (paid) and; thus, are not identical to the amount in the financial statements that are based on the present value of expected cash flows in some cases. The amount of interest to be received or paid on floating rate assets and liabilities is measured on the assumption that the current interest rate would be the same through the maturity.

4.3.2. Liquidity Risk Management and Indicator

The liquidity risk is managed by risk management policy and liquidity risk management guidelines which are applied to the risk management policies and procedures that address all the possible risks that arise from the overall business of the Group.

The Group computes and manages cumulative liquidity gap and liquidity rate subject to all transactions that affect cash flow in Korean won and foreign currencies and off-balance sheet transactions in relation to the liquidity. The Group regularly reports to the Risk Planning Council and Risk Management Committee.

4.3.3. Analysis of Remaining Contractual Maturity of Financial Assets and Liabilities

Cash flows disclosed below are undiscounted contractual principal and interest to be received (paid) and; thus, are not identical to the amount in the consolidated financial statements that are based on the present value of expected cash flows. The amount of interest to be received or paid on floating rate assets and liabilities is measured on the assumption that the current interest rate would be the same through the maturity.

F-58

The remaining contractual maturity of financial assets and liabilities, excluding derivatives held for cash flow hedging, as of December 31, 2017 and 2018, are as follows:

	2017
	On demand		Up to 1 month		1-3 months			3-12 months			1-5 years			Over 5 years		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions1	￦	6,355,289	￦	1,842,808	￦	319,173		￦	324,703		￦	357,340		￦	11,462	￦	9,210,775
Financial assets held for trading2		30,177,293		—		—			—			—			—		30,177,293
Financial assets designated at fair value through profit or loss2		2,050,052		—		—			—			—			—		2,050,052
Derivatives held for trading2		2,980,462		—		—			—			—			—		2,980,462
Derivatives held for hedging3		559		48,093		29,693			42,163			(2,577	)		52,698		170,629
Loans		3,437,020		22,062,457		30,802,580			103,782,624			75,345,756			96,863,329		332,293,766
Available-for-sale financial assets4		10,063,251		1,580,946		2,311,652			11,655,746			20,322,800			7,567,341		53,501,736
Held-to-maturity financial assets		—		658,856		493,420			3,217,345			6,890,530			13,247,255		24,507,406
Other financial assets		8,416		7,934,856		52,757			1,305,410			43,433			16,532		9,361,404
Total	￦	55,072,342	￦	34,128,016	￦	34,009,275		￦	120,327,991		￦	102,957,282		￦	117,758,617	￦	464,253,523
	2017
	On demand		Up to 1 month		1-3 months			3-12 months			1-5 years			Over 5 years		Total
	(In millions of Korean won)
Financial liabilities
Financial liabilities held for trading2	￦	1,944,770	￦	—	￦	—		￦	—		￦	—		￦	—	￦	1,944,770
Financial liabilities designated at fair value through profit or loss2		10,078,288		—		—			—			—			—		10,078,288
Derivatives held for trading2		3,050,471		—		—			—			—			—		3,050,471
Derivatives held for hedging3		404		3,740		(4,715	)		(19,705	)		(7,143	)		244		(27,175	)
Deposits5		127,035,944		12,365,158		23,236,756			82,586,445			11,473,834			2,667,969		259,366,106
Debts		5,957,108		10,024,019		3,741,022			5,724,453			4,409,543			599,680		30,455,825
Debentures		40,655		1,015,298		3,020,683			9,644,135			29,611,835			3,245,342		46,577,948
Other financial liabilities		200,082		14,060,432		145,538			229,873			342,397			965,929		15,944,251
Total	￦	148,307,722	￦	37,468,647	￦	30,139,284		￦	98,165,201		￦	45,830,466		￦	7,479,164	￦	367,390,484
Off- balance sheet items
Commitments6	￦	102,183,167	￦	—	￦	—		￦	—		￦	—		￦	—	￦	102,183,167
Financial guarantee contract7		3,683,875		—		—			—			—			—		3,683,875
Total	￦	105,867,042	￦	—	￦	—		￦	—		￦	—		￦	—	￦	105,867,042

¹ The amounts of ￦10,669,956 million, which are restricted due from the financial institutions as of December 31, 2017, is excluded.

²  Financial assets/liabilities held for trading, financial assets/liabilities designated at fair value through profit or loss and derivatives held for trading are not managed by contractual maturity because they are expected to be traded or redeemed before maturity. Therefore, the carrying amounts of those financial instruments are classified as ‘on demand’ category. However, the cash flows of the embedded derivatives (e.g. conversion options and others) which are separated from their host contracts in accordance with the requirement of IAS 39, are considered in the cash flows of the host contracts.

³ Cash flows of derivative instruments held for fair value hedging are shown at net cash flow by remaining contractual maturity.

⁴ The equity securities among available-for-sale financial assets are included under the ‘On demand’ category as they can be disposed without difficulty. However, the equity securities restricted from disposal are included on the category that the releasing date of restriction is belonged to.

⁵ Deposits that are contractually repayable on demand or on short notice are classified under the ‘on demand’ category.

⁶ Commitments are included under the ‘on demand’ category because payments will be made upon request.

⁷  The financial guarantee contracts are included under the ‘on demand’ category as payments will be made upon request.

F-59

	2018
	On demand		Up to 1 month			1-3 months			3-12 months			1-5 years		Over 5 years		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions1	￦	5,636,123	￦	1,481,598		￦	242,353		￦	538,579		￦	81,646	￦	—	￦	7,980,299
Financial assets at fair value through profit or loss2		50,139,812		672,326			162,459			254,632			215,436		1,113,694		52,558,359
Derivatives held for trading2		1,915,532		—			—			—			—		—		1,915,532
Derivatives held for fair value hedging3		—		4,344			1,724			17,948			21,367		40,830		86,213
Loans at amortized cost		3,180,412		27,520,126			32,374,297			116,479,553			84,600,284		102,789,366		366,944,038
Financial investments4
Financial assets measured at fair value through other comprehensive income		2,117,560		1,812,270			2,694,083			11,210,903			18,626,405		2,728,392		39,189,613
Securities measured at amortized cost		—		1,245,353			1,483,667			4,412,816			8,932,468		14,380,433		30,454,737
Other financial assets		89,890		5,454,381			160,182			1,488,164			53,425		37,841		7,283,883
Total	￦	63,079,329	￦	38,190,398		￦	37,118,765		￦	134,402,595		￦	112,531,031	￦	121,090,556	￦	506,412,674
	2018
	On demand		Up to 1 month			1-3 months			3-12 months			1-5 years		Over 5 years		Total
	(In millions of Korean won)
Financial liabilities
Financial liabilities at fair value through profit or loss2	￦	2,823,820	￦	—		￦	—		￦	—		￦	—	￦	—	￦	2,823,820
Financial liabilities designated at fair value through profit or loss2		12,503,039		—			—			—			—		—		12,503,039
Derivatives held for trading2		2,724,994		—			—			—			—		—		2,724,994
Derivatives held for fair value hedging3		—		(2,403	)		(8,231	)		(37,851	)		13,831		31		(34,623	)
Deposits5		126,781,682		16,852,129			28,053,517			95,568,339			11,284,243		2,608,630		281,148,540
Debts		5,909,297		10,355,022			3,975,372			7,205,116			4,714,743		1,249,785		33,409,335
Debentures		30,160		1,699,165			5,875,093			13,471,021			32,474,579		2,489,146		56,039,164
Other financial liabilities		91,381		15,943,018			170,851			275,135			581,537		65,721		17,127,643
Total	￦	150,864,373	￦	44,846,931		￦	38,066,602		￦	116,481,760		￦	49,068,933	￦	6,413,313	￦	405,741,912
Off- balance sheet items
Commitments6	￦	138,590,372	￦	—		￦	—		￦	—		￦	—	￦	—	￦	138,590,372
Financial guarantee contract7		3,626,532		—			—			—			—		—		3,626,532
Total	￦	142,216,904	￦	—		￦	—		￦	—		￦	—	￦	—	￦	142,216,904

¹ The amounts of ￦ 12,394,461 million, which is restricted due from the financial institutions as of December 31, 2018, is excluded.

²  Financial liabilities measured or designated at fair value through profit or loss and derivatives held for trading are not managed by contractual maturity because they are expected to be traded or redeemed before maturity. Therefore, the carrying amounts of those financial instruments are classified as ‘on demand’ category.

³ Cash flows of derivative instruments held for hedging are shown at net cash flow by remaining contractual maturity.

⁴ The equity securities designated as financial assets measured at fair value through other comprehensive income are included under the ‘On demand’ category as they can be disposed without difficulty. However, the equity securities restricted from disposal are included on the category that the releasing date of restriction is belonged to.

⁵ Deposits that are contractually repayable on demand or on short notice are classified under the ‘on demand’ category.

⁶ Commitments are included under the ‘On demand’ category because payments will be made upon request.

⁷ The financial guarantee contracts are included under the ‘On demand’ category as payments will be made upon request.

F-60

The contractual cash flows of derivatives held for cash flow hedging as of December 31, 2017 and 2018, are as follows:

	2017
	Up to 1 month			1-3 months			3-12 months			1-5 years			Over 5 years		Total
	(In millions of Korean won)
Net cash flow of net settlement derivatives		￦(224)		￦	(1,556	)	￦	(3,044	)	￦	(442	)	￦	16	￦	(5,250	)
Cash flow to be received of total settlement derivatives		196,795			298,108			745,490			1,404,317			—		2,644,710
Cash flow to be paid of total settlement derivatives		(188,698	)		(285,397	)		(698,054	)		(1,324,504	)		—		(2,496,653	)

	2018
	Up to 1 month			1-3 months			3-12 months			1-5 years			Over 5 years			Total
	(In millions of Korean won)
Net cash flow of net settlement derivatives		￦ (172)		￦	1,999		￦	2,743		￦	1,949		￦	(66	)	￦	6,453
Cash flow to be received of total settlement derivatives		47,526			129,826			286,219			2,116,253			—			2,579,824
Cash flow to be paid of total settlement derivatives		(50,281	)		(137,834	)		(286,165	)		(2,151,808	)		—			(2,626,088	)

4.4 Market Risk

4.4.1 Concept

Market risk represents possible losses which arise from changes in market factors including interest rate, stock price, foreign exchange rate and other market factors that affect the fair value or future cash flows of financial instruments including securities and derivatives amongst others. The most significant risk associated with trading positions interest rate risks, currency risks and also, stock price risks. In addition, the Group is exposed to interest rate risks associated with non-trading positions. The Group classifies exposures to market risk into either trading or non-trading positions. The Group measures and manages market risk separately for each subsidiary.

4.4.2 Risk management

The Group sets internal capital limits for market risk and interest rate risk and monitors the risks to manage the risk of trading and non-trading positions. The Group maintains risk management systems and procedures including trading policies and procedures, and market risk management guidelines for trading positions, and interest rate risk management guidelines for non-trading positions in order to manage market risk efficiently. The procedures mentioned are implemented with approval from the Risk Management Committee and Risk Management Council.

Kookmin Bank, one of the subsidiaries, establishes market risk management policy, sets position limits, loss limits and VaR limits of each business group and approves newly developed instruments through its Risk Management Council. The Market Risk Management Committee, which is chaired by the Chief Risk Officer (CRO), is the decision maker and sets position limits, loss limits, VaR limits, sensitivity limits and scenario loss limits for each division, at the level of each individual business department.

F-61

The Asset-Liability Management Committee(ALCO) of Kookmin Bank determines the operational standards of interest and commission, the details of the establishment and prosecution of the Asset Liability Management (ALM) policies and enacts and amends relevant guidelines. The Risk Management Committee and Risk Management Council monitor the establishment and enforcement of ALM risk management policies, and enact and amend ALM risk management guidelines. The interest rate risk limit is set based on the future assets/liabilities position and interest rate volatility estimation reflects the annual work plan. The Financial Planning Department and Risk Management Department measures and monitors the interest risk status and limits on a regular basis. The status and limits of interest rate risks including interest gap, duration gap and interest rate VaR (Value at Risk), are reported to the ALCO and Risk Management Council on a monthly basis and to the Risk Management Committee on a quarterly basis. To ensure adequacy of interest rate and liquidity risk management, the Risk Management Department assigns the limits, monitors and reviews the risk management procedures and tasks conducted by the Financial Planning Department. Also, the Risk Management Department independently reports related information to the management.

4.4.3 Trading Position

Definition of a trading position

Trading positions subject to market risk management are defined under the Trading Policy and Guideline, and the basic requirements are as follows:

• The trading position is not restricted for sale, is measured daily at fair value, and its significant inherent risks are able to be hedged in the market.

• The criteria for classification as a trading position are clearly defined in the Trading Policy and Guideline, and separately managed by the trading department.

• The trading position is operated in accordance with the documented trading strategy and managed through position limits.

• The operating department or professional dealers have an authority to enforce a deal on the trading position within predetermined limits without pre-approval.

• The trading position is reported periodically to management for the purpose of the Group’s risk management

Observation method on market risk arising from trading positions

Subsidiaries of the Group calculate VaR to measure the market risk by using market risk management systems on the entire trading portfolio. Generally, the Group manages market risk on the trading portfolio. In addition, the Group controls and manages the risk of derivative trading based on the regulations and guidelines formulated by the Financial Supervisory Service.

VaR (Value at Risk)

i. VaR (Value at Risk)

Kookmin Bank, one of the subsidiaries, uses the value-at-risk methodology to measure the market risk of trading positions. Kookmin Bank uses the 10-day VaR, which estimates the maximum amount of loss that could occur in ten days under an historical simulation model which is considered to be a full valuation method. The distributions of portfolio’s value changes are estimated based on the data over the previous 250 business days, and ten-day VaR is calculated by subtracting net present market value from the value measured at a 99% confident level of portfolio’s value distribution results.

VaR is a commonly used market risk measurement technique. However, the method has some shortcomings. VaR estimates possible losses over a certain period at a particular confidence level using past market movement

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data. Past market movements are, however, not necessarily a good indicator of future events, as there may be conditions and circumstances in the future that the model does not anticipate. As a result, the timing and magnitude of the actual losses may vary depending on the assumptions made at the time of the calculation. In addition, the time periods used for the model, generally one or ten days, are assumed to be a sufficient holding period before liquidating the relevant underlying positions. If these holding periods are not sufficient, or too long, the VaR results may understate or overstate the potential loss.

A subsidiary which hold trading positions uses an internal model (VaR) to measure general risk, and a standard method to measure each individual risk. When the internal model is not permitted for certain market risk, the Group uses the standard method. Therefore, the market risk VaR may not reflect the market risk of each individual risk and some specific positions. And also, non-banking subsidiaries use the same standard method applied to measure regulatory capital for improvement of market risk VaR management utility (improvement of relation with regulatory capital).

ii. Back-Testing

Back-testing is conducted on a daily basis to validate the adequacy of the market risk model. In back-testing, the Group compares both the actual and hypothetical profit and loss with the VaR calculations.

iii. Stress Testing

Stress testing is carried out to analyze the impact of abnormal market situations on the trading and available-for-sale portfolio. It reflects changes in interest rates, stock prices, foreign exchange rates, implied volatilities of derivatives and other risk factors that have significant influence on the value of the portfolio. The Group uses historical scenarios and hypothetical scenarios for the analysis of abnormal market situations. Stress testing is performed at least once every year.

VaR at a 99% confidence level of interest rate, stock price and foreign exchange rate risk for trading positions with a ten-day holding period by a subsidiary as of December 31, 2017 and 2018, are as follows:

Kookmin Bank

	2017
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Interest rate risk	￦	22,682	￦	14,313	￦	42,155	￦	23,758
Stock price risk		1,002		757		1,345		1,255
Foreign exchange rate risk		32,709		12,405		44,322		24,315
Deduction of diversification effect		—		—		—		(29,727	)
Total VaR	￦	23,312	￦	16,498	￦	30,247	￦	19,601

	2018
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Interest rate risk	￦	12,513	￦	6,044	￦	18,684	￦	7,074
Stock price risk		2,995		1,253		4,831		3,348
Foreign exchange rate risk		9,443		5,033		16,453		16,453
Deduction of diversification effect		—		—		—		(11,939	)
Total VaR	￦	16,221	￦	11,653	￦	23,078	￦	14,936

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Meanwhile, the required equity capital using the standardized method related to the positions which are not measured by VaR or the non-banking subsidiaries as of December 31, 2017 and 2018, are as follows:

Kookmin Bank

	2017		2018
	(In millions of Korean won)
Interest rate risk	￦	98,235	￦	112,153
Stock price risk		1,646		19,756
Foreign exchange rate risk		810		1,339
Total VaR	￦	100,691	￦	133,248

KB Securities Co., Ltd.

	2017
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Interest rate risk	￦	421,275	￦	347,369	￦	498,631	￦	457,470
Stock price risk		193,791		138,044		239,685		200,101
Foreign exchange rate risk		11,113		7,599		15,446		7,674
Commodity risk		5		—		34		3
Total VaR	￦	626,184	￦	493,012	￦	753,796	￦	665,248

	2018
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Interest rate risk	￦	456,847	￦	366,027	￦	537,126	￦	510,618
Stock price risk		293,623		236,329		335,900		261,341
Foreign exchange rate risk		5,923		2,383		12,613		3,692
Commodity risk		5		1		22		1
Total VaR	￦	756,398	￦	604,740	￦	885,661	￦	775,652

KB Insurance Co., Ltd.

	2017
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Interest rate risk	￦	47,569	￦	40,546	￦	55,875	￦	41,467
Stock price risk		81		—		133		—
Foreign exchange rate risk		18,002		12,313		23,099		18,695
Total VaR	￦	65,652	￦	52,859	￦	79,107	￦	60,162

	2018
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Interest rate risk	￦	43,431	￦	34,202	￦	48,456	￦	45,180
Foreign exchange rate risk		11,074		8,484		15,053		14,769
Total VaR	￦	54,505	￦	42,686	￦	63,509	￦	59,949

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KB Life Insurance Co., Ltd.

	2017
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Interest rate risk	￦	1,381	￦	593	￦	1,961	￦	1,596
Total VaR	￦	1,381	￦	593	￦	1,961	￦	1,596

	2018
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Interest rate risk	￦	1,264	￦	968	￦	1,544	￦	1,134
Total VaR	￦	1,264	￦	968	￦	1,544	￦	1,134

KB Investment Co., Ltd.

	2017
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Stock price risk	￦	3,904	￦	—	￦	4,766	￦	3,897
Foreign exchange rate risk		1,053		746		1,797		1,797
Total VaR	￦	4,957	￦	746	￦	6,563	￦	5,694

	2018
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Stock price risk	￦	23	￦	—	￦	56	￦	—
Foreign exchange rate risk		2,064		1,776		3,033		3,033
Total VaR	￦	2,087	￦	1,776	￦	3,089	￦	3,033

KB Asset Management Co., Ltd.

	2017
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Interest rate risk	￦	19	￦	—	￦	215	￦	8
Stock price risk		241		—		1,634		1,634
Foreign exchange rate risk		93		—		1,049		1,049
Total VaR	￦	353	￦	—	￦	2,898	￦	2,691

	2018
	Average		Minimum		Maximum		Ending
	(In millions of Korean won)
Interest rate risk	￦	777	￦	21	￦	1,886	￦	1,043
Stock price risk		1,658		—		1,952		1,839
Foreign exchange rate risk		782		627		1,125		837
Total VaR	￦	3,217	￦	648	￦	4,963	￦	3,719

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Details of risk factors

i. Interest rate risk

Trading position interest rate risk usually arises from debt securities denominated in Korean won. The Group’s trading strategy is to benefit from short-term movements in the prices of debt securities arising from changes in interest rates. The Group manages interest rate risk on trading positions using market value-based tools such as VaR and sensitivity analysis (Price Value of a Basis Point: PVBP).

ii. Stock price risk

Stock price risk only arises from trading securities denominated in Korean won as the Group does not have any trading exposure to shares denominated in foreign currencies. The trading securities portfolio in Korean won are composed of exchange-traded stocks and derivative instruments linked to stock with strict limits on diversification.

iii. Foreign exchange rate risk

Foreign exchange rate risk arises from holding assets and liabilities denominated in foreign currency and foreign currency derivatives. Net foreign currency exposure mostly occurs from the foreign assets and liabilities which are denominated in US dollars and Chinese Yuan. The Group sets both loss limits and net foreign currency exposure limits and manages comprehensive net foreign exchange exposures which consider both trading and non-trading portfolios.

4.4.4 Non-trading position

Definition of non-trading position

Managed interest rate risk in non-trading position includes on- or off-balance sheet assets, liabilities and derivatives that are sensitive to interest rate, except trading position for market risk. The interest rate sensitive assets and liabilities are interest-bearing assets and liabilities that create interest income and expenses.

Observation method on market risk arising from non-trading position

Interest rate risk occurs due to mismatches on maturities and interest rate reset periods between interest-bearing assets and liabilities. The Group manages the risk through measuring and managing interest rate VaR and earning at risk (EaR) that are maximum expected decreases in net asset value (NPV) and net interest income (NII) for one year, respectively, arising from unfavorable changes in market interest rate.

Interest Rate VaR

Interest rate VaR is the maximum possible loss due to interest rate risk under a normal distribution at a 99.9% confidence level. The measurement results of risk as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Kookmin Bank	￦	350,178	￦	168,282
KB Securities Co., Ltd.		39,717		23,004
KB Insurance Co., Ltd.		451,335		270,507
KB Kookmin Card Co., Ltd.		12,775		27,894
KB Life Insurance Co., Ltd.		51,677		47,089
KB Savings Bank Co., Ltd.		6,447		8,760
KB Capital Co., Ltd.		10,912		19,852

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4.4.5 Financial Instruments in Foreign Currencies

Details of financial instruments presented in foreign currencies translated into Korean won as of December 31, 2017 and 2018, are as follows:

	2017
	USD		JPY		EUR		GBP		CNY		Others		Total
	(In millions of Korean won)
Financial Assets
Cash and due from financial institutions	￦	1,820,651	￦	268,482	￦	309,890	￦	20,062	￦	872,650	￦	356,242	￦	3,647,977
Financial assets held for trading		3,021,509		84,980		81,394		8922		15,492		20,767		3,233,064
Financial assets designated at fair value through profit or loss		826,906		—		—		—		—		—		826,906
Derivatives held for trading		124,434		446		10,172		—		96		56,362		191,510
Derivatives held for hedging		29,489		—		—		—		—		—		29,489
Loans		10,689,732		228,747		1,503,493		9,549		795,302		287,591		13,514,414
Available-for-sale financial assets		6,061,404		101,003		124,045		—		38,606		21,123		6,346,181
Held-to-maturity financial assets		2,313,099		—		44,267		—		4,905		4,242		2,366,513
Other financial assets		1,615,795		453,029		406,793		13,382		226,301		708,965		3,424,265
Total	￦	26,503,019	￦	1,136,687	￦	2,480,054	￦	51,915	￦	1,953,352	￦	1,455,292	￦	33,580,319
Financial liabilities
Financial liabilities designated at fair value through profit or loss	￦	1,840,217	￦	—	￦	—	￦	—	￦	—	￦	—	￦	1,840,217
Derivatives held for trading		109,197		1,399		73,298		—		3,563		183,461		370,918
Derivatives held for hedging		49,962		—		—		—		—		—		49,962
Deposits		8,469,129		759,394		389,049		39,993		1,093,998		590,793		11,342,356
Debts		7,570,727		44,885		102,005		737		—		24,185		7,742,539
Debentures		3,473,284		—		—		—		—		219,376		3,692,660
Other financial liabilities		2,361,161		44,137		887,561		3,339		224,675		302,596		3,823,469
Total	￦	23,873,677	￦	849,815	￦	1,451,913	￦	44,069	￦	1,322,236	￦	1,320,411	￦	28,862,121
Off-balance sheet items	￦	12,852,959	￦	705	￦	2,404	￦	—	￦	257,940	￦	233,509	￦	13,347,517

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	2018
	USD		JPY		EUR		GBP		CNY		Others		Total
	(In millions of Korean won)
Financial Assets
Cash and due from financial institutions	￦	1,950,546	￦	417,682	￦	594,103	￦	120,795	￦	1,145,607	￦	679,759	￦	4,908,492
Financial assets at fair value through profit or loss		6,025,782		87,764		432,047		18,481		8,585		73,759		6,646,418
Derivatives held for trading		163,064		2,947		31,370		308		4,643		18,349		220,681
Derivatives held for hedging		32,996		—		—		—		—		—		32,996
Loans at amortized cost		12,372,434		354,111		807,019		45,335		990,705		515,051		15,084,655
Financial assets measured at fair value through other comprehensive income		3,925,922		36,538		32,842		—		125,571		4,261		4,125,134
Financial assets at amortized cost		2,257,057		—		287,732		—		38,802		27,554		2,611,145
Other financial assets		1,528,235		300,116		24,511		28,080		275,578		234,086		2,390,606
Total	￦	28,256,036	￦	1,199,158	￦	2,209,624	￦	212,999	￦	2,589,491	￦	1,552,819	￦	36,020,127
Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,319,369	￦	—	￦	—	￦	—	￦	—	￦	—	￦	2,319,369
Derivatives held for trading		313,303		39,311		143,836		90		4,062		168,339		668,941
Derivatives held for hedging		88,367		—		—		—		—		—		88,367
Deposits		9,294,189		629,083		592,495		48,418		1,267,102		468,615		12,299,902
Debts		9,427,662		90,778		286,123		220,150		11,393		65,412		10,101,518
Debentures		4,405,842		—		31,979		—		—		266,935		4,704,756
Other financial liabilities		959,797		105,798		136,053		3,659		284,498		159,649		1,649,454
Total		26,808,529		864,970		1,190,486		272,317		1,567,055		1,128,950		31,832,307
Off-balance sheet items	￦	15,211,436	￦	32,619	￦	1,262	￦	—	￦	270,018	￦	228,238	￦	15,743,573

4.5 Operational Risk

4.5.1 Concept

The Group defines operational risk broadly to include all financial and non-financial risks that may arise from operating activities and could cause a negative effect on capital.

4.5.2 Risk Management

The purpose of operational risk management is not only to comply with supervisory and regulatory requirements but also to promote a risk management culture, strengthen internal controls, innovate processes and provide timely feedback to management and employees. In addition, Kookmin Bank established Business Continuity Plans (BCP) to ensure critical business functions can be maintained, or restored, in the event of material disruptions arising from internal or external events. It has constructed replacement facilities as well as has carried out exercise drills for head office and IT departments to test its BCPs.

4.6. Capital Adequacy

The Group complies with the capital adequacy standard established by the Financial Services Commission. The capital adequacy standard is based on Basel III published by Basel Committee on Banking Supervision in Bank of International Settlements in June 2011, and was implemented in Korea in December 2013. The Group is required to maintain a minimum Common Equity Tier 1 ratio of at least 7.125%(2017: 6.250%), a minimum Tier 1 ratio of 8.625%(2017: 7.750%) and a minimum Total Regulatory Capital of 10.625%(2017: 9.75%) as of December 31, 2018.

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The Group’s equity capital is classified into three categories in accordance with the Supervisory Regulations and Detailed Supervisory Regulations on Financial Holding Companies:

• Common Equity Tier 1 Capital: Common equity Tier 1 Capital represents the issued capital that takes the first and proportionately greatest share of any losses and represents the most subordinated claim in liquidation of the Group, and not repaid outside of liquidation. It includes common shares issued, capital surplus, retained earnings, non-controlling interests of consolidated subsidiaries, accumulated other comprehensive income, other capital surplus and others.

• Additional Tier 1 Capital: Additional Tier 1 Capital includes (i) perpetual instruments issued by the Group that meet the criteria for inclusion in Additional Tier 1 capital, and (ii) stock surplus resulting from the issue of instruments included in Additional Tier 1 capital and others.

• Tier 2 Capital: Tier 2 Capital represents the capital that takes the proportionate share of losses in the liquidation of the Group. Tier 2 Capital includes a fund raised by issuing subordinated debentures maturing in not less than five years that meet the criteria for inclusion in Additional Tier 2 capital, and the allowance for loan losses which are accumulated for assets classified as normal or precautionary as a result of classification of asset soundness in accordance with Regulation on Supervision of Financial Holding Companies and others.

Risk weighted asset means the inherent risks in the total assets held by the Group. The Group calculates risk weighted asset by each risk (credit risk, market risk, and operational risk) based on the Supervisory Regulations and Detailed Supervisory Regulations on Financial Holding Companies and uses it for BIS ratio calculation.

The Group assesses and monitors its adequacy of capital by using the internal assessment and management policy of the capital adequacy. The assessment of the capital adequacy is conducted by comparing available capital (actual amount of available capital) and internal capital (amount of capital enough to cover all significant risks under target credit rate set by the Group). The Group monitors the soundness of finance and provides risk adjusted basis for performance review using the assessment of the capital adequacy.

Internal Capital is the amount of capital to prevent the inability of payment due to unexpected loss in the future. The Group measures, allocates and monitors internal capital by risk type and subsidiaries.

The Risk Management Council of the Group determines the Group’s risk appetite and allocates internal capital by risk type and subsidiary. Each subsidiary efficiently operates its capital within a range of allocated internal capital. The Risk Management Department of the Group monitors the limit on internal capital and reports the results to management and the Risk Management Council. The Group maintains the adequacy of capital through proactive review and approval of the Risk Management Committee when the internal capital is expected to exceed the limits due to new business or business expansion.

Details of the Group’s capital adequacy calculation in line with Basel III requirements as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Equity Capital:	￦	32,401,580	￦	34,476,172
Tier 1 Capital		31,059,475		32,993,826
Common Equity Tier 1 Capital		31,059,475		32,993,826
Additional Tier 1 Capital		—		—
Tier 2 Capital		1,342,105		1,482,346
Risk-weighted assets:		212,777,226		236,099,017
Equity Capital (%):		15.23		14.60
Tier 1 Capital (%)		14.6		13.97
Common Equity Tier 1 Capital (%)		14.6		13.97

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5. Segment Information

5.1 Overall Segment Information and Business Segments

The Group classifies reporting segments based on the nature of the products and services provided, the type of customer, and the Group’s management organization.

Banking Business	Corporate Banking	Loans, deposit products and other related financial services to large, small and medium-sized enterprises and SOHO (small office home office)s.
	Retail Banking	Loans, deposit products and other related financial services to individuals and households.
	Other Banking Services	Trading activities in securities and derivatives, funding and other supporting activities.
Securities Business		Investment banking, brokerage services and other supporting activities.
Non-life Insurance Business		The activities within this segment include property insurance and other supporting activities.
Credit Card Business		The activities within this segment include credit sale, cash service, card loan and other supporting activities.
Life Insurance Business		Life insurance and other supporting activities.

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Financial information by business segment for the year ended December 31, 2017, is as follows:

	Banking business
	Corporate Banking			Retail Banking			Other Banking Services			Sub-total			Securities			Non-life Insurance			Credit Card			Life Insurance			Others			Intra-group Adjustments			Total
	(In millions of Korean won)
Operating revenues from external customers	￦	2,128,913		￦	2,710,798		￦	1,405,605		￦	6,245,316		￦	1,074,365		￦	1,121,108		￦	1,276,803		￦	129,513		￦	345,077		￦	—		￦	10,192,182
Intra-segment operating revenues(expenses)		(18,447	)		—			203,310			184,863			(1,157	)		18,039			(194,167	)		(20,515	)		171,422			(158,485	)		—
Sub-total	￦	2,110,466		￦	2,710,798		￦	1,608,915		￦	6,430,179		￦	1,073,208		￦	1,139,147		￦	1,082,636		￦	108,998		￦	516,499		￦	(158,485	)	￦	10,192,182
Net interest income		2,555,780			2,647,768			361,236			5,564,784			598,485			465,268			1,083,665			215,752			316,277			2,383			8,246,614
Interest income		3,584,021			3,935,895			988,977			8,508,893			799,380			465,396			1,341,150			215,777			602,221			(13,760	)		11,919,057
Interest expense		(1,028,241	)		(1,288,127	)		(627,741	)		(2,944,109	)		(200,895	)		(128	)		(257,485	)		(25	)		(285,944	)		16,143			(3,672,443	)
Net fee and commission income		235,210			595,322			394,157			1,224,689			551,619			(97,828	)		132,686			(3,612	)		252,813			(10,343	)		2,050,024
Fee and commission income		315,994			668,227			487,259			1,471,480			637,630			1,532			1,901,112			69			299,783			(323,356	)		3,988,250
Fee and commission expense		(80,784	)		(72,905	)		(93,102	)		(246,791	)		(86,011	)		(99,360	)		(1,768,426	)		(3,681	)		(46,970	)		313,013			(1,938,226	)
Net insurance income		—			—			—			—			—			699,873			19,948			(141,421	)		—			15,310			593,710
Insurance income		—			—			—			—			—			7,947,262			33,579			1,008,329			—			(18,178	)		8,970,992
Insurance expenses		—			—			—			—			—			(7,247,389	)		(13,631	)		(1,149,750	)		—			33,488			(8,377,282	)
Net gains (losses) on financial assets/ liabilities at fair value through profit or loss		(1,750	)		—			(69,457	)		(71,207	)		179,505			40,827			—			7,786			392			46,421			203,724
Net other operating income (expense)		(678,774	)		(532,292	)		922,979			(288,087	)		(256,401	)		31,007			(153,663	)		30,493			(52,983	)		(212,256	)		(901,890	)
General and administrative expenses		(974,096	)		(1,946,640	)		(745,086	)		(3,665,822	)		(734,024	)		(629,469	)		(370,508	)		(72,423	)		(291,240	)		134,822			(5,628,664	)
Operating profit before provision for credit losses		1,136,370			764,158			863,829			2,764,357			339,184			509,678			712,128			36,575			225,259			(23,663	)		4,563,518
Provision (reversal) for credit losses		6,918			(122,107	)		23			(115,166	)		(23,080	)		(8,987	)		(336,884	)		(1,692	)		(62,894	)		459			(548,244	)
Net operating income (expense)		1,143,288			642,051			863,852			2,649,191			316,104			500,691			375,244			34,883			162,365			(23,204	)		4,015,274
Share of profit of associates and joint ventures		—			—			37,571			37,571			535			—			(462	)		—			6,076			40,554			84,274
Net other non-operating income (expense)		1,873			—			(75,340	)		(73,467	)		1,794			11,167			(6,882	)		(289	)		6,582			99,971			38,876
Segment profits before income tax		1,145,161			642,051			826,083			2,613,295			318,433			511,858			367,900			34,594			175,023			117,321			4,138,424
Income tax benefit (expense)		(181,936	)		(102,059	)		(154,595	)		(438,590	)		(46,732	)		(181,488	)		(71,069	)		(13,508	)		(61,610	)		18,034			(794,963	)
Profit for the year		963,225			539,992			671,488			2,174,705			271,701			330,370			296,831			21,086			113,413			135,355			3,343,461
Profit attributable to shareholders of the Parent Company		963,225			539,992			671,488			2,174,705			271,701			330,286			296,831			21,086			113,798			103,031			3,311,438
Profit attributable to non-controlling interests		—			—			—			—			—			84			—			—			(385	)		32,324			32,023
Total assets1		117,904,269			129,438,168			82,423,490			329,765,927			37,351,680			32,351,778			17,658,310			9,125,741			37,439,753			(26,907,580	)		436,785,609
Total liabilities1		102,224,405			147,870,309			54,347,779			304,442,493			32,936,024			29,128,747			13,616,481			8,586,328			15,137,421			(1,106,714	)		402,740,780

¹  Assets and liabilities of the reporting segments are amounts before intra-segment transaction adjustment.

F-71

Financial information by business segment as of and for the year ended December 31, 2018, is as follows:

	Banking business
	Corporate Banking			Retail Banking			Other Banking Services			Sub-total			Securities			Non-life Insurance			Credit Card			Life Insurance			Others			Intra-group adjustment			Total
	(In millions of Korean won)
Operating revenues from external customers	￦	2,318,812		￦	2,989,240		￦	1,271,117		￦	6,579,169		￦	997,898		￦	1,183,394		￦	1,524,695		￦	113,238		￦	461,293		￦	—		￦	10,859,687
Intra-segment operating revenues (expenses)		94,910			—			179,300			274,210			(17,541	)		(20,529	)		(219,680	)		(26,809	)		167,789			(157,440	)		—
	￦	2,413,722		￦	2,989,240		￦	1,450,417		￦	6,853,379		￦	980,357		￦	1,162,865		￦	1,305,015		￦	86,429		￦	629,082		￦	(157,440	)	￦	10,859,687
Net interest income		2,753,928			2,960,598			386,196			6,100,722			542,206			616,173			1,168,284			185,094			291,415			1,034			8,904,928
Interest income		4,267,675			4,547,615			1,204,598			10,019,888			819,462			616,483			1,474,376			185,109			644,975			(25,724	)		13,734,569
Interest expense		(1,513,747	)		(1,587,017	)		(818,402	)		(3,919,166	)		(277,256	)		(310	)		(306,092	)		(15	)		(353,560	)		26,758			(4,829,641	)
Net fee and commission income (expense)		287,978			490,447			344,323			1,122,748			625,729			(147,041	)		264,651			(13,163	)		385,930			4,522			2,243,376
Fee and commission income		381,481			583,213			458,097			1,422,791			734,287			3,238			1,426,436			214			443,455			(312,701	)		3,717,720
Fee and commission expense		(93,503	)		(92,766	)		(113,774	)		(300,043	)		(108,558	)		(150,279	)		(1,161,785	)		(13,377	)		(57,525	)		317,223			(1,474,344	)
Net insurance income (expense)		—			—			—			—			—			611,277			18,386			(139,400	)		1			(148	)		490,116
Insurance income		—			—			—			—			—			10,847,323			32,271			1,132,155			—			(36,679	)		11,975,070
Insurance expense		—			—			—			—			—			(10,236,046	)		(13,885	)		(1,271,555	)		1			36,531			(11,484,954	)
Net gains (losses) on financial instruments at fair value through profit or loss		13,933			—			312,462			326,395			(222,014	)		180,808			3,866			62,779			89,059			(89,590	)		351,303
Net other operating income (expense)		(642,117	)		(461,805	)		407,436			(696,486	)		34,436			(98,352	)		(150,172	)		(8,881	)		(137,323	)		(73,258	)		(1,130,036	)
General and administrative expenses		(1,091,556	)		(1,970,409	)		(705,030	)		(3,766,995	)		(735,227	)		(789,443	)		(404,927	)		(63,406	)		(308,559	)		150,045			(5,918,512	)
Operating profit before provision for credit losses		1,322,166			1,018,831			745,387			3,086,384			245,130			373,422			900,088			23,023			320,523			(7,395	)		4,941,175
Reversal (provision) for credit losses		77,224			(179,229	)		8,089			(93,916	)		(9,993	)		(14,392	)		(431,032	)		(464	)		(124,215	)		318			(673,694	)
Net operating income		1,399,390			839,602			753,476			2,992,468			235,137			359,030			469,056			22,559			196,308			(7,077	)		4,267,481
Share of profit (loss) of associates and joint ventures		—			—			49,698			49,698			175			(16	)		202			—			3,104			(28,903	)		24,260
Net other non-operating income (expense)		(65	)		—			44,237			44,172			13,770			8,085			(33,062	)		(1,402	)		16,465			(38,237	)		9,791
Segment profits before income tax		1,399,325			839,602			847,411			3,086,338			249,082			367,099			436,196			21,157			215,877			(74,217	)		4,301,532
Income tax expense		(386,764	)		(230,891	)		(209,485	)		(827,140	)		(70,222	)		(104,667	)		(149,623	)		(6,332	)		(88,372	)		6,770			(1,239,586	)
Profit for the reporting period		1,012,561			608,711			637,926			2,259,198			178,860			262,432			286,573			14,825			127,505			(67,447	)		3,061,946
Profit attributable to shareholders of the Parent Company		1,012,561			608,711			637,926			2,259,198			178,850			262,267			286,599			14,825			126,021			(66,569	)		3,061,191
Profit (loss) attributable to non-controlling interests		—			—			—			—			10			165			(26	)		—			1,484			(878	)		755
Total assets1		131,303,734			140,814,393			84,841,131			356,959,258			45,086,292			34,785,551			20,528,951			9,680,379			40,399,287			(27,851,420	)		479,588,298
Total liabilities1		123,880,329			152,173,062			54,238,001			330,291,392			40,613,424			31,289,705			16,570,282			9,128,148			17,441,868			(1,459,548	)		443,875,271

¹ Assets and liabilities of the reporting segments are amounts before intra-segment transaction adjustment.

F-72

5.2 Services and Geographical Segments

5.2.1 Services information

Operating revenues from external customers for each service for the year ended December 31, 2016, 2017 and 2018, are as follows:

	2016		2017		2018
	(In millions of Korean won)
Banking service	￦	5,454,100	￦	6,245,316	￦	6,579,169
Securities service		184,856		1,074,365		997,898
Non-life insurance service		—		1,121,108		1,183,394
Credit card service		1,269,573		1,276,803		1,524,695
Life insurance service		139,847		129,513		113,238
Other service		396,566		345,077		461,293
Total	￦	7,444,942	￦	10,192,182	￦	10,859,687

5.2.2 Geographical information

Geographical operating revenues from external customers for the year ended December 31, 2016, 2017 and 2018, and major non-current assets as of December 31, 2016, 2017 and 2018, are as follows:

	2016				2017				2018
	Revenues from external customers		Major non-current assets		Revenues from external customers		Major non-current assets		Revenues From external customers		Major non-current assets
	(In millions of Korean won)
Domestic	￦	7,354,698	￦	4,952,552	￦	10,078,253	￦	7,472,597	￦	10,666,586	￦	8,114,196
United States		10,522		299		17,596		363,330		46,391		370,252
New Zealand		5,422		128		5,855		57		6,213		72
China		47,360		5,038		44,531		4,585		94,996		5,454
Cambodia		6,109		1,216		7,475		1,753		11,062		3,733
United Kingdom		10,987		149		11,547		319		8,119		537
Others		9,844		2,242		26,925		78,142		26,320		584,466
Intra-group adjustment		—		72,971		—		72,455		—		69,011
Total	￦	7,444,942	￦	5,034,595	￦	10,192,182	￦	7,993,238	￦	10,859,687	￦	9,147,721

F-73

6. Financial Assets and Financial Liabilities

6.1 Classification and Fair Value of Financial Instruments

6.1.1 Carrying amount and fair value of financial assets and liabilities as of December 31, 2017 and 2018, are as follows:

	2017
	Carrying amount		Fair value
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	19,817,825	￦	19,805,138
Financial assets held for trading		30,177,293		30,177,293
Debt securities		25,168,338		25,168,338
Equity securities		4,935,100		4,935,100
Others		73,855		73,855
Financial assets designated at fair value through profit or loss		2,050,052		2,050,052
Debt securities		368,820		368,820
Equity securities		67,828		67,828
Derivative-linked securities		1,613,404		1,613,404
Derivatives held for trading		2,998,042		2,998,042
Derivatives held for hedging		312,124		312,124
Loans		290,122,838		289,807,038
Available-for-sale financial assets		48,116,263		48,116,263
Debt securities		38,959,401		38,959,401
Equity securities		9,156,862		9,156,862
Held-to-maturity financial assets		18,491,980		18,483,065
Other financial assets		10,195,015		10,195,015
Total	￦	422,281,432	￦	421,944,030
Financial liabilities
Financial liabilities held for trading	￦	1,944,770	￦	1,944,770
Financial liabilities designated at fair value through profit or loss		10,078,288		10,078,288
Derivatives held for trading		3,054,614		3,054,614
Derivatives held for hedging		88,151		88,151
Deposits		255,800,048		256,222,490
Debts		28,820,928		28,814,801
Debentures		44,992,724		44,400,325
Other financial liabilities		18,330,004		18,328,276
Total	￦	363,109,527	￦	362,931,715

F-74

	2018
	Carrying amount		Fair value
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	20,274,490	￦	20,271,261
Financial assets at fair value through profit or loss		50,987,847		50,987,847
Due from financial institutions		381,719		381,719
Debt securities		48,285,482		48,285,482
Equity securities		1,287,662		1,287,662
Loans		954,176		954,176
Others		78,808		78,808
Derivatives held for trading		1,915,532		1,915,532
Derivatives held for hedging		110,430		110,430
Loans at amortized cost		319,201,603		320,003,844
Securities measured at amortized cost		23,661,522		24,159,137
Financial assets measured at fair value through other comprehensive income		38,003,572		38,003,572
Debt securities		35,243,634		35,243,634
Equity securities		2,370,116		2,370,116
Loans		389,822		389,822
Others		8,133,556		8,133,556
Total	￦	462,288,552	￦	463,585,179
Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,823,820	￦	2,823,820
Financial liabilities designated at fair value through profit or loss		12,503,039		12,503,039
Derivatives held for trading		2,724,994		2,724,994
Derivatives held for hedging		176,253		176,253
Deposits		276,770,449		277,423,194
Debts		33,004,834		33,028,205
Debentures		53,278,697		53,771,564
Other financial liabilities		19,828,307		19,833,885
Total	￦	401,110,393	￦	402,284,954

The fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants. For each class of financial assets and financial liabilities, the Group discloses the fair value of that class of assets and liabilities in a way that permits it to be compared with its carrying amount at the end of each reporting period. The best evidence of fair value of financial instruments is a quoted price in an active market.

F-75

Methods of determining fair value for financial instruments are as follows:

Cash and due from financial institutions	The carrying amounts of cash and demand due from financial institutions and payment due from financial institutions are a reasonable approximation of fair values. These financial instruments do not have a fixed maturity and are receivable on demand. Fair value of ordinary due from financial institutions is measured using DCF model (Discounted Cash Flow Model).
Investment securities	The fair value of financial instruments that are quoted in active markets is determined using the quoted prices. Fair value is determined through the use of external professional valuation institution where quoted prices are not available. The institutions use one or more of the following valuation techniques including DCF Model, Free Cash Flow to Equity Model, Comparable Company Analysis, Dividend Discount Model, Risk Adjusted Discount Rate Method, and Net Asset Value Method.
Loans at amortized cost	DCF model is used to determine the fair value of loans. Fair value is determined by discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at appropriate discount rate.
Derivatives and Financial instruments at fair value through profit or loss	For exchange traded derivatives, quoted price in an active market is used to determine fair value and for OTC derivatives, fair value is determined using valuation techniques. The Group uses internally developed valuation models that are widely used by market participants to determine fair values of plain vanilla OTC derivatives including options, interest rate swaps, and currency swaps, based on observable market parameters. However, some complex financial instruments are valued using appropriate models developed from generally accepted market valuation models including the Finite Difference Method, the Monte Carlo Simulation, Black-Scholes Model, Hull and White Model, Closed Form and Tree Model or valuation results from independent external professional valuation institution.
Deposits	Carrying amount of demand deposits is regarded as representative of fair value because they do not have a fixed maturity and are payable on demand. Fair value of time deposits is determined using a DCF model. Fair value is determined by discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at an appropriate discount rate.
Debts	Carrying amount of overdraft in foreign currency is regarded as representative of fair value because they do not have a fixed maturity and are payable on demand. Fair value of other debts is determined using a DCF model discounting contractual future cash flows at an appropriate discount rate.
Debentures	Fair value is determined by using the valuations of external professional valuation institution, which are calculated using market inputs.
Other financial assets and liabilities	The carrying amounts are reasonable approximation of fair values. These financial instruments are temporary accounts used for other various transactions and their maturities are relatively short or not defined. However, fair value of finance lease liabilities is measured using a DCF model.

F-76

6.1.2 Fair value hierarchy

The Group believes that valuation methods used for measuring the fair values of financial instruments are reasonable and that the fair values recognized in the statements of financial position are appropriate. However, the fair values of the financial instruments recognized in the statements of financial position may be different if other valuation methods or assumptions are used. Additionally, as there is a variety of valuation techniques and assumptions used in measuring fair value, it may be difficult to reasonably compare the fair value with that of other financial institutions.

The Group classifies and discloses fair value of the financial instruments into the three-level hierarchy as follows:

Level 1: The fair values are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2: The fair values are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: The fair values are based on unobservable inputs for the asset or liability

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety shall be determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

F-77

Fair value hierarchy of financial assets and liabilities measured at fair value in the statements of financial position

The fair value hierarchy of financial assets and liabilities measured at fair value in the statements of financial position as of December 31, 2017 and 2018, is as follows:

	2017
	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	(In millions of Korean won)
Financial assets
Financial assets held for trading
Debt securities	￦	7,814,921	￦	17,353,417	￦	—	￦	25,168,338
Equity securities		2,340,497		2,594,603		—		4,935,100
Others		73,855		—		—		73,855
Sub-total		10,229,273		19,948,020		—		30,177,293
Financial assets designated at fair value through profit or loss
Debt securities		—		66,969		301,851		368,820
Equity securities		—		—		67,828		67,828
Derivative-linked securities		—		668,739		944,665		1,613,404
Sub-total		—		735,708		1,314,344		2,050,052
Derivatives held for trading		80,678		2,720,285		197,079		2,998,042
Derivatives held for hedging		—		311,349		775		312,124
Available-for-sale financial assets1
Debt securities		10,446,001		28,464,019		49,381		38,959,401
Equity securities		1,550,766		1,789,501		5,816,595		9,156,862
Sub-total		11,996,767		30,253,520		5,865,976		48,116,263
Total	￦	22,306,718	￦	53,968,882	￦	7,378,174	￦	83,653,774
Financial liabilities
Financial liabilities held for trading	￦	1,944,770	￦	—	￦	—	￦	1,944,770
Financial liabilities designated at fair value through profit or loss		843		1,389,553		8,687,892		10,078,288
Derivatives held for trading		272,766		2,717,862		63,986		3,054,614
Derivatives held for hedging		—		88,081		70		88,151
Total	￦	2,218,379	￦	4,195,496	￦	8,751,948	￦	15,165,823

¹  The amounts of equity securities carried at cost in “Level 3”, which do not have a quoted market price in an active market and cannot be measured reliably at fair value, are ¥ 116,629 as of December 31, 2017. These equity securities are carried at cost because it is practically difficult to quantify the intrinsic values of the equity securities issued by unlisted public and non-profit entities. In addition, due to significant fluctuations in estimated cash flows arising from entities being in its initial stages, which further results in varying and unpredictable probabilities, unlisted equity securities issued by project financing cannot be reliably and reasonably assessed. Therefore, these equity securities are carried at cost. The Group has no plan to sell these instruments in the near future.

F-78

	2018
	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	(In millions of Korean won)
Financial assets
Financial assets at fair value through profit or loss
Due from financial institutions	￦	—	￦	332,976	￦	48,743	￦	381,719
Debt securities		11,312,317		29,879,850		7,093,315		48,285,482
Equity securities		737,808		178,309		371,545		1,287,662
Loans		—		740,973		213,203		954,176
Others		78,808		—		—		78,808
Sub-total		12,128,933		31,132,108		7,726,806		50,987,847
Derivatives held for trading		67,436		1,737,033		111,063		1,915,532
Derivatives held for hedging		—		110,430		—		110,430
Financial assets measured at fair value through other comprehensive income
Debt securities		9,542,948		25,700,686		—		35,243,634
Equity securities		971,367		66,031		1,332,718		2,370,116
Loans		—		389,822		—		389,822
Sub-total		10,514,315		26,156,539		1,332,718		38,003,572
Total	￦	22,710,684	￦	59,136,110	￦	9,170,587	￦	91,017,381
Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,823,820	￦	—	￦	—	￦	2,823,820
Financial liabilities designated at fair value through profit or loss		126		1,629,530		10,873,383		12,503,039
Derivatives held for trading		479,264		1,834,536		411,194		2,724,994
Derivatives held for hedging		—		176,253		—		176,253
Total	￦	3,303,210	￦	3,640,319	￦	11,284,577	￦	18,228,106

F-79

Valuation techniques and the inputs used in the fair value measurement classified as Level 2

Financial assets and liabilities measured at fair value classified as Level 2 in the statements of financial position as of December 31, 2017 and 2018, are as follows:

	2017
	Fair value		Valuation techniques	Inputs
	(In millions of Korean won)
Financial assets
Financial assets held for trading
Debt securities	￦	17,353,417	DCF Model, option model	Underlying asset Index, Discount rate, Volatility
Equity securities		2,594,603	DCF Model, Net Asset Value, Option Model	Underlying asset Index, Volatility, Discount rate, Fair value of underlying asset
Sub-total		19,948,020
Financial assets designated at fair value through profit or loss
Debt securities		66,969	DCF Model, Hull and White Model,	Discount rate, Volatility
Derivative-linked securities		668,739	DCF Model, Closed Form, Monte Carlo Simulation, Option Model	Underlying asset Index, Discount rate, Volatility
Sub-total		735,708
Derivatives held for trading		2,720,285	DCF Model, Closed Form, FDM, Monte Carlo Simulation, Black-Scholes Model, Hull and White Model and Others	Underlying asset Index, Discount rate, Volatility, Foreign exchange rate, Stock price, Dividend rate and others
Derivatives held for hedging		311,349	DCF Model, Closed Form, FDM	Discount rate, Volatility, Foreign exchange rate and others
Available-for-sale financial assets
Debt securities		28,464,019	DCF Model, option model, Net Asset Value	Discount rate
Equity securities		1,789,501	DCF Model, Option Model, Net Asset Value	Discount rate, Fair value of underlying asset
Sub-total		30,253,520
Total	￦	53,968,882
Financial liabilities
Financial liabilities designated at fair value through profit or loss
Derivative-linked securities	￦	1,389,553	DCF Model, Closed Form, FDM, Monte Carlo Simulation, Black-Scholes Model, Hull and White Model and others	Price of Underlying asset, Discount rate, Dividend rate, Volatility
		1,389,553
Derivatives held for trading		2,717,862	DCF Model, Closed Form, FDM, Monte Carlo Simulation, Black-Scholes Model, Hull and White Model, Option Valuation Model and others	Discount rate, Price of Underlying asset , Volatility, Foreign exchange rate, Credit Spread, Stock price and others
Derivatives held for hedging		88,081	DCF Model, Closed Form, FDM	Discount rate, Volatility, Foreign exchange rate and others
Total	￦	4,195,496

F-80

	2018
	Fair value		Valuation techniques	Inputs
	(In millions of Korean won)
Financial assets
Financial assets at fair value through profit or loss
Due from financial institutions	￦	332,976	One factor Hull-White Model, DCF Model	Discount rate, Volatility and others
Debt securities		29,879,850	DCF Model, Closed Form, Monte Carlo Simulation, Black-Scholes Model, Hull and White Model, Net Asset Value and others	Projected cash flow, Fair value of underlying asset, Dividend yield, Interest rate, Underlying asset price, Discount rate, Volatility and others
Equity securities		178,309	DCF Model	Interest rate, Discount rate and others
Loans		740,973	DCF Model	Interest rate, Discount rate and others
Sub-total		31,132,108
Derivatives held for trading		1,737,033	DCF Model, FDM, Closed Form, Option Model, Monte Carlo Simulation, Black-Scholes Model, Hull and White Model and others	Underlying asset Index, Discount rate, Volatility, Foreign exchange rate, Stock price, Dividend rate and others
Derivatives held for hedging		110,430	DCF Model, Closed Form, FDM	Discount rate, Volatility, Foreign exchange rate and Others
Financial assets measured at fair value through other comprehensive income
Debt securities		25,700,686	DCF Model, Option model, Market value approach	Discount rate, Underlying asset Index, Volatility, Interest rate and others
Equity securities		66,031	DCF Model, Black-Scholes Model	Discount rate, Volatility, Price of Underlying asset and others
Loans		389,822	DCF Model	Discount rate
Sub-total		26,156,539
Total	￦	59,136,110
Financial liabilities
Financial liabilities designated at fair value through profit or loss		1,629,530	DCF Model, Closed Form, Monte Carlo Simulation, Black-Scholes Model, Hull and White Model and others	Price of Underlying asset, Discount rate, Dividend rate, Volatility
Derivatives held for trading		1,834,536	DCF Model, Closed Form, FDM and others	Discount rate, Price of Underlying asset , Volatility, Foreign exchange rate, Credit Spread, Stock price and others
Derivatives held for hedging		176,253	DCF Model, Closed Form, FDM and others	Discount rate, Volatility, Foreign exchange rate and others
Total	￦	3,640,319

F-81

Fair value hierarchy of financial assets and liabilities whose fair values are disclosed

The fair value hierarchy of financial assets and liabilities whose fair values are disclosed as of December 31, 2017 and 2018, are as follows:

	2017
	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions1	￦	2,754,086	￦	15,281,705	￦	1,769,347	￦	19,805,138
Loans		—		569,625		289,237,413		289,807,038
Held-to-maturity financial assets		4,825,393		13,653,429		4,243		18,483,065
Other financial assets2		—		—		10,195,015		10,195,015
Total	￦	7,579,479	￦	29,504,759	￦	301,206,018	￦	338,290,256
Financial liabilities
Deposits1	￦	—	￦	125,154,284	￦	131,068,206	￦	256,222,490
Debts3		—		853,615		27,961,186		28,814,801
Debentures		—		41,058,076		3,342,249		44,400,325
Other financial liabilities4		—		—		18,328,276		18,328,276
Total	￦	—	￦	167,065,975	￦	180,699,917	￦	347,765,892

¹ The amounts included in Level 2 are the carrying amounts which are reasonable approximations of the fair values.

² Other financial assets of ￦ 10,195,015 million included in Level 3 are the carrying amounts which are reasonable approximation of fair values as of December 31, 2017.

³ Debts of ￦ 19,820 million included in Level 2 is the carrying amounts which are reasonable approximation of fair values as of December 31, 2017.

⁴ Other financial liabilities of ￦ 17,882,909 million included in Level 3 is the carrying amounts which are reasonable approximation of fair values as of December 31, 2017.

F-82

	2018
	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions1	￦	3,338,863	￦	14,632,352	￦	2,300,046	￦	20,271,261
Loans at amortized cost		—		493,773		319,510,071		320,003,844
Securities measured at amortized cost		8,629,708		15,529,429		—		24,159,137
Other financial assets2		—		—		8,133,556		8,133,556
Total	￦	11,968,571	￦	30,655,554	￦	329,943,673	￦	372,567,798
Financial liabilities
Deposits1	￦	—	￦	127,265,703	￦	150,157,491	￦	277,423,194
Debts3		—		1,114,900		31,913,305		33,028,205
Debentures		—		48,680,196		5,091,368		53,771,564
Other financial liabilities4		—		—		19,833,885		19,833,885
Total	￦	—	￦	177,060,799	￦	206,996,049	￦	384,056,848

¹ The amounts included in Level 2 are the carrying amounts which are reasonable approximations of the fair values.

² Other financial assets of ￦ 8,133,556 million included in Level 3 are the carrying amounts which are reasonable approximation of fair values as of December 31, 2018.

³ Debts of ￦ 38,403 million included in Level 2 is the carrying amounts which are reasonable approximation of fair values as of December 31, 2018.

⁴ Other financial liabilities of ￦ 19,250,252 million included in Level 3 is the carrying amounts which are reasonable approximations of fair values as of December 31, 2018.

F-83

Valuation techniques and the inputs used in the fair value measurement

Financial assets and liabilities whose carrying amount is a reasonable approximation of fair value are not subject to disclose valuation techniques and inputs.

Valuation techniques and inputs of financial assets and liabilities whose fair values are disclosed and classified as Level 2 as of December 31, 2017 and 2018, are as follows:

	2017
	Fair value		Valuation technique		Inputs
	(In millions of Korean won)
Financial assets
Loans	￦	569,625		DCF Model		Discount rate
Held-to-maturity financial assets		13,653,429		DCF Model		Discount rate
Financial liabilities
Debts		833,795		DCF Model		Discount rate
Debentures		41,058,076		DCF Model		Discount rate

	2018
	Fair value		Valuation technique		Inputs
	(In millions of Korean won)
Financial assets
Loans at amortized cost	￦	493,773		DCF Model		Discount rate
Securities measured at amortized cost		15,529,429		DCF Model		Discount rate
Financial liabilities
Debts		1,076,497		DCF Model		Discount rate
Debentures		48,680,196		DCF Model		Discount rate

Valuation techniques and inputs of financial assets and liabilities whose fair values are disclosed and classified as Level 3 as of December 31, 2017 and 2018, are as follows:

	2017
	Fair value		Valuation technique	Inputs
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	1,769,347	DCF Model	Credit spread, Other spread, Interest rates
Loans		289,237,413	DCF Model	Credit spread, Other spread, Early termination ratio, Interest rates
Held-to-maturity financial assets		4,243	DCF Model	Interest rates
Total	￦	291,011,003
Financial liabilities
Deposits	￦	131,068,206	DCF Model	Other spread, Early termination ratio, Interest rates
Debts		27,961,186	DCF Model	Other spread, Interest rates
Debentures		3,342,249	DCF Model	Other spread, Implied default probability, Interest rates
Other financial liabilities		445,367	DCF Model	Other spread, Interest rates
Total	￦	162,817,008

F-84

	2018
	Fair value		Valuation technique	Inputs
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	2,300,046	DCF Model	Credit spread, Other spread, Interest rates
Loans		319,510,071	DCF Model	Credit spread, Other spread, Early termination ratio, Interest rates
Total	￦	321,810,117
Financial liabilities
Deposits	￦	150,157,491	DCF Model	Other spread, Interest rates, Early termination ratio
Debts		31,913,305	DCF Model	Other spread, Interest rates
Debentures		5,091,368	DCF Model	Other spread, Interest rates
Other financial liabilities		583,633	DCF Model	Other spread, Interest rates
Total	￦	187,745,797

6.2 Level 3 of the Fair Value Hierarchy Disclosure

6.2.1 Valuation policy and process for fair value measurement categorized within Level 3

The Group uses external, independent and qualified third-party valuation service in addition to internal valuation models to determine the fair value of the Group’s assets at the end of every reporting period.

Where a reclassification between the levels of the fair value hierarchy occurs for a financial asset or liability, the Group’s policy is to recognize such transfers as having occurred at the beginning of the reporting period.

F-85

6.2.2 Changes in fair value (Level 3) measured using valuation technique based on unobservable in market

Details of changes in Level 3 of the fair value hierarchy for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Financial assets at fair value through profit or loss			Financial investments			Financial liabilities at fair value through profit or loss			Net derivatives financial instruments
	Designated at fair value through profit or loss			Available-for-sale financial assets			Designated at fair value through profit or loss			Derivatives held for trading			Derivatives held for hedging
	(In millions of Korean won)
Beginning balance	￦	763,272		￦	3,072,292		￦	(7,797,139	)	￦	(64,910	)	￦	1,277
Total gains or losses
—Profit or loss		52,936			(20,827	)		(846,704	)		504,627			(408	)
—Other comprehensive income		—			6,356			—			—			—
Purchases		1,315,500			1,713,098			—			35,649			—
Sales		(1,076,928	)		(916,778	)		—			(270,435	)		—
Issues		—			—			(11,528,433	)		(67,958	)		—
Settlements		(264,816	)		—			11,484,384			(3,760	)		(164	)
Transfers into Level 31		—			14,168			—			—			—
Transfers out of Level 31		—			(922	)		—			(642	)		—
Business combination		524,380			2,038,779			—			522			—
Changes from replacement of assets Of disposal group as held for sale		—			(40,190	)		—			—			—
Ending balance	￦	1,314,344		￦	5,865,976		￦	(8,687,892	)	￦	133,093		￦	705

¹ The Changes in levels for the financial instruments occurred due to the change in the availability of observable market data.

F-86

	2018
	Financial assets at fair value through profit or loss									Financial investments			Financial liabilities at fair value through profit or loss			Net derivative financial instruments
	Cash and due from financial institutions at fair value through profit or loss			Securities measured at fair value through profit or loss			Loans at fair value through profit or loss			Financial assets measured at fair value through other comprehensive income			Financial liabilities designated at fair value through profit or loss			Derivatives held for trading			Derivatives held for fair value hedging
	(In millions of Korean won)
Beginning2	￦	48,243		￦	6,106,716		￦	133,309		￦	1,187,217		￦	(8,687,892	)	￦	96,354		￦	705
Total gains or losses
—Profit or loss		537			178,569			4,367			—			27,583			(247,194	)		(116	)
—Other comprehensive income		(37	)		60,624			—			142,415			(8,597	)		—			—
Purchases		—			3,011,701			184,655			83,566			—			7,706			—
Sales		—			(1,855,118	)		(109,128	)		(80,480	)		—			(90,270	)		—
Issues		—			—			—			—			(11,090,504	)		(76,519	)		—
Settlements		—			—			—			—			8,886,027			12,803			(589	)
Transfers into Level 31		—			2,103			—			—			—			(3,011	)		—
Transfers out of Level 31		—			(39,735	)		—			—			—			—			—
Ending	￦	48,743		￦	7,464,860		￦	213,203		￦	1,332,718		￦	(10,873,383	)	￦	(300,131	)	￦	—

¹  The changes in levels for the financial instruments occurred due to the change in the availability of observable market data.

²  Prepared in accordance with IFRS 9.

F-87

In relation to changes in Level 3 of the fair value hierarchy, total gains or losses recognized in profit or loss for the period, and total gains or losses for the period included in profit or loss for financial instruments held at the end of the reporting period in the statements of comprehensive income for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016
	Net income(loss) from financial investments at fair value through profit or loss			Other operating income(loss)			Net interest income
	(In millions of Korean won)
Total gains or losses included in profit or loss for the period	￦	(294,432	)	￦	(11,375	)	￦	13
Total gains or losses for the period included in profit or loss for financial instruments held at the end of the reporting period		(89,797	)		(15,306	)		—

	2017
	Net income(loss) from financial investments at fair value through profit or loss			Other operating income(loss)			Net interest income
	(In millions of Korean won)
Total gains or losses included in profit or loss for the period	￦	(289,141	)	￦	(21,235	)	￦	—
Total gains or losses for the period included in profit or loss for financial instruments held at the end of the reporting period		48,333			(90,103	)		—

	2018
	Net income(loss) from financial investments at fair value through profit or loss			Other operating income(loss)			Net interest income
	(In millions of Korean won)
Total gains or losses included in profit or loss for the period	￦	(36,466	)	￦	(405	)	￦	617
Total gains or losses for the period included in profit or loss for financial instruments held at the end of the reporting period		144,674			(289	)		43

F-88

6.2.3 Sensitivity Analysis of Changes in Unobservable Inputs

Information about fair value measurements using unobservable inputs as of December 31, 2017 and 2018, are as follows:

	2017
	Fair value		Valuation technique	Unobservable inputs	Range of unobservable inputs(%)		Relationship of unobservable inputs to fair value
	(In millions of Korean won)
Financial assets
Financial assets designated at fair value through profit or loss
Debt securities	￦	301,851	Tree Model, DCF Model, Hull and White Model	Volatility of the underlying asset		9.96~29.53	The higher the volatility, the higher the fair value fluctuation
Equity securities		67,828	Tree Model	Volatility of the underlying asset		11.45~24.01	The higher the volatility, the higher the fair value fluctuation
Derivative-linked securities		944,665	DCF Model, Closed Form, FDM, Monte Carlo Simulation, Hull and White Model, Black-Scholes Model, Option Model, Tree Model	Volatility of the underlying asset		10.00~30.07	The higher the volatility, the higher the fair value fluctuation
				Recovery rate		40.00	The higher the recovery rate, the higher the fair value
				Correlation between underlying assets		8.27~90.00	The higher the correlation, the higher the fair value fluctuation
Derivatives held for trading
Stock and index		138,972	DCF Model, FDM, Closed Form, Monte Carlo Simulation, Hull and White Model, Black-Scholes Model, Tree Model	Volatility of the underlying asset		1.00~39.00	The higher the volatility, the higher the fair value fluctuation
				Correlation between underlying assets		3.00~67.00	The higher the value of correlation, the higher the fair value fluctuation
Currency, Interest rate and others		58,107	DCF Model, Closed Form, Monte Carlo Simulation, Hull and White Model, Black-Scholes Model, Tree Model, Option Model	Loss given default		0.56	The higher the loss given default, the lower the fair value
				Volatility of the interest rate		0.47	The higher the volatility, the higher the fair value fluctuation
				Volatility of the underlying asset		3.00~51.00	The higher the volatility, the higher the fair value fluctuation
				Correlation between underlying assets		-13.00~90.00	The higher the absolute value of correlation, the higher the fair value fluctuation

F-89

	2017
	Fair value		Valuation technique	Unobservable inputs	Range of unobservable inputs(%)		Relationship of unobservable inputs to fair value
	(In millions of Korean won)
Derivatives held for hedging
Interest rate		775	DCF Model, Closed Form, FDM, Monte Carlo Simulation	Volatility of the underlying asset		3.02	The higher the volatility, the higher the fair value fluctuation
Available-for-sale financial assets
Debt securities		49,381	DCF Model, Option Model, Net asset value method, Market approach	Discount rate		2.57~11.08	The lower the discount rate, the higher the fair value
				Volatility		15.26~30.07	The Volatility is different for each item
				Correlation between underlying assets		48.82~82.16	The coefficient of correlation is different for each item
				Growth rate		0.00~2.20	The higher the growth rate, the higher the fair value
Equity securities		5,816,595	DCF Model, Comparable Company Analysis, Adjusted discount rate method, Dividend Discount Model, Net asset value method, Discounted cash flows to equity, Income approach, Market approach, One Factor Hull-White Model, Usage of past transactions, Cost methods, Asset value approach, Tree Model and others	Growth rate		-1.00~1.00	The higher the growth rate, the higher the fair value
				Discount rate		-1.00~52.68	The lower the discount rate, the higher the fair value
				Asset value		-1.00~1.00	The higher the asset value, the higher the fair value
				Correlation between underlying assets		48.82~82.16	The coefficient of correlation is different for each item
				Volatility		15.26~30.07	The Volatility is different for each item
Total	￦	7,378,174
Financial liabilities
Financial liabilities designated at fair value through profit or loss
Derivative-linked securities	￦	8,687,892	DCF Model, Closed Form, FDM, Monte Carlo Simulation, Hull and White Model, Black Scholes-Model	Volatility of the underlying asset		1.00~52.00	The higher the volatility, the higher the fair value fluctuation
				Correlation between underlying assets		-13.42~90.24	The higher the absolute value of correlation, the higher the fair value fluctuation
Derivatives held for trading
Stock and index		14,796	DCF Model, Closed Form, Monte Carlo Simulation, FDM	Volatility of the underlying asset		1.00~33.00	The higher the volatility, the higher the fair value fluctuation
				Correlation between underlying assets		7.00~67.00	The higher the correlation, the higher the fair value fluctuation

F-90

	2017
	Fair value		Valuation technique	Unobservable inputs	Range of unobservable inputs(%)		Relationship of unobservable inputs to fair value
	(In millions of Korean won)
Others		49,190	DCF Model, Closed Form, Monte Carlo Simulation, Hull and White Model, Option Model	Volatility of the stock price		15.84	The higher the volatility, the higher the fair value fluctuation
				Volatility of the interest rate		0.47	The higher the volatility, the higher the fair value fluctuation
				Discount rate		2.57~2.69	The lower the discount rate, the higher the fair value
				Volatility of the underlying asset		1.00~49.00	The higher the volatility, the higher the fair value fluctuation
				Correlation between underlying assets		25.00~90.00	The higher the correlation, the higher the fair value fluctuation
Derivatives held for hedging
Interest rate		70	DCF Model, Closed Form, FDM, Monte Carlo Simulation, Tree Model	Volatility of the underlying asset		2.64	The higher the volatility, the higher the fair value fluctuation
Total	￦	8,751,948

	2018
	Fair value		Valuation technique	Unobservable inputs	Range of unobservable inputs(%)		Relationship of unobservable inputs to fair value
	(In millions of Korean won)
Financial assets
Financial assets at fair value through profit or loss
Cash and due from financial
institutions	￦	48,743	DCF Model, Option Model, Net Asset Value, Income approach, Market approach	Volatility of the underlying asset		11.25~31.28	The higher the volatility, the higher the fair value fluctuation
				Correlation		8.79~79.78	The higher the correlation, the higher the fair value fluctuation
				Recovery rate		40.00	The higher the recovery rate, the higher the fair value
				Discount rate		1.19~11.30	The lower the discount rate, the higher the fair value
				Growth rate		0.29~2.20	The higher the growth rate, the higher the fair value

F-91

	2018
	Fair value		Valuation technique	Unobservable inputs	Range of unobservable inputs(%)	Relationship of unobservable inputs to fair value
	(In millions of Korean won)
Debt securities		7,093,315	DCF Model, Closed Form, FDM, Monte Carlo Simulation, Hull-White Model, Black-Scholes Model, Option Model, Tree Model, Net Asset Value, Income approach, Market approach and others	Growth rate	0.29~2.20	The higher the growth rate, the higher the fair value
				Volatility of the underlying asset	11.25~41.00	The higher the volatility, the higher the fair value fluctuation
				Value of Real estate	-1.00~1.00	The higher the value of Real estate, the higher the fair value
				Discount rate	1.95~11.30	The lower the discount rate, the higher the fair value
				Recovery rate	40.00	The higher the recovery rate, the higher the fair value
				Correlation between underlying asset	8.79~88.46	The higher the correlation, the higher the fair value fluctuation
Equity securities		371,545	Income approach, Market approach, Asset value approach, DCF Model, Comparable Company Analysis, Adjusted discount rate method, Dividend Discount Model, Usage of past transactions, Tree Model and others	Growth rate	0~2.20	The higher the growth rate, the higher the fair value
				Discount rate	1.19~21.96	The lower the discount rate, the higher the fair value
				Liquidation value	-1.00~1.00	The higher the liquidation value, the higher the fair value
				Volatility	11.25~39.94	The higher the volatility, the higher the fair value fluctuation
				Correlation	8.79~79.78	The higher the correlation, the higher the fair value fluctuation
				Recovery rate	40	The higher the recovery rate, the higher the fair value
Loans		213,203	Tree Model	Stock price, Volatility of the stock price	13.11~49.28	The higher the volatility, the higher the fair value fluctuation
Derivatives held for trading
Stock and index		50,824	DCF Model, Closed Form, FDM, Monte Carlo Simulation, Hull and White Model, Black-Scholes Model, Tree Model	Volatility of the underlying asset	14.00~50.00	The higher the volatility, the higher the fair value fluctuation
				Correlation between underlying asset	8.74~68.77	The higher the correlation, the higher the fair value fluctuation
Currency, interest rate and others		60,239	DCF Model, Hull and White Model, Monte Carlo Simulation, Tree Model	Loss given default	100.00	The higher the loss given default, the lower the fair value
				Volatility	1.00~36.00	The higher the volatility, the higher the fair value fluctuation
				Correlation between underlying asset	-46.89~90.11	The higher the absolute value of correlation, the higher the fair value fluctuation

F-92

	2018
	Fair value		Valuation technique	Unobservable inputs	Range of unobservable inputs(%)		Relationship of unobservable inputs to fair value
	(In millions of Korean won)
Financial assets measured at fair value through other comprehensive income
Equity securities		1,332,718	Adjusted discount rate method, IMV Model, DCF Model, Comparable Company Analysis, Dividend discount model, Option Model, Net asset value method, Market approach, One Factor Hull-White Model and others	Growth rate		0~2.20	The higher the growth rate, the higher the fair value
				Discount rate		7.05~16.30	The lower the discount rate, the higher the fair value
				Volatility		17.62~25.14	The higher the volatility, the higher the fair value fluctuation
Total	￦	9,170,587
Financial liabilities
Financial liabilities designated at fair value through profit or loss
Derivative-linked securities	￦	10,873,383	DCF Model, Closed Form, FDM, Monte Carlo Simulation, Hull and White Model, Black Scholes-Model	Volatility of the underlying asset		1.00~115.00	The higher the volatility, the higher the fair value fluctuation
				Correlation between underlying asset		-49.00~90.11	The higher the absolute value of correlation, the higher the fair value fluctuation
Derivatives held for trading
Stock and index		240,817	DCF Model, Closed Form, FDM, Monte Carlo Simulation, Hull and White Model, Black-Scholes Model, Tree Model	Volatility		2.00~54.00	The higher the volatility, the higher the fair value fluctuation
				Correlation between underlying asset		4.27~70.17	The higher the correlation, the higher the fair value fluctuation
Others		170,377	Monte Carlo Simulation, Hull and White Model, DCF Model, Closed form formula	Volatility		1.00~115.00	The higher the volatility, the higher the fair value fluctuation
				Volatility of the stock price		20.85	The higher the volatility, the higher the fair value fluctuation
				Volatility of the interest rate		0.69	The higher the volatility, the higher the fair value fluctuation
				Discount rate		2.19~2.26	The lower the discount rate, the higher the fair value
				Correlation between underlying asset		-49.00~90.11	The higher the absolute value of correlation, the higher the fair value fluctuation
Total	￦	11,284,577

F-93

Sensitivity analysis of changes in unobservable inputs

Sensitivity analysis of financial instruments is performed to measure favorable and unfavorable changes in the fair value of financial instruments which are affected by the unobservable parameters, using a statistical technique. When the fair value is affected by more than two input parameters, the amounts represent the most favorable or most unfavorable Level 3 financial instruments subject to sensitivity analysis are (i) equity-related derivatives, currency-related derivatives and interest rate related derivatives whose fair value changes are recognized in profit or loss, (ii) financial liabilities designated at fair value through profit or loss, and (iii) due from financial institutions, debt securities, equity securities and loan receivables whose fair value changes are recognized in profit or loss or other comprehensive income. If overlay approach is applied in accordance with IFRS 4, changes in fair value of financial assets at fair value through profit or loss are recognized as other comprehensive income.

The results of the sensitivity analysis from changes in inputs are as follows:

	2017
	Recognition in profit or loss					Other comprehensive income
	Favorable changes		Unfavorable changes			Favorable changes		Unfavorable changes
	(In millions of Korean won)
Financial assets
Financial assets designated at fair value through profit or loss1
Debt securities	￦	3,220	￦	(2,563	)	￦	—	￦	—
Equity securities		654		(626	)		—		—
Derivative-linked securities		6,906		(6,820	)		—		—
Derivatives held for trading2		25,616		(28,488	)		—		—
Available-for-sale financial assets
Debt securities3		—		—			205		(51	)
Equity securities4		—		—			126,916		(71,396	)
Total	￦	36,396	￦	(38,497	)	￦	127,121	￦	(71,447	)
Financial liabilities
Financial liabilities designated at fair value through profit or loss1	￦	40,020	￦	(36,757	)	￦	—	￦	—
Derivatives held for trading2		11,091		(10,827	)		—		—
Derivatives held for hedging2		2		(2	)		—		—
Total	￦	51,113	￦	(47,586	)	￦	—	￦	—

¹  For financial assets designated at fair value through profit or loss, the changes in fair value are calculated by shifting principal unobservable input parameters such as volatility of the underlying asset or correlation between underlying asset by ± 10%.

²  For stock and index-related derivatives, the changes in fair value are calculated by shifting principal unobservable input parameters such as the correlation of rates of return on stocks and the volatility of the underlying asset by ± 10%. For currency-related derivatives, the changes in fair value are calculated by shifting the unobservable input parameters, such as the loss given default ratio by ± 1%. For interest rate-related derivatives, the correlation of the interest rates or the volatility of the underlying asset is shifted by ± 10% to calculate the fair value changes.

³ For debt securities, the changes in fair value are calculated by shifting principal unobservable input parameters; such as, discount rate by ± 1%.

⁴  For equity securities, the changes in fair value are calculated by shifting principal unobservable input parameters such as correlation between growth rate (0~0.5%) and discount rate, liquidation value (-1~1%) and discount rate, or recovery rate of receivables’ acquisition cost (-1~1%). Sensitivity of fair values to unobservable parameters of private equity fund is practically impossible, but in the case of equity fund composed of real estates, the changes in fair value are calculated by shifting correlation between discount rate (-1~1%) and volatilities of real estate price (-1~1%).

F-94

	2018
	Recognition in profit or loss					Other comprehensive income
	Favorable changes		Unfavorable changes			Favorable changes		Unfavorable changes
	(In millions of Korean won)
Financial assets
Financial assets at fair value through profit or loss1
Due from financial institutions	￦	4	￦	(2	)	￦	32	￦	(47	)
Debt securities4		20,261		(17,885	)		2,183		(2,097	)
Equity securities3		14,241		(10,162	)		848		(656	)
Loans		129		(46	)		—		—
Derivatives held for trading2		27,639		(26,155	)		—		—
Financial assets measured at fair value through other comprehensive income Equity securities3		—		—			162,563		(86,094	)
	￦	62,274	￦	(54,250	)	￦	165,626	￦	(88,894	)
Financial liabilities
Financial liabilities designated at fair value through profit or loss1	￦	146,135	￦	(157,361	)	￦	—	￦	—
Derivatives held for trading2		112,827		(105,875	)		—		—
	￦	258,962	￦	(263,236	)	￦	—	￦	—

¹  For financial instruments at fair value through profit or loss, the changes in fair value are calculated by shifting principal unobservable input parameters such as volatility of the underlying asset or correlation between underlying asset by ± 10%.

²  For Derivatives financial instruments, the changes in fair value are calculated by shifting principal unobservable input parameters; such as, price of underlying asset, volatility of stock price, interest rate by ± 10% and the loss given default ratio, discount rate by ± 1%

³  For equity securities, the changes in fair value are calculated by shifting principal unobservable input parameters; such as, correlation between growth rate (0~2.2%) and discount rate, or liquidation value (-1~1%) and discount rate.

⁴  Sensitivity of fair values to unobservable parameters of private equity fund is practically impossible, but in the case of equity fund composed of real estates, the changes in fair value are calculated by shifting correlation between discount rate (-1~1%) and volatilities of real estate price (-1~1%).

6.2.4 Day One Gain or Loss

If the Group uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of financial instruments, there could be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the fair value of financial instruments is recognized as the transaction price, and the difference is deferred and not recognized in profit or loss, and is amortized by using the straight-line method over the life of the financial instrument. When the fair value of the financial instruments is subsequently determined using observable market inputs, the remaining deferred amount is recognized in profit or loss.

The aggregate difference yet to be recognized in profit or loss at the beginning and end of the period and a reconciliation of changes in the balance of this difference for the years ended December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Balance at the beginning of the period	￦	39,033		￦	22,814
New transactions and others		58,445			131,504
Changes during the period		(74,664	)		(92,163	)
Balance at the end of the year	￦	22,814		￦	62,155

F-95

6.3 Carrying Amounts of Financial Instruments by Category

Financial assets and liabilities are measured at fair value or amortized cost. The measurement methodology by categories of financial instruments is addressed at Note 3.

The carrying amounts of financial assets and liabilities by category as of December 31, 2017 and 2018, are as follows:

	2017
	Financial assets at fair value through profit or loss
	Held for trading		Designated at fair value through profit or loss		Loans and receivables		Available- for-sale financial assets		Held-to- Maturity financial assets		Derivatives held for hedging		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	—	￦	—	￦	19,817,825	￦	—	￦	—	￦	—	￦	19,817,825
Financial assets at fair value through profit or loss		30,177,293		2,050,052		—		—		—		—		32,227,345
Derivatives		2,998,042		—		—		—		—		312,124		3,310,166
Loans		—		—		290,122,838		—		—		—		290,122,838
Financial investments		—		—		—		48,116,263		18,491,980		—		66,608,243
Other financial assets		—		—		10,195,015		—		—		—		10,195,015
Total	￦	33,175,335	￦	2,050,052	￦	320,135,678	￦	48,116,263	￦	18,491,980	￦	312,124	￦	422,281,432

	2017
	Financial liabilities at fair value through profit or loss
	Held for trading		Designated at fair value through profit or loss		Financial liabilities at amortized cost		Derivatives held for hedging		Total
	(In millions of Korean won)
Financial liabilities
Financial liabilities at fair value through profit or loss	￦	1,944,770	￦	10,078,288	￦	—	￦	—	￦	12,023,058
Derivatives		3,054,614		—		—		88,151		3,142,765
Deposits		—		—		255,800,048		—		255,800,048
Debts		—		—		28,820,928		—		28,820,928
Debentures		—		—		44,992,724		—		44,992,724
Other financial liabilities		—		—		18,330,004		—		18,330,004
Total	￦	4,999,384	￦	10,078,288	￦	347,943,704	￦	88,151	￦	363,109,527

F-96

	2018
	Financial instruments at fair value through profit or loss		Financial instruments measured at fair value through other comprehensive income				Financial instruments at amortized cost		Derivatives held for hedging		Total
			Financial assets mandatorily measured at fair value through other comprehensive income		Financial instruments designated at fair value through other comprehensive income
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	—	￦	—	￦	—	￦	20,274,490	￦	—	￦	20,274,490
Financial assets at fair value through profit or loss		50,987,847		—		—		—		—		50,987,847
Derivatives		1,915,532		—		—		—		110,430		2,025,962
Loans at amortized cost		—		—		—		319,201,603		—		319,201,603
Financial investments		—		35,633,456		2,370,116		23,661,522		—		61,665,094
Other financial assets		—		—		—		8,133,556		—		8,133,556
Total	￦	52,903,379	￦	35,633,456	￦	2,370,116	￦	371,271,171	￦	110,430	￦	462,288,552

	2018
	Financial instruments at fair value through profit or loss
	Financial instruments at fair value through profit or loss		Financial instruments designated at fair value through profit or loss		Financial instruments at amortized cost		Derivatives held for hedging		Total
	(In millions of Korean won)
Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,823,820	￦	12,503,039	￦	—	￦	—	￦	15,326,859
Derivatives		2,724,994		—		—		176,253		2,901,247
Deposits		—		—		276,770,449		—		276,770,449
Debts		—		—		33,004,834		—		33,004,834
Debentures		—		—		53,278,697		—		53,278,697
Other financial liabilities		—		—		19,828,307		—		19,828,307
Total	￦	5,548,814	￦	12,503,039	￦	382,882,287	￦	176,253	￦	401,110,393

F-97

6.4 Transfer of Financial Assets

Transferred financial assets that are derecognized in their entirety

The Group transferred loans and other financial assets that are derecognized in their entirety to SPEs (special purpose entity), while the maximum exposure to loss (carrying amount) from its continuing involvement in the derecognized financial assets as of December 31, 2017 and 2018, are as follows:

	2017
	Type of continuing involvement	Classification of financial instruments	Carrying amount of continuing involvement in statement of financial position		Fair value of continuing involvement
			(In millions of Korean won)
Discovery ABS Second Co., Ltd.	Subordinate debt	Available-for-sale financial assets	￦	6,022	￦	6,022
EAK ABS Second Co., Ltd.	Subordinate debt	Available-for-sale financial assets		5,339		5,339
FK1411 Co., Ltd.	Subordinate debt	Available-for-sale financial assets		9,601		9,601
AP 3B ABS Ltd.	Subordinate debt	Available-for-sale financial assets		9,902		9,902
AP 4D ABS Ltd.	Senior debt	Loans and receivables		2,248		2,251
	Subordinated debt	Available-for-sale financial assets		14,160		14,160
		Total	￦	47,272	￦	47,275

¹ In addition to the above, the recovered portion in excess of the consideration paid attributable to adjustments based on the agreement with the National Happiness Fund for non-performing loans amounts to ￦2,989 million as of December 31, 2017.

	2018
	Type of continuing involvement	Classification of financial instruments	Carrying amount of continuing involvement in statement of financial position		Fair value of continuing involvement
			(In millions of Korean won)
Discovery ABS Second Co., Ltd.	Subordinate debt	Financial assets at fair value through profit or loss	￦	6,205	￦	6,205
FK1411 Co., Ltd.	Subordinate debt	Financial assets at fair value through profit or loss		8,883		8,883
AP 3B ABS Ltd.	Subordinate debt	Financial assets at fair value through profit or loss		5,512		5,512
AP 4D ABS Ltd.1	Subordinated debt	Financial assets at fair value through profit or loss		13,494		13,494
		Total	￦	34,094	￦	34,094

¹  The recovered portion in excess of the consideration paid attributable to adjustments based on the agreement with the National Happiness Fund for non-performing loans amounts to ￦ 13,731 million as at December 31, 2018.

F-98

Transferred financial assets that are not derecognized in their entirety

The Group securitized the loans and issued the asset-backed debentures. The senior debentures and related securitized assets as of December 31, 2017 and 2018, are as follows:

	2017						2018
	Carrying amount of underlying assets		Carrying amount of senior debentures		Carrying amount of underlying assets		Carrying amount of senior debentures
	(In millions of Korean won)
KB Kookmin Card Second Securitization Co., Ltd.1	￦	495,545	￦	107,093	￦	—	￦	—
KB Kookmin Card Third Securitization Co., Ltd.1		600,813		324,425		627,630		336,929
KB Kookmin Card Fourth Securitization Co., Ltd.1		561,495		320,892		587,760		333,296
KB Kookmin Card Fifth Securitization Co., Ltd.1		—		—		562,239		299,754
Wise Mobile Thirteenth Securitization Specialty2		7,284		—		—		—
Wise Mobile Fourteenth Securitization Specialty2		8,504		—		—		—
Wise Mobile Fifteenth Securitization Specialty2		4,105		—		—		—
Wise Mobile Sixteenth Securitization Specialty2		5,500		—		—		—
Wise Mobile Seventeenth Securitization Specialty2		10,407		4,999		—		—
Wise Mobile Eighteenth Securitization Specialty2		9,340		4,999		—		—
	￦	1,702,993	￦	762,408	￦	1,777,629	￦	969,979

¹ The Group has an obligation to early redeem the asset-backed debentures upon occurrence of an event specified in the agreement such as when the outstanding balance of the eligible asset-backed securitization (ABS), a trust-type ABS, is below the solvency margin ratio(minimum rate: 104.5%) of the beneficiary interest in the trust. To avoid such early redemption, the Group entrusts accounts and deposits in addition to the previously entrusted card accounts.

² According to the liquidity facility agreement entered between the Special Purpose Companies (SPC) and Woori Bank and NH Bank, if the senior debentures cannot be redeemed by the underlying assets, the senior debentures should be redeemed by borrowings from the liquidity facilities.

The Group transferred the beneficiary certificates to Yuanta Securities at ￦ 74,853 million and entered into a total return swap contract. If the fair value of the transferred asset changes, the risk is attributed to the company in accordance with the contract. The details of transferred financial assets as of December 31, 2018 are as follows.

	2018
	Carrying amount of transferred assets		Carrying amount of related liabilities
	(In millions of Korean won)
Financial assets at fair value through profit or loss	￦	83,218	￦	74,899

F-99

Securities under repurchase agreements and loaned securities

The Group continues to recognize the financial assets related to repurchase agreements and securities lending transactions on the statements of financial position since those transactions are not qualified for derecognition even though the Group transfers the financial assets. A financial asset is sold under a repurchase agreement to repurchase the same asset at a fixed price, or loaned under a securities lending agreement to be returned as the same asset. Thus, the Group retains substantially all the risks and rewards of ownership of the financial asset. The amounts of transferred assets and related liabilities as of December 31, 2017 and 2018, are as follows:

	2017
	Carrying amount of transferred assets		Carrying amount of related liabilities
	(In millions of Korean won)
Repurchase agreements	￦	10,111,732	￦	10,666,315
Loaned securities
Government bond		418,966		—
Stock		729,702		—
Total	￦	11,260,400	￦	10,666,315

	2018
	Carrying amount of transferred assets		Carrying amount of related liabilities
	(In millions of Korean won)
Repurchase agreements1	￦	9,176,947	￦	8,784,896
Loaned securities
Government bond		1,160,362		—
Stock		58,171		—
Total	￦	10,395,480	￦	8,784,896

¹ The bonds sold under repurchase agreements amounts to ￦ 3,162,000 million.

6.5 Offsetting Financial Assets and Financial Liabilities

The Group enters into International Swaps and Derivatives Association (“ISDA”) master netting agreements and other similar arrangements with the Group’s derivative and spot exchange counterparties. Similar netting agreements are also entered into with the Group’s reverse repurchase, securities and others. Pursuant to these agreements, in the event of default by one party, contracts are to be terminated and receivables and payables are to be offset. Further, as the law allows for the right to offset, domestic uncollected receivables balances and domestic accrued liabilities balances are shown in its net settlement balance in the consolidated statement of financial position.

F-100

Details of financial assets subject to offsetting, enforceable master netting arrangements or similar agreement as of December 31, 2017 and 2018, are as follows:

	2017
	Gross assets		Gross liabilities offset			Net amounts presented in the statement of financial position		Non-offsetting amount
								Financial instruments			Cash collateral			Net amount
	(In millions of Korean won)
Derivatives held for trading and Derivatives linked securities	￦	2,981,437	￦	—		￦	2,981,437	￦	(2,195,210	)	￦	(191,349	)	￦	594,878
Derivatives held for hedging		312,124		—			312,124		(21,990	)		(21,830	)		268,304
Receivable spot exchange		3,443,674		—			3,443,674		(3,443,298	)		—			376
Reverse repurchase agreements		2,617,700		—			2,617,700		(2,617,700	)		—			—
Domestic exchange settlement debits		30,904,611		(29,959,914	)		944,697		—			—			944,697
Other financial instruments		1,542,035		(1,531,622	)		10,413		(9,525	)		—			888
Total	￦	41,801,581	￦	(31,491,536	)	￦	10,310,045	￦	(8,287,723	)	￦	(213,179	)	￦	1,809,143
	2018
	Gross assets		Gross liabilities offset			Net amounts presented in the statement of financial position		Non-offsetting amount						Net amount
								Financial instruments			Cash collateral
	(In millions of Korean won)
Derivatives held for trading and Derivatives linked securities	￦	1,893,335	￦	—		￦	1,893,335	￦	(1,424,607	)	￦	(5,101	)	￦	463,627
Derivatives held for hedging		110,430		—			110,430		(74,910	)		—			35,520
Receivable spot exchange		2,222,164		—			2,222,164		(2,213,967	)		—			8,197
Reverse repurchase agreements		3,411,700		—			3,411,700		(3,332,700	)		—			79,000
Domestic exchange settlement debits		27,723,990		(26,992,637	)		731,353		—			—			731,353
Other financial instruments		1,157,569		(1,103,015	)		54,554		(3,932	)		—			50,622
Total	￦	36,519,188	￦	(28,095,652	)	￦	8,423,536	￦	(7,050,116	)	￦	(5,101	)	￦	1,368,319

F-101

Details of financial liabilities subject to offsetting, enforceable master netting arrangements or similar agreement as of December 31, 2017 and 2018, are as follows:

	2017
	Gross liabilities		Gross asset offset			Net amounts presented in the statement of financial position		Non-offsetting amount						Net amount
								Financial instruments			Cash collateral
	(In millions of Korean won)
Derivatives held for trading and Derivatives linked securities	￦	3,193,238	￦	—		￦	3,193,238	￦	(1,540,336	)	￦	(32,585	)	￦	1,620,317
Derivatives held for hedging		88,151		—			88,151		(11,770	)		(9,139	)		67,242
Payable spot exchange		3,445,098		—			3,445,098		(3,443,298	)		—			1,800
Repurchase agreements1		10,666,315		—			10,666,315		(10,666,315	)		—			—
Securities borrowing agreements		1,870,579		—			1,870,579		(1,870,579	)		—			—
Domestic exchange settlement credits		29,999,359		(29,959,914	)		39,445		(39,445	)		—			—
Other financial instruments		1,721,862		(1,530,488	)		191,374		(194	)		—			191,180
Total	￦	50,984,602	￦	(31,490,402	)	￦	19,494,200	￦	(17,571,937	)	￦	(41,724	)	￦	1,880,539

	2018
	Gross liabilities		Gross asset offset			Net amounts presented in the statement of financial position		Non-offsetting amount						Net amount
								Financial instruments			Cash collateral
	(In millions of Korean won)
Derivatives held for trading and Derivatives linked securities	￦	2,557,169	￦	—		￦	2,557,169	￦	(1,866,515	)	￦	(46,769	)	￦	643,885
Derivatives held for hedging		176,253		—			176,253		(72,691	)		(977	)		102,585
Payable spot exchange		2,219,980		—			2,219,980		(2,208,302	)		—			11,678
Repurchase agreements1		11,946,896		—			11,946,896		(11,862,096	)		—			84,800
Securities borrowing agreements		2,745,906		—			2,745,906		(2,745,906	)		—			—
Domestic exchange settlement credits		28,672,551		(26,992,637	)		1,679,914		(1,679,914	)		—			—
Other financial instruments		1,151,697		(1,103,015	)		48,682		(3,932	)		—			44,750
Total	￦	49,470,452	￦	(28,095,652	)	￦	21,374,800	￦	(20,439,356	)	￦	(47,746	)	￦	887,698

¹  Includes repurchase agreements sold to customers.

F-102

7. Due from Financial Institutions at Amortized Cost

Details of due from financial institutions as of December 31, 2017 and 2018, are as follows:

		Financial institutions	Interest rate(%)		2017		2018
					(In millions of Korean won)
Due from financial institutions in Korean won	Due from Bank of Korea	Bank of Korea		0.00 ~ 1.78	￦	8,511,295	￦8,723,761
	Due from financial institutions	Standard Chartered Bank Korea Limited and others		0.00 ~ 2.75		2,267,778	3,245,841
	Due from others	Korea Securities Finance Corporation and others		0.00 ~ 1.79		3,377,102	1,132,908
		Sub-total				14,156,175	13,102,510
Due from financial institutions in foreign currencies	Due from financial institutions in foreign currencies	Wells Fargo Bank, N.A. and others		0.00 ~ 0.76		1,670,935	1,734,660
	Time deposits in foreign currencies	Bank of Shanghai, Beijing Branch and others		0.00 ~ 4.10		775,917	1,001,600
	Due from others	Societe Generale and others		0.00 ~ 0.02		616,634	1,379,537
		Sub-total				3,063,486	4,115,797
		Total			￦	17,219,661	￦ 17,218,307

¹  Loans and other financial assets are net of allowance.

Restricted cash from financial institutions as of December 31, 2017 and 2018, are as follows:

		Financial Institutions	2017		2018		Reason for restriction
			(In millions of Korean won)
Due from financial institutions in Korean won	Due from Bank of Korea	Bank of Korea	￦	8,511,295	￦	8,723,761	Bank of Korea Act
	Due from Banking institution	Standard Chartered Bank Korea Limited and others		572,132		1,348,099	Net settlement and others
	Due from others	Korea Securities Finance Corporation and others		371,398		655,194	Derivatives margin account and others
		Sub-total		9,454,825		10,727,054
Due from financial institutions in foreign currencies	Due from financial institutions in foreign currencies	Bank of Korea and others		619,130		375,130	Bank of Korea Act and others
	Time deposits in foreign currencies	Bank NY Branch and others		29,650		30,538	Bank Act of the State of New York
	Due from others	Societe Generale and others		509,484		1,214,905	Derivatives margin account and others
		Sub-total		1,158,264		1,620,573
		Total	￦	10,613,089	￦	12,347,627

¹  Loans and other financial assets are net of allowance.

F-103

Changes in the allowances for due from financial institutions losses

Changes in the allowances for due from financial institutions losses for the year ended December 31, 2018, are as follows:

	2018
	The financial instruments applying 12-month expected credit losses		The financial instruments applying lifetime expected credit losses
			Non-impaired		Impaired
	(In millions of Korean won)
Beginning1	￦	1,797	￦	—	￦	—
Transfer between stages		—		—		—
Transfer to 12-month expected credit losses		—		—		—
Transfer to lifetime expected credit losses		—		—		—
Impairment		—		—		—
Disposal				—		—
Provision (reversal) for loan losses		221		—		—
Others (change of currency ratio, etc.)		1		—		—
Ending	￦	2,019	￦	—	￦	—

¹  Prepared in accordance with IFRS 9.

F-104

8. Assets pledged as collateral

Details of assets pledged as collateral as of December 31, 2017 and 2018, are as follows:

		2017
Assets pledged	Pledgee	Carrying amount		Reason of pledge
		(In millions of Korean won)
Due from financial institutions	Korea Federation of Savings Banks and others	￦	165,026	Borrowings from Bank and others
Financial assets held for trading	Korea Securities Depository and others		7,699,857	Repurchase agreements
	Korea Securities Depository and others		4,941,912	Securities borrowing transactions
	Samsung Futures Inc. and others		1,047,758	Derivatives transactions
	Sub-total		13,689,527
Available-for-sale financial assets	Korea Securities Depository and others		2,401,388	Repurchase agreements
	Korea Securities Depository and others		838,149	Securities borrowing transactions
	Bank of Korea		651,284	Borrowings from Bank of Korea
	Bank of Korea		750,254	Settlement risk of Bank of Korea
	Samsung Futures Inc. and others		221,004	Derivatives transactions
	Sub-total		4,862,079
Held-to-maturity financial assets	Korea Securities Depository and others		35,026	Repurchase agreements
	Bank of Korea		1,326,558	Borrowings from Bank of Korea
	Bank of Korea		1,204,990	Settlement risk of Bank of Korea
	Samsung Futures Inc. and others		330,316	Derivatives transactions
	Others		163,960	Others
	Sub-total		3,060,850
Mortgage loans	Others		4,950,490	Covered bond
Real estate	Natixis Real Estate Capital LLC and others		778,789	Borrowings from Bank and others
	Total	￦	27,506,761

F-105

		2018
Assets pledged	Pledgee	Carrying amount		Reason of pledge
		(In millions of Korean won)
Due from financial institutions	Korea Federation of Savings Banks and others	￦	1,884,068	Borrowings from Bank and others
Financial assets measured at fair value through profit or loss	Korea Securities Depository and others		7,676,111	Repurchase agreements
	Korea Securities Depository and others		9,303,600	Securities borrowing transactions
	Samsung Futures Inc. and others		1,503,088	Derivatives transactions
			18,482,799
Financial assets measured at fair value through other comprehensive income	Korea Securities Depository and others		1,258,694	Repurchase agreements
	Korea Securities Depository and others		1,001,259	Securities borrowing transactions
	Bank of Korea		49,948	Borrowings from Bank of Korea
	Bank of Korea		479,784	Settlement risk of Bank of Korea
	Samsung Futures Inc. and others		395,221	Derivatives transactions
			3,184,906
Securities at amortized cost	Korea Securities Depository and others		276,688	Repurchase agreements
	Bank of Korea		1,911,160	Borrowings from Bank of Korea
	Bank of Korea		1,474,529	Settlement risk of Bank of Korea
	Samsung Futures Inc. and others		162,184	Derivatives transactions
	Others		350,292	Others
			4,174,853
Mortgage loans	Others		4,060,863	Covered bond
Real estate	NATIXIS REAL ESTATE CAPITAL LLC and others		801,944	Borrowings from Bank and others
		￦	32,589,433

The Group provides ￦ 3,185,601 million and ￦ 6,472,993 million of its borrowing securities and securities held as collateral with KSFC and others as at December 31, 2017 and 2018.

The fair values of collateral available to sell or repledge, and collateral sold or repledged, regardless of debtor’s default, as of December 31, 2017 and 2018, are as follows:

	2017
	Fair value of collateral held		Fair value of collateral sold or repledged		Total
	(In millions of Korean won)
Securities	￦	2,677,878	￦	—	￦	2,677,878

	2018
	Fair value of collateral held		Fair value of collateral sold or repledged		Total
	(In millions of Korean won)
Securities	￦	3,547,179	￦	—	￦	3,547,179

F-106

9. Derivative Financial Instruments and Hedge Accounting

The Group’s derivative operations focus on addressing the needs of the Group’s corporate clients to hedge their risk exposure and to hedge the Group’s risk exposure that results from such client contracts. The Group also engages in derivative trading activities to hedge the interest rate and foreign currency risk exposures that arise from the Group’s own assets and liabilities. In addition, the Group engages in proprietary trading of derivatives within the Group’s regulated open position limits.

The Group provides and trades a range of derivatives products, including:

• Interest rate swaps, relating to interest rate risks in Korean won

• Cross-currency swaps, forwards and options relating to foreign exchange rate risks,

• Stock price index options linked with the KOSPI index.

In particular, the Group applies fair value hedge accounting using cross currency swaps, interest rate swaps and others to hedge the risk of changes in fair values due to the changes in interest rates and foreign exchange rates of structured debts in Korean won, financial debentures in foreign currencies, structured deposits in Korean won, and structured deposits in foreign currencies. In addition, the Group applies net investment hedge accounting by designating financial debentures in foreign currencies as hedging instruments to hedge foreign exchange risks on net investments in foreign operations.

Details of derivative financial instruments held for trading as of December 31, 2017 and 2018, are as follows:

	2017
	Notional amount		Assets		Liabilities
	(In millions of Korean won)
Interest rate
Futures1	￦	4,770,568	￦	4,952	￦	528
Swaps		190,186,189		434,316		399,674
Options		13,560,861		137,958		234,474
Sub-total		208,517,618		577,226		634,676
Currency
Forwards		64,308,472		1,261,491		1,233,633
Futures1		622,711		52		1,163
Swaps		29,769,290		847,506		759,757
Options		695,617		4,099		6,994
Sub-total		95,396,090		2,113,148		2,001,547
Stock and index
Futures1		1,013,846		3,599		1,132
Swaps		5,623,391		112,929		96,894
Options		6,408,019		116,215		274,544
Sub-total		13,045,256		232,743		372,570
Credit
Swaps		5,799,606		42,000		36,963
Sub-total		5,799,606		42,000		36,963

F-107

	2017
	Notional amount		Assets		Liabilities
	(In millions of Korean won)
Commodity
Futures1		4,791		112		19
Swaps		67,008		4,221		118
Options		245		1		—
Sub-total		72,044		4,334		137
Other		1,955,581		28,591		8,721
Total	￦	324,786,195	￦	2,998,042	￦	3,054,614

	2018
	Notional amount		Assets		Liabilities
	(In millions of Korean won)
Interest rate
Forwards	￦	570,000	￦	—	￦	55,056
Futures1		4,269,407		1,124		3,852
Swaps		219,558,592		421,591		471,915
Options		16,937,362		159,218		276,392
Sub-total		241,335,361		581,933		807,215
Currency
Forwards		74,189,998		622,745		548,127
Futures1		602,805		37		240
Swaps		36,073,995		470,499		452,390
Options		2,449,469		6,071		13,602
Sub-total		113,316,267		1,099,352		1,014,359
Stock and index
Futures1		1,155,861		4,902		10,820
Swaps		8,190,648		82,803		321,135
Options		5,442,775		70,740		464,226
Sub-total		14,789,284		158,445		796,181
Credit
Swaps		4,300,208		32,711		25,047
Sub-total		4,300,208		32,711		25,047
Commodity
Futures1		5,807		150		128
Swaps		140,382		2,202		3,199
Options		—		—		—
Sub-total		146,189		2,352		3,327
Other		2,361,827		40,739		78,865
Total	￦	376,249,136	￦	1,915,532	￦	2,724,994

¹  Gain or loss arising from futures daily settlement is reflected in the margin accounts.

F-108

The average of hedge ratio for each type of hedge accounting as of December 31, 2018, is as follows:

	2018
	1 year			2 years			3 years			4 years			5 years			More than 5 years			Total
	(In millions of Korean won)
Fair value hedge
The quantity of the hedging instrument		1,371,901			728,308			1,372,040			567,030			195,392			1,308,602			5,543,273
Average ratio of hedging		100.73	%		98.65	%		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%
Cash flow hedge
The quantity of the hedging instrument		2,641,861			1,403,129			902,911			919,258			525,629			50,000			6,442,788
Average ratio of hedging		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%
Hedge of net investments in a foreign operations
The quantity of the hedging instrument		528,025			2,942			—			—			—			—			530,967
Average ratio of hedging		100.00	%		100.00	%		0.00	%		0.00	%		0.00	%		0.00	%		100.00	%

Fair Value Hedge

Details of hedged item in fair value hedge as of December 31, 2018, are as follows:

		2018
		Carrying amount				Accumulated adjusted amount						Changes in the fair value
		Assets		Liabilities		Assets			Liabilities
		(In millions of Korean won)
Hedge accounting
Interest rate	Debt securities in KRW	￦	465,213	￦	—	￦	1,214		￦	—		￦	6,001
	Debt securities in foreign currencies		702,727		—		(9,790	)		—			(1,233	)
	Deposits in foreign currencies		—		805,215		—			(89,265	)		38,232
	Debts in KRW		—		349,252		—			19,252			(2,308	)
	Debts in foreign currencies		—		1,429,457		—			(24,073	)		(1,868	)
			1,167,940		2,583,924		(8,576	)		(94,086	)		38,824
Currency	Debt securities in foreign currencies		1,845,253		—		(75,255	)		—			86,209
			1,845,253		—		(75,255	)		—			86,209
		￦	3,013,193	￦	2,583,924	￦	(83,831	)	￦	(94,086	)	￦	125,033

F-109

Details of derivative instruments designated as fair value hedge as of December 31, 2017 and 2018, are as follows:

	2017
	Notional amount		Assets		Liabilities
	(In millions of Korean won)
Interest rate
Swaps	￦	2,919,935	￦	47,856	￦	49,962
Currency
Forwards		2,818,527		108,144		872
Other		50,000		775		70
Total	￦	5,788,462	￦	156,775	￦	50,904

	2018
	Notional amount		Assets		Liabilities		Changes in the fair value
	(In millions of Korean won)
Interest rate
Swaps	￦	3,845,555	￦	58,933	￦	88,017	￦	(37,638	)
Currency
Forwards		1,697,718		5,923		32,565		(106,903	)
	￦	5,543,273	￦	64,856	￦	120,582	￦	(144,541	)

The fair value of non-derivative financial instruments designated as hedging instruments is as follows:

	2017		2018
	(In millions of Korean won)
Deposits in foreign currencies	￦	32,051	￦	—

Details of hedge ineffectiveness recognized in profit or loss from derivatives for the year ended December 31, 2018, is as follows:

	2018
	Hedge ineffectiveness recognized in profit or loss
	(In millions of Korean won)
From hedge accounting
Interest rate	￦	1,186
Currency rate		(20,694	)
	￦	(19,508	)

Gains and losses from fair value hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016			2017			2018
	(In millions of Korean won)
Gains(losses) on hedging instruments	￦	(88,999	)	￦	93,112		￦	(160,416	)
Gains(losses) on the hedged items attributable to the hedged risk		91,167			(56,461	)		135,556
Total	￦	2,168		￦	36,651		￦	(24,860	)

F-110

Cash Flow Hedge

Details of hedged item in cash flow hedge as of December 31, 2018 are as follows:

	2018
	Changes in fair value		Other comprehensive income for cash flow hedge
	(In millions of Korean won)
Hedge accounting
Interest rate	￦	5,971	￦	4,686
Foreign currency change risk		18,650		1,163
	￦	24,621	￦	5,849

Details of derivative instruments designated as cash flow hedge as of December 31, 2017 and 2018, are as follows:

	2017
	Notional amount		Assets		Liabilities
	(In millions of Korean won)
Interest rate
Swaps	￦	2,393,491	￦	15,796	￦	3,905
Currency
Swaps		2,396,957		117,597		33,342
Total	￦	4,790,448	￦	133,393	￦	37,247

	2018
	Notional amount		Assets		Liabilities		Changes in fair value
	(In millions of Korean won)
Interest rate
Swaps	￦	4,142,336	￦	17,891	￦	12,766	￦	(6,364	)
Currency
Swaps		2,300,452		22,759		40,493		(16,658	)
Total	￦	6,442,788	￦	40,650	￦	53,259	￦	(23,022	)

Gains and losses from hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016		2017			2018
	(In millions of Korean won)
Gains (losses) on hedging instruments	￦	16,759	￦	(112,513	)	￦	(23,022	)
Gains (losses) on effectiveness (amount recognized in other comprehensive income)		16,238		(100,949	)		(24,672	)
Gains on ineffectiveness (amount recognized in profit or loss)	￦	521	￦	(11,564	)	￦	1,650

F-111

Amounts recognized in other comprehensive income and reclassified from equity to profit or loss for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016			2017			2018
	(In millions of Korean won)
Amount recognized in other comprehensive income	￦	16,238		￦	(100,949	)	￦	(24,672	)
Amount reclassified from equity to profit or loss		(10,447	)		126,239			15,234
Tax effect		(1,488	)		(4,331	)		400
OCI after tax	￦	4,303		￦	20,959		￦	(9,038	)

Hedge on Net Investments in Foreign Operations

Details of hedged item in hedge on foreign operation net investments hedge as of December 31, 2018, are as follows:

	2018
	Changes in fair value		Other comprehensive income for hedge on net investment in a foreign operation
	(In millions of Korean won)
Hedge accounting
Currency (foreign currency change risk)	￦	25,198	￦	(33,092	)

Details of financial instruments designated as hedging instrument in hedge on net investments in foreign operations as of December 31, 2018, is as follows:

	2018
	Nominal amount		Assets		Liabilities		Changes in fair value
	(In millions of Korean won)
Currency
Forwards	￦	530,967	￦	4,924	￦	2,412	￦	(21,877	)
Financial debentures in foreign currencies		89,448		—		89,109		(3,321	)
Total	￦	620,415	￦	4,924	￦	91,521	￦	(25,198	)

Details of derivative instruments designated as hedging instrument in hedge on net investments in foreign operations as of December 31, 2017, is as follows:

	2017
	Notional amount		Assets		Liabilities
	(In millions of Korean won)
Currency
Forwards	￦	484,033	￦	21,956	￦	—

The fair value of non-derivative financial instruments designated as hedging instruments as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Financial debentures in foreign currencies	￦	99,994	￦	88,785

F-112

Gain or loss from hedging instruments in hedge of net investments in foreign operations and hedged items attributable to the hedged risk for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016			2017		2018
	(In millions of Korean won)
Gains (losses) on hedging instruments	￦	(9,360	)	￦	35,929	￦	(25,096	)
Effective portion of gains (losses) on hedges of net investments in foreign operations (amount recognized in other comprehensive income)		(9,360	)		34,800		(25,096	)
Ineffective portion of gains (losses) on hedges of net investments in foreign operations (amount recognized in profit or loss)		—			1,129		—

The effective portion of gain (loss) on hedging instruments recognized in other comprehensive income for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016			2017			2018
	(In millions of Korean won)
Amount recognized in other comprehensive income	￦	(9,360	)	￦	34,800		￦	(25,096	)
Amount reclassified from equity to profit or loss		—			—			(12,330	)
Tax effect		2,265			(8,186	)		10,292
Amount recognized in other comprehensive income, net of tax	￦	(7,095	)	￦	26,614		￦	(27,134	)

10. Loans at Amortized Cost

Details of loans as of December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Loans at amortized cost	￦	291,513,253		￦	321,058,158
Deferred loan origination fees and costs		719,816			753,126
Less: Allowances for loan losses		(2,110,231	)		(2,609,681	)
Carrying amount	￦	290,122,838		￦	319,201,603

Details of loans for other banks as of December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Loans at amortized cost	￦	5,314,577		￦	3,484,210
Less: Allowances for loan losses		(77	)		(620	)
Carrying amount	￦	5,314,500		￦	3,483,590

F-113

Details of loan types and customer types of loans to customers, other than banks, as of December 31, 2017 and 2018, are as follows:

	2017
	Retail			Corporate			Credit card			Total
	(In millions of Korean won)
Loans in Korean won	￦	140,630,735		￦	112,014,669		￦	—		￦	252,645,404
Loans in foreign currencies		121,166			3,078,907			—			3,200,073
Domestic import usance bills		—			2,128,868			—			2,128,868
Off-shore funding loans		—			730,817			—			730,817
Call loans		—			335,200			—			335,200
Bills bought in Korean won		—			4,168			—			4,168
Bills bought in foreign currencies		—			3,875,550			—			3,875,550
Guarantee payments under payment guarantee		105			6,373			—			6,478
Credit card receivables in Korean won		—			—			15,200,843			15,200,843
Credit card receivables in foreign currencies		—			—			4,004			4,004
Reverse repurchase agreements		—			1,197,700			—			1,197,700
Privately placed bonds		—			1,994,932			—			1,994,932
Factored receivables		51,401			1,419			—			52,820
Lease receivables		1,773,901			60,527			—			1,834,428
Loans for installment credit		3,693,672			13,535			—			3,707,207
Sub-total		146,270,980			125,442,665			15,204,847			286,918,492
Proportion (%)		50.98			43.72			5.30			100.00
Less: Allowances		(429,299	)		(1,231,589	)		(449,266	)		(2,110,154	)
Total	￦	145,841,681		￦	124,211,076		￦	14,755,581		￦	284,808,338

	2018
	Retail			Corporate			Credit card			Total
	(In millions of Korean won)
Loans in Korean won	￦	152,523,852		￦	124,334,950		￦	—		￦	276,858,802
Loans in foreign currencies		259,015			4,711,234			—			4,970,249
Domestic import usance bills		—			2,817,174			—			2,817,174
Off-shore funding loans		—			844,954			—			844,954
Call loans		—			1,473,397			—			1,473,397
Bills bought in Korean won		—			3,057			—			3,057
Bills bought in foreign currencies		—			3,427,368			—			3,427,368
Guarantee payments under payment guarantee		46			4,104			—			4,150
Credit card receivables in Korean won		—			—			17,346,224			17,346,224
Credit card receivables in foreign currencies		—			—			7,834			7,834
Reverse repurchase agreements		—			3,341,700			—			3,341,700
Privately placed bonds		—			823,178			—			823,178
Factored receivables		446			5,939			—			6,385
Lease receivables		1,712,597			81,985			—			1,794,582
Loans for installment credit		4,582,913			25,107			—			4,608,020
Sub-total		159,078,869			141,894,147			17,354,058			318,327,074
Proportion (%)		49.97			44.57			5.46			100.00
Less: Allowances		(642,897	)		(1,255,223	)		(710,941	)		(2,609,061	)
Total	￦	158,435,972		￦	140,638,924		￦	16,643,117		￦	315,718,013

F-114

The changes in deferred loan origination fees and costs for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning		Increase		Decrease			Business combination		Others			Ending
	(In millions of Korean won)
Deferred loan origination costs
Loans in Korean won	￦	663,041	￦	334,438	￦	(358,721	)	￦	12,532	￦	(18,610	)	￦	632,680
Other origination costs		99,878		101,656		(75,267	)		—		(2	)		126,265
Sub-total		762,919		436,094		(433,988	)		12,532		(18,612	)		758,945
Deferred loan origination fees
Loans in Korean won		19,845		7,904		(16,188	)		—		—			11,561
Other origination fees		24,449		19,356		(16,228	)		—		(9	)		27,568
Sub-total		44,294		27,260		(32,416	)		—		(9	)		39,129
Total	￦	718,625	￦	408,834	￦	(401,572	)	￦	12,532	￦	(18,603	)	￦	719,816

	2018
	Beginning		Increase		Decrease			Business combination		Others		Ending
	(In millions of Korean won)
Deferred loan origination costs
Loans in Korean won	￦	632,680	￦	417,719	￦	(386,162	)	￦	—	￦	—	￦	664,237
Other origination costs		126,265		77,464		(83,950	)		—		1		119,780
Sub-total		758,945		495,183		(470,112	)		—		1		784,017
Deferred loan origination fees
Loans in Korean won		11,561		6,832		(9,338	)		—		—		9,055
Other origination fees		27,568		9,927		(15,660	)		—		1		21,836
Sub-total		39,129		16,759		(24,998	)		—		1		30,891
Total	￦	719,816	￦	478,424	￦	(445,114	)	￦	—	￦	—	￦	753,126

11. Allowances for Loan Losses

Changes in the allowances for loan losses for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Retail			Corporate			Credit card			Total
	(In millions of Korean won)
Beginning	￦	481,289		￦	1,382,172		￦	414,295		￦	2,277,756
Written-off		(341,506	)		(395,272	)		(400,385	)		(1,137,163	)
Recoveries from written-off loans		145,606			280,324			132,665			558,595
Sale and repurchase		(40,267	)		(26,105	)		—			(66,372	)
Provision1		233,262			38,644			312,248			584,154
Business combination		9,679			50,227			—			59,906
Other changes		(58,764	)		(98,324	)		(9,557	)		(166,645	)
Ending	￦	429,299		￦	1,231,666		￦	449,266		￦	2,110,231

¹ Provision for credit losses in statements of comprehensive income also includes provision for unused commitments and guarantees (Note 23), provision (reversal) for financial guarantees contracts (Note 23), and provision (reversal) for other financial assets (Note 18).

F-115

	2018
	Retails									Corporates									Credit cards
	The financial instruments applying 12-month expected credit losses			The financial instruments applying lifetime expected credit losses						The financial instruments applying 12-month expected credit losses			The financial instruments applying lifetime expected credit losses						The financial instruments applying 12-month expected credit losses			The financial instruments applying lifetime expected credit losses
				Non-impaired			Impaired						Non-impaired			Impaired						Non-impaired			Impaired
	(In millions of Korean won)
Beginning2	￦	249,226		￦	196,387		￦	186,766		￦	208,354		￦	275,722		￦	865,063		￦	154,076		￦	260,162		￦	213,181
Transfer between stages
Transfer to 12-month expected credit losses		106,143			(105,597	)		(546	)		38,360			(36,402	)		(1,958	)		45,824			(44,706	)		(1,118	)
Transfer to lifetime expected credit losses (non-impaired)		(99,242	)		115,493			(16,251	)		(36,518	)		47,001			(10,483	)		(23,345	)		24,438			(1,093	)
Transfer to lifetime expected credit losses (impaired)		(2,107	)		(49,241	)		51,348			(2,746	)		(31,157	)		33,903			(2,007	)		(11,804	)		13,811
Write-offs		—			(2	)		(380,698	)		—			(6	)		(233,314	)		—			—			(465,415	)
Disposal		(1,707	)		(1,795	)		(1,661	)		(72	)		—			(14,172	)		—			—			(47	)
Provision (reversal) for loan losses1,3		(15,533	)		60,180			350,578			7,927			62,901			58,515			5,919			61,935			488,975
Business combination		172			—			—			22			—			—			—			—			—
Others (change of currency ratio, etc.)		488			318			178			(1,015	)		597			25,321			—			—			(7,845	)
Ending	￦	237,440		￦	215,743		￦	189,714		￦	214,312		￦	318,656		￦	722,875		￦	180,467		￦	290,025		￦	240,449

¹  Provision for credit losses in statements of comprehensive income also includes provision (reversal) for due from financial institutions (Note 7), and provision (reversal) for securities (Note 12), provision for unused commitments and guarantees (Note 23), provision (reversal) for financial guarantees contracts (Note 23), and provision (reversal) for other financial assets (Note 18).

²  Prepared in accordance with IFRS 9.

³  Recovery of written-off loans amounting to ￦ 428,890 million is included

F-116

The Group manages the written-off loans that their extinctive prescription did not occur, and that are not collected; the balance of those are ￦ 12,067,272 million as of December 31, 2018.

Changes in the book value of loans at amortized cost for the year ended December 31, 2018, are as follows:

	2018
	12-month expected credit losses			Lifetime expected credit losses
				Non-impaired			Impaired
	(In millions of Korean won)
Beginning	￦	262,092,823		￦	27,216,234		￦	2,270,094
Transfer between stages
Transfer to 12-month expected credit losses		8,399,033			(8,322,782	)		(76,251	)
Transfer to lifetime expected credit losses		(11,867,144	)		11,938,263			(71,119	)
Transfer to lifetime expected credit losses (impaired)		(780,095	)		(901,109	)		1,681,204
Write-offs		—			(8	)		(1,079,427	)
Disposal		(490,070	)		(10,557	)		(192,415	)
Net increase(decrease)
(Execution, repayment and others)		35,941,823			(3,502,876	)		(434,337	)
Ending	￦	293,296,370		￦	26,417,165		￦	2,097,749

F-117

12. Financial Assets at Fair Value through Profit or Loss and Financial Investments

Details of financial assets at fair value through profit or loss and financial investments as of December 31, 2017 and 2018, are as follows:

	2017
	(In millions of Korean won)
Financial assets held for trading
Debt securities:
Government and public bonds	￦	6,232,514
Financial bonds		11,324,330
Corporate bonds		5,133,226
Asset-backed securities		161,991
Others		2,316,277
Equity securities:
Stocks and others		1,009,190
Beneficiary certificates		3,925,910
Others		73,855
Sub-total		30,177,293
Financial assets designated at fair value through profit or loss
Debt securities:
Corporate bonds		66,969
Equity securities:
Stocks and others		67,828
Derivative-linked securities		1,613,404
Privately placed bonds		301,851
Sub-total		2,050,052
Total financial assets at fair value through profit or loss	￦	32,227,345
Available-for-sale financial assets
Debt securities:
Government and public bonds	￦	3,629,479
Financial bonds		20,946,100
Corporate bonds		10,570,501
Asset-backed securities		2,402,437
Others		1,410,884
Equity securities:
Stocks and others		3,077,748
Equity investments and others		459,808
Beneficiary certificates		5,619,306
Sub-total		48,116,263
Held-to-maturity financial assets
Debts securities:
Government and public bonds		5,448,471
Financial bonds		2,474,841
Corporate bonds		6,218,723
Asset-backed securities		4,305,678
Others		44,267
Sub-total		18,491,980
Total financial investments	￦	66,608,243

F-118

	2018
	(In millions of Korean won)
Financial assets at fair value through profit or loss
Debt securities:
Government and public bonds	￦	7,922,936
Financial bonds		14,978,408
Corporate bonds		4,101,066
Asset-backed securities		84,382
Puttable instruments (investment funds, etc.)		10,252,377
Derivatives linked securities		3,516,626
Other debt securities		7,429,687
Equity securities:
Stocks		1,094,441
Other equity securities		193,221
Loans:
Private placed corporate bonds		823,071
Other loans		131,105
Due from financial institutions:
Other due from financial institutions		381,719
Others		78,808
Sub-total		50,987,847
Financial Investments
Financial assets measured at fair value through other comprehensive income
Debt securities:
Government and public bonds		3,475,214
Financial bonds		20,107,719
Corporate bonds		10,540,985
Asset-backed securities		1,100,041
Other debt securities		19,675
Equity securities:
Stocks		2,262,379
Equity investments		38,584
Other equity securities		69,153
Loans:
Private placed corporate bonds		389,822
Sub-total		38,003,572
Securities measured at amortized cost
Debt securities:
Government and public bonds		5,090,051
Financial bonds		6,847,055
Corporate bonds		6,943,332
Asset-backed securities		4,782,800
Allowance		(1,716	)
Sub-total		23,661,522
Total financial investments	￦	61,665,094

F-119

Dividend incomes from the equity securities measured at fair value through other comprehensive income for the year ended December 31, 2018, are as follows:

		2018
		From the financial asset derecognized		From the remaining financial asset
		(In millions of Korean won)
Equity securities at fair value through other comprehensive income
Stocks	Listed	￦	—	￦	22,173
	Non-listed		—		25,121
Equity investments			—		2,256
Other equity securities			2,508		1,798
		￦	2,508	￦	51,348

The derecognized equity securities, measured at fair value through other comprehensive income for the year ended December 31, 2018, is as follows:

		2018
		Disposal price		Accumulated OCI as of disposal date
		(In millions of Korean won)
Equity securities at fair value through other comprehensive income
Stocks	Listed	￦	26,877	￦	18,330
	Non-listed		480		480
Other equity securities			80,000		2,567
		￦	107,357	￦	21,377

Provision, and reversal for the allowance of financial investments for the year ended December 31, 2018, are as follows:

	Impairment losses		Reversal of impairment		Total
	(In millions of Korean won)
Securities measured at fair value through other comprehensive income	￦	860	￦	873	￦	(13	)
Loans measured at fair value through other comprehensive income		963		826		137
Securities measured at amortized cost		296		282		14
Total	￦	2,119	￦	1,981	￦	138

The impairment losses and the reversal of impairment losses in financial investments for the years ended December 31, 2016 and 2017, are as follows:

	2016
	Impairment			Reversal		Net
	(In millions of Korean won)
Available-for-sale financial assets	￦	(35,216	)	￦	328	￦	(34,888	)

	2017
	Impairment			Reversal		Net
	(In millions of Korean won)
Available-for-sale financial assets	￦	(47,917	)	￦	—	￦	(47,917	)

F-120

Changes in the allowances for debt securities for the year ended December 31, 2018, are as follows:

	2018
	12-month expected credit losses			Lifetime expected credit losses
				Non-impaired			Impaired
	(In millions of Korean won)
Beginning1	￦	4,937		￦	482		￦	720
Transfer between stages
Transfer to 12-month expected credit losses		125			(125	)		—
Transfer to lifetime expected credit losses		—			—			—
Impairment		—			—			—
Disposal		(170	)		—			—
Provision (reversal) for loan losses		716			(180	)		(398	)
Others (change of currency ratio, etc.)		49			16			—
Ending	￦	5,657		￦	193		￦	322

¹  Prepared in accordance with IFRS 9.

F-121

13. Investments in Associates and Joint Ventures

Investments in associates and joint ventures as of December 31, 2017 and 2018, are as follows:

	2017
	Ownership (%)		Acquisition cost		Share of net asset amount			Carrying amount		Industry	Location
	(In millions of Korean won)
Associates and Joint ventures
KB Pre IPO Secondary Venture Fund 1st1		15.19	￦	1,671	￦	1,601		￦	1,601	Investment finance	Korea
KB GwS Private Securities Investment Trust		26.74		113,880		134,891			131,420	Investment finance	Korea
KB-KDBC New Technology Business Fund8		66.66		5,000		4,972			4,972	Investment finance	Korea
KB Star office Private real estate Investment Trust No.1		21.05		20,000		20,122			19,709	Investment finance	Korea
Sun Surgery Center Inc.		28.00		2,682		2,682			2,682	Hospital	United States of America
Dae-A Leisure Co., Ltd.6		49.36		—		1,017			—	Earth works	Korea
Doosung Metal Co., Ltd.6		26.52		—		(20	)		—	Manufacture of metal products	Korea
RAND Bio Science Co., Ltd.		21.91		2,000		2,000			2,000	Research and experimental development on medical sciences and pharmacy	Korea
Balhae Infrastructure Company1		12.61		101,794		105,190			105,190	Investment finance	Korea
Bungaejangter Inc.13		24.68		3,484		3,484			3,484	Portals and other internet information media service activities	Korea
Aju Good Technology Venture Fund		38.46		8,230		7,856			8,230	Investment finance	Korea
Acts Co., Ltd.10		7.14		500		500			500	Manufacture of optical lens and elements	Korea
SY Auto Capital Co., Ltd.		49.00		9,800		14,099			8,070	Installment loan	Korea
Wise Asset Management Co., Ltd.7		33.00		—		—			—	Asset management	Korea
Incheon Bridge Co., Ltd.1		14.99		9,158		(16,202	)		—	Operation of highways and related facilities	Korea
Jungdong Steel Co., Ltd.6		42.88		—		(436	)		—	Wholesale of primary metal	Korea
Kendae Co., Ltd.6		41.01		—		(223	)		127	Screen printing	Korea
Daesang Techlon Co., Ltd.6		47.73		—		97			—	Manufacture of plastic wires, bars, pipes, tubes and hoses	Korea
Dongjo Co., Ltd.6		29.29		—		691			—	Wholesale of agricultural and forestry machinery and equipment	Korea
Dpaps Co., Ltd.6		38.62		—		155			—	Wholesale of paper products	Korea
Big Dipper Co., Ltd.		29.33		440		325			440	Big data consulting	Korea
Builton Co., Ltd.		20.58		800		800			800	Software development and supply	Korea
Shinla Construction Co., Ltd.6		20.24		—		(553	)		—	Specialty construction	Korea
Shinhwa Underwear Co., Ltd.6		26.24		—		(103	)		138	Manufacture of underwear and sleepwear	Korea
A-PRO Co., Ltd.1		12.61		1,500		1,500			1,500	Manufacture of electric power storage system	Korea
MJT&I Co., Ltd.6		22.89		—		(601	)		127	Wholesale of other goods	Korea
Inno Lending Co., Ltd.1		19.90		398		230			230	Credit rating model development	Korea
Jaeyang Industry Co., Ltd.6		20.86		—		(522	)		—	Manufacture of luggage and other protective cases	Korea
Jungdo Co., Ltd.6		25.53		—		1,664			—	Office, commercial and institutional building construction	Korea

F-122

	2017
	Ownership (%)		Acquisition cost		Share of net asset amount			Carrying amount		Industry	Location
	(In millions of Korean won)
Jinseung Tech Co., Ltd.6		30.04		—		(173	)		—	Manufacture of other general-purpose machinery n.e.c.		Korea
Terra Co., Ltd.6		24.06		—		36			20	Manufacture of hand-operated kitchen appliances and metal ware		Korea
Paycoms Co., Ltd.9		12.35		800		800			800	System software publishing		Korea
Food Factory Co., Ltd.11		22.22		1,000		1,000			1,000	Farm product distribution industry		Korea
Korea NM Tech Co., Ltd.6		22.41		—		580			—	Manufacture of motor vehicles, trailers and semitrailers		Korea
KB IGen Private Equity Fund No.11		0.03		3		3			3	Investment finance		Korea
KB No.8 Special Purpose Acquisition Company1,2		0.10		10		20			20	SPAC		Korea
KB No.9 Special Purpose Acquisition Company1,3		0.11		24		31			31	SPAC		Korea
KB No.10 Special Purpose Acquisition Company1,4		0.19		10		20			20	SPAC		Korea
KB No.11 Special Purpose Acquisition Company1,5		0.31		10		19			19	SPAC		Korea
KB Private Equity FundIII1		15.68		8,000		7,899			7,899	Investment finance		Korea
Korea Credit Bureau Co., Ltd.1		9.00		4,500		5,056			5,056	Credit information		Korea
KoFC KBIC Frontier Champ 2010-5(PEF)		50.00		6,485		7,506			7,120	Investment finance		Korea
KoFC POSCO HANHWA KB shared growth Private Equity Fund No.2		25.00		12,970		17,213			17,213	Investment finance		Korea
Keystone-Hyundai Securities No. 1 Private Equity Fund1		5.64		1,842		1,761			1,761	Investment finance		Korea
POSCO-KB Shipbuilding Fund		31.25		2,500		2,345			2,345	Investment finance		Korea
Hyundai-Tongyang Agrifood Private Equity Fund		25.47		82		543			543	Investment finance		Korea
Total			￦	319,573	￦	329,875		￦	335,070

	2018
	Ownership (%)		Acquisition cost		Share of net asset amount			Carrying amount		Industry	Location
	(In millions of Korean won)
Associates and Joint ventures14
KB Pre IPO Secondary Venture Fund 1st1		15.19	￦	1,454	￦	1,649		￦	1,649	Investment finance		Korea
KB GwS Private Securities Investment Trust		26.74		113,880		136,208			134,362	Investment finance		Korea
KB-KDBC New Technology Business Fund8		66.66		15,000		14,594			14,594	Investment finance		Korea
KB Star office Private real estate Investment Trust No.1		21.05		20,000		20,252			19,839	Investment finance		Korea
PT Bank Bukopin TBK15, 16		22.00		116,422		106,484			113,932	Banking and foreign exchange transaction		Indonesia
Sun Surgery Center Inc.		28.00		2,682		2,760			2,715	Hospital		United States of America
Dae-A Leisure Co., Ltd.6		49.36		—		1,613			578	Earth works		Korea
Doosung Metal Co., Ltd 6		26.52		—		(16	)		—	Manufacture of metal products		Korea

F-123

	2018
	Ownership (%)		Acquisition cost		Share of net asset amount			Carrying amount		Industry	Location
	(In millions of Korean won)
RAND Bio Science Co., Ltd.		21.91		2,000		185			843	Research and experimental development on medical sciences and pharmacy	Korea
Balhae Infrastructure Company1		12.61		104,622		108,050			108,050	Investment finance	Korea
Aju Good Technology Venture Fund		38.46		18,038		18,134			18,134	Investment finance	Korea
Acts Co., Ltd.10		7.14		500		(14	)		—	Manufacture of optical lens and elements	Korea
SY Auto Capital Co., Ltd.		49.00		9,800		15,257			10,672	Installment loan	Korea
Wise Asset Management Co., Ltd.7		33.00		—		—			—	Asset management	Korea
Incheon Bridge Co., Ltd.1		14.99		9,158		(16,689	)		—	Operation of highways and related facilities	Korea
Jungdong Steel Co., Ltd.6		42.88		—		(433	)		—	Wholesale of primary metal	Korea
Kendae Co., Ltd.6		41.01		—		(252	)		98	Screen printing	Korea
Dongjo Co., Ltd.6		29.29		—		806			115	Wholesale of agricultural and forestry machinery and equipment	Korea
Dpaps Co., Ltd.6		38.62		—		14			—	Wholesale of paper products	Korea
Big Dipper Co., Ltd.		29.33		440		166			280	Big data consulting	Korea
Builton Co., Ltd.12		21.96		800		67			304	Software development and supply	Korea
Shinla Construction Co., Ltd.6		20.24		—		(551	)		—	Specialty construction	Korea
Shinhwa Underwear Co., Ltd.6		26.24		—		(57	)		185	Manufacture of underwears and sleepwears	Korea
A-PRO Co., Ltd.1		13.71		1,500		1,554			1,403	Manufacture of electric power storage system	Korea
MJT&I Co., Ltd.6		22.89		—		(606	)		122	Wholesale of other goods	Korea
Jaeyang Industry Co., Ltd.6		20.86		—		(552	)		—	Manufacture of luggage and other protective cases	Korea
Jungdo Co., Ltd.6		25.53		—		1,492			—	Office, commercial and institutional building construction	Korea
Jinseung Tech Co., Ltd.6		30.04		—		(176	)		—	Manufacture of other general-purpose machinery n.e.c.	Korea
Terra Co., Ltd.6		24.06		—		2			—	Manufacture of hand-operated kitchen appliances and metal ware	Korea
Paycoms Co., Ltd.9		11.70		800		71			103	System software publishing	Korea
Food Factory Co., Ltd.11		22.22		1,000		206			928	Farm product distribution industry	Korea
Korea NM Tech Co., Ltd.6		22.41		—		552			—	Manufacture of motor vehicles, trailers and semitrailers	Korea
KB IGen Private Equity Fund No.11		0.03		—		—			—	Investment finance	Korea
KB No.9 Special Purpose Acquisition Company1		0.11		24		31			31	SPAC	Korea
KB No.10 Special Purpose Acquisition Company1,4		0.19		10		20			20	SPAC	Korea
KB No.11 Special Purpose Acquisition Company1,5		0.31		10		19			19	SPAC	Korea
KB Private Equity FundIII1		15.68		8,000		7,830			7,830	Investment finance	Korea
Korea Credit Bureau Co., Ltd.1		9.00		4,500		5,941			5,941	Credit information	Korea
KoFC KBIC Frontier Champ 2010-5(PEF)		50.00		364		233			233	Investment finance	Korea

F-124

	2018
	Ownership (%)		Acquisition cost		Share of net asset amount			Carrying amount		Industry	Location
	(In millions of Korean won)
KoFC POSCO HANHWA KB shared growth Private Equity Fund No.2		25.00		12,970		14,601			14,601	Investment finance		Korea
Keystone-Hyundai Securities No. 1 Private Equity Fund1		5.64		1,842		1,581			1,581	Investment finance		Korea
POSCO-KB Shipbuilding Fund		31.25		5,000		4,463			4,463	Investment finance		Korea
GH Real Estate I LP		42.00		17,678		17,252			17,252	Asset management		Guernsey
KBTS Technology Venture Private Equity Fund8		56.00		14,224		13,777			13,777	Investment finance		Korea
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund8		42.55		8,000		7,930			7,930	Investment finance		Korea
KB-SJ Tourism Venture Fund1,8		18.52		1,500		1,386			1,386	Investment finance		Korea
UNION Media Commerce Fund		29.00		1,000		962			962	Investment finance		Korea
CHONG IL MACHINE & TOOLS CO., LTD.6		21.71		—		(107	)		—	Machinery and equipment wholesale		Korea
IMT TECHNOLOGY CO., LTD.6		25.29		—		18			—	Computer Peripherals Distribution		Korea
IWON ALLOY CO., LTD.6		23.31		—		394			—	Manufacture of smelting, refining and alloys		Korea
CARLIFE CO., LTD.6		24.39		—		(75	)		—	Publishing of magazines and periodicals (publishing industry)		Korea
COMPUTERLIFE CO., LTD.6		45.71		—		(329	)		—	Publishing of magazines and periodicals (publishing industry)		Korea
SKYDIGITAL INC.6		20.40		—		(142	)		—	Multi Media, Manufacture of Multi Media Equipment		Korea
JO YANG INDUSTRIAL CO., LTD.6		23.14		—		75			—	Manufacture of Special Glass		Korea
Total			￦	493,218	￦	486,630		￦	504,932

¹ As of December 31, 2017 and 2018, the Group is represented on the governing bodies of its associates. Therefore, the Group has a significant influence over the decision-making process relating to their financial and business policies.

² The market value of KB No.8 Special Purpose Acquisition Company, reflecting the quoted market price as of December 31, 2017, amounts to ￦ 20 million.

³ The market value of KB No.9 Special Purpose Acquisition Company, reflecting the quoted market price as of December 31, 2017, amounts to ￦ 31 million.

⁴ The market value of KB No.10 Special Purpose Acquisition Company, reflecting the quoted market price as of December 31, 2017 and 2018, amounts to ￦ 20 million and ￦ 20 million, respectively.

⁵ The market value of KB No.11 Special Purpose Acquisition Company, reflecting the quoted market price as of December 31, 2017 and 2018, amounts to ￦ 20 million and ￦ 21 million, respectively.

⁶ The investment in associates was reclassified from available-for-sale financial assets due to re-instated voting rights from termination of rehabilitation procedures.

⁷ Carrying amount of the investment has been recognized as a loss from the date Hyundai Securities Co., Ltd. was included in the consolidation scope.

⁸  In order to direct relevant activities, it is necessary to obtain the consent of the two co-operative members; the Group has applied the equity method as the Group cannot control the investee by itself.

⁹ The ownership of Paycoms Co., Ltd. would be 24.06% and 22.96% as of December 31, 2017 and 2018, respectively, considering the potential voting rights from convertible bond.

¹⁰ The ownership of Acts Co., Ltd. would be 27.78 % and 27.22% as of December 31, 2017 and 2018, respectively, considering the potential voting rights from convertible bond. .

¹¹ The ownership of Food Factory Co., Ltd. would be 30.00% and 30.00% as of December 31, 2017 and 2018, respectively, considering the potential voting rights from convertible bond. .

¹² The ownership of Builton Co., Ltd. would be 26.86% as of December 31, 2018, considering the potential voting rights from convertible bond.

¹³ The ownership of Bungaejangter Inc. would be 22.69% as of December 31, 2017, considering the potential voting rights from convertible bond.

F-125

¹⁴  In accordance with IAS 28 Investments in Associates and Joint Ventures, application of the equity method is exempted, and the Group designates its investments in JLK INSPECTION Inc., Rainist Co., Ltd., TESTIAN Inc., Spark Biopharma, Inc., RMGP Bio-Pharma Investment Fund, L.P., RMGP Bio-Pharma Investment, L.P., HEYBIT, Inc., Hasys., Stratio, Inc.

¹⁵ The Group has entered into an agreement with PT Bosowa Corporindo, the major shareholder of PT Bank Bukopin TBK. Under this agreement, the Group has a right of first refusal, a tag-along right and a drag-along right. The drag-along right can be exercised for the duration of two years after three years from the acquisition date, subject to the occurrence of certain situations as defined in the agreement.

¹⁶ The fair value of PT Bank Bukopin TBK common stock is ￦ 53,540 million as of December 31, 2018.

F-126

Summarized financial information on major associates, adjustments to carrying amount of investment in associates and joint ventures and dividends received from the associates and joint ventures are as follows:

	20171
	Total assets		Total liabilities		Share capital		Equity			Share of net asset amount			Unrealized gains (losses)			Consolidated carrying amount
	(In millions of Korean won)
Associates and Joint ventures
KB Pre IPO Secondary Venture Fund 1st	￦	10,908	￦	30	￦	11,000	￦	10,878		￦	1,601		￦	—		￦	1,601
KB GwS Private Securities Investment Trust		505,115		741		425,814		504,374			134,891			(3,471	)		131,420
KB-KDBC New Technology Business Investment Fund		7,503		45		7,500		7,458			4,972			—			4,972
KB Star office Private real estate Investment Trust No.1		216,041		120,462		95,000		95,579			20,122			(413	)		19,709
Sun Surgery Center Inc		9,579		—		43		9,579			2,682			—			2,682
RAND Bio Science Co., Ltd.		1,876		7		71		1,869			2,000			—			2,000
Balhae Infrastructure Company		836,309		1,800		807,567		834,509			105,190			—			105,190
Bungaejangter Inc.		5,592		3,450		43		2,142			3,484			—			3,484
Aju Good Technology Venture Fund		20,676		250		21,400		20,426			7,856			374			8,230
Acts Co., Ltd.		6,741		6,894		117		(153	)		500			—			500
SY Auto Capital Co., Ltd.		79,845		51,071		20,000		28,774			14,099			(6,029	)		8,070
Incheon Bridge Co., Ltd.		646,811		754,900		61,096		(108,089	)		(16,202	)		16,202			—
Big Dipper Co., Ltd.		1,138		30		1,500		1,108			325			115			440
Builton Co., Ltd.		1,418		808		321		610			800			—			800
A-PRO Co., Ltd.		8,692		5,681		43		3,011			1,500			—			1,500
Inno Lending Co., Ltd.		1,184		28		2,000		1,156			230			—			230
Paycoms Co., Ltd.		1,898		1,374		810		524			800			—			800
Food Factory Co., Ltd.		3,501		3,552		—		(51	)		1,000			—			1,000
KB IGen Private Equity Fund No. 1		7,666		9		11,230		7,657			3			—			3
KB No.8 Special Purpose Acquisition Company		22,920		2,369		1,031		20,551			20			—			20
KB No.9 Special Purpose Acquisition Company		29,963		2,566		1,382		27,397			31			—			31
KB No.10 Special Purpose Acquisition Company		11,858		1,675		521		10,183			20			—			20
KB No.11 Special Purpose Acquisition Company		6,730		717		321		6,013			19			—			19
KB Private Equity Fund III		50,357		—		51,000		50,357			7,899			—			7,899
Korea Credit Bureau Co., Ltd.		75,504		19,323		10,000		56,181			5,056			—			5,056
KoFC KBIC Frontier Champ 2010-5(PEF)		15,017		3		12,970		15,014			7,506			(386	)		7,120
KoFC POSCO HANHWA KB shared growth Private Equity Fund No. 2		70,166		1,315		51,880		68,851			17,213			—			17,213
Keystone-Hyundai Securities No. 1 Private Equity Fund		170,155		133,034		34,114		37,121			1,761			—			1,761
POSCO-KB Shipbuilding Fund		7,752		247		8,000		7,505			2,345			—			2,345
Hyundai-Tongyang Agrifood Private Equity Fund		2,466		339		320		2,127			543			—			543

F-127

	20171
	Operating income			Profit (loss)			Other comprehensive income			Total comprehensive income			Dividends
	(In millions of Korean won)
Associates and Joint ventures
KB Pre IPO Secondary Venture Fund 1st	￦	394		￦	(60	)	￦	(62	)	￦	(122	)	￦	—
KB GwS Private Securities Investment Trust		35,002			34,004			—			34,004			7,350
KB-KDBC New Technology Business Investment Fund		3			(42	)		—			(42	)		—
KB Star office Private real estate Investment Trust No.1		13,071			5,684			—			5,684			1,295
Sun Surgery Center Inc.		—			—			—			—			—
RAND Bio Science Co., Ltd.		—			(607	)		—			(607	)		—
Balhae Infrastructure Company		113,441			104,942			—			104,942			12,842
Bungaejangter Inc.		406			48			—			48			—
Aju Good Technology Venture Fund		660			(841	)		—			(841	)		—
Acts Co., Ltd.		3,537			(578	)		—			(578	)		—
SY Auto Capital Co., Ltd.		15,783			2,490			(27	)		2,463			—
Incheon Bridge Co., Ltd.		90,691			(8,719	)		—			(8,719	)		—
Big Dipper Co., Ltd.		140			(392	)		—			(392	)		—
Builton Co., Ltd.		1,433			58			—			58			—
A-PRO Co., Ltd.		12,226			661			—			661			—
Inno Lending Co., Ltd.		( 751	)		(749	)		—			(749	)		—
Paycoms Co., Ltd.		303			(170	)		—			(170	)		—
Food Factory Co., Ltd.		3,324			(1,036	)		—			(1,036	)		—
KB IGen Private Equity Fund No. 1		—			172			—			172			—
KB No.8 Special Purpose Acquisition Company		—			73			—			73			—
KB No.9 Special Purpose Acquisition Company		—			223			—			223			—
KB No.10 Special Purpose Acquisition Company		—			29			—			29			—
KB No.11 Special Purpose Acquisition Company		—			(262	)		—			(262	)		—
KB Private Equity Fund III		—			(545	)		—			(545	)		—
Korea Credit Bureau Co., Ltd.		68,750			3,580			—			3,580			149
KoFC KBIC Frontier Champ 2010-5(PEF)		2,728			(294	)		142			(152	)		—
KoFC POSCO HANHWA KB shared growth Private Equity Fund No. 2		21,916			8,624			129			8,753			—
Keystone-Hyundai Securities No. 1 Private Equity Fund		5,391			(1,507	)		—			(1,507	)		—
POSCO-KB Shipbuilding Fund		23			(495	)		—			(495	)		—
Hyundai-Tongyang Agrifood Private Equity Fund		4,159			3,231			—			3,231			407

F-128

	20181
	Total assets		Total liabilities		Share capital		Equity			Share of net asset amount			Unrealized gains (losses)			Consolidated carrying amount
	(In millions of Korean won)
Associates and Joint ventures
KB Pre IPO Secondary Venture Fund 1st	￦	10,864	￦	9	￦	10,120	￦	10,855		￦	1,649		￦	—		￦	1,649
KB GwS Private Securities Investment Trust		516,115		741		425,814		515,374			136,208			(1,846	)		134,362
KB-KDBC New Technology Business Investment Fund		22,492		602		22,500		21,890			14,594			—			14,594
KB Star office Private real estate Investment Trust No.1		218,025		121,828		95,000		96,197			20,252			(413	)		19,839
PT Bank Bukopin TBK2		7,195,249		6,711,233		106,536		484,016			106,484			7,448			113,932
Sun Surgery Center Inc		10,468		610		9,428		9,858			2,760			(45	)		2,715
RAND Bio Science Co., Ltd.		2,913		2,070		913		843			185			658			843
Balhae Infrastructure Company		859,040		1,843		829,995		857,197			108,050			—			108,050
Aju Good Technology Venture Fund		47,216		66		46,900		47,150			18,134			—			18,134
Acts Co., Ltd.		6,666		6,823		117		(157	)		(14	)		14			—
SY Auto Capital Co., Ltd.		89,948		58,812		20,000		31,136			15,257			(4,585	)		10,672
Incheon Bridge Co., Ltd.		617,560		728,896		61,096		(111,336	)		(16,689	)		16,689			—
Big Dipper Co., Ltd.		723		157		1,500		566			166			114			280
Builton Co., Ltd.		1,908		1,604		325		304			67			237			304
A-PRO Co., Ltd.		29,438		18,099		1,713		11,339			1,554			(151	)		1,403
Paycoms Co., Ltd.		2,126		1,520		855		606			71			32			103
Food Factory Co., Ltd.		4,096		3,168		450		928			206			722			928
KB IGen Private Equity Fund No. 1		148		8		170		140			—			—			—
KB No.9 Special Purpose Acquisition Company		30,288		2,629		1,382		27,659			31			—			31
KB No.10 Special Purpose Acquisition Company		11,960		1,704		521		10,256			20			—			20
KB No.11 Special Purpose Acquisition Company		6,807		742		321		6,065			19			—			19
KB Private Equity FundIII		49,924		5		51,000		49,919			7,830			—			7,830
Korea Credit Bureau Co., Ltd.		88,797		22,788		10,000		66,009			5,941			—			5,941
KoFC KBIC Frontier Champ 2010-5(PEF)		469		3		300		466			233			—			233
KoFC POSCO HANHWA KB shared growth Private Equity Fund No. 2		59,464		1,061		51,880		58,403			14,601			—			14,601
Keystone-Hyundai Securities No. 1 Private Equity Fund		177,024		151,862		34,114		25,162			1,581			—			1,581
POSCO-KB Shipbuilding Fund		14,287		4		16,000		14,283			4,463			—			4,463
GH Real Estate I LP		41,206		190		42,093		41,016			17,252			—			17,252
KBTS Technology Venture Private Equity Fund		24,810		208		25,400		24,602			13,777			—			13,777
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		18,820		181		18,800		18,639			7,930			—			7,930
KB-SJ Tourism Venture Fund		7,484		2		8,100		7,482			1,386			—			1,386
UNION Media Commerce Fund		3,318		—		3,450		3,318			962			—			962

F-129

	20181
	Operating income		Profit (loss)			Other comprehensive income			Total comprehensive income			Dividends
	(In millions of Korean won)
Associates and Joint ventures
KB Pre IPO Secondary Venture Fund 1st	￦	2,140	￦	1,404		￦	—		￦	1,404		￦	—
KB GwS Private Securities Investment Trust		42,502		41,524			—			41,524			8,160
KB-KDBC New Technology Business Investment Fund		39		(568	)		—			(568	)		—
KB Star office Private real estate Investment Trust No.1		14,092		6,135			—			6,135			1,162
PT Bank Bukopin TBK		148,793		(8,843	)		(2,325	)		(11,168	)		—
Sun Surgery Center Inc.		873		71			342			413			—
RAND Bio Science Co., Ltd.		—		(2,076	)		—			(2,076	)		—
Balhae Infrastructure Company		61,525		54,241			—			54,241			6,804
Aju Good Technology Venture Fund		2,491		1,356			—			1,356			—
Acts Co., Ltd.		2,472		(628	)		—			(628	)		—
SY Auto Capital Co., Ltd.		16,525		2,729			(151	)		2,578			—
Incheon Bridge Co., Ltd.		94,373		(2,757	)		—			(2,757	)		—
Big Dipper Co., Ltd.		441		(543	)		—			(543	)		—
Builton Co., Ltd.		1,867		(287	)		—			(287	)		—
A-PRO Co., Ltd.		47,926		2,015			—			2,015			—
Paycoms Co., Ltd.		686		(409	)		—			(409	)		—
Food Factory Co., Ltd.		4,753		412			—			412			—
KB IGen Private Equity Fund No. 1		—		3,693			—			3,693			—
KB No.9 Special Purpose Acquisition Company		—		262			—			262			—
KB No.10 Special Purpose Acquisition Company		—		73			—			73			—
KB No.11 Special Purpose Acquisition Company		—		218			—			218			—
KB Private Equity FundIII		—		(438	)		—			(438	)		—
Korea Credit Bureau Co., Ltd.		78,018		9,901			—			9,901			112
KoFC KBIC Frontier Champ 2010-5(PEF)		1,460		1,453			—			1,453			999
KoFC POSCO HANHWA KB shared growth Private Equity Fund No. 2		2,401		(12,313	)		—			(12,313	)		—
Keystone-Hyundai Securities No. 1 Private Equity Fund		15,507		(3,194	)		—			(3,194	)		—
POSCO-KB Shipbuilding Fund		160		(1,222	)		—			(1,222	)		—
GH Real Estate I LP		4,293		3,089			(307	)		2,782			1,595
KBTS Technology Venture Private Equity Fund		—		(798	)		—			(798	)		—
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		20		(161	)		—			(161	)		—
KB-SJ Tourism Venture Fund		—		(618	)		—			(618	)		—
UNION Media Commerce Fund		—		(132	)		—			(132	)		—

¹  The amounts included in the financial statements of the associates and joint ventures are adjusted to reflect adjustments made by the entity; such as, fair value adjustments made at the time of acquisition and adjustments for differences in accounting policies.

²  The amounts of goodwill on PT Bank Bukopin TBK is ￦4,101 million.

F-130

Changes in investments in associates and joint ventures for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning		Acquisition and others		Disposal and others			Dividends			Gains (losses) on equity- method accounting			Other- comprehensive income			Others		Ending
	(In millions of Korean won)
Associates and Joint ventures
KB Pre IPO Secondary Venture Fund 1st	￦	—	￦	1,671	￦	—		￦	—		￦	(60	)	￦	(10	)	￦	—	￦	1,601
KB GwS Private Securities Investment Trust		129,678		—		—			(7,350	)		9,092			—			—		131,420
KB-KDBC New Technology Business Investment Fund		—		5,000		—			—			(28	)		—			—		4,972
KB Star office Private real estate Investment Trust No.1		19,807		—		—			(1,295	)		1,197			—			—		19,709
Sun Surgery Center Inc.		—		2,682		—			—			—			—			—		2,682
Kyobo 7 Special Purpose Acquisition Co., Ltd.		—		10		(10	)		—			—			—			—		—
RAND Bio Science Co., Ltd.		2,000		—		—			—			—			—			—		2,000
Balhae Infrastructure Company		133,200		806		(29,202	)		(12,842	)		13,228			—			—		105,190
Bungaejanter Inc.		—		3,484		—			—			—			—			—		3,484
IMM Investment 5th PRIVATE EQUITY FUND		9,999		25,200		(35,185	)		—			(14	)		—			—		—
Aju Good Technology Venture Fund		1,998		6,232		—			—			—			—			—		8,230
Acts Co., Ltd.		—		500		—			—			—			—			—		500
SY Auto Capital Co., Ltd.		5,693		—		—			—			2,390			(13	)		—		8,070
isMedia Co. Ltd		3,978		—		(5,409	)		—			1,431			—			—		—
Incheon Bridge Co., Ltd.		728		—		(728	)		—			—			—			—		—
KB Insurance Co., Ltd.1		1,392,194		—		(1,417,397	)		(15,884	)		38,873			2,214			—		—
Kendae Co., Ltd.		—		—		—			—			127			—			—		127
Big Dipper Co., Ltd.		—		440		—			—			—			—			—		440
Builton Co., Ltd.		—		800		—			—			—			—			—		800
Shinhwa Underwear Co., Ltd.		103		—		—			—			35			—			—		138
A-PRO Co., Ltd.		—		1,500		—			—			—			—			—		1,500
MJT&I Co., Ltd.		232		—		—			—			(105	)		—			—		127
Inno Lending Co., Ltd.		378		—		—			—			(148	)		—			—		230
Korbi Co., Ltd.		—		750		(750	)		—			—			—			—		—
Terra Co., Ltd.		28		—		—			—			(8	)		—			—		20
Paycoms Co., Ltd.		—		800		—			—			—			—			—		800
Food Factory Co., Ltd.		—		1,000		—			—			—			—			—		1,000
KBIC Private Equity Fund No. 3		2,396		—		(2,763	)		—			367			—			—		—
KB IGen Private Equity Fund No. 1		10		—		(7	)		—			—			—			—		3
KB No.8 Special Purpose Acquisition Company		19		—		—			—			1			—			—		20
KB No.9 Special Purpose Acquisition Company		31		—		—			—			—			—			—		31
KB No.10 Special Purpose Acquisition Company		20		—		—			—			—			—			—		20
KB No.11 Special Purpose Acquisition Company2		13		—		—			—			(2	)		(3	)		11		19
KB Private Equity Fund III		8,000		—		—			—			(101	)		—			—		7,899
Korea Credit Bureau Co., Ltd.		4,853		—		—			(149	)		352			—			—		5,056
KoFC KBIC Frontier Champ 2010-5(PEF)		24,719		—		(17,500	)		—			(170	)		71			—		7,120
KoFC POSCO HANHWA KB shared growth Private Equity Fund No. 2		24,789		—		(9,730	)		—			2,121			33			—		17,213
Keystone-Hyundai Securities No. 1 Private Equity Fund		1,850		—		—			—			(85	)		(4	)		—		1,761
POSCO-KB Shipbuilding Fund		—		2,500		—			—			(155	)		—			—		2,345
Hyundai-Tongyang Agrifood Private Equity Fund		3,957		—		(3,830	)		(407	)		823			—			—		543
Total	￦	1,770,673	￦	53,375	￦	(1,522,511	)	￦	(37,927	)	￦	69,161		￦	2,288		￦	11	￦	335,070

¹ KB Insurance Co., Ltd. is included as a subsidiary in the second quarter of 2017.

²  Other gain of KB No.11 Special Purpose Acquisition Company amounting to ￦11 million represents the changes in interests due to unequal share capital increase in the associate.

³ Gain on disposal of investments in associates and joint ventures for year ended December 31, 2017, amounts to ￦15,113 million.

F-131

	2018
	Beginning1		Acquisition and others		Disposal and others			Dividends			Gains (losses) on equity- method accounting			Other- comprehen- sive income			Others			Ending
	(In millions of Korean won)
Associates and Joint ventures
KB Pre IPO Secondary Venture Fund 1st	￦	1,551	￦	—	￦	(217	)	￦	—		￦	315		￦	—		￦	—		￦	1,649
KB GwS Private Securities Investment Trust		131,420		—		—			(8,160	)		11,102			—			—			134,362
KB-KDBC New Technology Business Investment Fund		4,972		10,000		—			—			(378	)		—			—			14,594
KB Star office Private real estate Investment Trust No.1		19,709		—		—			(1,162	)		1,292			—			—			19,839
PT Bank Bukopin TBK		—		116,422		—			—			(1,946	)		(544	)		—			113,932
Sun Surgery Center Inc.		2,682		—		—			—			33			—			—			2,715
Dae-A Leisure Co., Ltd.		—		—		—			—			3,698			(3,120	)		—			578
RAND Bio Science Co., Ltd.		2,000		—		—			—			(1,157	)		—			—			843
Balhae Infrastructure Company		105,190		4,645		(1,817	)		(6,804	)		6,836			—			—			108,050
Bungaejangter Inc.3		3,484		—		(1,384	)		—			—			—			(2,100	)		—
Aju Good Technology Venture Fund		8,230		9,808		—			—			96			—			—			18,134
Acts Co., Ltd. 2		500		—		—			—			—			—			(500	)		—
SY Auto Capital Co., Ltd.		8,070		—		—			—			2,676			(74	)		—			10,672
Kendae Co., Ltd.		127		—		—			—			(29	)		—			—			98
Dassang Techlon Co., Ltd.		—		—		—			—			—			—			—			—
Dong Jo Co., Ltd.		—		—		—			—			115			—			—			115
Big Dipper Co., Ltd.		440		—		—			—			(160	)		—			—			280
Builton Co., Ltd.		800		—		—			—			(496	)		—			—			304
Shinhwa Underwear Co., Ltd.		138		—		—			—			47			—			—			185
A-PRO Co., Ltd.		1,500		—		—			—			(97	)		—			—			1,403
MJT&I Co., Ltd.		127		—		—			—			(5	)		—			—			122
Inno Lending Co., Ltd.		230		—		(230	)		—			—			—			—			—
Terra Co., Ltd.		20		—		—			—			(20	)		—			—			—
Paycoms Co., Ltd.		800		—		—			—			(697	)		—			—			103
Food Factory Co., Ltd.		1,000		—		—			—			(72	)		—			—			928
KB IGen Private Equity Fund No. 1		3		—		(4	)		—			1			—			—			—
KB No.8 Special Purpose Acquisition Company		20		—		(20	)		—			—			—			—			—
KB No.9 Special Purpose Acquisition Company		31		—		—			—			—			—			—			31
KB No.10 Special Purpose Acquisition Company		20		—		—			—			—			—			—			20
KB No.11 Special Purpose Acquisition Company		19		—		—			—			1			(1	)		—			19
KB Private Equity FundIII		7,899		—		—			—			(69	)		—			—			7,830
Korea Credit Bureau Co., Ltd.		5,056		—		—			(112	)		997			—			—			5,941
KoFC KBIC Frontier Champ 2010-5(PEF)		7,120		—		(6,121	)		(999	)		233			—			—			233
KoFC POSCO HANHWA KB shared growth Private Equity Fund No. 2		17,713		—		—			—			(1,873	)		(1,239	)		—			14,601
Keystone-Hyundai Securities No. 1 Private Equity Fund		1,761		—		—			—			(180	)		—			—			1,581
POSCO-KB Shipbuilding Fund		2,345		2,500		—			—			(382	)		—			—			4,463
Hyundai-Tongyang Agrifood Private Equity Fund		543		—		(74	)		(469	)		—			—			—			—
GH Real Estate I LP		—		17,678		—			(1,595	)		1,298			(129	)		—			17,252
KBTS Technology Venture Private Equity Fund		—		14,224		—			—			(447	)		—			—			13,777
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		—		8,000		—			—			(70	)		—			—			7,930
KB-SJ Tourism Venture Fund		—		1,500		—			—			(114	)		—			—			1,386
CUBE Growth Fund No.2		—		1,300		(1,300	)		—			—			—			—			—
UNION Media Commerce Fund		—		1,000		—			—			(38	)		—			—			962
Total	￦	335,520	￦	187,077	￦	(11,167	)	￦	(19,301	)	￦	20,510		￦	(5,107	)	￦	(2,600	)	￦	504,932

¹  Prepared in accordance with IFRS 9

²  Recognized ￦500 million loss in relation to impaired capital.

³  The amount of reclassification as financial assets is ￦2,100 million.

⁴ Gain on disposal of investments in associates and joint ventures for the year ended December 31, 2018 is ￦4,250 million.

F-132

Accumulated unrecognized share of losses in investments in associates and joint ventures due to discontinuation of applying the equity method for the years ended December 31, 2017 and 2018, are as follows:

	2017					2018
	Unrecognized loss			Accumulated unrecognized loss		Unrecognized loss			Accumulated unrecognized loss
	(In millions of Korean won)
Doosung Metal Co., Ltd	￦	(31	)	￦	23	￦	(4	)	￦	19
Incheon Bridge Co., Ltd.		16,202			16,202		487			16,689
Jungdong Steel Co., Ltd.		13			489		—			489
Dpaps Co., Ltd.		(4	)		184		141			325
Shinla Construction Co., Ltd.		7			183		—			183
Jaeyang Industry Co., Ltd.		—			—		30			30
Terra Co., Ltd.		—			—		14			14
Jungdo Co., Ltd.		—			—		161			161
Jinseung Tech Co., Ltd.		—			—		3			3
Korea NM Tech Co., Ltd.		—			—		28			28
Ejade Co., Ltd.		(1,181	)		—		—			—
JSC Bank CenterCredit		(108,761	)		—		—			—

14. Property and Equipment, and Investment Properties

Details of property and equipment as of December 31, 2017 and 2018, are as follows:

	2017
	Acquisition cost		Accumulated depreciation			Accumulated impairment losses			Carrying amount
	(In millions of Korean won)
Land	￦	2,475,372	￦	—		￦	(1,018	)	￦	2,474,354
Buildings		2,061,717		(684,705	)		(5,859	)		1,371,153
Leasehold improvements		783,446		(693,717	)		—			89,729
Equipment and vehicles		1,699,563		(1,456,358	)		—			243,205
Construction in progress		14,808		—			—			14,808
Financial lease assets		34,789		(26,341	)		—			8,448
Total	￦	7,069,695	￦	(2,861,121	)	￦	(6,877	)	￦	4,201,697

	2018
	Acquisition cost		Accumulated depreciation			Accumulated impairment losses			Carrying amount
	(In millions of Korean won)
Land	￦	2,433,059	￦	—		￦	(1,018	)	￦	2,432,041
Buildings		2,043,459		(707,389	)		(5,859	)		1,330,211
Leasehold improvements		878,078		(750,442	)		—			127,636
Equipment and vehicles		1,729,223		(1,448,599	)		—			280,624
Construction in progress		88,618		—			—			88,618
Financial lease assets		44,429		(31,432	)		—			12,997
Total	￦	7,216,866	￦	(2,937,862	)	￦	(6,877	)	￦	4,272,127

F-133

The changes in property and equipment for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning		Acquisition		Transfers1			Disposal			Depreciation2			Business combination		Others			Ending
	(In millions of Korean won)
Land	￦	2,324,550	￦	35,242	￦	(89,338	)	￦	(11,203	)	￦	—		￦	215,274	￦	(171	)	￦	2,474,354
Buildings		981,716		14,611		31,608			(12,314	)		(48,280	)		403,816		(4	)		1,371,153
Leasehold improvement		73,728		10,973		57,663			(858	)		(66,279	)		497		14,005			89,729
Equipment and vehicles		230,270		124,702		(16,695	)		(452	)		(138,317	)		42,703		994			243,205
Construction in-progress		4,205		112,840		(102,352	)		—			—			127		(12	)		14,808
Financial lease assets		12,799		679		—			—			(5,030	)		—		—			8,448
Total	￦	3,627,268	￦	299,047	￦	(119,114	)	￦	(24,827	)	￦	(257,906	)	￦	662,417	￦	14,812		￦	4,201,697

	2018
	Beginning		Acquisition		Transfers1			Disposal			Depreciation2			Business combination		Others			Ending
	(In millions of Korean won)
Land	￦	2,474,354	￦	247	￦	(41,888	)	￦	(691	)	￦	—		￦	—	￦	19		￦	2,432,041
Buildings		1,371,153		3,738		9,683			(4,528	)		(51,881	)		—		2,046			1,330,211
Leasehold improvement		89,729		28,922		70,221			(633	)		(71,931	)		—		11,328			127,636
Equipment and vehicles		243,205		182,868		242			(1,026	)		(144,791	)		121		5			280,624
Construction in-progress		14,808		236,495		(161,330	)		—			—			644		(1,999	)		88,618
Financial lease assets		8,448		9,640		—			—			(5,091	)		—		—			12,997
Total	￦	4,201,697	￦	461,910	￦	(123,072	)	￦	(6,878	)	￦	(273,694	)	￦	765	￦	11,399		￦	4,272,127

¹  Including transfers with investment property and assets held for sale.

² Including depreciation cost and others amounting to ￦157 million and ￦128 million recorded in other operating expenses in the statements of comprehensive income for the years ended December 31, 2017 and 2018, respectively.

The changes in accumulated impairment losses of property and equipment for the years ended December 31, 2017 and 2018, are as follows:

2017
Beginning		Impairment		Reversal		Business combination		Disposal and Others		Ending
(In millions of Korean won)
￦	(13,815)	￦	—	￦	—	￦	—	￦	6,938	￦	(6,877)

2018

Beginning

Impairment

Reversal

Business combination

Disposal and Others

Ending

(In millions of Korean won)

￦

(6,877)

￦

—

￦

—

￦

—

￦

—

￦

(6,877

)

F-134

Details of investment property as of December 31, 2017 and 2018, are as follows:

	2017
	Acquisition cost		Accumulated depreciation			Accumulated impairment losses			Carrying amount
	(In millions of Korean won)
Land	￦	252,234	￦	—		￦	(738	)	￦	251,496
Buildings		719,920		(122,935	)		—			596,985
Total	￦	972,154	￦	(122,935	)	￦	(738	)	￦	848,481

	2018
	Acquisition cost		Accumulated depreciation			Accumulated impairment losses		Carrying amount
	(In millions of Korean won)
Land	￦	972,562	￦	—		￦	—	￦	972,562
Buildings		1,295,668		(148,419	)		—		1,147,249
Total	￦	2,268,230	￦	(148,419	)	￦	—	￦	2,119,811

The valuation technique and input variables that are used to measure the fair value of investment property as of December 31, 2018, are as follows:

	2018
	Fair value		Valuation technique	Inputs
	(In millions of Korean won)
Land and buildings	￦	25,359	Cost Approach Method	- Price per square meter - Replacement cost
		976,857	Market comparison method	- Price per square meter
		1,123,323	Cash flow approach	- Prospective rental market growth rate - Period of vacancy - Rental rate - Discount rate and others
		161,473	Income approach	- Discount rate - Capitalization rate - Vacancy rate

As of December 31, 2017 and 2018, fair values of the investment properties amount to ￦893,583 million and ￦2,287,012 million, respectively. The investment properties were measured by qualified independent appraisers with experience in valuing similar properties in the same area. In addition, per the fair value hierarchy on Note 6.1, the fair value hierarchy of all investment properties has been categorized and classified as Level 3.

Rental income from the above investment properties for the years ended December 31, 2017 and 2018, amounts to ￦59,259 million and ￦87,513 million, respectively.

F-135

The changes in investment property for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning		Acquisition		Transfers			Disposal			Depreciation			Business combination		Others			Ending
	(In millions of Korean won)
Land	￦	202,391	￦	—	￦	(39,533	)	￦	(330	)	￦	—		￦	91,618	￦	(2,650	)	￦	251,496
Buildings		552,620		262		(33,737	)		(1,263	)		(20,096	)		141,106		(41,907	)		596,985
Total	￦	755,011	￦	262	￦	(73,270	)	￦	(1,593	)	￦	(20,096	)	￦	232,724	￦	(44,557	)	￦	848,481

	2018
	Beginning		Acquisition		Transfers		Disposal			Depreciation			Others			Ending
	(In millions of Korean won)
Land	￦	251,496	￦	714,454	￦	66,086	￦	(57,384	)	￦	—		￦	(2,090	)	￦	972,562
Buildings		596,985		573,671		44,622		(50,872	)		(26,092	)		8,935			1,147,249
Total	￦	848,481	￦	1,288,125	￦	110,708	￦	(108,256	)	￦	(26,092	)	￦	6,845		￦	2,119,811

15. Intangible Assets

Details of intangible assets as of December 31, 2017 and 2018, are as follows:

	2017
	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Others			Carrying Amount
	(In millions of Korean won)
Goodwill	￦	344,799	￦	—		￦	(70,517	)	￦	(832	)	￦	273,450
Other intangible assets		4,012,563		(1,299,879	)		(43,074	)		—			2,669,610
Total	￦	4,357,362	￦	(1,299,879	)	￦	(113,591	)	￦	(832	)	￦	2,943,060

	2018
	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Others			Carrying Amount
	(In millions of Korean won)
Goodwill	￦	346,314	￦	—		￦	(70,517	)	￦	(577	)	￦	275,220
Other intangible assets		4,140,355		(1,614,775	)		(45,017	)		—			2,480,563
Total	￦	4,486,669	￦	(1,614,775	)	￦	(115,534	)	￦	(577	)	￦	2,755,783

F-136

Details of goodwill as of December 31, 2017 and 2018, are as follows:

	2017				2018
	Acquisition cost		Carrying amount		Acquisition cost		Carrying amount
	(In millions of Korean won)
Housing & Commercial Bank	￦	65,288	￦	65,288	￦	65,288	￦	65,288
KB Cambodia Bank		1,202		—		1,202		—
KB Securities Co., Ltd.1		70,265		58,889		70,265		58,889
KB Capital Co., Ltd.		79,609		79,609		79,609		79,609
KB Savings Bank Co., Ltd.		115,343		57,404		115,343		57,404
KB Securities Vietnam Joint Stock Company2		13,092		12,260		13,092		12,520
KB Daehan Specialized Bank PLC.		—		—		1,515		1,510
Total	￦	344,799	￦	273,450	￦	346,314	￦	275,220

¹ The amount occurred from formerly known as KB Investment & Securities Co., Ltd.

² MARITIME SECURITIES INCORPORATION changed its name to KB Securities Vietnam joint stock company.

The changes in accumulated impairment losses of goodwill for the years ended December 31, 2017 and 2018, are as follows:

2017
Beginning		Impairment			Others		Ending
(In millions of Korean won)
￦	(69,315)	￦	(1,202	)	￦	—	￦	(70,517	)

2018
Beginning		Impairment		Others		Ending
(In millions of Korean won)
￦	(70,517)	￦	—	￦	—	￦	(70,517	)

The details of allocating goodwill to cash-generating units and related information for impairment testing as of December 31, 2018, are as follows:

	Housing & Commercial Bank						KB Securities Co., Ltd.2			KB Capital Co., Ltd.			KB Savings Bank Co., Ltd. and Yehansoul Savings Bank Co., Ltd.			KB Securities Vietnam Joint Stock Company			Total1
	Retail Banking			Corporate Banking
	(In millions of Korean won)
Carrying amounts	￦	49,315		￦	15,973		￦	58,889		￦	79,609		￦	57,404		￦	12,520		￦	273,710
Recoverable amount exceeded carrying amount		4,281,676			2,875,939			658,365			1,703,417			317,394			5,595			9,842,386
Discount rate (%)		15.51	%		15.74	%		20.05	%		10.29	%		8.09	%		23.63	%
Permanent growth rate (%)		1.00			1.00			1.00			1.00			1.00			1.00

¹  Goodwill arisen from a business combination during 2018 has not been tested for impairment.

² The amount occurred from formerly known as KB Investment&Securities Co., Ltd.

F-137

Goodwill is allocated to cash-generating units, based on management’s analysis, that are expected to benefit from the synergies of the combination for impairment testing, and cash-generating units consist of an operating segment or units which are not larger than an operating segment. The Group recognized the amount of ￦65,288 million related to goodwill acquired in the merger of Housing & Commercial Bank. Of those respective amounts, the amounts of ￦49,315 million and ￦15,973 million were allocated to the Retail Banking and Corporate Banking, respectively. Cash-generating units to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit.

The recoverable amount of a cash-generating unit is measured at the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell is the amount obtainable from the sale in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. If it is difficult to measure the amount obtainable from the sale, the Group measures the fair value less costs to sell by reflecting the characteristics of the measured cash-generating unit. If it is not possible to obtain reliable information to measure the fair value less costs to sell, the Group uses the asset’s value in use as its recoverable amount. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. The projections of the future cash flows are based on the most recent financial budget approved by management and generally cover a period of five years. The future cash flows after projection period are estimated on the assumption that the future cash flows will increase by 1.0% for all other cash-generating units. The key assumptions used for the estimation of the future cash flows are the market size and the Group’s market share. The discount rate is a pre-tax rate that reflects assumptions regarding risk-free interest rate, market risk premium and the risks specific to the asset for which the future cash flow estimates have not been adjusted.

Details of intangible assets, excluding goodwill, as of December 31, 2017 and 2018, are as follows:

	2017
	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
	(In millions of Korean won)
Industrial property rights	￦	9,497	￦	(2,399	)	￦	—		￦	7,098
Software		1,062,699		(885,133	)		—			177,566
Other intangible assets		501,874		(211,321	)		(43,074	)		247,479
Value of Business Acquired (VOBA)		2,395,291		(179,193	)		—			2,216,098
Finance leases assets		43,202		(21,833	)		—			21,369
Total	￦	4,012,563	￦	(1,299,879	)	￦	(43,074	)	￦	2,669,610

	2018
	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
	(In millions of Korean won)
Industrial property rights	￦	9,248	￦	(2,661	)	￦	(2,090	)	￦	4,497
Software		1,169,549		(965,044	)		—			204,505
Other intangible assets		515,041		(223,503	)		(42,927	)		248,611
Value of Business Acquired (VOBA)		2,395,291		(393,346	)		—			2,001,945
Finance leases assets		51,226		(30,221	)		—			21,005
Total	￦	4,140,355	￦	(1,614,775	)	￦	(45,017	)	￦	2,480,563

F-138

The changes in intangible assets, excluding goodwill, for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning		Acquisition & Transfer		Disposal			Amortization1			Business combination		Others			Ending
	(In millions of Korean won)
Industrial property rights	￦	3,005	￦	4,772	￦	(8	)	￦	(683	)	￦	—	￦	12		￦	7,098
Software		137,101		88,172		(48	)		(66,655	)		20,396		(1,400	)		177,566
Other intangible assets2		221,867		34,755		(7,054	)		(18,437	)		18,362		(2,014	)		247,479
Value of Business Acquired (VOBA)		—		—		—			(179,193	)		2,395,291		—			2,216,098
Finance leases assets		27,951		792		—			(7,374	)		—		—			21,369
Total	￦	389,924	￦	128,491	￦	(7,110	)	￦	(272,342	)	￦	2,434,049	￦	(3,402	)	￦	2,669,610
	2018
	Beginning		Acquisition & Transfer		Disposal			Amortization1			Business combination		Others			Ending
	(In millions of Korean won)
Industrial property rights	￦	7,098	￦	1,329	￦	(1,200	)	￦	(639	)	￦	—	￦	(2,091	)	￦	4,497
Software		177,566		103,398		(6	)		(76,280	)		17		(190	)		204,505
Other intangible assets2		247,479		36,014		(10,290	)		(24,388	)		—		(204	)		248,611
Value of Business Acquired (VOBA)		2,216,098				—			(214,153	)		—		—			2,001,945
Finance leases assets		21,369		8,024		—			(8,388	)		—		—			21,005
Total	￦	2,669,610	￦	148,765	￦	(11,496	)	￦	(323,848	)	￦	17	￦	(2,485	)	￦	2,480,563

¹  Including ￦179,809 million and ￦214,735 million recorded in insurance expenses and other operating expenses and others in the statements of comprehensive income for the years ended December 31, 2017 and 2018.

²  Impairment loss for membership right of other intangible asset with indefinite useful life was recognized when its recoverable amount is lower than its carrying amount, and reversal of impairment loss was recognized when its recoverable amount is higher than its carrying amount.

The changes in accumulated impairment losses on intangible assets for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning			Impairment			Reversal		Disposal and others		Ending
	(In millions of Korean won)
Accumulated impairment losses on intangible assets	￦	(44,927	)	￦	(601	)	￦	954	￦	1,500	￦	(43,074	)

	2018
	Beginning			Impairment			Reversal		Disposal and others		Ending
	(In millions of Korean won)
Accumulated impairment losses on intangible assets	￦	(43,074	)	￦	(5,846	)	￦	3,475	￦	428	￦	(45,017	)

F-139

From 2018, the Group is required to pay a fine only if the actual emission exceeds the targeted emission amount. Therefore, the emission rights (intangible asset) do not occur as long as it is below the targeted emission amount.

Changes in emissions rights for year ended December 31, 2017, are as follows:

	Applicable under 2016					Applicable under 2017					Total
	Quantity			Carrying amount		Quantity			Carrying amount		Quantity			Carrying amount
	(KAU)			(In millions of Korean won)		(KAU)			(In millions of Korean won)		(KAU)			(In millions of Korean won)
Beginning		99,283		￦	—		104,920		￦	—		204,203		￦	—
Additional Allocation		578			—		17,046			—		17,624			—
Borrowing		18,306			—		(18,306	)		—		—			—
Surrendered to government		(117,484	)		—		—			—		(117,484	)		—
Cancel		(683	)		—		(398	)		—		(1,081	)		—
Ending		—		￦	—		103,262		￦	—		103,262		￦	—

16. Deferred Income Tax Assets and Liabilities

Details of deferred income tax assets and liabilities as of December 31, 2017 and 2018, are as follows:

	2017
	Assets			Liabilities			Net amount
	(In millions of Korean won)
Other provisions	￦	115,518		￦	—		￦	115,518
Allowances for loan losses		1,142			—			1,142
Impairment losses on property and equipment		5,614			(407	)		5,207
Interest on equity index-linked deposits		43			—			43
Share-based payments		23,238			—			23,238
Provisions for guarantees		24,341			—			24,341
Losses(gains) from valuation on derivative financial instruments		6,258			(17,479	)		(11,221	)
Present value discount		25,332			(4,498	)		20,834
Losses(gains) from fair value hedged item		—			(15,698	)		(15,698	)
Accrued interest		243			(111,514	)		(111,271	)
Deferred loan origination fees and costs		332			(180,401	)		(180,069	)
Advanced depreciation provision		—			(1,703	)		(1,703	)
Gains from revaluation		648			(350,801	)		(350,153	)
Investments in subsidiaries and others		24,834			(103,268	)		(78,434	)
Gains on valuation of security investment		86,290			(225,158	)		(138,868	)
Defined benefit liabilities		436,706			—			436,706
Accrued expenses		194,399			—			194,399
Retirement insurance expense		—			(369,300	)		(369,300	)
Adjustments to the prepaid contributions		—			(16,236	)		(16,236	)
Derivative-linked securities		27,992			(5,679	)		22,313
Others		352,437			(452,303	)		(99,866	)
Sub-total		1,325,367			(1,854,445	)		(529,078	)
Offsetting of deferred income tax assets and liabilities		(1,321,376	)		1,321,376			—
Total	￦	3,991		￦	(533,069	)	￦	(529,078	)

F-140

	2018
	Assets			Liabilities			Net amount
	(In millions of Korean won)
Other provisions	￦	109,721		￦	—		￦	109,721
Allowances for loan losses		3,327			(65	)		3,262
Impairment losses on property and equipment		6,030			(2,032	)		3,998
Share-based payments		17,655			—			17,655
Provisions for guarantees		20,298			—			20,298
Losses (gains) from valuation on derivative financial instruments		138,401			(13,485	)		124,916
Present value discount		6,763			(2,380	)		4,383
Losses (gains) from fair value hedged item		—			(25,873	)		(25,873	)
Accrued interest		—			(113,152	)		(113,152	)
Deferred loan origination fees and costs		506			(194,848	)		(194,342	)
Advanced depreciation provision		—			(1,703	)		(1,703	)
Gains from revaluation		648			(330,548	)		(329,900	)
Investments in subsidiaries and others		33,589			(78,586	)		(44,997	)
Gains on valuation of security investment		76,558			(181,638	)		(105,080	)
Defined benefit liabilities		494,572			—			494,572
Accrued expenses		272,190			—			272,190
Retirement insurance expense		17,559			(444,244	)		(426,685	)
Adjustments to the prepaid contributions		—			(19,033	)		(19,033	)
Derivative-linked securities		3,762			(74,765	)		(71,003	)
Others		360,754			(568,357	)		(207,603	)
Sub-total		1,562,333			(2,050,709	)		(488,376	)
Offsetting of deferred income tax assets and liabilities		(1,558,175	)		1,558,175			—
Total	￦	4,158		￦	(492,534	)	￦	(488,376	)

Unrecognized deferred income tax assets

No deferred income tax assets have been recognized for the deductible temporary difference of ￦73,764 million associated with investments in subsidiaries and others as of December 31, 2018, because it is not probable that the temporary differences will be reversed in the foreseeable future.

No deferred income tax assets have been recognized for deductible temporary differences of ￦120,704 million with others, as of December 31, 2018, due to the uncertainty that these will be realized in the future.

Unrecognized deferred income tax liabilities

No deferred income tax liabilities have been recognized for the taxable temporary difference of ￦62,367 million associated with investment in subsidiaries and associates as of December 31, 2018, due to the following reasons:

• The Group is able to control the timing of the reversal of the temporary difference.

• It is probable that the temporary difference will not be reversed in the foreseeable future.

No deferred income tax liabilities have been recognized as of December 31, 2018, for the taxable temporary difference of ￦65,288 million arising from the initial recognition of goodwill from the merger of Housing and Commercial Bank in 2001.

F-141

The changes in cumulative temporary differences for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning			Business Combination			Decrease			Increase			Ending
	(In millions of Korean won)
Deductible temporary differences
Other provisions	￦	380,863		￦	30,180		￦	395,138		￦	407,923		￦	423,828
Allowances for loan losses		30,154			—			26,134			202			4,222
Impairment losses on property and equipment		32,726			—			31,988			19,677			20,415
Deferred loan origination fees and costs		5,154			—			5,154			1,207			1,207
Interest on equity index-linked deposits		168			—			168			155			155
Share-based payments		56,650			—			49,333			77,185			84,502
Provisions for guarantees		126,319			—			126,319			88,512			88,512
Gains(losses) from valuation on derivative financial instruments		40,334			—			40,334			22,758			22,758
Present value discount		46,961			—			18,417			63,573			92,117
Loss on SPE repurchase		80,204			—			—			—			80,204
Investments in subsidiaries and others		810,719			—			753,918			76,902			133,703
Gains on valuation of security investment		447,388			—			447,388			299,082			299,082
Defined benefit liabilities		1,320,135			255,375			256,580			271,857			1,590,787
Accrued expenses		1,128,492			—			1,123,713			701,756			706,535
Derivative linked securities		124,388			—			124,388			101,789			101,789
Others		1,402,646			107,755			736,757			614,570			1,388,214
Sub-total		6,033,301			393,310		￦	4,135,729		￦	2,747,148			5,038,030
Unrecognized deferred income tax assets:
Other provisions		—			—									2,879
Loss on SPE repurchase		80,204			—									80,204
Investments in subsidiaries and others		774,259			—									49,179
Others		119,334			—									112,030
Total		5,059,504			393,310									4,793,738
Tax rate (%)1		24.2												27.5
Total deferred income tax assets from deductible temporary differences	￦	1,283,268		￦	95,181								￦	1,325,367
Taxable temporary differences
Losses(gains) from fair value hedged item	￦	(59,235	)	￦	—		￦	(59,235	)	￦	(57,083	)	￦	(57,083	)
Accrued interest		(349,899	)		(72,117	)		(377,010	)		(360,536	)		(405,542	)
Impairment losses on property and equipment		(1,481	)		—			—			—			(1,481	)
Deferred loan origination fees and costs		(660,945	)		(15,846	)		(665,209	)		(657,081	)		(668,663	)
advanced depreciation provision		—			(6,192	)		—			—			(6,192	)
Gains(losses) from valuation on derivative financial instruments		(193,243	)		—			(192,491	)		(61,077	)		(61,829	)
Present value discount		(25,454	)		(8,766	)		(34,220	)		(16,357	)		(16,357	)
Goodwill		(65,288	)		—			—			—			(65,288	)
Gains on revaluation		(1,182,310	)		(99,244	)		(59,030	)		(53,117	)		(1,275,641	)
Investments in subsidiaries and others		(387,267	)		—			(72,284	)		(72,484	)		(387,467	)
Gains on valuation of security investment		(37,252	)		(236,137	)		(273,171	)		(764,891	)		(765,109	)
Retirement insurance expense		(1,170,514	)		(168,714	)		(200,722	)		(203,506	)		(1,342,012	)
Adjustments to the prepaid contributions		(62,569	)		—			(61,034	)		(57,505	)		(59,040	)
Derivative linked securities		(176,962	)		—			(176,962	)		(20,650	)		(20,650	)
Others		(794,141	)		(1,215,733	)		(429,645	)		(95,568	)		(1,675,797	)
Sub-total		(5,166,560	)		(1,822,749	)	￦	(2,601,013	)	￦	(2,419,855	)		(6,808,151	)
Unrecognized deferred income tax assets:
Goodwill		(65,288	)		—									(65,288	)
Investments in subsidiaries and others		(17,205	)		(4,546	)								(28,407	)
Others		(906	)		—									(677	)
Total		(5,083,161	)		(1,818,203	)								(6,713,779	)
Tax rate (%)1		24.2												27.5
Total deferred income tax liabilities from taxable temporary differences	￦	(1,253,126	)	￦	(442,206	)							￦	(1,854,445	)

¹  The corporate tax rate was changed due to the amendment of corporate tax law in 2017. Accordingly, the rate of 27.5% has been applied for the deferred tax assets and liabilities expected to be utilized in periods after December 31, 2017.

F-142

	2018
	Beginning1			Decrease			Increase			Ending
	(In millions of Korean won)
Deductible temporary differences
Other provisions	￦	441,088		￦	440,865		￦	411,680		￦	411,903
Allowances for loan losses		546,506			542,139			8,114			12,481
Impairment losses on property and equipment		20,415			19,678			21,190			21,927
Deferred loan origination fees and costs		1,207			1,207			1,841			1,841
Interest on equity index-linked deposits		155			155			0			0
Share-based payments		84,502			74,429			49,998			60,071
Provisions for guarantees		98,294			98,294			73,809			73,809
Gains(losses) from valuation on derivative financial instruments		23,162			23,162			503,277			503,277
Present value discount		104,117			104,116			24,592			24,593
Loss on SPE repurchase		80,204			80,204			0			0
Investments in subsidiaries and others		137,591			26,748			74,027			184,870
Gains on valuation of security investment		415,392			412,284			266,623			269,731
Defined benefit liabilities		1,682,234			211,994			507,190			1,977,430
Accrued expenses		706,535			706,535			993,906			993,906
Derivative linked securities		101,789			101,789			13,679			13,679
Others		1,189,756			517,189			616,755			1,289,322
Sub-total		5,632,947			3,360,788			3,566,681			5,838,840
Unrecognized deferred income tax assets:
Other provisions		2,879									3,416
Loss on SPE repurchase		80,204									—
Investments in subsidiaries and others		55,546									73,764
Others		112,030									120,704
Total		5,382,288									5,640,956
Tax rate (%)		27.5									27.5
Total deferred income tax assets from deductible temporary differences	￦	1,487,039								￦	1,562,333
Taxable temporary differences
Losses(gains) from fair value hedged item	￦	(57,083	)	￦	(57,083	)	￦	(94,085	)	￦	(94,085	)
Accrued interest		(405,542	)		(364,518	)		(370,463	)		(411,487	)
Impairment losses on property and equipment		(1,481	)		—			(2,976	)		(4,457	)
Deferred loan origination fees and costs		(668,657	)		(668,657	)		(727,528	)		(727,528	)
advanced depreciation provision		(6,192	)		—			—			(6,192	)
Gains(losses) from valuation on derivative financial instruments		(38,051	)		(38,051	)		(49,036	)		(49,036	)
Present value discount		(11,948	)		(11,948	)		(8,656	)		(8,656	)
Goodwill		(65,288	)		—			—			(65,288	)
Gains on revaluation		(1,275,641	)		(124,407	)		(50,758	)		(1,201,992	)
Investments in subsidiaries and others		(387,733	)		(146,234	)		(74,847	)		(316,346	)
Gains on valuation of security investment		(800,041	)		(799,187	)		(600,642	)		(601,496	)
Retirement insurance expense		(1,342,012	)		(136,444	)		(405,907	)		(1,611,475	)
Adjustments to the prepaid contributions		(59,040	)		(59,040	)		(69,212	)		(69,212	)
Derivative linked securities		(20,650	)		(20,650	)		(271,873	)		(271,873	)
Others		(1,695,063	)		(1,261,852	)		(1,664,205	)		(2,097,416	)
Sub-total	￦	(6,834,422	)	￦	(3,688,071	)	￦	(4,390,426	)	￦	(7,536,777	)
Unrecognized deferred income tax assets:
Goodwill		(65,288	)								(65,288	)
Investments in subsidiaries and others		(17,205	)								(62,367	)
Others		(906	)								(588	)
Total		(6,751,023	)								(7,408,534	)
Tax rate (%)		27.5									27.5
Total deferred income tax liabilities from taxable temporary differences	￦	(1,861,070	)							￦	(2,050,709	)

¹  Prepared in accordance with IFRS 9.

F-143

17. Assets Held for Sale

Details of assets held for sale as of December 31, 2017 and 2018, are as follows:

	2017
	Acquisition cost1		Accumulated impairment			Carrying amount		Fair value less costs to sell
	(In millions of Korean won)
Land held for sale	￦	133,445	￦	(1,492	)	￦	131,953	￦	251,520
Buildings held for sale		34,862		(11,309	)		23,553		24,548
Total	￦	168,307	￦	(12,801	)	￦	155,506	￦	276,068

	2018
	Acquisition cost1		Accumulated impairment			Carrying amount		Fair value less costs to sell
	(In millions of Korean won)
Land held for sale	￦	16,048	￦	(3,442	)	￦	12,606	￦	16,552
Buildings held for sale		9,054		(4,708	)		4,346		4,403
Total	￦	25,102	￦	(8,150	)	￦	16,952	￦	20,955

¹ Acquisition cost of buildings held for sale is net of accumulated depreciation.

The valuation technique and input variables that are used to measure the fair value of assets held for sale as of December 31, 2018, are as follows:

	2018
	Fair value		Valuation technique1	Unobservable input2	Range of unobservable inputs (%)	Relationship of unobservable inputs to fair value
	(In millions of Korean won)
Land and buildings	￦	20,955	Market comparison approach model and others	Adjustment index	0.30 ~1.08	Fair value increases as the adjustment index rises.
				Adjustment ratio	-20.00~0.00	Fair value decreases as the absolute value of adjustment index rises.

¹  The Group adjusted the appraisal value by the adjustment ratio in the event the public sale is unsuccessful.

²  Adjustment index is calculated using the real estate index or the producer price index, or land price volatility.

The fair values of assets held for sale were measured by qualified independent appraisers with experience in valuing similar properties in the same area. In addition, per the fair value hierarchy on Note 6.1, the fair value hierarchy of all investment properties has been categorized and classified as Level 3.

F-144

The changes in accumulated impairment losses of assets held for sale for the years ended December 31, 2017 and 2018, are as follows:

2017
Beginning			Provision1			Reversal		Disposal and others1		Ending
(In millions of Korean won)
￦	(29,248	)	￦	(24,192	)	￦	5,138	￦	35,501	￦	(12,801	)
2018
Beginning			Provision			Reversal		Others		Ending
(In millions of Korean won)
￦	(12,801	)	￦	(5,281	)	￦	286	￦	9,646	￦	(8,150	)

¹ Including the amount related to the group of the assets disposed in 2017, which was classified as held for sale

As of December 31, 2018, assets held for sale consist of eight real estates of closed offices, which were committed to sell by the management, but not yet sold as of December 31, 2018. Negotiation with buyers is in process for the two assets and the remaining six assets are also being actively marketed.

18. Other Assets

Details of other assets as of December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Other financial assets
Other receivables	￦	6,447,405		￦	4,708,910
Accrued income		1,594,455			1,724,328
Guarantee deposits		1,211,841			1,182,686
Domestic exchange settlement debits		949,897			504,899
Others		101,909			125,380
Allowances		(104,813	)		(106,275	)
Present value discount		(5,679	)		(6,372	)
Sub-total		10,195,015			8,133,556
Other non-financial assets
Other receivables		3,640			4,965
Prepaid expenses		153,650			205,394
Guarantee deposits		4,904			4,529
Insurance assets		1,180,980			1,362,877
Separate account assets		4,119,203			4,715,414
Others		578,795			1,347,580
Allowances		(32,018	)		(24,780	)
Sub-total		6,009,154			7,615,979
Total	￦	16,204,169		￦	15,749,535

F-145

Changes in allowances for loan losses on other assets for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Other financial assets			Other non-financial assets			Total
	(In millions of Korean won)
Beginning	￦	95,629		￦	25,182		￦	120,811
Written-off		(14,546	)		(1,970	)		(16,516	)
Provision		9,840			1,410			11,250
Business combination		21,293			—			21,293
Others		(7,403	)		7,396			(7	)
Ending	￦	104,813		￦	32,018		￦	136,831
	2018
	Other financial assets			Other non-financial assets			Total
	(In millions of Korean won)
Beginning1	￦	109,899		￦	32,018		￦	141,917
Written-off		(38,184	)		(1,863	)		(40,047	)
Provision		32,495			(5,375	)		27,120
Business combination		—			—			—
Others		2,065			—			2,065
Ending	￦	106,275		￦	24,780		￦	131,055

¹  Prepared in accordance with IFRS 9.

19. Financial Liabilities at Fair Value through Profit or Loss

Details of financial liabilities at fair value through profit or loss, and financial liabilities designated at fair value through profit or loss as of December 31, 2017 and 2018, are as follows:

	2017
	(In millions of Korean won)
Financial liabilities held for trading
Securities sold	￦	1,870,579
Other		74,191
Sub-total		1,944,770
Financial liabilities designated at fair value through profit or loss
Derivative-linked securities		10,078,288
Total financial liabilities at fair value through profit or loss	￦	12,023,058

	2018
	(In millions of Korean won)
Financial liabilities at fair value through profit or loss
Securities sold	￦	2,745,906
Other		77,914
Sub-total	￦	2,823,820
Financial liabilities designated at fair value through profit or loss
Derivative-linked securities		12,503,039
Total financial liabilities at fair value through profit or loss	￦	15,326,859

F-146

The difference between the carrying amount and contractual cash flow amount of financial liabilities designated at fair value through profit or loss as of December 31, 2018 is as follows:

	2018
	(In millions of Korean won)
Contractual cash flow amount		￦12,329,525
Carrying amount		12,503,039
Difference		￦   (173,514	)

20. Deposits

Details of deposits as of December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Demand deposits
Demand deposits in Korean won	￦	113,676,999		￦	115,602,691
Demand deposits in foreign currencies		6,911,782			6,887,280
Total demand deposits		120,588,781			122,489,971
Time deposits
Time deposits in Korean won		127,562,153			145,336,136
Time deposits in foreign currencies		4,481,607			5,501,887
Fair value adjustments on valuation of fair value hedged items		(51,033	)		(89,264	)
Sub-total		4,430,574			5,412,623
Total time deposits		131,992,727			150,748,759
Certificates of deposits		3,218,540			3,531,719
Total deposits	￦	255,800,048		￦	276,770,449

21. Debts

Details of debts as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Borrowings	￦	16,846,072	￦	19,969,328
Repurchase agreements and others		10,676,219		11,954,491
Call money		1,298,637		1,081,015
Total	￦	28,820,928	￦	33,004,834

F-147

Details of borrowings as of December 31, 2017 and 2018, are as follows:

		Lender	Annual interest rate (%)	2017		2018
				(In millions of Korean won)
Borrowings in Korean won	Borrowings from the Bank of Korea	Bank of Korea	0.50~0.75	￦	1,888,880	￦	1,672,714
	Borrowings from the government	SEMAS and others	0.00~3.00		1,726,543		1,745,940
	Borrowings from banks	Shinhan Bank and others	2.99~3.45		36,806		100,100
	Borrowings from non-banking financial institutions	The Korea Development Bank and others	0.22~5.00		1,631,376		1,852,953
	Other borrowings	The Korea Development Bank and others	0.00~5.20		4,409,261		5,033,768
		Sub-total			9,692,866		10,405,475
Borrowings in foreign currencies	Due to banks	Commerzbank AG and Others	—		19,820		13,353
	Borrowings from banks	Central Bank of Uzbekistan and Others	0.00~8.15		5,470,569		7,521,197
	Borrowings from other financial institutions	The Export-Import Bank of Korea and others	3.20~3.94		76,134		18,725
	Other borrowings	Standard Chartered Bank and others	—		1,586,683		2,010,578
		Sub-total			7,153,206		9,563,853
		Total		￦	16,846,072	￦	19,969,328

The details of repurchase agreements and others as of December 31, 2017 and 2018, are as follows:

	Lenders	Annual interest rate (%)		2017		2018
				(In millions of Korean won)
Repurchase agreements	Individuals, Groups and Corporations		1.19~2.22	￦	10,666,315	￦	11,946,896
Bills sold	Counter sale		0.40~1.00		9,904		7,595
	Total			￦	10,676,219	￦	11,954,491

The details of call money as of December 31, 2017 and 2018, are as follows:

	Lenders	Annual interest rate (%)		2017		2018
				(In millions of Korean won)
Call money in Korean won	Deutsche Bank AG, Seoul and others		1.33~1.75	￦	890,000	￦	718,600
Call money in foreign currencies	Central Bank of Uzbekistan and others		1.20~2.20		408,637		362,415
	Total			￦	1,298,637	￦	1,081,015

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22. Debentures

Details of debentures as of December 31, 2017 and 2018, are as follows:

	Annual interest rate (%)		2017			2018
			(In millions of Korean won)
Debentures in Korean won
Structured debentures		1.49~5.86	￦	869,294		￦	1,296,860
Subordinated fixed rate debentures in Korean won		1.63~4.35		2,913,411			3,437,729
Fixed rate debentures in Korean won		1.35~5.70		36,823,365			42,203,545
Floating rate debentures in Korean won		1.72~1.77		728,000			1,650,000
Sub-total				41,334,070			48,588,134
Fair value adjustments on fair value hedged financial debentures in Korean won				19,891			19,252
Less: Discount on debentures in Korean won				(53,897	)		(33,445	)
Sub-total				41,300,064			48,573,941
Debentures in foreign currencies
Floating rate debentures		0.00~3.72		1,371,392			1,791,868
Fixed rate debentures		1.63~3.63		2,363,486			2,951,251
Sub-total				3,734,878			4,743,119
Fair value adjustments on fair value hedged debentures in foreign currencies				(25,941	)		(24,073	)
Less: Discount on debentures in foreign currencies				(16,277	)		(14,290	)
Sub-total				3,692,660			4,704,756
Total			￦	44,992,724		￦	53,278,697

Changes in debentures based on face value for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning		Issues		Repayments			Others			Ending
	(In millions of Korean won)
Debentures in Korean won
Structured debentures	￦	1,146,300	￦	3,876,080	￦	(4,153,086	)	￦	—		￦	869,294
Subordinated fixed rate debentures in Korean won		3,271,693		—		(358,282	)		—			2,913,411
Fixed rate debentures in Korean won		25,627,695		133,283,400		(122,087,730	)		—			36,823,365
Floating rate debentures in Korean won		1,108,000		410,000		(790,000	)		—			728,000
Sub-total		31,153,688		137,569,480		(127,389,098	)		—			41,334,070
Debentures in foreign currencies
Floating rate debentures		1,063,480		1,338,239		(911,936	)		(118,391	)		1,371,392
Fixed rate debentures		2,803,720		795,150		(945,394	)		(289,990	)		2,363,486
Sub-total		3,867,200		2,133,389		(1,857,330	)		(408,381	)		3,734,878
Total	￦	35,020,888	￦	139,702,869	￦	(129,246,428	)	￦	(408,381	)	￦	45,068,948

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	2018
	Beginning		Issues		Repayments			Others		Ending
	(In millions of Korean won)
Debentures in Korean won
Structured debentures	￦	869,294	￦	3,662,797	￦	(3,235,231	)	￦	—	￦	1,296,860
Subordinated fixed rate debentures in Korean won		2,913,411		600,000		(75,682	)		—		3,437,729
Fixed rate debentures in Korean won		36,823,365		136,987,100		(131,606,920	)		—		42,203,545
Floating rate debentures in Korean won		728,000		1,160,000		(238,000	)		—		1,650,000
Sub-total	￦	41,334,070	￦	142,409,897	￦	(135,155,833	)	￦	—	￦	48,588,134
Debentures in foreign currencies
Floating rate debentures		1,371,392		725,638		(384,230	)		79,068		1,791,868
Fixed rate debentures		2,363,486		493,022		—			94,743		2,951,251
Sub-total		3,734,878		1,218,660		(384,230	)		173,811		4,743,119
Total	￦	45,068,948	￦	143,628,557	￦	(135,540,063	)	￦	173,811	￦	53,331,253

23. Provisions

Details of provisions as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Provisions for unused loan commitments	￦	178,202	￦	210,677
Provisions for payment guarantees		88,809		75,175
Provisions for financial guarantee contracts		2,682		4,275
Provisions for restoration cost		95,194		108,000
Others		203,146		127,732
Total	￦	568,033	￦	525,859

Changes in provisions for unused loan commitments, payment guarantees for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Provisions for unused loan commitments			Provisions for payment guarantees			Total
	(In millions of Korean won)
Beginning	￦	189,349		￦	126,428		￦	315,777
Effects of changes in foreign exchange rate		(1,316	)		(3,369	)		(4,685	)
Reversal		(9,850	)		(34,250	)		(44,100	)
Business combination		19			—			19
Ending	￦	178,202		￦	88,809		￦	267,011

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	2018
	Provisions for unused loan commitments									Provisions for payment guarantees
	12-month expected credit losses			Lifetime expected credit losses						12-month expected credit losses			Lifetime expected credit losses
				Non- impaired			Impaired						Non- impaired			Impaired
	(In millions of Korean won)
Beginning1	￦	124,487		￦	63,407		￦	7,746		￦	41,637		￦	39,628		￦	18,744
Transfer between stages
Transfer to 12-month expected credit losses		25,562			(24,067	)		(1,494	)		660			(661	)		—
Transfer to lifetime expected credit losses (non-impaired)		(11,053	)		11,381			(327	)		(913	)		1,055			(141	)
Transfer to lifetime expected credit losses (impaired)		(481	)		(1,333	)		1,815			(6	)		(87	)		93
Provision (reversal) for loan losses		(5,932	)		19,374			1,141			(14,702	)		(10,069	)		(897	)
Others (change of exchange rate, etc.)		293			158			—			408			243			183
Ending	￦	132,876		￦	68,920		￦	8,881		￦	27,084		￦	30,109		￦	17,982

¹  Prepared in accordance with IFRS 9

Changes in provisions for financial guarantee contracts for the years ended December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Beginning1	￦	4,333		￦	4,857
Reversal		(1,651	)		(582	)
Ending	￦	2,682		￦	4,275

¹  Prepared in accordance with IFRS 9.

Changes in provisions for restoration cost for the years ended December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Beginning	￦	84,854		￦	95,194
Provision		5,150			7,301
Reversal		(1,211	)		(2,055	)
Used		(7,049	)		(3,627	)
Unwinding of discount		2,078			2,507
Effects of changes in discount rate		10,510			8,680
Business combination		862			—
Ending	￦	95,194		￦	108,000

Provisions for restoration cost are the present value of estimated costs to be incurred for the restoration of the leased properties. Actual expenses are expected to be incurred at the end of each lease contract. Three-year historical data of expired leases were used to estimate the average lease period. Also, the average restoration

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expense based on actual three-year historical data and the three-year historical average inflation rate were used to estimate the present value of estimated costs.

Changes in other provisions for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Membership rewards program			Dormant accounts			Litigations			Greenhouse gas emission liabilities1			Others2			Total
	(In millions of Korean won)
Beginning	￦	8,790		￦	50,396		￦	20,623		￦	358		￦	52,586		￦	132,753
Increase		81,171			5,133			6,046			—			45,164			137,514
Decrease		(74,849	)		(50,479	)		(2,906	)		(181	)		(10,469	)		(138,884	)
Business Combination		—			—			—			—			71,763			71,763
Ending	￦	15,112		￦	5,050		￦	23,763		￦	177		￦	159,044		￦	203,146

¹  As of December 31, 2017, the estimated greenhouse gas emission is 112,121 tons.

²  As of December 31, 2017, the group’s provision on incomplete sales on cardssurance are ￦26,926 million.

	2018
	Membership rewards program			Dormant accounts			Litigations			Greenhouse gas emission liabilities1			Others			Total
	(In millions of Korean won)
Beginning	￦	15,112		￦	5,050		￦	23,763		￦	177		￦	159,044		￦	203,146
Increase		46,277			2,657			2,699			—			24,722			76,355
Decrease		(48,735	)		(3,330	)		(5,272	)		(177	)		(94,255	)		(151,769	)
Ending	￦	12,654		￦	4,377		￦	21,190		￦	—		￦	89,511		￦	127,732

¹  As of December 31, 2018, the Group’s provision on incomplete sales on cardssurance are ￦26,930 million.

24. Net Defined Benefit Liabilities (Assets)

Defined benefit plan

The Group operates defined benefit plans which have the following characteristics:

• The Group has the obligation to pay the agreed benefits to all its current and former employees.

• Actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance, on the Group.

The defined benefit liability recognized in the statements of financial position is calculated by independent actuaries in accordance with actuarial valuation methods.

The net defined benefit obligation is calculated using the Projected Unit Credit method (the ‘PUC’). Data used in the PUC such as interest rates, future salary increase rate, mortality rate and consumer price index are based on observable market data and historical data which are updated annually.

Actuarial assumptions may differ from actual results, due to changes in the market, economic trends and mortality trends which may impact defined benefit liabilities and future payments. Actuarial gains and losses arising from changes in actuarial assumptions are recognized in the period incurred through other comprehensive income.

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Changes in the net defined benefit liabilities for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Present value of defined benefit obligation			Fair value of plan assets			Net defined benefit liabilities
	(In millions of Korean won)
Beginning	￦	1,576,003		￦	(1,479,704	)	￦	96,299
Current service cost		208,037			—			208,037
Past service cost		21,356			—			21,356
Interest cost (income)		40,351			(36,243	)		4,108
Remeasurements:
Actuarial gains and losses by changes in demographic assumptions		22,878			—			22,878
Actuarial gains and losses by changes in financial assumptions		(86,459	)		—			(86,459	)
Actuarial gains and losses by experience adjustments		17,541			—			17,541
Return on plan assets (excluding amounts included in interest income)		—			16,220			16,220
Contributions:
The Group		—			(230,785	)		(230,785	)
Payments from plans (benefit payments)		(216,817	)		216,698			(119	)
Payments from the Group		(23,779	)		—			(23,779	)
Transfer in		8,604			(8,383	)		221
Transfer out		(8,712	)		8,672			(40	)
Effect of exchange rate changes		(25	)		—			(25	)
Effect of business combination and disposal of business		282,988			(177,832	)		105,156
Others		25			3,174			3,199
Ending1	￦	1,841,991		￦	(1,688,183	)	￦	153,808

¹ The net defined benefit liabilities of ￦153,808 million is calculated by subtracting ￦894 million net defined benefit assets from ￦154,702 million net defined benefit liabilities

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	2018
	Present value of defined benefit obligation			Fair value of plan assets			Net defined benefit liabilities
	(In millions of Korean won)
Beginning	￦	1,841,991		￦	(1,688,183	)	￦	153,808
Current service cost		208,470			—			208,470
Past service cost		30,218			—			30,218
Gain or loss on settlement		(1,000	)		—			(1,000	)
Interest cost (income)		51,522			(47,689	)		3,833
Remeasurements:
Actuarial gains and losses by changes in demographic assumptions		38,894			—			38,894
Actuarial gains and losses by changes in financial assumptions		95,111			—			95,111
Actuarial gains and losses by experience adjustments		33,968			—			33,968
Return on plan assets (excluding amounts included in interest income)		—			22,420			22,420
Contributions		—			(300,245	)		(300,245	)
Payments from plans (benefit payments)		(103,663	)		103,652			(11	)
Payments from the Group		(29,583	)		—			(29,583	)
Transfer in		8,614			(8,394	)		220
Transfer out		(8,394	)		8,394			—
Effect of exchange rate changes		17			—			17
Effect of business combination and disposal of business		—			—			—
Others		6,095			(2	)		6,093
Ending	￦	2,172,260		￦	(1,910,047	)	￦	262,213

Details of the net defined benefit liabilities as of December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Present value of defined benefit obligation	￦	1,841,991		￦	2,172,260
Fair value of plan assets		(1,688,183	)		(1,910,047	)
Net defined benefit liabilities	￦	153,808		￦	262,213

Details of post-employment benefits recognized in profit or loss as employee compensation and benefits for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016			2017		2018
	(In millions of Korean won)
Current service cost	￦	192,010		￦	208,037	￦	208,470
Past service cost1		4,408			21,356		7,912
Net interest expenses of net defined benefit liabilities		1,674			4,108		3,833
Gain or loss on settlement		(396	)		—		(1,000	)
Post-employment benefits2	￦	197,696		￦	233,501	￦	219,215

¹ During the year ended December 31, 2018, other provisions (amounting to ￦22,306 million as of December 31, 2017) were transferred into net defined benefit liabilities.

²  Including post-employment benefits amounting to ￦2,047 million recognized as other operating expense and prepayment of ￦83 million recognized as other assets as of and for the year ended December 31, 2018,

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and post-employment benefits amounting to ￦1,755 million recognized as other operating expense and prepayment of ￦42 million recognized as other assets for the year ended December 31, 2017.

Remeasurements of the net defined benefit liabilities recognized as other comprehensive income for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016			2017			2018
	(In millions of Korean won)
Remeasurements:
Return on plan assets (excluding amounts included in interest income)	￦	(11,071	)	￦	(16,220	)	￦	(22,420	)
Actuarial gains and losses		27,787			46,040			(167,973	)
Income tax effects		(4,045	)		(7,215	)		52,377
Remeasurements after income tax	￦	12,671		￦	22,605		￦	(138,016	)

The details of fair value of plan assets as of December 31, 2017 and 2018, are as follows:

	2017
	Assets quoted in an active market		Assets not quoted in an active market		Total
	(In millions of Korean won)
Cash and due from financial institutions	￦	—	￦	1,686,012	￦	1,686,012
Investment fund		—		2,171		2,171
Total	￦	—	￦	1,688,183	￦	1,688,183

	2018
	Assets quoted in an active market		Assets not quoted in an active market		Total
	(In millions of Korean won)
Cash and due from financial institutions	￦	—	￦	1,908,028	￦	1,908,028
Investment fund		—		2,019		2,019
Total	￦	—	￦	1,910,047	￦	1,910,047

Key actuarial assumptions used as of December 31, 2017 and 2018, are as follows:

	2017		2018
Discount rate (%)		2.10 ~ 2.90		2.00 ~ 2.30
Salary increase rate (%)		0.00 ~ 7.50		0.00 ~ 7.50
Turnover (%)		0.00 ~ 50.00		0.00 ~ 50.00

Mortality assumptions are based on the experience-based mortality table of Korea Insurance Development Institute of 2015.

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions as of December 31, 2018, are as follows:

	Changes in principal assumption		Effect on net defined benefit obligation
			Increase in principal assumption	Decrease in principal assumption
Discount rate (%)		0.5 p.	4.23 decrease	4.48 increase
Salary increase rate (%)		0.5 p.	4.13 increase	3.95 decrease
Turnover (%)		0.5 p.	0.66 decrease	0.57 increase

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The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position.

Expected maturity analysis of undiscounted pension benefits (including expected future benefit) as of December 31, 2018, is as follows:

Up to 1 year

1~2 years

2~5 years

5~10 years

Over 10 years

Total

(In millions of Korean won)

Pension benefits1

￦

61,787

￦

121,233

￦

600,804

￦

1,307,327

￦

3,766,739

￦

5,857,890

¹ Excluded amount to be settled per promotion-incentivized defined contribution plan.

The weighted average duration of the defined benefit obligation is 1.0 ~ 11.2 years.

Expected contribution to plan assets for periods after December 31, 2018, is estimated to be ￦207,020 million.

25. Other Liabilities

Details of other liabilities as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Other financial liabilities
Other payables	￦	8,806,967	￦	7,910,887
Prepaid card and debit card		21,767		25,831
Accrued expenses		2,654,345		2,986,210
Financial guarantee liabilities		34,114		43,395
Deposits for letter of guarantees and others		798,207		685,451
Domestic exchange settlement credits		48,133		1,689,908
Foreign exchanges settlement credits		124,728		102,187
Borrowings from other business accounts		5,408		13,166
Other payables from trust accounts		5,018,031		5,285,108
Liability incurred from agency relationships		518,955		605,076
Account for agency businesses		257,761		460,949
Dividend payables		474		2,019
Others		41,114		18,120
Sub-total		18,330,004		19,828,307
Other non-financial liabilities
Other payables		196,142		319,267
Unearned revenue		271,787		378,792
Accrued expenses		634,236		744,863
Deferred revenue on credit card points		176,840		187,459
Withholding taxes		179,903		137,236
Separate account liabilities		4,463,687		5,401,192
Others		217,709		203,880
Sub-total		6,140,304		7,372,689
Total	￦	24,470,308	￦	27,200,996

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26. Equity

26.1 Share Capital

Details of share capital and number of issued shares of the Parent Company as of December 31, 2017 and 2018, are as follows:

	2017		2018
Type of share	Ordinary shares		Ordinary shares
Number of authorized shares		1,000,000,000		1,000,000,000
Par value per share	￦	5,000	￦	5,000
Number of issued shares		418,111,537		418,111,537
Share capital1	￦	2,090,558	￦	2,090,558

¹  In millions of Korean won.

Changes in outstanding shares for the years ended December 31, 2017 and 2018, are as follows:

	2017			2018
	(In number of shares)
Beginning		398,285,437			399,037,583
Increase		4,513,969			—
Decrease		(3,761,823	)		(3,486,286	)
Ending		399,037,583			395,551,297

26.2 Capital Surplus

Details of capital surplus as of December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Share premium	￦	13,190,274		￦	13,190,274
Loss on sales of treasury shares		(481,332	)		(481,332	)
Other capital surplus		4,413,286			4,412,718
Total	￦	17,122,228		￦	17,121,660

26.3 Accumulated Other Comprehensive Income

Details of accumulated other comprehensive income as of December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Remeasurements of net defined benefit liabilities	￦	(96,385	)	￦	(234,401	)
Exchange differences on translating foreign operations		(56,589	)		(5,784	)
Change in value of available-for-sale financial assets		694,321			—
Change in value of held-to-maturity financial assets		(78	)		—
Financial assets measured at fair value through other comprehensive income		—			450,694
Shares of other comprehensive income of associates		1,069			(4,377	)
Cash flow hedges		14,980			5,849
Hedges of net investments in foreign operations		(5,958	)		(33,092	)
Other comprehensive income of separate account		(13,692	)		15,017
Profit or loss from credit risk of financial liabilities designated at fair value		—			(8,954	)
Net loss on overlay adjustment		—			(7,146	)
Total	￦	537,668		￦	177,806

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26.4 Retained Earnings

Details of retained earnings as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Legal reserves1	￦	334,873	￦	390,216
Voluntary reserves		982,000		982,000
Unappropriated retained earnings		13,727,331		15,910,225
Total	￦	15,044,204	￦	17,282,441

¹ With respect to the allocation of net profit earned in a fiscal term, the Parent Company must set aside in its legal reserve an amount equal to at least 10% of its net income after tax as reported in the separate statement of comprehensive income each time it pays dividends on its net profits earned until its legal reserve reaches at least the aggregate amount of its share capital in accordance with Article 53 of the Financial Holding Company Act. The reserve is not available for the payment of cash dividends, but may be transferred to share capital, or used to reduce accumulated deficit.

² Retained earnings restricted for dividend at subsidiaries level pursuant to law and regulations amounts to ￦3,130,765 million as of December 31, 2018.

26.5 Treasury Shares

Changes in treasury shares outstanding for the year ended December 31, 2017 and 2018 are as follows:

	2017
	Beginning		Acquisition		Disposal			Ending
	(In number of shares and millions of Korean won)
Number of treasury shares1		19,826,100		3,761,823		(4,513,969	)		19,073,954
Carrying amount1	￦	721,973	￦	202,051	￦	(168,051	)	￦	755,973

¹ For the year ended December 31, 2017, the treasury stock trust agreement of ￦800,000 million with Samsung Securities Co., Ltd., which had been signed in previous year, was terminated. In order to increase shareholder value, the Group entered into another treasury stock trust agreement of ￦300,000 million with Samsung Securities Co., Ltd. for the year ended December 31, 2017.

	2018
	Beginning		Acquisition		Disposal		Ending
	(In number of shares and millions of Korean won)
Number of treasury shares1		19,073,954		3,486,286		—		22,560,240
Carrying amount1	￦	755,973	￦	212,576	￦	—	￦	968,549

¹ For the year ended December 31, 2018, the treasury stock trust agreement of ￦300,000 million with Samsung Securities Co., Ltd., which had been signed in 2018, was terminated. In order to increase shareholder value, the Group entered into another treasury stock trust agreement of ￦300,000 million with Samsung Securities Co., Ltd. for the year ended December 31, 2018.

F-158

27. Net Interest Income

Details of interest income and interest expense for the years ended December 31, 2016, 2017 and 2018 are as follows:

	20161
	(In millions of Korean won)
Interest income
Due from financial institutions	￦	111,433
Financial assets at fair value through profit or loss		313,077
Loans		8,905,769
Financial investments
Available-for-sale financial assets		426,762
Held-to-maturity financial assets		463,200
Other		114,718
Sub-total	￦	10,334,959
Interest expenses
Deposits		2,476,579
Debts		229,475
Debentures		853,430
Other		59,869
Sub-total		3,619,353
Net interest income	￦	6,715,606

	20171
	(In millions of Korean won)
Interest income
Due from financial institutions	￦	127,434
Financial assets at fair value through profit or loss		536,605
Loans		9,990,792
Financial investments
Available-for-sale financial assets		678,716
Held-to-maturity financial assets		480,595
Other		104,915
Sub-total		11,919,057
Interest expenses
Deposits		2,345,885
Debts		367,587
Debentures		880,709
Other		78,262
Sub-total		3,672,443
Net interest income	￦	8,246,614

¹  Regarding reclassification of interest income following the change in accounting policy, interest income for 2016 and 2017, has been restated.

F-159

	2018
	(In millions of Korean won)
Interest income
Due from financial institutions at fair value through profit or loss	￦	9,236
Securities measured at fair value through profit or loss		713,058
Loans measured at fair value through profit or loss		26,066
Securities measured at fair value through other comprehensive income		718,327
Loans measured at fair value through other comprehensive income		2,373
Deposits at amortized cost		109,155
Securities measured at amortized cost		604,709
Loans at amortized cost		11,431,359
Other		120,286
Sub-total		13,734,569
Interest expenses
Deposits		3,041,739
Debts		544,562
Debentures		1,148,729
Other		94,611
Sub-total		4,829,641
Net interest income	￦	8,904,928

Interest income recognized on impaired loans is ￦48,974 million (2017: ￦54,235 million, 2016: ￦60,212 million) for the year ended December 31, 2018. Interest income recognized on impaired financial investments does not exist (2017: ￦-, 2016: ￦226 million) for the year ended December 31, 2018.

F-160

28. Net Fee and Commission Income

Details of fee and commission income, and fee and commission expense for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016		2017		2018
	(In millions of Korean won)
Fee and commission income
Banking activity fees	￦	176,968	￦	188,405	￦	208,443
Lending activity fees		79,287		74,858		74,340
Credit & Debit card related fees and commissions1		1,628,033		1,847,743		1,360,515
Agent activity fees		172,220		152,028		149,585
Trust and other fiduciary fees		219,215		353,903		363,767
Fund management related fees		119,745		132,889		132,657
Guarantee fees		40,710		49,546		44,104
Foreign currency related fees		99,022		106,038		124,201
Commissions from transfer agent services		166,371		195,556		167,071
Other business account commission on consignment		33,707		33,793		36,947
Commissions received on securities business		154,966		450,199		518,309
Lease fees		75,737		144,221		246,537
Others		184,896		259,071		291,244
Sub-total		3,150,877		3,988,250		3,717,720
Fee and commission expense
Trading activity related fees2		15,555		29,547		31,889
Lending activity fees		15,010		23,253		25,734
Credit card related fees and commissions		1,209,553		1,482,221		907,831
Outsourcing related fees		91,700		127,542		164,594
Foreign currency related fees		17,205		27,394		43,053
Other		216,962		248,269		301,243
Sub-total		1,565,985		1,938,226		1,474,344
Net fee and commission income	￦	1,584,892	￦	2,050,024	￦	2,243,376

¹ In accordance with IFRS 15, the amount of ￦743,238 related to the services provided to the members is deducted from the income and expenses related to credit and debit card for the year ended December 31, 2018.

² The fees from financial instruments at fair value through profit or loss.

F-161

29. Net Gains or Losses on Financial Assets/Liabilities at Fair Value Through Profit or Loss

29.1 Net Gains or Losses on Financial Instruments Held for Trading

Net gain or loss from financial instruments at fair value through profit or loss includes dividend income, gains or losses arising from changes in the fair values, sales and redemptions. Details of net gain or loss from financial instruments held for trading for the years ended December 31, 2016, 2017 and 2018, are as follows:

	20161
	(In millions of Korean won)
Gains related to financial instruments held for trading
Financial assets held for trading
Debt securities	￦	144,843
Equity securities		120,289
Sub-total		265,132
Derivatives held for trading
Interest rate		1,162,058
Currency		3,751,706
Stock or stock index		899,185
Credit		52,988
Commodity		4,284
Other		4,808
Sub-total		5,875,029
Financial liabilities held for trading		100,246
Other financial instruments		238
Total	￦	6,240,645
Losses related to financial instruments held for trading
Financial assets held for trading
Debt securities	￦	265,760
Equity securities		114,052
Sub-total		379,812
Derivatives held for trading
Interest rate		1,164,423
Currency		3,827,928
Stock or stock index		658,832
Credit		46,251
Commodity		3,545
Other		1,291
Sub-total		5,702,270
Financial liabilities held for trading		99,024
Other financial instruments		173
Total	￦	6,181,279
Net gains or losses on financial instruments held for trading	￦	59,366

F-162

	20171
	(In millions of Korean won)
Gains related to financial instruments held for trading
Financial assets held for trading
Debt securities	￦	191,243
Equity securities		546,169
Sub-total		737,412
Derivatives held for trading
Interest rate		1,753,449
Currency		5,777,818
Stock or stock index		2,094,667
Credit		76,700
Commodity		17,278
Other		23,397
Sub-total		9,743,309
Financial liabilities held for trading		29,726
Other financial instruments		109
Total	￦	10,510,556
Losses related to financial instruments held for trading
Financial assets held for trading
Debt securities	￦	315,506
Equity securities		353,864
Sub-total		669,370
Derivatives held for trading
Interest rate		1,625,541
Currency		5,661,323
Stock or stock index		1,445,714
Credit		76,483
Commodity		8,481
Other		20,053
Sub-total		8,837,595
Financial liabilities held for trading		58,267
Other financial instruments		117
Total		9,565,349
Net gains or losses on financial instruments held for trading	￦	945,207

¹  Regarding reclassification of interest income following the change of accounting policy, gains related to financial instruments held for trading for 2016 and 2017, has been restated.

F-163

	2018
	(In millions of Korean won)
Revenue from financial instruments at fair value through profit or loss
Financial assets at fair value through profit or loss
Debt securities	￦	1,544,892
Equity securities		571,404
Sub-total		2,116,296
Derivatives held for trading
Interest rate		2,328,576
Currency		3,764,985
Stock or stock index		1,383,446
Credit		38,461
Commodity		8,285
Other		92,947
Sub-total		7,616,700
Financial liabilities at fair value through profit or loss		72,410
Other financial instruments		22
Total	￦	9,805,428
Expense from financial instruments at fair value through profit or loss
Financial assets at fair value through profit or loss
Debt securities	￦	850,129
Equity securities		475,968
Sub-total		1,326,097
Derivatives held for trading
Interest rate		2,610,305
Currency		3,499,356
Stock or stock index		1,626,007
Credit		36,747
Commodity		10,456
Other		117,741
Sub-total		7,900,612
Financial liabilities at fair value through profit or loss		134,287
Other financial instruments		60
Total		9,361,056
Net gains or losses on financial instruments held for trading	￦	444,372

F-164

29.2 Net Gains or Losses on Financial Instruments Designated at Fair Value Through Profit or Loss

Net gain or loss from financial instruments designated at fair value through profit or loss includes dividend income and gains or losses arising from changes in the fair values, sales and redemptions. Details of net gain or loss from financial instruments designated at fair value through profit or loss for the years ended December 31, 2016, 2017 and 2018, are as follows:

	20161			20171			2018
	(In millions of Korean won)
Revenue from financial instruments designated at fair value through profit or loss
Financial assets designated at fair value through profit or loss	￦	118,371		￦	128,673		￦	—
Financial liabilities designated at fair value through profit or loss		91,357			474,736			667,508
Sub-total		209,728			603,409			667,508
Expense from financial instruments designated at fair value through profit or loss
Financial assets designated at fair value through profit or loss		8,447			78,113			—
Financial liabilities designated at fair value through profit or loss		582,492			1,266,779			760,577
Sub-total		590,939			1,344,892			760,577
Net gains or losses on financial instruments designated at fair value through profit or loss	￦	(381,211	)	￦	(741,483	)	￦	(93,069	)

¹  Regarding reclassification of interest income following the change of accounting policy, gains related to financial instruments held for trading for 2016 and 2017, has been restated.

F-165

30. Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016
	(In millions of Korean won)
Other operating income
Revenue related to available-for-sale financial assets
Gain on redemption of available-for-sale financial assets	￦	226
Gain on sale of available-for-sale financial assets		236,344
Reversal for impairment on available-for-sale financial assets		328
Sub-total		236,898
Revenue related to held-to-maturity financial assets
Gain on redemption of held-to-maturity financial assets		—
Sub-total		—
Gain on foreign exchange transactions		3,567,560
Dividend income		134,989
Others		278,827
Total other operating income		4,218,274
Other operating expenses
Expense related to available-for-sale financial assets
Loss on redemption of available-for-sale financial assets		—
Loss on sale of available-for-sale financial assets		44,360
Impairment on available-for-sale financial assets		35,216
Sub-total		79,576
Loss on foreign exchanges transactions		3,303,205
Others		1,251,401
Total other operating expenses		4,634,182
Net other operating expenses	￦	(415,908	)

F-166

	2017
	(In millions of Korean won)
Other operating income
Revenue related to available-for-sale financial assets
Gain on redemption of available-for-sale financial assets	￦	884
Gain on sale of available-for-sale financial assets		113,001
Sub-total		113,885
Revenue related to held-to-maturity financial assets
Gain on redemption of held-to-maturity financial assets		374
Sub-total		374
Gain on foreign exchange transactions		2,520,168
Dividend income		276,829
Others		325,745
Total other operating income		3,237,001
Other operating expenses
Expense related to available-for-sale financial assets
Loss on redemption of available-for-sale financial assets		1,403
Loss on sale of available-for-sale financial assets		174,543
Impairment on available-for-sale financial assets		47,917
Sub-total		223,863
Loss on foreign exchanges transactions		2,472,657
Others		1,442,371
Total other operating expenses		4,138,891
Net other operating expenses	￦	(901,890	)

F-167

	2018
	(In millions of Korean won)
Other operating income
Revenue related to financial assets mandatorily measured at fair value through other comprehensive income
Gain on redemption of financial assets mandatorily measured at fair value through other comprehensive income	￦	259
Gain on sale of financial assets mandatorily measured at fair value through other comprehensive income		134,875
Sub-total		135,134
Financial assets at amortized cost
Gain on sale of loans at amortized cost		46,877
Sub-total		46,877
Gain on foreign exchange transactions		1,600,161
Dividend income		83,930
Others		260,709
Total other operating income		2,126,811
Other operating expenses
Expense on redemption of financial assets mandatorily measured at fair value through other comprehensive income
Losses on redemption of financial assets mandatorily measured at fair value through other comprehensive income		17
Losses on sale of financial assets mandatorily measured at fair value through other comprehensive income		35,864
Sub-total		35,881
Financial assets at amortized cost
Loss on sale of loans at amortized cost		9,006
Sub-total		9,006
Loss on foreign exchanges transactions		1,539,837
Others		1,672,123
Total other operating expenses		3,256,847
Net other operating expenses	￦	(1,130,036	)

F-168

31. General and Administrative Expenses

31.1 General and Administrative Expenses

Details of general and administrative expenses for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016		2017		2018
	(In millions of Korean won)
Employee Benefits
Salaries and short-term employee benefits—salaries	￦	1,874,396	￦	2,465,132	￦	2,512,945
Salaries and short-term employee benefits—others		734,119		822,536		870,356
Post-employment benefits—defined benefit plans		196,119		231,704		217,085
Post-employment benefits—defined contribution plans		9,361		15,046		21,056
Termination benefits		903,435		160,798		242,010
Share-based payments		38,190		73,370		10,930
Sub-total		3,755,620		3,768,586		3,874,382
Depreciation and amortization		288,620		370,378		408,771
Other general and administrative expenses
Rental expense		280,888		320,920		361,344
Tax and dues		134,892		195,965		214,683
Communication		37,114		44,516		46,661
Electricity and utilities		29,921		31,158		28,823
Publication		17,300		17,383		16,018
Repairs and maintenance		15,722		20,524		22,432
Vehicle		9,624		11,587		12,495
Travel		8,059		17,407		19,393
Training		23,426		26,664		30,310
Service fees		129,032		179,311		210,081
Electronic data processing expenses		160,863		172,007		189,007
Advertising		142,186		199,676		217,244
Others		195,444		252,582		266,868
Sub-total		1,184,471		1,489,700		1,635,359
Total	￦	5,228,711	￦	5,628,664	￦	5,918,512

31.2 Share-based Payments

31.2.1 Stock grants

The Group changed the scheme of share-based payment from stock options to stock grants in November 2007. The stock grant award program is an incentive plan that sets, on grant date, the maximum amount of shares that can be awarded. Actual stock granted at the end of the vesting period is determined in accordance with achievement of pre-specified targets over the vesting period.

F-169

Details of stock grants linked to long-term performance as of December 31, 2018, are as follows:

	Grant date	Number of granted shares1		Vesting conditions2
	(In number of shares)
KB Financial Group Inc.
Series 17	Jan. 01, 2017		16,579	Services fulfillment, Achievement of targets on the basis of market performance (30~50%)3, Achievement of targets on the basis of non-market performance (50~70%)4
Series 18	July. 17, 2017		7,444	Services fulfillment, Achievement of targets on the basis of market performance (30~50%)3, Achievement of targets on the basis of non-market performance (50~70%)4
Series 19	Nov. 21, 2017		46,890	Services fulfillment, Achievement of targets on the basis of market performance (35%)3, Achievement of targets on the basis of non-market performance (65%)5
Series 20	Jan. 01, 2018		35,330	Services fulfillment, Achievement of targets on the basis of market performance (30~50%)3, Achievement of targets on the basis of non-market performance (50~70%)4
Deferred grant	2012		5,415	Satisfied in 2012
Deferred grant	2013		588	Satisfied in 2013
Deferred grant	2015		15,154	Satisfied in 2015
Deferred grant	2016		14,538	Satisfied in 2016
Deferred grant	2017		73,473	Satisfied in 2017
Sub-total			215,411
Kookmin Bank
Series 69	Jan. 01, 2017		173,030	Services fulfillment, Achievement of targets on the basis of market performance (30~50%), Achievement of targets on the basis of non-market performance (50~70%)
Series 71	Aug. 26, 2017		4,372	Services fulfillment, Achievement of targets on the basis of market performance (30~50%), Achievement of targets on the basis of non-market performance (50~70%)
Series 72	Aug. 28, 2017		5,601	Services fulfillment, Achievement of targets on the basis of market performance (30~50%), Achievement of targets on the basis of non-market performance (50~70%)
Series 73	Nov. 21, 2017		27,786	Services fulfillment, Achievement of targets on the basis of market performance (30~50%), Achievement of targets on the basis of non-market performance (50~70%)
Series 74	Jan. 01, 2018		190,536	Services fulfillment, Achievement of targets on the basis of market performance (30~50%), Achievement of targets on the basis of non-market performance (50~70%)
Deferred grant	2015		33,050	Satisfied
Deferred grant	2016		110,967	Satisfied
Deferred grant	2017		139,697	Satisfied
Sub-total			685,039

F-170

	Grant date	Number of granted shares1		Vesting conditions2
	(In number of shares)
Other subsidiaries
Stock granted in 2010	—		206	Services fulfillment, Achievement of targets on the basis of market performance (10~50%), Achievement of targets on the basis of non-market performance (50~90%)
Stock granted in 2011	—		382
Stock granted in 2012	—		1,540
Stock granted in 2013	—		2,093
Stock granted in 2014	—		1,885
Stock granted in 2015	—		11,533
Stock granted in 2016	—		122,494
Stock granted in 2017	—		297,384
Stock granted in 2018	—		147,034
Sub-total			584,551
Total			1,485,001

¹ Granted shares represent the total number of shares initially granted to directors and employees that have residual shares at the end of reporting period (Deferred grants are residual shares at the end of the reporting period).

² Executives and employees were given the option of deferring payment of the granted shares (after the date of retirement), payment ratio, and payment period. Accordingly, a certain percentage of the granted amount is deferred for up to five years after the date of retirement when the deferred grant has been confirmed.

³ Relative TSR (Total Shareholders Return) : ((fair value at contract end date—fair value at contract commencement date) + (total dividend paid for the period)) / fair value at contract commencement date

⁴ Accomplishment of subsidiaries’ performance and accomplishment of performance results

⁵ EPS, Asset Quality, HCROI, Accomplishment of Non-Banking performance

F-171

Details of stock grants linked to short-term performance as of December 31, 2018, are as follows:

	Grant date		Estimated number of vested shares1		Vesting conditions
	(In number of shares)
KB Financial Group Inc.
Stock granted in 2010		Jan. 01, 2010		322	Satisfied
Stock granted in 2011		Jan. 01, 2011		1,728	Satisfied
Stock granted in 2012		Jan. 01, 2012		2,642	Satisfied
Stock granted in 2013		Jan. 01, 2013		474	Satisfied
Stock granted in 2015		Jan. 01, 2015		13,516	Satisfied
Stock granted in 2016		Jan. 01, 2016		16,526	Satisfied
Stock granted in 2017		Jan. 01, 2017		16,855	Satisfied
Stock granted in 2018		Jan. 01, 2018		23,216	Proportional to service period
Kookmin Bank
Stock granted in 2015		Jan. 01, 2015		58,366	Satisfied
Stock granted in 2016		Jan. 01, 2016		83,794	Satisfied
Stock granted in 2017		Jan. 01, 2017		80,331	Satisfied
Stock granted in 2018		Jan. 01, 2018		109,871	Proportional to service period
Other subsidiaries
Stock granted in 2015		—		67,912	Satisfied
Stock granted in 2016		—		149,326	Satisfied
Stock granted in 2017		—		335,401	Satisfied
Stock granted in 2018		—		286,707	Proportional to service period

¹ Executives and employees were given the option of deferred payment of the granted shares (after the date of retirement), payment ratio, and payment period. Accordingly, a certain percentage of the granted amount is deferred for up to five years after the date of retirement after the deferred grant has been confirmed.

Share grants are measured at fair value using the Monte Carlo Simulation Model and assumptions used in determining the fair value as of December 31, 2018, are as follows:

	Risk free rate (%)		Fair value (Market performance condition)		Fair value (Non-market performance condition)
Linked to long term performance
(KB Financial Group Inc.)
Series 17		1.75		40,224~47,153		40,224~47,153
Series 18		1.75		41,473~45,236		41,473~45,236
Series 19		1.75		36,941~40,362		40,368~44,107
Series 20		1.75		39,641~44,580		40,224~45,236
Deferred grant in 2012		1.75		—		34,180~40,662
Deferred grant in 2013		1.75		—		31,245~38,404
Deferred grant in 2015		1.75		—		39,077~47,153
Deferred grant in 2016		1.75		—		40,224~47,153
Deferred grant in 2017		1.75		—		41,473~47,153

F-172

	Risk free rate (%)		Fair value (Market performance condition)		Fair value (Non-market performance condition)
(Kookmin Bank)
Series 69		1.75		40,224~47,153		40,224~47,153
Series 71		1.75		41,473~45,236		41,473~45,236
Series 72		1.75		41,473~45,236		41,473~45,236
Series 73		1.75		41,614~45,382		41,614~45,382
Series 74		1.75		38,510~44,580		39,077~45,236
Grant deferred in 2015		1.75		—		42,682~47,153
Grant deferred in 2016		1.75		—		40,224~47,153
Grant deferred in 2017		1.75		—		41,473~47,153
(Other subsidiaries)
Share granted in 2010		1.75		—		43,965~47,153
Share granted in 2011		1.75		—		43,965~47,153
Share granted in 2012		1.75		—		43,965~47,153
Share granted in 2013		1.75		—		43,965~47,153
Share granted in 2014		1.75		—		43,965~47,153
Share granted in 2015		1.75		—		39,077~47,153
Share granted in 2016		1.75		42,682~47,153		40,224~47,153
Share granted in 2017		1.75		39,077~47,153		39,077~47,153
Share granted in 2018		1.75		36,769~44,580		37,840~46,317
Linked to short-term performance
(KB Financial Group Inc.)
Share granted in 2010		1.75		—		40,662
Share granted in 2011		1.75		—		38,111~40,662
Share granted in 2012		1.75		—		34,180~40,662
Share granted in 2013		1.75		—		31,245~37,881
Share granted in 2015		1.75		—		39,077~47,153
Share granted in 2016		1.75		—		37,840~47,153
Share granted in 2017		1.75		—		40,224~47,153
Share granted in 2018		1.75		—		40,224~47,153
(Kookmin Bank)
Share granted in 2015		1.75		—		40,224~47,153
Share granted in 2016		1.75		—		39,077~47,153
Share granted in 2017		1.75		—		39,077~47,153
Share granted in 2018		1.75		—		39,077~45,236
(Other subsidiaries)
Share granted in 2015		1.75		—		39,077~47,153
Share granted in 2016		1.75		—		37,840~47,153
Share granted in 2017		1.75		—		37,840~47,153
Share granted in 2018		1.75		—		37,840~64,683

The Group used the volatility of the stock price over the previous year as the expected volatility, and used the dividend yield as the arithmetic mean of the dividend rate of one year before, two years before, and three years before the base year, in order to calculate fair value.

As of December 31, 2017 and 2018, the accrued expenses related to share-based payments including share grants amounted to ￦ 133,496 million and ￦ 111,058 million, respectively, and the compensation costs from share grants amounting to ￦ 73,370 million and ￦ 10,930 million were incurred during the years ended 2017 and 2018, respectively.

F-173

Details of Mileage stock as of December 31, 2018, are as follows:

	Grant date	Number of granted shares1		Expected exercise period (years)1	Remaining shares2
	(In number of shares)
Stock granted in 2016	Jan. 23, 2016		33,829	0.00~0.06		12,334
	Apr. 29, 2016		60	0.00~0.33		21
	Jul. 07, 2016		280	0.00~0.52		62
	Jul. 18, 2016		767	0.00~0.55		—
	Aug. 03, 2016		107	0.00~0.59		38
	Aug. 17, 2016		51	0.00~0.63		23
	Aug. 30, 2016		256	0.00~0.66		168
	Sept. 06, 2016		206	0.00~0.68		103
	Oct. 07, 2016		105	0.00~0.77		69
	Nov. 01, 2016		118	0.00~0.84		24
	Dec. 07, 2016		211	0.00~0.93		96
	Dec. 08, 2016		43	0.00~0.94		32
	Dec. 15, 2016		12	0.00~0.96		12
	Dec. 20, 2016		309	0.00~0.97		169
	Dec. 28, 2016		76	0.00~0.99		40
	Dec. 30, 2016		210	0.00~1.00		79
Stock granted in 2017	Jan. 09, 2017		28,925	0.00~1.02		13,198
	Feb. 03, 2017		43	0.00~1.09		28
	Apr. 03, 2017		82	0.00~1.25		61
	May. 22, 2017		20	0.00~1.39		20
	Jul. 03, 2017		52	0.00~1.50		52
	Aug. 07, 2017		29	0.00~1.60		19
	Aug. 08, 2017		5	0.00~1.60		2
	Aug. 16, 2017		204	0.00~1.62		166
	Aug. 17, 2017		40	0.00~1.63		32
	Aug. 24, 2017		387	0.00~1.65		323
	Sep. 08, 2017		82	0.00~1.69		73
	Oct. 20, 2017		9	0.00~1.80		—
	Nov. 01, 2017		120	0.00~1.84		103
	Nov. 06, 2017		106	0.00~1.85		106
	Dec. 06, 2017		105	0.00~1.93		91
	Dec. 26, 2017		254	0.00~1.99		215
	Dec. 29, 2017		114	0.00~1.99		98
Stock granted in 2018	Jan. 10, 2018		19,197	0.00~2.03		18,663
	Feb. 12, 2018		9	0.00~2.12		9
	Apr. 02, 2018		115	0.00~2.25		115
	Apr. 30, 2018		86	0.00~2.33		86
	May. 08, 2018		170	0.00~2.35		166
	Jun. 01, 2018		140	0.00~2.42		140
	Jul. 02, 2018		180	0.00~2.50		180
	Aug. 07, 2018		194	0.00~2.60		194
	Aug. 09, 2018		47	0.00~2.61		47
	Aug. 14, 2018		30	0.00~2.62		30
	Aug. 16, 2018		130	0.00~2.62		130
	Sep. 07, 2018		106	0.00~2.68		106
	Oct. 04, 2018		129	0.00~2.76		129
	Nov. 01, 2018		258	0.00~2.84		258
	Nov. 06, 2018		236	0.00~2.85		236
	Dec. 04, 2018		21	0.00~2.93		21
	Dec. 07, 2018		91	0.00~2.93		91
	Dec. 03, 2018		132	0.00~2.92		132
	Dec. 12, 2018		64	0.00~2.95		64
	Dec. 18, 2018		271	0.00~2.96		271
	Dec. 19, 2018		42	0.00~2.97		42
	Dec. 31, 2018		127	0.00~3.00		127
	Total		88,992	Total		49,094

¹ Mileage stock may be exercised after one year from the grant date for two years. When the mileage stock is exercised, the closing price of prior month is applied. However, in case of transfer or retirement during the vesting period, mileage stock may still be exercised at the closing price of prior month.

² The remaining shares are assessed based on the stock price as of December 31, 2018. These shares may be vested immediately at grant date.

F-174

As of December 31, 2017 and 2018, the accrued expenses for share-based payments in regards to mileage stock amounted to ￦2,973 million and ￦2,283 million, respectively, and the compensation costs amounting to ￦2,378 million and ￦1,350 million were incurred during the year ended December 31, 2017 and 2018, respectively.

32. Net Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016		2017		2018
	(In millions of Korean won)
Other non-operating income
Gain on disposal in property and equipment	￦	669	￦	10,867	￦	34,238
Rent received		15,847		32,254		55,321
Gain on bargain purchase		628,614		122,986		—
Gain on sales of disposal group held for sale		—		22,371		118,716
Others		100,409		72,248		37,122
Sub-total		745,539		260,726		245,397
Other non-operating expenses
Loss on disposal in property and equipment		1,835		2,500		6,131
Donation		37,705		54,419		130,249
Restoration cost		2,255		3,465		4,386
Management cost for special bonds		2,024		3,279		3,338
Loss on sales of disposal group held for sale		—		45,764		—
Impairment loss on disposition of disposal group held for sale		—		7,198		—
Impairment loss for goodwill		—		1,202		—
Others		30,851		104,023		91,502
Sub-total		74,670		221,850		235,606
Net other non-operating income	￦	670,869	￦	38,876	￦	9,791

F-175

33. Income Tax Expense

Income tax expense for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016			2017			2018
	(In millions of Korean won)
Tax payable
Current tax expense	￦	607,175		￦	700,597		￦	1,096,600
Adjustments recognized in the period for current tax of prior years		27,217			(39,445	)		22,925
Sub-total		634,392			661,152			1,119,525
Changes in deferred income tax assets (liabilities)1		(201,012	)		212,195			114,345
Income tax recognized directly in equity
Remeasurements of net defined benefit liabilities		(4,093	)		(7,240	)		52,377
Exchange difference in foreign operation		(11,338	)		25,674			(13,087	)
Change in value of available-for-sale financial assets		20,754			(84,781	)		—
Change in value of held-to-maturity financial assets		(1,186	)		(3,789	)		—
Gains (losses) on financial assets at fair value through other comprehensive income		—			—			(33,329	)
Shares of other comprehensive income of associates and joint ventures		116			20,975			1,374
Cash flow hedges		(1,423	)		(4,368	)		400
Hedges of a net investment in a foreign operation		2,265			(8,186	)		10,292
OCI related with assets held for sale		—			(21,498	)		—
OCI related with separate account assets		—			4,829			(10,864	)
Fair value changes on financial liabilities designated at fair value due to own credit risk		—			—			(563	)
Net gains on overlay adjustment		—			—			(884	)
Sub-total		5,095			(78,384	)		5,716
Others		—			—			—
Tax expense	￦	438,475		￦	794,963		￦	1,239,586

¹ The corporate tax rate was changed due to the amendment of corporate tax law in 2017. Accordingly, the expected rate has been applied for the deferred tax assets and liabilities that are expected to be utilized in periods after 2018. Amended income tax rate for ￦200 million and below is 11%, for ￦200 million to ￦20 billion is 22%, for ￦20 billion to ￦300 billion is 24.2% and for over ￦300 billion is 27.5%.

F-176

An analysis of the net profit before income tax and income tax expense for the years ended December 31, 2016, 2017 and 2018, follows:

	2016						2017						2018
	Tax rate			Amount			Tax rate			Amount			Tax rate			Amount
	(%)			(In millions of Korean won)			(%)			(In millions of Korean won)			(%)			(In millions of Korean won)
Net profit before income tax				￦	2,628,655					￦	4,138,424					￦	4,301,532
Tax at the applicable tax rate1		24.18			635,673			24.19			1,001,037			27.26			1,172,559
Non-taxable income		(7.15	)		(188,062	)		(5.02	)		(207,777	)		(0.28	)		(11,888	)
Non-deductible expense		0.64			16,711			0.26			10,706			0.64			27,551
Tax credit and tax exemption		(0.04	)		(1,079	)		(0.04	)		(1,658	)		(0.01	)		(637	)
Temporary difference for which no deferred tax is recognized		0.10			2,749			(0.16	)		(6,484	)		0.29			12,260
Deferred tax relating to changes in recognition and measurement		(0.03	)		(828	)		(0.12	)		(4,894	)		(0.06	)		(2,692	)
Income tax refund for tax of prior years		(0.48	)		(12,612	)		(0.12	)		(4,854	)		(0.19	)		(8,135	)
Income tax expense of overseas branch		0.13			3,447			0.04			1,549			0.09			3,882
Effects from change in tax rate		(0.03	)		(739	)		0.42			17,367			(0.03	)		(1,470	)
Others		(0.64	)		(16,785	)		(0.24	)		(10,029	)		1.12			48,156
Average effective tax rate and tax expense		16.68		￦	438,475			19.21		￦	794,963			28.82		￦	1,239,586

¹ Applicable income tax rate for ￦200 million and below is 11%, for ￦200 million to ￦20 billion is 22%, for ￦20 billion to 300 billion is 24.2% and for over 300 billion is 27.5% as of December 31, 2018 and for ￦200 million and below is 11%, for ￦200 million to ￦20 billion is 22% and for over ￦20 billion is 24.2% as of December 31, 2017 and 2016.

34. Dividends

The dividends paid to the shareholders of the Parent Company in 2017 and 2018 were ￦497,969 million (￦1,250 per share), and ￦766,728 million (￦1,920 per share), respectively. The dividend to the shareholders in respect of the year ended December 31, 2018 of ￦1,920 per share, amounting to total dividends of ￦759,736 is to be proposed at the annual general meeting on March 27, 2019. The Group’s financial statements as of December 31, 2018, do not reflect this dividend payable.

F-177

35. Accumulated Other Comprehensive Income

Details of changes in accumulated other comprehensive income for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning			Changes except for reclassification			Reclassification to profit or loss			Tax effect			Replaced by retained earnings			Replaced by assets held for sale			Replaced by disposal group held for sale			Ending
	(In millions of Korean won)
Remeasurements of net defined benefit liabilities	￦	(121,055	)	￦	29,925		￦	—		￦	(7,240	)	￦	—		￦	—		￦	1,985		￦	(96,385	)
Exchange differences on translating foreign operations		53,138			(135,401	)		—			25,674			—			—			—			(56,589	)
Change in the fair value of available-for-sale financial assets		601,620			200,700			(22,357	)		(84,781	)		—			—			(861	)		694,321
Change in value of held-to-maturity financial assets		6,447			(2,868	)		132			(3,789	)		—			—			—			(78	)
Shares of other comprehensive income of associates and joint ventures		(96,174	)		2,288			10,135			20,975			(3,492	)		67,337			—			1,069
Cash flow hedges		(6,075	)		(100,816	)		126,239			(4,368	)		—			—			—			14,980
Hedges of net investments in foreign operations		(32,572	)		34,800			—			(8,186	)		—			—			—			(5,958	)
Other comprehensive income of separate account		—			(97,001	)		78,480			4,829			—			—			—			(13,692	)
Other comprehensive income of disposal group held for sale		—			—			(861	)		—			1,985			—			(1,124	)		—
Other comprehensive income of assets held for sale		—			—			88,835			(21,498	)		—			(67,337	)		—			—
Total	￦	405,329		￦	(68,373	)	￦	280,603		￦	(78,384	)	￦	(1,507	)	￦	—		￦	—		￦	537,668

F-178

	2018
	Beginning1			Changes except for reclassification			Reclassification to profit or loss			Replaced by retained earnings			Tax effect			Ending
	(In millions of Korean won)
Remeasurements of net defined benefit liabilities	￦	(96,385	)	￦	(190,393	)	￦	—		￦	—		￦	52,377		￦	(234,401	)
Exchange differences on translating foreign operations		(54,700	)		46,946			15,057			—			(13,087	)		(5,784	)
Gains (losses) on financial assets at fair value through other comprehensive income		362,681			134,198			8,521			(21,377	)		(33,329	)		450,694
Shares of other comprehensive income of associates and joint ventures		(644	)		(5,107	)		—			—			1,374			(4,377	)
Cash flow hedges		14,887			(24,672	)		15,234			—			400			5,849
Hedges of a net investment in a foreign operation		(5,958	)		(25,096	)		(12,330	)		—			10,292			(33,092	)
Other comprehensive income related with separate account assets		(13,692	)		35,826			3,747			—			(10,864	)		15,017
Fair value changes on financial liabilities designated at fair value due to own credit risk		(10,438	)		2,047			—			—			(563	)		(8,954	)
Net gains/(losses) on overlay adjustment		(7,559	)		24,458			(23,161	)		—			(884	)		(7,146	)
Total	￦	188,192		￦	(1,793	)	￦	7,068		￦	(21,377	)	￦	5,716		￦	177,806

¹  Prepared in accordance with IFRS 9

36. Earnings per Share

36.1 Basic Earnings Per Share

Basic earnings per share is calculated by dividing profit and loss attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding, excluding the treasury shares, during the years ended December 31, 2016, 2017 and 2018.

Weighted average number of ordinary shares outstanding:

	2016			2017			2018
	(In number of shares)
Beginning		386,351,693			418,111,537			418,111,537
Issue of ordinary shares related to business combination		6,421,389			—			—
Treasury shares		(9,153,437	)		(19,386,575	)		(21,611,579	)
Weighted average number of ordinary shares outstanding		383,619,645			398,724,962			396,499,958

F-179

Basic earnings per share:

	2016		2017		2018
	(in Korean won and in number of shares)
Profit attributable to ordinary shares (A)	￦	2,143,744,271,801	￦	3,311,437,880,186	￦	3,061,191,387,929
Weighted average number of ordinary shares outstanding (B)		383,619,645		398,724,962		396,499,958
Basic earnings per share (C = A / B)	￦	5,588	￦	8,305	￦	7,721

36.2 Diluted Earnings per Share

Diluted earnings per share is calculated using the weighted average number of ordinary shares outstanding which is adjusted by the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. The Group’s dilutive potential ordinary shares include stock grants.

A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the Group’s outstanding shares for the period) based on the monetary value of the subscription rights attached to the share options. The number of shares calculated above is compared with the number of shares that would have been issued assuming the exercise of stock grants.

Adjusted profit for diluted earnings per share for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016		2017		2018
	(In Korean won)
Profit attributable to ordinary shares	￦	2,143,744,271,801	￦	3,311,437,880,186	￦	3,061,191,387,929
Adjustment		—		—		—
Adjusted profit for diluted earnings	￦	2,143,744,271,801	￦	3,311,437,880,186	￦	3,061,191,387,929

Adjusted weighted average number of ordinary shares outstanding to calculate diluted earnings per share for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016		2017		2018
	(in number of shares)
Weighted average number of ordinary shares outstanding		383,619,645		398,724,962		396,499,958
Adjustment:
Stock grants		2,013,044		2,319,533		2,307,630
Adjusted weighted average number of ordinary shares outstanding for diluted earnings per share		385,632,689		401,044,495		398,807,588

Diluted earnings per share for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016		2017		2018
	(in Korean won and in number of shares)
Adjusted profit for diluted earnings per share	￦	2,143,744,271,801	￦	3,311,437,880,186	￦	3,061,191,387,929
Adjusted weighted average number of ordinary shares outstanding for diluted earnings per share		385,632,689		401,044,495		398,807,588
Diluted earnings per share	￦	5,559	￦	8,257	￦	7,676

F-180

37. Insurance Contracts

37.1 Insurance Assets

Details of deferred acquisition costs included in other assets as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Non-life insurance	￦	267,602	￦	547,831
Life insurance		130,393		119,293
Total	￦	397,995	￦	667,124

Changes in the deferred acquisition costs for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning		Increase		Decrease			Ending
	(In millions of Korean won)
Non-life insurance	￦	—	￦	521,090	￦	(253,488	)	￦	267,602
Life insurance		122,151		116,826		(108,584	)		130,393
Total	￦	122,151	￦	637,916	￦	(362,072	)	￦	397,995

	2018
	Beginning		Increase		Decrease			Ending
	(In millions of Korean won)
Non-life insurance	￦	267,602	￦	772,650	￦	(492,421	)	￦	547,831
Life insurance		130,393		102,552		(113,652	)		119,293
Total	￦	397,995	￦	875,202	￦	(606,073	)	￦	667,124

Details of reinsurance assets included in other assets as of December 31, 2017 and 2018, are as follows:

		2017		2018
		(In millions of Korean won)
Non-life insurance	Reserve for outstanding claims
	General insurance	￦	480,760	￦	360,997
	Automobile insurance		13,320		18,057
	Long-term insurance		89,317		109,751
	Unearned premium reserve
	General insurance		178,586		171,240
	Automobile insurance		14,986		30,864
	Sub-total		776,969		690,909
Life insurance	Reserve for outstanding claims		1,410		1,912
	Unearned premium reserve		490		448
	Sub-total		1,900		2,360
Others	Reserve for outstanding claims		3,670		3,417
	Unearned premium reserve		1,075		983
	Sub-total		4,745		4,400
Total reinsurance assets			783,614		697,669
Allowance for impairment			629		1,916
Total reinsurance assets, net		￦	782,985	￦	695,753

F-181

The changes in reinsurance assets included in other assets as of December 31, 2017 and 2018, are as follows:

		2017
		Beginning		Business combination		Net increase (decrease)			Ending
		(In millions of Korean won)
Non-life insurance	Reserve for outstanding claims
	General insurance	￦	—	￦	391,305	￦	89,455		￦	480,760
	Automobile insurance		—		15,943		(2,623	)		13,320
	Long-term insurance		—		87,887		1,430			89,317
	Unearned premium reserve
	General insurance		—		218,479		(39,893	)		178,586
	Automobile insurance		—		17,373		(2,387	)		14,986
	Long-term insurance		—		2		(2	)		—
	Sub-total		—		730,989		45,980			776,969
Life insurance	Reserve for outstanding claims		1,301		—		109			1,410
	Unearned premium reserve		473		—		17			490
	Sub-total		1,774		—		126			1,900
Others	Reserve for outstanding claims		3,041		—		629			3,670
	Unearned premium reserve		1,180		—		(105	)		1,075
	Sub-total		4,221		—		524			4,745
Total reinsurance assets			5,995		730,989		46,630			783,614
Allowance for impairment			—		738		(109	)		629
Total reinsurance assets, net		￦	5,995	￦	730,251	￦	46,739		￦	782,985

		2018
		Beginning		Net increase (decrease)			Ending
		(In millions of Korean won)
Non-life insurance	Reserve for outstanding claims
	General insurance	￦	480,760	￦	(119,763	)	￦	360,997
	Automobile insurance		13,320		4,737			18,057
	Long-term insurance		89,317		20,434			109,751
	Unearned premium reserve
	General insurance		178,586		(7,346	)		171,240
	Automobile insurance		14,986		15,878			30,864
	Sub-total		776,969		(86,060	)		690,909
Life insurance	Reserve for outstanding claims		1,410		502			1,912
	Unearned premium reserve		490		(42	)		448
	Sub-total		1,900		460			2,360
Others	Reserve for outstanding claims		3,670		(253	)		3,417
	Unearned premium reserve		1,075		(92	)		983
	Sub-total		4,745		(345	)		4,400
Total reinsurance assets			783,614		(85,945	)		697,669
Allowance for impairment			629		1,287			1,916
Total reinsurance assets, net		￦	782,985	￦	(87,232	)	￦	695,753

F-182

37.2 Insurance Liabilities

Details of insurance liabilities as of December 31, 2017 and 2018 are as follows:

	2017
	Non-life insurance		Life insurance		Others		Total
	(In millions of Korean won)
Long-term insurance premium reserve	￦	20,697,290	￦	7,278,112	￦	—	￦	27,975,402
Reserve for outstanding claims		2,148,923		78,423		3,670		2,231,016
Unearned premium reserve		1,392,211		1,511		1,075		1,394,797
Reserve for participating policyholders’ dividends on long-term insurance		94,005		29,150		—		123,155
Unallocated Divisible Surplus to Future Policyholders		24,304		6,264		—		30,568
Reserve for compensation for losses on dividend-paying insurance contracts		25,730		7,920		—		33,650
Guarantee reserve		—		12,687		—		12,687
Total	￦	24,382,463	￦	7,414,067	￦	4,745	￦	31,801,275

	2018
	Non-life insurance		Life insurance		Others		Total
	(In millions of Korean won)
Long-term insurance premium reserve	￦	22,333,503	￦	7,214,765	￦	—	￦	29,548,268
Reserve for outstanding claims		2,152,018		89,400		3,417		2,244,835
Unearned premium reserve		1,393,570		2,199		983		1,396,752
Reserve for participating policyholders’ dividends on long-term insurance		104,461		30,187		—		134,648
Unallocated Divisible Surplus to Future Policyholders		40,690		4,290		—		44,980
Reserve for compensation for losses on dividend-paying insurance contracts		19,410		5,644		—		25,054
Guarantee reserve		—		18,412		—		18,412
Total	￦	26,043,652	￦	7,364,897	￦	4,400	￦	33,412,949

F-183

The changes in insurance liabilities for the years ended December 31, 2017 and 2018, are as follows:

		2017
		Beginning		Business combination		Net increase (decrease) 2			Ending
		(In millions of Korean won)
Non-life insurance	General insurance	￦	—	￦	1,161,058	￦	33,202		￦	1,194,260
	Automobile insurance		—		1,448,313		29,256			1,477,569
	Long-term insurance		—		20,166,857		1,431,268			21,598,125
	Long-term investment contract		—		113,210		(701	)		112,509
Life insurance	Pure endowment insurance		5,150,946		—		98,681			5,249,627
	Death insurance		243,008		—		123,295			366,303
	Joint insurance		1,872,706		—		(89,821	)		1,782,885
	Group insurance		2,147		—		(1,078	)		1,069
	Other		17,816		—		(3,633	)		14,183
Others1			4,221		—		524			4,745
Total		￦	7,290,844	￦	22,889,438	￦	1,620,993		￦	31,801,275

		2018
		Beginning		Net increase (decrease)2			Ending
		(In millions of Korean won)
Non-life insurance	General insurance	￦	1,194,260	￦	(139,437	)	￦	1,054,823
	Automobile insurance		1,477,569		14,725			1,492,294
	Long-term insurance		21,598,125		1,788,154			23,386,279
	Long-term investment contract		112,509		(2,253	)		110,256
Life insurance	Pure endowment insurance		5,249,627		(16,136	)		5,233,491
	Death insurance		366,303		134,268			500,571
	Joint insurance		1,782,885		(161,425	)		1,621,460
	Group insurance		1,069		(334	)		735
	Other		14,183		(5,543	)		8,640
Others1			4,745		(345	)		4,400
Total		￦	31,801,275	￦	1,611,674		￦	33,412,949

¹  Consists of contractor’s profit dividend reserve and loss on dividend insurance reserve

²  Including currency translation effect and decrease in liability related to investment contract

F-184

37.3 Liability adequacy test

37.3.1 Non-life insurance

(a) Assumptions and basis for the insurance liability adequacy test as of December 31, 2017 and 2018, is as follows:

	Assumptions (%)				Basis
	2017		2018
Long-term insurance
Discount rate		1.63% ~ 9.12%		2.64%~9.05%	Applied regulator’s scenario requiring use of liquidity premium over risk-free rate
Expense ratio		6.51%		6.43%	Reflected the Parent Company’s future expense cost based on the most recent one-year data
Lapse ratio		1.30%~34.80%		1.50%~31.40%	Based on the most recent five year data
Mortality		12.0% ~633.0%		9.0%~724.0%	Rate of risk to the anticipated risk premium of the insurer for the most recent five years
General insurance
Expense ratio		11.59%		10.42%	Expense ratio divided by the most recent one year accrued insurance premium
Appraisal cost ratio		4.73%		4.63%	Appraisal cost divided by the most recent three year accrued insurance premium
Claim settlement ratio		67.23%		63.77%	Claim payment divided by the most recent five year accrued insurance premium
Automobile insurance
Expense ratio		11.00%		10.11%	Expense ratio divided by the most recent one year accrued insurance premium
Appraisal cost ratio		9.33%		9.09%	Appraisal cost divided by the most recent three year accrued insurance premium
Claim settlement ratio		77.02%		77.51%	Claim payment divided by the most recent five year accrued insurance premium

The results of liability adequacy test as of December 31, 2017 and 2018, are as follows:

	2017
	Recognized liabilities1		Estimated adequate liabilities		Shortfall(surplus)
	(In millions of Korean won)
Long-term insurance	￦	16,975,710	￦	9,463,170	￦	(7,512,540	)
General insurance		354,177		305,682		(48,495	)
Automobile insurance		1,011,000		964,975		(46,025	)
Total	￦	18,340,887	￦	10,733,827	￦	(7,607,060	)

F-185

	2018
	Recognized liabilities1		Estimated adequate liabilities		Shortfall(surplus)
	(In millions of Korean won)
Long-term insurance	￦	18,419,316	￦	8,032,060	￦	(10,387,256	)
General insurance		341,439		279,756		(61,683	)
Automobile insurance		1,020,861		967,236		(53,625	)
Total	￦	19,781,616	￦	9,279,052	￦	(10,502,564	)

¹ Long-term insurance is for premium reserves and unrecognized premium reserves; the premium reserve is the amount deducted from the unearned premiums and insurance contract loans in accordance with Article 6-3 of the Insurance Supervisory Regulation.

As a result of adequacy test, the Group did not set additional reserve as it shows net surplus. As such, there was no amount recorded as a result of liability adequacy test.

37.3.2 Life insurance

Assumptions and basis for the insurance liability adequacy test as of December 31, 2016, 2017 and 2018, are as follows:

	Assumptions(%)			Basis
	2016	2017	2018
Rate of surrender value	0.48~85.55	0.44~60.30	0~64.95	The ratio of cancelled premiums to premiums by product group, method of payment, channel, and elapsed period calculated based on the most recent five-year experience statistics
Rate of claim	6~140	6~118	8~122	The ratio of incidents by collateral, gender, elapsed period to the number of holding insurances based on the most recent seven-year experience statistics
Discount rate	(3.21)~14.53	(1.95)~14.31	(1.72)~13.06	Estimated investment assets profit ratio based on the interest rate scenario provided by the Financial Supervisory Service

Indirect costs included in commission and operating expenses were calculated based on unit cost of the expense allocation standards of the last year in accordance with the Regulation on Insurance Supervision. Direct costs included in commission and operating expenses were calculated based on estimates of future expense according to the Group’s regulations.

The results of liability adequacy test as of December 31, 2016, 2017 and 2018, are as follows:

		2016
		Recognized liabilities			Estimated adequate liabilities			Shortfall(surplus)
		(In millions of Korean won)
Fixed interest type	Participating	￦	31,248		￦	51,600		￦	20,352
	Non-participating		60,860			(19,237	)		(80,097	)
Variable interest type	Participating		1,136,049			1,120,843			(15,206	)
	Non-participating		5,514,847			5,159,996			(354,851	)
Variable type			(29,025	)		(85,349	)		(56,324	)
Total		￦	6,713,979		￦	6,227,853		￦	(486,126	)

F-186

		2017
		Recognized liabilities			Estimated adequate liabilities			Shortfall(surplus)
		(In millions of Korean won)
Fixed interest type	Participating	￦	30,702		￦	51,387		￦	20,685
	Non-participating		97,093			30,822			(66,271	)
Variable interest type	Participating		1,136,444			1,115,755			(20,689	)
	Non-participating		5,581,698			4,955,777			(625,921	)
Variable type			(28,699	)		(105,076	)		(76,377	)
Total		￦	6,817,238		￦	6,048,665		￦	(768,573	)

		2018
		Recognized liabilities			Estimated adequate liabilities			Shortfall(surplus)
		(In millions of Korean won)
Fixed interest type	Participating	￦	30,563		￦	54,569		￦	24,006
	Non-participating		133,137			87,657			(45,480	)
Variable interest type	Participating		1,087,007			1,087,344			337
	Non-participating		5,538,893			5,081,544			(457,349	)
Variable type			(31,481	)		(122,731	)		(91,250	)
Total		￦	6,758,119		￦	6,188,383		￦	(569,736	)

As a result of adequacy test, the group did not set additional reserve as it shows net surplus. As such, there was no amount recorded as a result of liability adequacy test.

F-187

37.4 Insurance Income and Expenses

Insurance income and expenses for the years ended December 31, 2016, 2017 and 2018, are as follows:

		2016			2017			2018
		(In millions of Korean won)
Insurance income	Premium income	￦	1,190,422		￦	8,234,731		￦	10,730,227
	Reinsurance income		10,930			564,894			873,053
	Reversal of policy reserves		—			—			344
	Separate account income		—			118,080			360,664
	Income of change in reinsurance assets		—			49,466			—
	Other insurance income		—			3,821			10,782
	Sub-total		1,201,352			8,970,992			11,975,070
Insurance expenses	Insurance claims paid		158,789			2,945,158			4,415,760
	Dividend expenses		910			6,233			9,400
	Refunds of surrender value		690,207			2,193,843			2,855,573
	Reinsurance expenses		12,286			652,910			947,560
	Provision of policy reserves		366,145			1,644,389			1,608,519
	Separate account expenses		(207	)		65,773			276,412
	Insurance operating expenses		(9,903	)		293,591			418,646
	Deferred acquisition costs		100,928			361,909			606,073
	Expenses of change in reinsurance assets		—			(126	)		89,621
	Claim survey expenses paid		—			20,564			38,782
	Other insurance expenses		—			193,038			218,608
	Sub-total		1,319,155			8,377,282			11,484,954
Net insurance income(expenses)		￦	(117,803	)	￦	593,710		￦	490,116

37.5 Risk management of non-life insurance

37.5.1 Overview

Insurance risk is the risk that arises from a primary operation of insurance companies that is associated with acceptance of insurance contract and payment of claims, and is classified as the insurance price risk and the reserves risk. The insurance price risk is the risk of loss that might occur when the actual risk exceeds the expected risk rate or expected insurance operating expenses ratios in calculation of premiums. It is the risk of loss that arises from differences between actual payment of claims and premiums received from policyholders. The reserves risk is the risk that arises due to a deficit in reserves at the date of assessment, making the Group unable to cover the actual claims payment in the future.

37.5.2 Purposes, policies and procedures to manage risk arising from insurance contracts

The risks associated with insurance contract that the Group faces are the insurance actuarial risk and the acceptance risk. Each risk occurs due to insurance contract’s pricing and conditions of acceptance. In order to minimize acceptance risk, the Group establishes guidelines and procedure for acceptance and out lines specific conditions for acceptance by product. In addition, expected risk level at the date of pricing is compared with actual risk of contracts after acceptance and the interest rate is adjusted accordingly, conditions of sale is changed, sale of goods is interrupted and other measures are taken in order to reduce insurance actuarial risk. The Group has a committee to discuss status of product acceptance risk and interest rate policy. The committee decides important matters to set the processes that allow minimizing the insurance actuarial risk, the acceptance risk and other business related risk.

F-188

In addition, according to reinsurance operating standards, the Group establishes an operating strategy of reinsurance for large claims expense due to unexpected catastrophic events. The Group supports so that policyholders are safe and the Group’s stable profit can be achieved. For the long-term goal, the Group manages risk at a comprehensive level to keep its value at the maximum.

37.5.3 Exposure to insurance price risk

According to RBC standard, exposure to insurance price risk is defined as net written premiums for prior 1 year that is calculated by adding and subtracting original insurance premium, assumed reinsurance premium and ceded reinsurance premium.

The Group’s exposure to insurance price risk as of December 31, 2017 and 2018 as follows:

	2017
	Direct insurance		Inward reinsurance		Outward reinsurance			Total
	(In millions of Korean won)
General	￦	906,603	￦	84,056	￦	(518,099	)	￦	472,560
Automobile		2,000,232		—		(34,579	)		1,965,653
Long-term		2,020,782		—		(276,325	)		1,744,457
Total	￦	4,927,617	￦	84,056	￦	(829,003	)	￦	4,182,670

	2018
	Direct insurance		Inward reinsurance		Outward reinsurance			Total
	(In millions of Korean won)
General	￦	943,770	￦	91,440	￦	(526,026	)	￦	509,184
Automobile		1,940,602		—		(63,720	)		1,876,882
Long-term		2,285,378		—		(326,337	)		1,959,041
Total	￦	5,169,750	￦	91,440	￦	(916,083	)	￦	4,345,107

37.5.4 Concentration of Insurance risk

The Group is selling general non-life insurances (fire, maritime, injury, technology, liability, package, title, guarantee and special type insurances), automobile insurances (for private use, for hire, for business, bicycle and other), long-term insurances (long-term non-life, property damage, injury, driver, savings, illness, nursing and pension) and various other insurances. The Group’s risk is distributed through reinsurance, joint acceptance and diversified selling. In addition, insurances that cover serious damage of risk, although with rare possibility of the occurrence of disaster, such as storm and flood insurance are limited, and the Group controls the risk through joint acquisition.

F-189

Loss development tables

The Group uses claim development of payments and the estimated ultimate claims for the accident years in order to maintain overall reserve adequacy in respect of general, automobile and long-term insurance. When the estimated ultimate claims are greater than claim payments, the Group establishes additional reserves. Loss development tables as of December 31, 2017 and 2018 are as follows:

<2017>

General Insurance

	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years
	(In millions of Korean won)
Estimate of gross ultimate claims (A)
2013.1.1~2013.12.31	￦	170,587	￦	203,250	￦	208,100	￦	207,329	￦	206,450
2014.1.1~2014.12.31		127,903		144,915		146,430		146,533		—
2015.1.1~2015.12.31		125,170		145,637		148,165		—		—
2016.1.1~2016.12.31		145,618		168,127		—		—		—
2017.1.1~2017.12.31		168,409		—		—		—		—
		737,687		661,929		502,695		353,862		206,450
Gross cumulative claim payments (B)
2013.1.1~2013.12.31		133,479		184,209		198,286		200,931		202,093
2014.1.1~2014.12.31		94,901		129,652		136,689		141,170		—
2015.1.1~2015.12.31		93,443		130,430		137,854		—		—
2016.1.1~2016.12.31		108,098		151,583		—		—		—
2017.1.1~2017.12.31		132,430		—		—		—		—
		562,351		595,874		472,829		342,101		202,093
Difference (A-B)	￦	175,336	￦	66,055	￦	29,866	￦	11,761	￦	4,357

F-190

Automobile Insurance

	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years		After 6 years		After 7 years
	(In millions of Korean won)
Estimate of gross ultimate claims (A)
2011.1.1~2011.12.31	￦	1,088,801	￦	1,105,501	￦	1,115,281	￦	1,119,872	￦	1,122,637	￦	1,124,045	￦	1,125,203
2012.1.1~2012.12.31		1,117,650		1,146,779		1,155,529		1,162,075		1,164,774		1,166,470		—
2013.1.1~2013.12.31		1,131,945		1,156,535		1,170,968		1,179,458		1,179,323		—		—
2014.1.1~2014.12.31		1,174,611		1,193,832		1,205,524		1,212,025		—		—		—
2015.1.1~2015.12.31		1,227,106		1,245,780		1,256,058		—		—		—		—
2016.1.1~2016.12.31		1,276,939		1,281,381		—		—		—		—		—
2017.1.1~2017.12.31		1,342,998		—		—		—		—		—		—
		8,360,050		7,129,808		5,903,360		4,673,430		3,466,734		2,290,515		1,125,203
Gross cumulative claim payments (B)
2011.1.1~2011.12.31		929,491		1,066,885		1,093,589		1,109,202		1,117,381		1,119,765		1,120,687
2012.1.1~2012.12.31		939,239		1,105,672		1,135,064		1,149,585		1,156,150		1,159,614		—
2013.1.1~2013.12.31		939,569		1,114,063		1,145,110		1,161,624		1,168,617		—		—
2014.1.1~2014.12.31		969,211		1,150,462		1,180,953		1,196,387		—		—		—
2015.1.1~2015.12.31		1,020,975		1,198,241		1,228,357		—		—		—		—
2016.1.1~2016.12.31		1,052,830		1,235,656		—		—		—		—		—
2017.1.1~2017.12.31		1,104,158		—		—		—		—		—		—
		6,955,473		6,870,979		5,783,073		4,616,798		3,442,148		2,279,379		1,120,687
Difference (A-B)	￦	1,404,577	￦	258,829	￦	120,287	￦	56,632	￦	24,586	￦	11,136	￦	4,516

Long-term Insurance

	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years
	(In millions of Korean won)
Estimate of ultimate claims (A)
2013.1.1~2013.12.31	￦	709,602	￦	965,587	￦	997,607	￦	1,003,646	￦	1,006,025
2014.1.1~2014.12.31		789,087		1,083,048		1,114,821		1,119,206		—
2015.1.1~2015.12.31		885,476		1,219,393		1,256,051		—		—
2016.1.1~2016.12.31		1,064,744		1,437,573		—		—		—
2017.1.1~2017.12.31		1,184,224		—		—		—		—
		4,633,133		4,705,601		3,368,479		2,122,852		1,006,025
Gross cumulative claim payments (B)
2013.1.1~2013.12.31		671,500		953,494		989,957		999,944		1,003,715
2014.1.1~2014.12.31		744,944		1,065,792		1,104,468		1,114,341		—
2015.1.1~2015.12.31		836,471		1,205,130		1,248,475		—		—
2016.1.1~2016.12.31		1,017,243		1,424,948		—		—		—
2017.1.1~2017.12.31		1,130,868		—		—		—		—
		4,401,026		4,649,364		3,342,900		2,114,285		1,003,715
Difference (A-B)	￦	232,107	￦	56,237	￦	25,579	￦	8,567	￦	2,310

F-191

<2018>

General Insurance

	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years
	(In millions of Korean won)
Estimate of gross ultimate claims (A)
2014.1.1~2014.12.31	￦	127,903	￦	144,915	￦	146,430	￦	146,533	￦	146,508
2015.1.1~2015.12.31		125,170		145,637		148,165		151,594		—
2016.1.1~2016.12.31		145,618		168,119		171,506		—		—
2017.1.1~2017.12.31		168,409		201,100		—		—		—
2018.1.1~2018.12.31		201,014		—		—		—		—
		768,114		659,771		466,101		298,127		146,508
Gross cumulative claim payments (B)
2014.1.1~2014.12.31		94,901		129,652		136,689		141,170		142,217
2015.1.1~2015.12.31		93,443		130,430		137,854		142,645		—
2016.1.1~2016.12.31		108,098		151,583		162,360		—		—
2017.1.1~2017.12.31		132,430		184,716		—		—		—
2018.1.1~2018.12.31		153,770		—		—		—		—
		582,642		596,381		436,903		283,815		142,217
Difference (A-B)	￦	185,472	￦	63,390	￦	29,198	￦	14,312	￦	4,291

Automobile Insurance

	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years		After 6 years		After 7 years
	(In millions of Korean won)
Estimate of gross ultimate claims (A)
2012.1.1~2012.12.31	￦	1,117,650	￦	1,146,779	￦	1,155,529	￦	1,162,075	￦	1,164,774	￦	1,166,470	￦	1,165,352
2013.1.1~2013.12.31		1,131,945		1,156,535		1,170,968		1,179,458		1,179,323		1,179,514		—
2014.1.1~2014.12.31		1,174,611		1,193,832		1,205,524		1,212,025		1,212,162		—		—
2015.1.1~2015.12.31		1,227,106		1,245,780		1,256,058		1,263,044		—		—		—
2016.1.1~2016.12.31		1,276,939		1,281,381		1,287,728		—		—		—		—
2017.1.1~2017.12.31		1,342,998		1,348,828		—		—		—		—		—
2018.1.1~2018.12.31		1,468,784		—		—		—		—		—		—
		8,740,033		7,373,135		6,075,807		4,816,602		3,556,259		2,345,984		1,165,352
Gross cumulative claim payments(B)
2012.1.1~2012.12.31		939,239		1,105,672		1,135,064		1,149,585		1,156,150		1,159,614		1,160,769
2013.1.1~2013.12.31		939,569		1,114,063		1,145,110		1,161,624		1,168,617		1,175,681		—
2014.1.1~2014.12.31		969,211		1,150,462		1,180,953		1,196,387		1,204,580		—		—
2015.1.1~2015.12.31		1,020,975		1,198,241		1,228,357		1,245,779		—		—		—
2016.1.1~2016.12.31		1,052,830		1,235,656		1,264,651		—		—		—		—
2017.1.1~2017.12.31		1,104,158		1,306,235		—		—		—		—		—
2018.1.1~2018.12.31		1,224,820		—		—		—		—		—		—
		7,250,802		7,110,329		5,954,135		4,753,375		3,529,347		2,335,295		1,160,769
Difference (A-B)	￦	1,489,231	￦	262,806	￦	121,672	￦	63,227	￦	26,912	￦	10,689	￦	4,583

F-192

Long-term Insurance

	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years
		(In millions of Korean won)
Estimate of ultimate claims (A)
2014.1.1~2014.12.31	￦	789,087	￦	1,083,048	￦	1,114,821	￦	1,119,206	￦	1,122,192
2015.1.1~2015.12.31		885,476		1,219,393		1,256,051		1,266,881		—
2016.1.1~2016.12.31		1,064,744		1,437,573		1,485,839		—		—
2017.1.1~2017.12.31		1,184,224		1,614,903		—		—		—
2018.1.1~2018.12.31		1,372,706		—		—		—		—
		5,296,237		5,354,917		3,856,711		2,386,087		1,122,192
Gross cumulative claim payments (B)
2014.1.1~2014.12.31		744,944		1,065,792		1,104,468		1,114,341		1,119,531
2015.1.1~2015.12.31		836,471		1,205,130		1,248,475		1,262,528		—
2016.1.1~2016.12.31		1,017,243		1,424,948		1,477,415		—		—
2017.1.1~2017.12.31		1,130,868		1,599,227		—		—		—
2018.1.1~2018.12.31		1,319,613		—		—		—		—
		5,049,139		5,295,097		3,830,358		2,376,869		1,119,531
Difference (A-B)	￦	247,098	￦	59,820	￦	26,353	￦	9,218	￦	2,661

37.5.5 Sensitivity analysis of insurance risk

The Group manages insurance risk by performing sensitivity analysis based on discount rate, loss ratio and insurance operating expenses ratio which are considered to have significant influence on future cash flow, timing and uncertainty. According to result of sensitivity analysis there is no material influence on the equity and net profit before tax.

	Assumption change			2017 Effect on LAT
				(In millions of Korean won)
Surrenders and termination rates		10	%	￦	363,663
		-10	%		(399,768	)
Loss ratio		10	%		3,365,242
		-10	%		(3,365,242	)
Insurance operating expenses ratio		10	%		293,299
		-10	%		(293,299	)
Discount rate		+0.5	%		(1,254,409	)
		-0.5	%		1,490,817

	Assumption change			2018 Effect on LAT
				(In millions of Korean won)
Surrenders and termination rates		10	%	￦	440,697
		-10	%		(481,587	)
Loss ratio		10	%		4,235,661
		-10	%		(4,235,661	)
Insurance operating expenses ratio		10	%		332,885
		-10	%		(332,885	)
Discount rate		+0.5	%		(1,297,557	)
		-0.5	%		1,608,051

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37.5.6 Liquidity risk of insurance contracts

Liquidity risk arising from insurance contracts is the increase in refunds at maturity caused by concentrations of maturity, the increase in surrender values caused by unexpected amounts in cancellation and the increase in payments of claims caused by catastrophic events. The Group manages payment of refunds payable at maturity by analyzing maturity of insurance.

Premium reserve’s maturity structure as of December 31, 2017 and 2018, as follows:

	20171
	Within 1 year		1~5 years		5~10 years		10~20 years		More 20 years		Total
	(In millions of Korean won)
Long-term insurance non-participating
Non-linked	￦	26,239	￦	297,196	￦	117,610	￦	40,229	￦	94,477	￦	575,751
Linked		458,340		2,723,485		2,135,336		926,591		10,269,931		16,513,683
Sub-total		484,579		3,020,681		2,252,946		966,820		10,364,408		17,089,434
Annuity
Non-linked		19		92		2,117		3,956		1,401		7,585
Linked		153		46,987		307,455		1,089,983		2,141,589		3,586,167
Sub-total		172		47,079		309,572		1,093,939		2,142,990		3,593,752
Asset-linked
Linked		—		27,499		—		—		—		27,499
Total
Non-linked		26,258		297,288		119,727		44,185		95,878		583,336
Linked		458,493		2,797,971		2,442,791		2,016,574		12,411,520		20,127,349
Total	￦	484,751	￦	3,095,259	￦	2,562,518	￦	2,060,759	￦	12,507,398	￦	20,710,685

¹  Includes long-term investment contract amounting to ￦112,510 million.

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	20181
	Within 1 year		1~5 years		5~10 years		10~20 years		More 20 years		Total
	(In millions of Korean won)
Long-term insurance non-participating
Non-linked	￦	27,477	￦	301,842	￦	94,503	￦	41,129	￦	95,851	￦	560,802
Linked		419,874		2,774,991		2,169,861		726,859		11,900,385		17,991,970
Sub-total		447,351		3,076,833		2,264,364		767,988		11,996,236		18,552,772
Annuity
Non-linked		5		251		2,279		3,736		1,327		7,598
Linked		200		58,182		339,662		1,176,168		2,194,381		3,768,593
Sub-total		205		58,433		341,941		1,179,904		2,195,708		3,776,191
Asset-linked
Linked		—		27,480		—		—		—		27,480
Total
Non-linked		27,482		302,093		96,782		44,865		97,178		568,400
Linked		420,074		2,860,653		2,509,523		1,903,027		14,094,766		21,788,043
Total	￦	447,556	￦	3,162,746	￦	2,606,305	￦	1,947,892	￦	14,191,944	￦	22,356,443

¹  Includes long-term investment contract amounting to ￦110,255 million.

37.5.7 Credit risk of insurance contract

Credit risk of insurance contract is the economic loss arising from non-performing contractual obligations due to decline in credit ratings or default. Through strict internal review, the Group cedes insurance contracts to the insurers rated above BBB- of S&P rating.

As of December 31, 2018, there are 155 reinsurance companies that deal with the Group, and the top three reinsurance companies’ concentration and credit ratings are as follows:

Reinsurance company	Ratio			Credit rating
KOREAN RE		70.21	%		AA
SWISSRE		4.34	%		AAA
HDIgerling		2.85	%		AA+

Exposures to credit risk related to reinsurance as of December 31, 2018 as follows:

	2017		2018
	(In millions of Korean won)
Reinsurance assets1	￦	776,340	￦	688,993
Net receivables from reinsurers2		237,750		398,575
Total	￦	1,014,090	￦	1,087,568

¹ Net carrying amounts after impairment loss

² Net carrying amounts of each reinsurance company that offsets reinsurance accounts receivable and reinsurance accounts payable and after allowance for loan losses

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37.5.8 Interest risk of insurance contract

The interest rate risk exposure from the Group’s insurance contracts is the risk of unexpected losses in net interest income or net assets arising from changes in interest rates and it is managed to minimize the loss experienced. For long-term, non-life insurance contracts, the Group calculates exposure of interest-bearing assets and interest-bearing liabilities. Liabilities exposure is premium reserves after subtracting costs of termination deductions. Asset exposure is interest-bearing assets. Assets that receive only fees without interest are excluded from interest bearing assets. Exposures to interest rate risk as of December 31, 2017 and 2018, are as follows:

i) Exposure to interest rate risk

	2017
		(In millions of Korean won	)
Liabilities
Fixed interest rate	￦	582,345
Variable interest rate		18,548,946
Total		19,131,291
Assets
Due from banks		167,312
Financial assets at fair value through profit or loss		325,844
Available-for-sale financial assets		6,066,290
Held-to-maturity financial assets		6,501,529
Loans		6,338,470
Total	￦	19,399,445

	2018
		(In millions of Korean won	)
Liabilities
Fixed interest rate	￦	560,471
Variable interest rate		20,332,094
Total		20,892,565
Assets
Due from financial institutions at amortized cost and cash		100,701
Financial assets at fair value through profit or loss		4,257,959
Financial assets at fair value through other comprehensive income		2,691,744
Financial assets at amortized cost		7,718,337
Loans		6,877,139
Total	￦	21,645,880

ii) Measurement and recognition method

Duration is used to measure interest rate risk within risk based solvency test. ALM system is utilized to manage interest rate risk internally. In addition, Risk Management Committee sets ALM strategy every year to manage interest rate risk.

iii) Sensitivity to changes in interest rates

Generally, when interest rates rise, the value and duration of assets and liabilities fall when interest rates fall, value and duration of assets and liabilities increase. Where duration of assets is shorter than that of liabilities

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with the interest rates fall, the interest risk is increased since the incremental portion of liabilities exceeds that of assets.

iv) Negative spread risk control

In order to manage the reverse margins risk between interest expenses from liabilities and investment incomes on assets, the Group set the disclosure rate every month considering the market interest rate and the managing portfolio’s profit ratio.

37.6 Risk management of life insurance

37.6.1 Overview

Insurance risk is the risk of loss arising from the actual risk at the time of claims exceeding the estimated risk at the time of underwriting. Insurance risk is classified by insurance price risk and policy reserve risk. Insurance price risk is the risk of loss arising from differences between received from policyholders and actual claims paid. Policy reserve risk is the risk of loss arising from differences between policy reserves the Group holds and actual claims to be paid. The Group measures only insurance price risk under RBC requirement because life insurance claim payout is mainly in a fixed amount with less volatility in policy reserve and shorter waiting period before payment

37.6.2 Concentration of insurance risk and reinsurance policy

The Group uses reinsurance to mitigate concentration of insurance risk seeking an enhanced capital management. The Group categorized reinsurance into group and individual contracts, and reinsurance is ceded through the following process:

i. In the decision-making process of launching a new product, the Group makes a decision on ceding reinsurance. Subsequently, a reinsurer is selected through bidding, agreements with the relevant departments and final approval by the executive management.

ii. The reinsurance department analyzes the object of reinsurance, the maximum limit of reinsurance and the loss ratio with the relevant departments.

37.6.3 The characteristic and exposure of insurance price risk

The exposure of insurance price risk is measured by the risk premium for all insurance contracts held for one year prior to the calculation date. The premium for risk retention is calculated by adding direct insurance premium and reinsurance assumed premium, and deducting reinsurance ceded premium (which is paid to reinsurance companies). If the holding risk premium is less than zero, the exposure of the insurance price is measured as zero.

The insurance risk of a life insurance company is measured by insurance price risk. As the life insurance coverage is in the form of a fixed payment, the fluctuation of policy reserve is small and the period from insured event to claims payment is not long. The policy reserve risk is managed by assessments of adequacy of the policy reserve.

The insurance price risk is managed through insurance risk management regulation established by Risk Management Committee.

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The maximum exposures to insurance price risk as of December 31, 2017 and 2018, are as follows:

	2017
	Before reinsurance mitigation		After reinsurance mitigation
	(In millions of Korean won)
Death	￦	14,356	￦	10,279
Disability		1,331		899
Hospitalization		1,233		747
Operation and diagnosis		3,326		1,977
Actual losses for medical expense		817		403
Others		753		376
Total	￦	21,816	￦	14,681

	2018
	Before reinsurance mitigation		After reinsurance mitigation
	(In millions of Korean won)
Death	￦	13,264	￦	6,758
Disability		858		296
Hospitalization		1,287		358
Operation and diagnosis		3,936		1,031
Actual losses for medical expense		1,059		85
Others		1,019		96
Total	￦	21,423	￦	8,624

Average ratios of claims paid per risk premium received on the basis of exposure before mitigation for the past three years as of December 31, 2017 and 2018, were 65.9% and 67.6%, respectively.

The exposure of market risk arising from embedded derivatives included in host insurance contracts as of December 31, 2017 and 2018, are as follows:

	2017				2018
	Policyholders reserve1		Guarantee reserve		Policyholders reserve1		Guarantee reserve
	(In millions of Korean won)
Variable annuity	￦	461,309	￦	3,485	￦	359,617	￦	2,688
Variable universal		97,893		3,572		84,783		4,129
Variable saving		429,985		316		542,035		396
Total	￦	989,187	￦	7,373	￦	986,435	￦	7,213

¹ Excluding the amount of the lapsed reserve

37.6.4 Assumptions used in measuring insurance liabilities

The Group applies assumed rates defined in the premium and liability reserve calculation manual under regulation on supervision of insurance business when measuring insurance liabilities at every reporting period. For interest sensitive insurance, credit rate stated in the premium and liabilities reserve calculation manual, which is calculated based on adjusted external base rate and return rate of asset management according to Article 6-12 of the Regulation on Supervision of Insurance Business.

Reserve amount should exceed the standard reserve which is calculated using the standard interest rate and standard risk rate under regulation on supervision of insurance business.

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37.6.5 Premium reserves and unearned premium reserves residual maturity

Premium reserves and unearned premium reserves classified based on each residual maturity as of December 31, 2018 and 2018, are as follows:

2017

Less than 3 years

3-5 years

5-10 years

10-15 years

15-20 years

20 years or more

Total

(In millions of Korean won)

Premium reserves

￦

971,517

￦

660,139

￦

829,157

￦

591,689

￦

333,031

￦

3,892,579

￦

7,278,112

2018

Less than 3 years

3-5 years

5-10 years

10-15 years

15-20 years

20 years or more

Total

(In millions of Korean won)

Premium reserves

￦

984,201

￦

530,322

￦

777,690

￦

575,712

￦

341,112

￦

4,005,728

￦

7,214,765

37.7 The Overlay Approach

The Group applied “The Overlay Approach” under IFRS 4 at the initial application of IFRS 9.

Details of financial assets applied “The Overlay Approach” as of December 31, 2018, are as follows:

	2018
	(In millions of Korean won)
Financial assets designated at fair value through profit or loss
Cash and due from financial institutions	￦	172,777
Debt securities		7,044,081
Equity securities		81,949
Total	￦	7,298,807

Changes of net losses on overlay adjustment for the year ended December 31, 2018, are as follows:

	Net losses on overlay adjustment2
	(In millions of Korean won)
Beginning1	￦	(7,559	)
Recognition due to acquisition		17,205
Reclassification to profit or loss due to disposal		(16,792	)
Recognition of OCI from profit or loss due to re-designation		—
Recognition of profit or loss from OCI due to de-designation		—
Ending	￦	(7,146	)

¹  Calculated based on IFRS 9

²  Amounts are net of tax

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38. Supplemental Cash Flow Information

Cash and cash equivalents as of December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Cash	￦	2,167,911		￦	2,186,035
Checks with other banks		430,253			872,166
Due from Bank of Korea		8,981,665			9,098,891
Due from other financial institutions		8,237,996			8,117,398
Sub-total		19,817,825			20,274,490
Due from financial institutions at fair value through profit or loss		—			381,718
		19,817,825			20,656,208
Restricted cash from financial institutions		(10,613,089	)		(12,347,627	)
Due from financial institutions with original maturities over three months		(799,838	)		(1,665,765	)
Sub-total		(11,412,927	)		(14,013,392	)
Total	￦	8,404,898		￦	6,642,816

Significant non-cash transactions for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016			2017			2018
	(In millions of Korean won)
Decrease in loans due to the write-offs	￦	1,399,315		￦	1,033,056		￦	1,079,435
Changes in accumulated other comprehensive income due to valuation of financial investments		(47,871	)		89,117			—
Changes in accumulated other comprehensive income due to valuation of financial investments at fair value through other comprehensive income		—			—			119,182
Decrease in accumulated other comprehensive income from measurement of investment securities in associates		(7,093	)		100,735			(3,733	)
Changes in shares of investment in associate due to KB Insurance Co., Ltd.’s inclusion of the consolidation scope		—			(1,417,397	)		—
Changes in shares of investment in associate due to Hyundai Securities Co., Ltd.’s inclusion of the consolidation scope		(1,459,604	)		—			—
Changes in other payables due to treasury stock trust agreement, etc.		—			18,802			6,678

Cash inflows and outflows from income tax, interests and dividends for the year December 31, 2016, 2017 and 2018, are as follows:

	Activity		2016		2017		2018
			(In millions of Korean won)
Income tax paid		Operating	￦	231,786	￦	646,802	￦	759,013
Interest received		Operating		10,208,678		11,243,363		12,346,795
Interest paid		Operating		3,707,653		3,444,715		4,069,935
Dividends received		Operating		132,654		229,289		222,670
Dividends paid		Financing		378,625		497,969		766,728

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Changes in liabilities arising from financing activities

Changes in liabilities and assets that arising from financing activities for the year ended December 31, 2018 are as follows:

	2018
							Non-cash changes
	Beginning			Net cash flows			Acquisition (Disposal)		Changes in foreign exchange rates		Changes in fair value		Business Combination			Other changes			Ending
	(In millions of Korean won)
Derivatives held for hedging1	￦	(202,421	)	￦	15,044		￦	—	￦	—	￦	195,426	￦	—		￦	—		￦	8,049
Debts		28,820,928			4,216,014			—		178,543		—		(8,487	)		(202,164	)		33,004,834
Debentures		44,992,724			8,422,959			—		173,760		4,176		(355,800	)		40,878			53,278,697
Other payables from trust accounts		5,018,031			267,077			—		—		—		—			—			5,285,108
Others		325,437			(185,894	)		17,664		7,242		—		—			2,679			167,128
Total	￦	78,954,699		￦	12,735,200		￦	17,664	￦	359,545	￦	199,602	￦	(364,287	)	￦	(158,607	)	￦	91,743,816

¹ Derivatives held for hedging purposes are the net amount after offsetting liabilities from assets

The net cash inflow associated with the change of the subsidiaries for the year ended December 31, 2018 was ￦188,140 million.

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39. Contingent Liabilities and Commitments

Details of payment guarantees as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Confirmed payment guarantees
Confirmed payment guarantees in Korean won
Payment guarantees for KB purchasing loan	￦	252,817	￦	196,517
Other payment guarantees		530,272		597,636
Sub-total		783,089		794,153
Confirmed payment guarantees in foreign currency
Acceptances of letter of credit		147,987		208,926
Letter of guarantees		60,853		53,210
Bid bond		46,984		51,528
Performance bond		563,506		604,311
Refund guarantees		778,779		592,925
Other payment guarantees in foreign currency		1,960,769		2,539,900
Sub-total		3,558,878		4,050,800
Financial guarantees
Payment guarantees for mortgage		57,446		50,497
Overseas debt guarantees		285,576		311,796
International financing guarantees in foreign currencies		46,953		110,070
Other financing payment guarantees		270,029		270,000
Sub-total		660,004		742,363
Total Confirmed acceptances and guarantees		5,001,971		5,587,316
Unconfirmed acceptances and guarantees
Guarantees of letter of credit		2,250,542		1,745,340
Refund guarantees		384,959		686,843
Total Confirmed acceptances and guarantees		2,635,501		2,432,183
Total	￦	7,637,472	￦	8,019,499

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Payment guarantees that are exposed to credit risk as of December 31, 2018, are as follows:

	The financial instruments applying 12-month expected credit losses		The financial instruments applying lifetime expected credit losses				Total
			Non-impaired		Impaired
			(In millions of Korean won)
Confirmed payment guarantees
Grade 1	￦	3,726,259	￦	179	￦	—	￦	3,726,438
Grade 2		1,571,258		29,034		—		1,600,292
Grade 3		84,251		13,585		—		97,836
Grade 4		30,443		117,166		420		148,029
Grade 5		—		171		14,550		14,721
Sub-total		5,412,211		160,135		14,970		5,587,316
Unconfirmed acceptances and guarantees
Grade 1		1,102,478		1,747		—		1,104,225
Grade 2		1,180,137		17,795		—		1,197,932
Grade 3		25,749		16,225		—		41,974
Grade 4		9,627		66,186		—		75,813
Grade 5		—		219		12,020		12,239
Sub-total		2,317,991		102,172		12,020		2,432,183
Total	￦	7,730,202	￦	262,307	￦	26,990	￦	8,019,499

Acceptances and guarantees by counterparty as of December 31, 2017 and 2018, are as follows:

	2017
	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
	(In millions of Korean won)
Corporations	￦	4,185,975	￦	1,913,114	￦	6,099,089		79.86
Small companies		621,834		492,369		1,114,203		14.59
Public and others		194,162		230,018		424,180		5.55
Total	￦	5,001,971	￦	2,635,501	￦	7,637,472		100.00

	2018
	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
	(In millions of Korean won)
Corporations	￦	4,775,838	￦	1,901,951	￦	6,677,789		83.27
Small companies		617,458		423,947		1,041,405		12.99
Public and others		194,020		106,285		300,305		3.74
Total	￦	5,587,316	￦	2,432,183	￦	8,019,499		100.00

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Acceptances and guarantees by industry as of December 31, 2017 and 2018, are as follows:

	2017
	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
	(In millions of Korean won)
Financial institutions	￦	23,317	￦	7,353	￦	30,670		0.40
Manufacturing		2,799,593		1,270,721		4,070,314		53.29
Service		655,057		100,004		755,061		9.89
Whole sale & Retail		935,647		837,230		1,772,877		23.21
Construction		335,156		198,996		534,152		6.99
Public sector		165,249		129,944		295,193		3.87
Others		87,952		91,253		179,205		2.35
Total	￦	5,001,971	￦	2,635,501	￦	7,637,472		100.00

	2018
	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
	(In millions of Korean won)
Financial institutions	￦	72,071	￦	3,736	￦	75,807		0.95
Manufacturing		2,981,245		1,451,657		4,432,902		55.27
Service		931,680		84,586		1,016,266		12.67
Whole sale & Retail		998,333		723,367		1,721,700		21.47
Construction		280,146		40,988		321,134		4.00
Public sector		165,571		36,256		201,827		2.52
Others		158,270		91,593		249,863		3.12
Total	￦	5,587,316	￦	2,432,183	￦	8,019,499		100.00

Commitments as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Commitments
Corporate loan commitments	￦	32,857,616	￦	37,340,727
Retail loan commitments		16,074,323		41,335,454
Credit line on credit cards		49,299,924		54,488,133
Purchase of other security investment and others		3,951,304		5,426,058
Sub-total		102,183,167		138,590,372
Financial Guarantees
Credit line		2,669,071		2,447,369
Purchase of security investment		354,800		436,800
Sub-total		3,023,871		2,884,169
Total	￦	105,207,038	￦	141,474,541

Other Matters (including litigation)

a) The Group has filed 185 lawsuits (excluding minor lawsuits in relation to the collection or management of loans), involving aggregate claims of ￦526,449 million, and faces 291 lawsuits (as the defendant) (excluding minor lawsuits in relation to the collection or management of loans) involving aggregate damages of ￦293,349 million, which arose in the normal course of the business and are still pending as of December 31, 2018.

F-204

b) Kookmin Bank made a construction contract building the integrated company building, and the integrated central IT, amounting to ￦ 151,280 million, and ￦ 116,563 million, respectively; for the year ended December 31, 2018, the subsidiary has paid ￦ 7,605 million and ￦ 42,857 million for each the integrated company building and the integrated central IT, respectively.

c) The face value of the securities which Kookmin Bank sold to general customers through the bank tellers amounts to ￦372 million and ￦372 million as of December 31, 2017 and 2018, respectively.

d) While setting up a fraud detection system, a computer contractor employed by the personal credit ratings firm Korea Credit Bureau caused a widespread data breach in June 2013, resulting in the theft of cardholders’ personal information. As a result of the leakage of customer personal information, the KB Kookmin Card received a notification from the Financial Services Commission that the KB Kookmin Card was subject to a temporary three-month operating suspension as of February 16, 2014. In respect of the incident, the Group faces 113 legal claims filed as the defendant, with an aggregate claim of ￦ 6,906 million as of December 31, 2018. A provision liability of ￦9,886 million has been recognized for these pending lawsuits. In addition, the additional lawsuits may be filed against the Group. Meanwhile, the final outcome of the cases cannot be reasonably ascertained.

e) As of December 31, 2018, the Group is in the process of filing complaints regarding insurance contracts including reverse pension plans; the amount paid and the timing related with this filing cannot be predicted as of December 31, 2018.

40. Subsidiaries

Details of subsidiaries as of December 31, 2018, are as follows:

Investor	Investee	Ownership interests(%)		Location	Date of financial statements	Industry
KB Financial Group Inc.	Kookmin Bank		100.00	Korea	Dec. 31	Banking and foreign exchange transaction
	KB Securities Co., Ltd.		100.00	Korea	Dec. 31	Financial investment
	KB Insurance Co., Ltd.		100.00	Korea	Dec. 31	Non-life insurance
	KB Kookmin Card Co., Ltd.		100.00	Korea	Dec. 31	Credit card and installment finance
	KB Life Insurance Co., Ltd.		100.00	Korea	Dec. 31	Life insurance
	KB Asset Management Co., Ltd.		100.00	Korea	Dec. 31	Collective investment and advisory
	KB Capital Co., Ltd.		100.00	Korea	Dec. 31	Financial Leasing
	KB Savings Bank Co., Ltd.		100.00	Korea	Dec. 31	Savings banking
	KB Real Estate Trust Co., Ltd.		100.00	Korea	Dec. 31	Real estate trust management
	KB Investment Co., Ltd.		100.00	Korea	Dec. 31	Capital investment
	KB Credit Information Co., Ltd.		100.00	Korea	Dec. 31	Collection of receivables or credit investigation
	KB Data System Co., Ltd.		100.00	Korea	Dec. 31	Software advisory, development, and supply
Kookmin Bank	Kookmin Bank Int’l Ltd. (London)6		100.00	United Kingdom	Dec. 31	Banking and foreign exchange transaction
	Kookmin Bank Cambodia PLC.		100.00	Cambodia	Dec. 31	Banking and foreign exchange transaction
	Kookmin Bank China Ltd.		100.00	China	Dec. 31	Banking and foreign exchange transaction
	KB Microfinance Myanmar Co., Ltd.		100.00	Myanmar	Dec. 31	Other credit granting n.e.c.
	KBD Tower 1st L.L.C. and 33 others2		—	Korea	Dec. 31	Asset-backed securitization

F-205

Investor	Investee	Ownership interests(%)		Location	Date of financial statements	Industry
	KB Multi-Asset Private Securities Fund S-1(Bond Mixed)		99.96	Korea	Dec. 31	Investment trust
	KB Multi-Asset Private Securities Fund P-1(Bond Mixed)		99.96	Korea	Dec. 31	Investment trust
	KB Haeoreum private securities investment trust 96(Bond)3		49.95	Korea	Dec. 31	Capital investment
	Samsung KODEX 10Y F-LKTB Inverse ETF(Bond-Derivatives)		88.74	Korea	Dec. 31	Capital investment
	KB Haeoreum private securities investment trust 83(Bond)		99.95	Korea	Dec. 31	Capital investment
	Kiwoom Frontier Private placement fund 10[Bond]		99.85	Korea	Dec. 31	Capital investment
	Tong Yang Safe Plus Qualified Private Trust S-8(Bond)		99.93	Korea	Dec. 31	Capital investment
	Mirae Asset Triumph Global Privately placed Feeder Investment Trust 1		99.92	Korea	Dec. 31	Capital investment
	NH-AMUNDI GLOBAL PRIVATE SECURITIES INVESTMENT TRUST 1(BOND)]		83.31	Korea	Dec. 31	Capital investment
	Meritz Private Real Estate Fund 9-2		99.98	Korea	Dec. 31	Capital investment
	AIP US RED PRIVATE REAL ESTATE TRUST NO.10		99.97	Korea	Dec. 31	Capital investment
	KB Evergreen Private Securities Fund 98(Bond)3		49.34	Korea	Dec. 31	Capital investment
	KB Korea Choet Term Premium Private Securities 5(USD)(Bond)		50.00	Korea	Dec. 31	Capital investment
	KB Korea Short Term Premium Private Securities 4(USD)(Bond)3		49.60	Korea	Dec. 31	Capital investment
KB Securities Co., Ltd.	KBFG Securities America Inc.		100.00	United States of America	Dec. 31	Investment advisory and securities dealing activities
	KB Securities Hong Kong Ltd.		100.00	China	Dec. 31	Investment advisory and securities dealing activities
	KB SECURITIES VIETNAM JOINT STOCK COMPANY		99.67	Vietnam	Dec. 31	Investment advisory and securities dealing activities
	Able NS Co., Ltd and 61 others2		—	Korea	Dec. 31	Asset-backed securitization
	KB NA COMPASS ENERGY PRIVATE SPECIAL ASSET FUND3		29.70	Korea	Dec. 31	Capital investment

F-206

Investor	Investee	Ownership interests(%)		Location	Date of financial statements	Industry
	Hyundai You First Private Real Estate Investment Trust No. 1		98.54	Korea	Dec. 31	Capital investment
	Hyundai Smart Index Alpha Securities Feeder Investment Trust No.1		98.76	Korea	Dec. 31	Capital investment
	Hyundai Strong Korea Equity Trust No.1		99.34	Korea	Dec. 31	Capital investment
	Hyundai Kidzania Equity Feeder Trust No.1		79.13	Korea	Dec. 31	Capital investment
	Hyundai Value Plus Equity Feeder Trust No.1		99.64	Korea	Dec. 31	Capital investment
	Hyundai Strong-small Corporate Trust No.1		90.57	Korea	Dec. 31	Capital investment
	Heungkuk Highclass Private Real Estate Trust No. 21		100.00	Korea	Dec. 31	Capital investment
	JB New Jersey Private Real Estate Investment Trust No. 1		98.15	Korea	Dec. 31	Capital investment
	Heungkuk Global Highclass Private Real Estate Trust No. 23		100.00	Korea	Dec. 31	Capital investment
	Hyundai Dynamic Mix Securities Feeder Investment Trust No.1		99.99	Korea	Dec. 31	Capital investment
	Hyundai Quant Long Short Securities Feeder Investment Trust No. 1		100.00	Korea	Dec. 31	Capital investment
	Hyudai China Index Plus Securities Investment Trust No.1		81.90	Korea	Dec. 31	Capital investment
	Hyundai Kon-tiki Specialized Privately Placed Fund No.1		98.05	Korea	Dec. 31	Capital investment
	DGB Private real estate Investment Trust No.8		98.77	Korea	Dec. 31	Capital investment
	Aquila Global Real Assets Fund No.1 LP		99.96	Cayman islands	Dec. 31	Capital investment
	Able Quant Asia Pacific Feeder Fund(T.E.) Limited		100.00	Cayman islands	Dec. 31	Capital investment
	Mangrove Feeder Fund		100.00	Cayman islands	Dec. 31	Capital investment
	LB Ireland Private Real Estate Investment Trust 8		99.85	Korea	Dec. 31	Capital investment
	KTB Aircraft Private Investment Trust No.21-1		99.61	Korea	Dec. 31	Capital investment
	Pacific US Blackrock Private Placement Real Estate Fund No.15		99.50	Korea	Dec. 31	Capital investment
	Vestas Qualified Investors Private Real Estate Fund Investment Trust No.38		54.04	Korea	Dec. 31	Capital investment

F-207

Investor	Investee	Ownership interests(%)		Location	Date of financial statements	Industry
KB Insurance Co., Ltd.	KB Claims Survey & Adjusting		100.00	Korea	Dec. 31	Claim service
	KB Sonbo CNS		100.00	Korea	Dec. 31	Management service
	Leading Insurance Services, Inc.		100.00	United States of America	Dec. 31	Management service
	LIG Insurance (China) Co., Ltd.		100.00	China	Dec. 31	Non-life insurance
	PT. KB Insurance Indonesia		70.00	Indonesia	Dec. 31	Non-life insurance
	KB Golden Life Care Co., Ltd.		100.00	Korea	Dec. 31	Service
	KB AMP Infra Private Special Asset Fund 1(FoFs)3		41.67	Korea	Dec. 31	Capital investment
	KB Muni bond Private Securities Fund 1(USD)(bond) 3		33.33	Korea	Dec. 31	Capital investment
	KB CHILE SOLAR FUND		80.00	Korea	Dec. 31	Capital investment
	Meritz Private Specific Real Estate Fund 1-2		87.21	Korea	Dec. 31	Capital investment
	KB Global Private Real Estate Debt Fund 13		50.00	Korea	Dec. 31	Capital investment
	Dongbu Private Fund 16th		89.52	Korea	Dec. 31	Financial investment
	Hana Landchip Real estate Private Fund 58th		99.99	Korea	Dec. 31	Financial investment
	Hyundai Aviation Private Fund 3rd		99.96	Korea	Dec. 31	Financial investment
	Hyundai Power Professional Investment Type Private Investment Fund No.4		99.78	Korea	Dec. 31	Financial investment
	KB U.S. LongShort Private Securities Fund 1		99.39	Korea	Dec. 31	Financial investment
	Hyundai Infra Professional Investment Type Private Investment Trust No.5		99.80	Korea	Dec. 31	Financial investment
	KB SAUDI Private Special Asset Fund		80.00	Korea	Dec. 31	Financial investment
	Meritz Private Real Estate Fund 8		99.36	Korea	Dec. 31	Financial investment
	Hyundai Star Private Real Estate Investment Trust No. 14		99.98	Korea	Dec. 31	Financial investment
	Vogo debt strategy private real estate fund VII		98.93	Korea	Dec. 31	Financial investment
	KORAMCO Europe Debt Strategy Private Real-Estate Fund 2nd		99.80	Korea	Dec. 31	Capital investment
	KB Peru Transmission Facility Investment Private Fund		99.03	Korea	Dec. 31	Capital investment
	KB Global Private Real Estate Debt Fund 2		98.36	Korea	Dec. 31	Capital investment
	KB Europe Private Real Estate Debt Fund 1		57.14	Korea	Dec. 31	Capital investment

F-208

Investor	Investee	Ownership interests(%)		Location	Date of financial statements	Industry
KB Kookmin Card Co., Ltd.	Wise Mobile 18th Securitization Co., Ltd.2		0.50	Korea	Dec. 31	Asset-backed securitization and others
	KB Kookmin Card 3rd Securitization Co., Ltd. And 2 other2		0.50	Korea	Dec. 31	Asset-backed securitization and others
	Heungkuk Life Insurance Money Market Trust		100.00	Korea	Dec. 31	Trust asset management
	KB DAEHAN SPECIALIZED BANK PLC.		90.00	Cambodia	Dec. 31	Banking
KB Life Insurance Co., Ltd.	KB Evergreen Private Securities Fund No. 59(Bond)		100.00	Korea	Dec. 31	Private fund
	KB Haeoreum Private Securities Investment Trust 1st(debt securities)		100.00	Korea	Dec. 31	Private fund
KB Asset Management Co., Ltd.	KB Star Office Private Real Estate Feeder fund 3-2		88.00	Korea	Dec. 31	Financial investment
	KB Asset Management Singapore Pte, Ltd.		100.00	Singapore	Dec. 31	Collective investment
	KB Global Equity Solution Securities Feeder Fund(Equity-FoFs)3		44.04	Korea	Dec. 31	Capital investment
	KB Star Short Term Securities Feeder Fund(Bond)3		37.11	Korea	Dec. 31	Capital investment
	KB Onkookmin Life Income RIF 20 Feeder Fund(Fofs)3		49.98	Korea	Dec. 31	Capital investment
	KB Onkookmin Life Income RIF 40 Feeder Fund(Fofs)3		49.13	Korea	Dec. 31	Capital investment
	KB Active Investor Securities Investment Trust(Derivatives Mixed)		99.95	Korea	Dec. 31	Financial investment
	KB Global Multi Asset Income Securities Feeder Fund(Bond Mixed-FoFs)		96.17	Korea	Dec. 31	Financial investment
	KB G2 Plus Korea Securities Fund(Equity)		91.03	Korea	Dec. 31	Financial investment
KB Investment Co., Ltd.	2011 KIF-KB IT Venture Fund4		43.33	Korea	Dec. 31	Capital investment
	KoFC-KB Young Pioneer 1st Fund4		33.33	Korea	Dec. 31	Capital investment
	KB NEW CONTENTS Venture Fund4		20.00	Korea	Dec. 31	Capital investment
	KB Young Pioneer 3.0 Venture Fund4		40.00	Korea	Dec. 31	Capital investment
	KB Pre IPO Secondary Venture Fund 24		21.00	Korea	Dec. 31	Capital investment
	KB Contents Panda iMBC Contents Venture Fund4		20.00	Korea	Dec. 31	Capital investment

F-209

Investor	Investee	Ownership interests(%)		Location	Date of financial statements	Industry
Heungkuk Global Highclass Private Real Estate Trust 23	HYUNDAI ABLE INVESTMENT REIT		99.90	United States of America	Dec. 31	Real Estate Activities
Hyundai Strong Korea Equity Trust No.1	Hyundai Strong Korea Equity Trust No.1[Master]		80.93	Korea	Dec. 31	Capital investment
Hyundai Trust Securities Feeder Investment Trust No.1- Bond	Hyundai Trust Securities Master Investment Trust—Bond		96.83	Korea	Dec. 31	Capital investment
Hyundai Quant Long Short Securities Feeder Investment Trust	Hyundai Quant Long Short Securities Master Investment Trust		100.00	Korea	Dec. 31	Capital investment
Hyundai Smart Index Alpha Securities Feeder Inv Trust 1	Hyundai Smart Index Alpha Securities Master Investment Trust		99.91	Korea	Dec. 31	Capital investment
Hyundai Value Plus Securities Feeder Investment Trust 1 and others	Hyundai Value Plus Securities Master Investment Trust		100.00	Korea	Dec. 31	Capital investment
Hyundai Dynamic Mix Securities Feeder Investment Trust	Hyundai Dynamic Mix Securities Master Investment Trust		99.02	Korea	Dec. 31	Capital investment
KB Securities Co., Ltd., KB Insurance Co., Ltd., KB Asset Management Co., Ltd.	KB Star Office Private Real Estate Investment Trust 4		51.96	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Insurance Co., Ltd., KB Investment Co., Ltd., KB Capital Co., Ltd.	KB Digital Innovation Investment Fund Limited partnership		62.40	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Insurance Co., Ltd., KB life Insurance Co., Ltd.	KB Hope Sharing BTL Private Special Asset3		46.00	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Insurance Co., Ltd., KB life Insurance Co., Ltd.	KB Senior Loan Private Fund3		37.39	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Insurance Co., Ltd.	Hanbando BTL Private Special Asset Fund 1st3		46.36	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Insurance Co., Ltd.	KB KBSTAR KTB 3Y Futures Inverse ETF		79.95	Korea	Dec. 31	Capital investment

F-210

Investor	Investee	Ownership interests(%)		Location	Date of financial statements	Industry
Kookmin Bank, KB Insurance Co., Ltd.	KB KBSTAR Mid-Long Term KTB Active ETF		63.16	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Securities Co., Ltd., KB Insurance Co., Ltd., KB life Insurance, KB Kookmin Card Co., Ltd., KB Capital Co., Ltd.	KB digital innovation&growth New Technology Business Investment Fund		100.00	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Securities Co., Ltd., KB Insurance Co., Ltd., KB life Insurance, KB Asset Management Co., Ltd.	KB Global Core Bond Securities Fund Master Fund(Bond)		100.00	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Securities Co., Ltd., KB Asset Management Co., Ltd.	KB Everyone TDF 2035 Securities Investment Trust—Bond Balanced-Fund of Funds3		37.62	Korea	Dec. 31	Financial investment
Kookmin Bank, KB Securities Co., Ltd., KB Asset Management Co., Ltd.	KB Everyone TDF 2045 Securities Investment Trust—Bond Balanced-Fund of Funds		54.06	Korea	Dec. 31	Financial investment
Kookmin Bank, KB Insurance Co., Ltd., KB Securities Co., Ltd., KB Real Estate Trust Co., Ltd.	KB Wise Star Private Real Estate Feeder Fund 1st.		100.00	Korea	Dec. 31	Investment trust
Kookmin Bank, KB Investment Co., Ltd., KB Capital Co., Ltd.	KB Intellectual Property Fund 2		75.00	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Investment Co., Ltd.	KB12-1 Venture Investment		100.00	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Investment Co., Ltd.	KB Start-up Creation Fund		62.50	Korea	Dec. 31	Capital investment
Kookmin Bank, KB Investment Co., Ltd.	KB Intellectual Property Fund4		34.00	Korea	Dec. 31	Capital investment
Kookmin Bank, KB life Insurance Co., Ltd.	KB Mezzanine Private Securities Fund 2nd3		40.74	Korea	Dec. 31	Capital investment

F-211

Investor	Investee	Ownership interests(%)		Location	Date of financial statements	Industry
Kookmin Bank, KB Insurance Co., Ltd., KB life Insurance, KB Investment Co., Ltd.	KB High-tech Company Investment Fund		100.00	Korea	Dec. 31	Capital investment
KB Insurance Co., Ltd., KB life Insurance Co., Ltd., KB Investment Co., Ltd.	KB-Solidus Global Healthcare Fund3		43.33	Korea	Dec. 31	Capital investment
KB Kookmin Card Co., Ltd., KB Capital Co., Ltd.	KB KOLAO LEASING CO., Ltd		80.00	Laos	Dec. 31	Auto installment finance
Mirae Asset Triumph Global Privately placed Feeder Investment Trust 1	Mirae Asset Triumph Global Privately placed Master Investment Trust 1		100.00	Korea	Dec. 31	Capital investment
Mangrove Feeder Fund	Mangrove Master Fund		100.00	Cayman islands	Dec. 31	Capital investment
LB Ireland Private Real Estate Investment Trust 8	BECKETT ACQUISITION LIMITED		100.00	Ireland	Dec. 31	Real Estate Activities
KB Securities Co., Ltd., KB Insurance Co., Ltd., KB Asset Management Co., Ltd.	KB Star Fund_KB Value Focus Korea Equity		95.45	Luxembourg	Dec. 31	Capital investment
KB Securities Co., Ltd., KB Investment Co., Ltd.	KB KONEX Market Vitalization Fund4		46.88	Korea	Dec. 31	Capital investment
KB Securities Co., Ltd., KB Investment Co., Ltd.	KB Neo Paradigm Agriculture Venture		50.00	Korea	Dec. 31	Capital investment
KB Securities Co., Ltd., KB Investment Co., Ltd.	KB New Paradigm Fisheries Venture Fund4		33.33	Korea	Dec. 31	Capital investment
KB Wise Star Private Real Estate Feeder Fund 1st.	KB Star Office Private Real Estate Master Investment Trust 25		44.44	Korea	Dec. 31	Capital investment
KB Wise Star Private Real Estate Feeder Fund 1st.	KB Star Office Private Real Estate Investment Trust 3		54.51	Korea	Dec. 31	Capital investment

F-212

Investor	Investee	Ownership interests(%)		Location	Date of financial statements	Industry
KB Star Short Term Securities Feeder Fund(Bond)	KB Star Short Term Securities Master Fund(Bond)		96.67	Korea	Dec. 31	Capital investment
KB Multi-Asset Private Securities Fund P-1(Bond Mixed)	KB Multi-Asset Private Securities Master Fund P-1(Bond Mixed)		100.00	Korea	Dec. 31	Investment trust
KB Global Core Bond Securities Master Fund(Bond)	KB Global Core Bond Securities Master Fund(Bond)		100.00	Korea	Dec. 31	Capital investment
KB Global Equity Solution Securities Feeder Fund(Equity-FoFs))	KB Global Equity Solution Securities Master Fund(Equity-FoFs)		100.00	Korea	Dec. 31	Capital investment
KB Global Multi Asset Income Securities Feeder Fund(Bond Mixed-FoFs)	KB Global Multi Asset Income Securities Master Fund(Bond Mixed-FoFs)		73.76	Korea	Dec. 31	Capital investment
KBFG Securities America Inc.	Global Investment Opportunity Limited		100.00	Malaysia	Dec. 31	Financial investment and Real Estate Activities
KB Onkookmin Life Income RIF 40 Feeder Fund(Fofs)	KB Onkookmin Life Income RIF 40 Master Fund(Fofs)		96.48	Korea	Dec. 31	Capital investment
KB Onkookmin Life Income RIF 20 Feeder Fund(Fofs)	KB Onkookmin Life Income RIF 20 Master Fund(Fofs)		96.14	Korea	Dec. 31	Capital investment
JB New Jersey Private Real Estate Investment Trust No. 1	ABLE NJ DSM INVESTMENT REIT		99.18	United States of America	Dec. 31	Real Estate Activities
HYUNDAI ABLE INVESTMENT REIT	HYUNDAI ABLE PATRIOTS PARK, LLC		100.00	United States of America	Dec. 31	Real Estate Activities
Aquila Global Real Assets Fund No.1 LP	AGRAF Real Estate No.1, Senningerberg		100.00	Luxembourg	Dec. 31	Asset-backed securitization
AGRAF Real Estate No.1, Senningerberg	AGRAF Real Estate Holding No.1, Senningerberg		100.00	Luxembourg	Dec. 31	Asset-backed securitization
AGRAF Real Estate Holding No.1, Senningerberg	Vierte CasaLog GmbH & Co. KG and 2 others		94.90	Germany	Dec. 31	Real Estate Activities
AGRAF Real Estate Holding No.1, Senningerberg	HD 1 Grundstucksgesellschaft mbH & Co. KG		94.90	Germany	Dec. 31	Real Estate Activities
AGRAF Real Estate Holding No.1, Senningerberg	Sechste Casalog KG		94.90	Germany	Dec. 31	Real Estate Activities

F-213

Investor	Investee	Ownership interests(%)		Location	Date of financial statements	Industry
Able Quant Asia Pacific Feeder Fund(T.E.) Limited	Able Quant Asia Pacific Master Fund Limited		100.00	Cayman islands	Dec. 31	Capital investment
ABLE NJ DSM INVESTMENT REIT	ABLE NJ DSM, LLC		100.00	United States of America	Dec. 31	Real Estate Activities
Kookmin Bank	Personal pension trusts and 10 other trusts1		—	Korea	Dec. 31	Trust

¹ The Group controls the trust because it has power that determines the management performance over the trust and is exposed to variable returns to absorb losses through the guarantees of payment of principal, or payment of principal and fixed rate of return.

² Although the Group holds less than a majority of the investee’s voting rights, the Group controls these investees as it has power over relevant activities in case of default; is significantly exposed to variable returns by providing lines of credit or ABCP purchase commitments or due to acquisition of subordinated debt; and has ability to affect those returns through its power.

³ Although the Group holds less than a majority of the investee’s voting rights, the Group controls the investee as it has power over relevant activities by managing the fund; has significant percentage of ownership; is significantly exposed to variable returns which is affected by the performance of the investees; and has ability to affect the performance through its power.

⁴ Although the Group holds less than a majority of the investee’s voting rights, the Group controls the investee as it has power over relevant activities by taking the role of an operating manager and it is significantly exposed to variable returns which is affected by the performance of the investees, and has ability to affect the performance through its power.

⁵ Although the Group holds less than a majority of the investee’s voting rights, the Group participated directly in establishment of this entity and has power over relevant activities, and is significantly exposed to variable returns which is affected by the performance of the investee, and has ability to affect the performance through its power. Accordingly the Group has control over the investee.

⁶ The Group changed Kookmin Bank Int’l Ltd. (London) to Kookmin Bank London Branch on May 16, 2018, and this event is categorized as business combination of entities under common control. The assets and liabilities acquired under business combinations under common control are recognized at the carrying amounts in the consolidated financial statements of the Group. The transferred assets and liabilities due to this business combination are ￦ 480,161 million and ￦ 480,023 million, respectively.

F-214

The condensed financial information of major subsidiaries as of December 31, 2017 and 2018, and for the years ended December 31, 2017 and 2018, is as follows:

	2017
	Assets		Liabilities		Equity		Operating income		Profit(loss) for the period			Total comprehensive income for the period
	(In millions of Korean won)
Kookmin Bank1	￦	329,765,927	￦	304,442,493	￦	25,323,434	￦	19,291,294	￦	2,174,705		￦	2,357,936
KB Securities Co., Ltd.1,2		37,351,680		32,936,024		4,415,656		5,974,054		271,701			236,587
KB Insurance Co., Ltd.1,2		32,351,778		29,128,747		3,223,031		8,740,682		330,286			320,756
KB Kookmin Card Co., Ltd.1		17,658,310		13,616,481		4,041,829		3,326,048		296,831			326,887
KB Life Insurance Co., Ltd.1		9,125,741		8,586,328		539,413		1,331,105		21,086			(10,151	)
KB Asset Management Co., Ltd.1		201,481		44,860		156,621		117,746		52,022			52,176
KB Capital Co., Ltd.1,2		8,743,672		7,803,920		939,752		588,253		120,797			120,628
KB Savings Bank Co., Ltd.		1,158,829		960,812		198,017		79,428		21,150			21,329
KB Real Estate Trust Co., Ltd.		246,685		47,355		199,330		76,700		36,408			36,356
KB Investment Co., Ltd.1		355,763		218,671		137,092		41,150		(4,954	)		(7,295	)
KB Credit Information Co., Ltd.		26,121		10,979		15,142		31,737		(5,316	)		(5,185	)
KB Data System Co., Ltd.		41,945		27,240		14,705		117,946		945			323

	2018
	Assets		Liabilities		Equity		Operating income		Profit(loss) for the period		Total comprehensive income for the period
	(In millions of Korean won)
Kookmin Bank1	￦	356,959,258	￦	330,291,392	￦	26,667,866	￦	18,089,885	￦	2,259,198	￦	2,186,979
KB Securities Co., Ltd.1,2		45,086,292		40,613,423		4,472,869		6,667,005		178,850		204,903
KB Insurance Co., Ltd.1,2		34,785,551		31,289,706		3,495,845		11,977,601		262,266		317,067
KB Kookmin Card Co., Ltd.1		20,528,951		16,570,280		3,958,671		3,045,039		286,599		261,667
KB Life Insurance Co., Ltd.1		9,680,379		9,128,148		552,231		1,305,231		14,824		25,062
KB Asset Management Co., Ltd.1		254,256		107,504		146,752		130,027		39,586		40,154
KB Capital Co., Ltd.1,2		9,517,239		8,516,838		1,000,401		734,499		111,939		111,758
KB Savings Bank Co., Ltd.		1,388,844		1,186,871		201,973		85,346		11,018		10,832
KB Real Estate Trust Co., Ltd.		293,063		57,229		235,834		114,660		47,004		46,813
KB Investment Co., Ltd.1		528,701		374,925		153,776		114,914		14,532		14,529
KB Credit Information Co., Ltd.		26,276		11,041		15,235		35,219		185		95
KB Data System Co., Ltd.		40,197		23,788		16,409		131,374		2,942		1,705

¹ Financial information is based on its consolidated financial statements.

² The amount includes the fair value adjustments due to the merger.

Nature of the risks associated with interests in consolidated structured entities

The terms of contractual arrangements to provide financial support to a consolidated structured entity

• The Group has provided payment guarantees of ￦3,227,444 million to KBD Tower 1st L.L.C. and other subsidiaries.

• The Group provides capital commitment to KB Wise Star Private Real Estate Feeder Fund 1st. and 13 other subsidiaries. The unexecuted amount of the investment agreement is ￦ 291,481 million. Based on the capital commitment, the Group is subject to increase its investment upon the request of the asset management company or the additional agreement among investors.

• The Group provides the guarantees of payment of principal, or principal and fixed rate of return in case the operating results of the trusts are less than the guaranteed principal, or principal and fixed rate of return.

F-215

Changes in subsidiaries

The subsidiaries newly included in consolidation during the year ended December 31, 2018, are as follows:

Company	Description
Tong Yang Safe Plus Qualified Private Trust S-8(Bond) and 24 others	Holds over than a majority of the ownership interests
KBD Tower 1st L.L.C. and 50 others	Holds the power in the case of default and exposed to variable returns by providing lines of credit, ABCP purchase commitments or acquiring subordinated debt
KB Global Private Real Estate Debt Fund 1 and 22 others	Holds the power to determine the operation of the trust and exposed to variable returns by holding significant amount of ownership interests
KB Pre IPO Secondary Venture Fund 2nd and 5 other	The Group has a power over the investee as a general partner, is significantly exposed to variable returns due to significant percentage of ownership.

The subsidiaries excluded from consolidation during the year ended December 31, 2018, are as follows:

Company	Description
Able Vison 1st Co., Ltd and 27 others	Lost the right of variable returns due to the releasing debt
Wise Mobile 12th Securitization Co., Ltd. and 14 others	Settlement
LIME ORANGE PRIVATE EQUITY FUND 6 and 8 others	Disposal
KB Everyone TDF 2025 Securities Investment Trust - Bond Balanced-Fund of Funds and 10 others	Ownership decrease under 50%

F-216

41. Unconsolidated Structured Entity

The nature, purpose and activities of the unconsolidated structured entities and how the structured entities are financed, are as follows:

Nature	Purpose	Activity	Method of Financing
Asset-backed securitization	Early cash generation through transfer of securitization assets Fees earned as services to SPC, such as providing lines of credit and ABCP purchase commitments	Fulfillment of Asset-backed securitization plan Purchase and transfer of securitization assets Issuance and repayment of ABS and ABCP	Issuance of ABS and ABCP based on securitization assets
Project Financing	Granting PF loans to SOC and real estate Granting loans to ships/aircrafts SPC	Construction of SOC and real estate Building ships/ construction and purchase of aircrafts	Loan commitments through Credit Line, providing lines of credit and investment agreements
Trust	Management of financial trusts; —Development trust —Mortgage trust —Management trust —Disposal trust —Distribution and management trust —Other trusts	Development, management, and disposal of trusted real estate assets Payment of trust fees and allocation of trust profits.	Distribution of trusted real estate assets and financing of trust company Public auction of trusted real estate assets and financing of trust company
Investment funds	Investment in beneficiary certificates Investment in PEF and partnerships	Management of fund assets Payment of fund fees and allocation of fund profits	Sales of beneficiary certificate instruments Investment of managing partners and limited partners

F-217

Details of scale of unconsolidated structured entities and nature of the risks associated with the Group’s interests in unconsolidated structured entities as of December 31, 2017 and 2018, are as follows:

	2017
	Asset-backed securitization		Project financing		Trusts		Funds		Others		Total
	(In millions of Korean won)
Total assets of unconsolidated Structured Entity	￦	128,573,461	￦	33,153,741	￦	482,900	￦	101,598,227	￦	9,613,570	￦	273,421,899
Carrying amount on financial statements
Assets
Financial assets at fair value through profit or loss		2,277,080		73,157		—		547,258		—		2,897,495
Derivative financial assets		1,136		—		—		118		—		1,254
Loans		833,380		3,366,675		54,500		266,653		393,664		4,914,872
Financial investments		6,826,097		13,104		300		5,788,925		20,619		12,649,045
Investment in associates and joint ventures		—		—		—		202,816		—		202,816
Other assets		11,699		5,874		37,972		962		307		56,814
Total	￦	9,949,392	￦	3,458,810	￦	92,772	￦	6,806,732	￦	414,590	￦	20,722,296
Liabilities
Deposits	￦	484,889	￦	755,242	￦	—	￦	38,657	￦	3,985	￦	1,282,773
Derivative financial liabilities		1,487		—		—		2,792		—		4,279
Other liabilities		11,292		44		—		48		—		11,384
Total	￦	497,668	￦	755,286	￦	—	￦	41,497	￦	3,985	￦	1,298,436
Maximum exposure to loss1
Holding assets	￦	9,949,392	￦	3,458,810	￦	92,772	￦	6,806,732	￦	414,590	￦	20,722,296
Purchase and investment commitments		964,106		—		—		1,301,784		—		2,265,890
Unused credit		2,299,236		10,000		—		1,203,917		16,000		3,529,153
Payment guarantee and loan commitments		382,300		1,385,722		—		—		—		1,768,022
Total	￦	13,595,034	￦	4,854,532	￦	92,772	￦	9,312,433	￦	430,590	￦	28,285,361
Methods of determining the maximum exposure to loss		Providing lines of credit and purchase commitments		Loan commitments / investment agreements / purchase commitments and acceptances and guarantees		Dividends by results trust: Total amount of trust exposure		Investments / loans and capital commitments		Loan commitments

F-218

	2018
	Asset-backed securitization		Project financing		Trusts		Funds		Others		Total
	(In millions of Korean won)
Total assets of unconsolidated Structured Entity	￦	127,085,417	￦	29,521,240	￦	519,609	￦	121,481,888	￦	12,409,277	￦	291,017,431
Carrying amount on financial statements
Assets
Financial assets at fair value through profit or loss		3,846,725		111,452		—		7,934,662		17,915		11,910,754
Derivative financial assets		4,089		—		—		23,794		—		27,883
Loans at amortized cost		956,733		3,015,613		34,000		391,665		650,833		5,048,844
Financial investments		6,040,008		—		—		8,636		—		6,048,644
Investment in associates and joint ventures		—		—		—		258,594		—		258,594
Other assets		16,837		1,680		109,357		48,872		248		176,994
Total	￦	10,864,392	￦	3,128,745	￦	143,357	￦	8,666,223	￦	668,996	￦	23,471,713
Liabilities
Deposits	￦	526,274	￦	728,324	￦	—	￦	81,502	￦	7,757	￦	1,343,857
Derivative financial liabilities		1,285		—		—		6,232		—		7,517
Other liabilities		28,461		1,246		—		59		—		29,766
Total	￦	556,020	￦	729,570	￦	—	￦	87,793	￦	7,757	￦	1,381,140
Maximum exposure to loss1
Holding assets	￦	10,864,392	￦	3,128,745	￦	143,357	￦	8,666,223	￦	668,996	￦	23,471,713
Purchase and investment commitments		1,094,489		—		—		3,345,947		—		4,440,436
Unused credit		2,211,226		6,789		—		1,450		—		2,219,465
Payment guarantee and loan commitments		889,315		1,213,261		—		—		—		2,102,576
Total	￦	15,059,422	￦	4,348,795	￦	143,357	￦	12,013,620	￦	668,996	￦	32,234,190
Methods of determining the maximum exposure to loss		Providing lines of credit and purchase commitments		Loan commitments / investment agreements / purchase commitments and acceptances and guarantees		Dividends by results trust: Total amount of trust exposure		Investments / loans and capital commitments		Loan commitments

¹ Maximum exposure to loss includes the asset amounts, after deducting loss(provision for assets, impairment losses and others), recognized in the financial statements of the Group.

F-219

42. Finance and Operating Lease

42.1 Finance lease

42.1.1 The Group as finance lessee

The future minimum lease payments arising as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Net carrying amount of finance lease assets	￦	29,817	￦	34,003
Minimum lease payment
Within 1 year		2,555		6,827
1-5 years		2,150		3,553
Total		4,705		10,380
Present value of minimum lease payment
Within 1 year		2,510		6,705
1-5 years		2,059		3,456
Total		4,569		10,161

42.1.2 The Group as finance lessor

Total lease investment and the present value of minimum lease payments as of December 31, 2017 and 2018, are as follows:

	2017				2018
	Total lease investment		Present value of minimum lease payment		Total lease investment		Present value of minimum lease payment
	(In millions of Korean won)
Within 1 year	￦	654,412	￦	557,188	￦	710,532	￦	618,169
1-5 years		1,330,610		1,215,476		1,225,265		1,121,063
Total	￦	1,985,022	￦	1,772,664	￦	1,935,797	￦	1,739,232

Unearned interest income of finance lease as of December 31, 2017 and 2018, is as follows:

	2017		2018
	(In millions of Korean won)
Total lease investment	￦	1,985,022	￦	1,935,797
Net lease investment
Present value of minimum lease payment		1,772,664		1,739,232
Unearned interest income	￦	212,358	￦	196,565

F-220

42.2 Operating lease

42.2.1 The Group as operating lessee

The future minimum lease payments arising from the non-cancellable lease contracts as of December 31, 2017 and 2018, are as follows:

	2017			2018
	(In millions of Korean won)
Minimum lease payment
Within 1 year	￦	168,707		￦	179,384
1-5 years		196,050			299,900
Over 5 years		34,128			111,906
Total	￦	398,885		￦	591,190
Minimum sublease payment	￦	(3,101	)	￦	(6,561	)

The lease payment reflected in profit or loss for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016			2017			2018
	(In millions of Korean won)
Lease payment reflected in profit or loss
Minimum lease payment	￦	197,444		￦	208,413		￦	221,305
Sublease payment		(1,026	)		(2,441	)		(1,804	)
Total	￦	196,418		￦	205,972		￦	219,501

42.2.2 The Group as operating lessor

The future minimum lease receipts arising from the non-cancellable lease contracts as of December 31, 2017 and 2018, are as follows:

	2017		2018
	(In millions of Korean won)
Minimum lease receipts
Within 1 year	￦	163,203	￦	304,204
1-5 years		375,344		985,097
Over 5 years		282,470		280,084
Total	￦	821,017	￦	1,569,385

F-221

43. Related Party Transactions

Profit and loss arising from transactions with related parties for the years ended December 31, 2016, 2017 and 2018, are as follows:

		2016		2017		2018
		(In millions of Korean won)
Associates and Joint Ventures
KB Insurance Co., Ltd.1	Interest income	￦	63	￦	12	￦	—
	Interest expense		1,057		202		—
	Fee and commission income		20,321		8,994		—
	Fee and commission expense		508		1,021		—
	Gains on financial assets/liabilities at fair value through profit or loss(under IAS 39)		4,822		796		—
	Losses on financial assets/liabilities at fair value through profit or loss(under IAS 39)		3,701		18,717		—
	Other operating income		12,972		16,743		—
	Other operating expense		6,406		633		—
	General and administrative expenses		14,244		5,601		—
	Reversal for credit loss		119		—		—
	Provision for credit losses		—		12		—
	Other non-operating income		110		51		—
	Other non-operating expense		74		—		—
Balhae Infrastructure Fund	Fee and commission income		8,440		7,162		6,691
Korea Credit Bureau Co., Ltd.	Interest expense		92		132		127
	Fee and commission income		1,648		1,374		1,194
	Fee and commission expense		1,948		2,645		1,909
	General and administrative expenses		1,968		2,202		—
	Provision for credit losses		—		1		—
	Other operating expense		—		—		4
UAMCO., Ltd.	Interest expense		1		—		—
	Fee and commission income		5		—		—
KoFC KBIC Frontier Champ 2010-5(PEF)	Fee and commission income		457		216		197
United PF 1st Recovery Private Equity Fund 1	Interest expense		1		—		—
KB GwS Private Securities Investment Trust	Fee and commission income		896		851		851
IMM Investment 5th PRIVATE EQUITY FUND1	Other non-operating expense		1		—		—
Incheon Bridge Co., Ltd.	Interest income		14,534		25,511		9,426
	Interest expense		369		292		296
	Fee and commission income		—		—		9
	Fee and commission expense		—		—		2
	Insurance income		—		162		365
	Reversal for credit losses		—		43		6
	Provision for credit losses		31		—		1
Jaeyang Industry Co., Ltd.	Interest income		—		98		—
	Reversal for credit losses		37		6		—
HIMS Co., Ltd.1	Interest income		51		—		—

F-222

		2016		2017		2018
		(In millions of Korean won)
KoFC POSCO HANHWA KB Shared Growth Private Equity Fund No. 2	Fee and commission income		212		481		210
	Interest expense		10		—		—
Aju Good Technology Venture Fund	Interest expense		4		14		30
KB Star Office Private Real Estate Investment Trust No.1	Interest income		371		370		370
	Interest expense		87		63		93
	Fee and commission income		436		435		435
	Provision for credit losses		—		3		—
RAND Bio Science Co., Ltd.	Interest expense		14		16		3
Inno Lending Co., Ltd. 1	Fee and commission income		—		3		1
	Interest expense		—		1		—
	Other non-operating expense		20		—		—
KBIC Private Equity Fund No. 31	Interest expense		12		—		—
	Fee and commission income		260		38		—
SY Auto Capital Co., Ltd.	Interest income		718		828		1,279
	Interest expense		19		22		—
	Fee and commission income		—		47		73
	Fee and commission expense		—		2,956		840
	Insurance income		—		29		33
	Other operating income		1,606		731		621
	Other operating expense		153		128		415
	Reversal for credit losses		—		32		—
	Provision for credit losses		61		—		14
	Other non-operating income		250		51		—
Kyobo 7 Special Purpose Acquisition Co., Ltd.1	Interest expense		—		1		—
Food Factory Co., Ltd.	Interest income		—		24		9
	Insurance income		—		3		5
	Fee and commission expense		—		—		1
	Gains on financial assets/liabilities at fair value through profit or loss		—		—		30
	Reversal for credit losses		—		—		1
	Provision for credit losses		—		44		1
KB Pre IPO Secondary Venture Fund 1st	Interest expense		—		60		27
	Fee and commission income		—		83		110
Builton Co., Ltd.	Interest income		—		—		4
	Insurance income		—		1		2
	Losses on financial assets/liabilities at fair value through profit or loss		—		—		1
KB Private Equity Fund III	Fee and commission income		—		457		521
Wise Asset Management Co., Ltd.	Interest expense		—		5		9

F-223

		2016		2017		2018
		(In millions of Korean won)
Acts Co., Ltd.	Interest income		—		249		—
	Insurance income		—		2		2
	Losses on financial assets/liabilities at fair value through profit or loss		—		—		1,851
	Losses on financial assets/liabilities at fair value through profit or loss (under IAS 39)		—		220		—
	Provision for credit losses		—		66		—
	General and administrative expenses		—		150		—
	Other non-operating expense		—		—		1,246
COBI Co., Ltd.1	Interest income		—		183		—
	Provision for credit losses		—		89		—
Dongjo Co., Ltd.	Reversal for credit losses		—		2		31
	Insurance income		—		—		2
A-PRO Co., Ltd.	Interest expense		—		—		1
	Insurance income		—		—		5
POSCO-KB Shipbuilding Fund	Fee and commission income		—		257		490
	Interest expense		—		3		81
Dae-A Leisure Co., Ltd.	Interest expense		—		1		9
Paycoms Co., Ltd.	Interest income		—		61		10
	Insurance income				—		1
	Gains on financial assets/liabilities at fair value through profit or loss				—		125
	Provision for credit losses		—		32		—
Bungaejangter. Inc.1	Interest income		—		31		60
	Provision for credit losses		—		44		—
Faromancorporation Co., Ltd.1	Reversal for credit losses		—		345		—
Daesang Techlon Co., Ltd.1	Insurance income		—		1		—
Big Dipper Co., Ltd.	Reversal for credit losses		—		—		2
	Provision for credit losses		—		2		—
KB-KDBC New Technology Business Investment Fund	Interest expense		—		4		39
	Fee and commission income		—		—		322
KBTS Technology Venture Private Equity Fund	Fee and commission income		—		—		305
KB-SJ Tourism Venture Fund	Fee and commission income		—		—		314
JLK INSPECTION Inc.	Interest income		—		—		6
TESTIAN Inc.	Interest income		—		—		4
	Gains on financial assets/liabilities at fair value through profit or loss		—		—		83
Rainist Co., Ltd.	Interest expense		—		—		2
IWON ALLOY CO., LTD.	Insurance income		—		—		1
RMGP Bio-Pharma Investment Fund, L.P.	Other non-operating income		—		—		10
Hasys.	Losses on financial assets/liabilities at fair value through profit or loss		—		—		136
	Insurance income		—		—		4
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund	Interest expense		—		—		21
	Fee and commission income		—		—		108
Spark Biopharma, Inc.	Interest expense		—		—		25

F-224

		2016		2017		2018
		(In millions of Korean won)
KB No.5 Special Purpose Acquisition Company	Interest income		68		—		—
	Interest expense		19		—		—
	Fee and commission income		—		—		—
	Gains on financial assets/liabilities at fair value through profit or loss(under IAS 39)		216		—		—
	Losses on financial assets/liabilities at fair value through profit or loss(under IAS 39)		—		—		—
	Reversal for credit loss		29		—		—
	Provision for credit loss		—		—		—
	Other non-operating income		2		—		—
KB No.6 Special Purpose Acquisition Company	Interest income		55		—		—
	Interest expense		14		—		—
	Losses on financial assets/liabilities at fair value through profit or loss(under IAS 39)		65		—		—
	Other non-operating expense		4		—		—
KB No.7 Special Purpose Acquisition Company	Interest income		37		—		—
	Interest expense		18		—		—
	Fee and commission income		—		—		—
	Gains on financial assets/liabilities at fair value through profit or loss(under IAS 39)		861		—		—
	Other non-operating income		40		—		—
KB No.8 Special Purpose Acquisition Company 1	Interest income		74		75		—
	Interest expense		35		36		17
	Losses on financial assets/liabilities at fair value through profit or loss		—		—		2,330
	Losses on financial assets/liabilities at fair value through profit or loss (under IAS 39)		41		170		—
	Reversal for credit loss		50		—		—
KB No.9 Special Purpose Acquisition Company	Interest income		73		76		—
	Interest expense		40		33		43
	Fee and commission income		473		—		—
	Losses on financial assets/liabilities at fair value through profit or loss		—		—		2,256
	Losses on financial assets/liabilities at fair value through profit or loss (under IAS 39)		392		200		—
	Gains on financial assets/liabilities at fair value through profit or loss		—		—		48
	Gains on financial assets/liabilities at fair value through profit or loss (under IAS 39)		1,665		—		—
	Reversal for credit loss		49		—		—

F-225

		2016		2017		2018
		(In millions of Korean won)
KB No.10 Special Purpose Acquisition Company	Interest income		17		48		—
	Interest expense		8		24		30
	Fee and commission income		175		—		—
	Losses on financial assets/liabilities at fair value through profit or loss (under IAS 39)		—		103		—
	Gains on financial assets/liabilities at fair value through profit or loss		—		—		121
	Gains on financial assets/liabilities at fair value through profit or loss (under IAS 39)		1,497		—		—
	Other non-operating income		5		—		—
KB No.11 Special Purpose Acquisition Company	Interest income		3		22		—
	Interest expense		—		—		12
	Fee and commission income		—		150		—
	Gains on financial assets/liabilities at fair value through profit or loss		—		—		56
	Gains on financial assets/liabilities at fair value through profit or loss(under IAS 39)		16		711		—
Hyundai-Tongyang Agrifood Private Equity Fund1	Fee and commission income		—		187		151
KB IGen Private Equity Fund No.1	Fee and commission income		—		1,266		—
Keystone-Hyundai Securities No. 1 Private Equity Fund	Fee and commission income		22		94		116
MJT&I Co., Ltd.	Interest income		2		—		—
Doosung Metal Co., Ltd.	Interest income		1		—		—
	Insurance income		—		1		1
Other
Retirement pension	Interest expense		749		3		3
	Fee and commission income		717		795		876

Meanwhile, the Group purchased installment financial assets from SY Auto Capital Co., Ltd. amounts to ￦ 838,010 million and ￦ 881,502 million for the years ended December 31, 2017 and 2018

F-226

Details of receivables and payables, and related allowances for loan losses arising from the related party transactions as of December 31, 2017 and 2018, are as follows:

		2017		2018
		(In millions of Korean won)
Associates and joint ventures
Balhae Infrastructure Fund	Other assets	￦	1,669	￦	1,708
Korea Credit Bureau Co., Ltd.	Loans at amortized cost (Gross amount)		22		22
	Deposits		25,513		15,674
	Provisions		1		—
	Other liabilities		469		98
KB GwS Private Securities Investment Trust	Other assets		641		641
Incheon Bridge Co., Ltd.	Financial assets at fair value through profit or loss		—		32,882
	Loans at amortized cost (Gross amount)		200,414		158,206
	Allowances for loan losses		288		15
	Other assets		710		736
	Deposits		48,795		43,666
	Provisions		3		10
	Insurance contract liabilities		189		113
	Other liabilities		29		24
KoFC POSCO HANHWA KB Shared Growth Private Equity Fund No. 2	Other assets		176		90
Terra Co., Ltd.	Deposits		10		—
Jungdo Co., Ltd.	Deposits		4		4
Dongjo Co., Ltd.	Loans at amortized cost (Gross amount)		116		—
	Allowances for loan losses		1		—
	Insurance contract liabilities		—		2
Dae-A Leisure Co., Ltd.	Deposits		466		1,229
	Other liabilities		14		7
Aju Good Technology Venture Fund	Deposits		2,771		6,439
	Other liabilities		1		2
Jungdong Steel Co., Ltd.	Deposits		3		—
Doosung Metal Co., Ltd.	Deposits		—		3
	Insurance contract liabilities		1		—
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund	Deposits		—		18,813
	Other liabilities		—		7
KB Star Office Private Real Estate Investment Trust No.1	Loans at amortized cost (Gross amount)		10,000		10,000
	Allowances for loan losses		3		4
	Other assets		136		136
	Deposits		6,962		7,946
	Other liabilities		45		58
KB IGen Private Equity Fund No.1	Deposits		—		148
RAND Bio Science Co., Ltd.	Deposits		1,032		232
	Loans at amortized cost (Gross amount)		1		1
	Other liabilities		4		—
Inno Lending Co., Ltd.1	Loans at amortized cost (Gross amount)		2		—
	Deposits		41		—

F-227

		2017		2018
		(In millions of Korean won)
SY Auto Capital Co., Ltd.	Loans at amortized cost (Gross amount)		40,057		48,356
	Allowances for loan losses		—		18
	Other assets		51		94
	Deposits		6		5
	Provisions		29		11
	Insurance contract liabilities		8		6
	Other liabilities		349		102
Food Factory Co., Ltd.	Financial assets at fair value through profit or loss		—		530
	Loans at amortized cost (Gross amount)		679		200
	Allowances for loan losses		44		1
	Other assets		1		1
	Deposits		1		68
	Insurance contract liabilities		3		3
KB Pre IPO Secondary Venture Fund 1st	Other assets		28		—
	Deposits		2,690		1,115
	Other liabilities		6		1
Builton Co., Ltd.	Other assets		—		1
	Financial assets at fair value through profit or loss		—		399
	Loans at amortized cost (Gross amount)		1		2
	Deposits		26		7
	Insurance contract liabilities		1		1
Wise Asset Management Co., Ltd.	Deposits		340		696
	Other liabilities		1		2
Acts Co., Ltd.	Loans at amortized cost (Gross amount)		1,927		—
	Allowances for loan losses		161		—
	Intangible assets		1,275		530
	Deposits		4		29
	Insurance contract liabilities		1		—
	Other liabilities		—		530
POSCO-KB Shipbuilding Fund	Other assets		123		—
Bungaejanter. Inc.1	Loans at amortized cost (Gross amount)		425		—
	Allowances for loan losses		36		—
Paycoms Co., Ltd.	Other assets		—		1
	Financial assets at fair value through profit or loss		—		1,032
	Loans at amortized cost (Gross amount)		1,066		—
	Allowances for loan losses		89		—
	Deposits		—		1
Daesang Techlon Co., Ltd.1	Deposits		2		—
Big Dipper Co., Ltd.	Loans at amortized cost (Gross amount)		6		5
	Deposits		473		182
	Provisions		2		—
KB-KDBC New Technology Business Investment Fund	Deposits		7,500		7,088
	Other liabilities		4		3
A-PRO Co., Ltd.	Insurance contract liabilities		—		2
	Deposits		—		2,201
JLK INSPECTION Inc.	Financial assets at fair value through profit or loss		—		7,300

F-228

		2017		2018
		(In millions of Korean won)
TESTIAN Inc.	Other assets		—		1
	Financial assets at fair value through profit or loss		—		615
IWON ALLOY CO., LTD.	Insurance contract liabilities		—		2
CARLIFE CO., LTD.	Deposits		—		2
COMPUTERLIFE CO., LTD.	Deposits		—		1
RMGP Bio-Pharma Investment Fund, L.P.	Financial assets at fair value through profit or loss		—		3,051
	Other liabilities		—		35
RMGP Bio-Pharma Investment, L.P.	Financial assets at fair value through profit or loss		—		4
Hasys.	Financial assets at fair value through profit or loss		—		5,864
	Insurance contract liabilities		—		29
SKYDIGITAL INC	Deposits		—		16
Rainist Co., Ltd.	Financial assets at fair value through profit or loss		—		2,504
	Deposits		—		1
Spark Biopharma, Inc.	Financial assets at fair value through profit or loss		—		6,500
	Deposits		—		2,630
	Other liabilities		—		19
HEYBIT, Inc.,	Financial assets at fair value through profit or loss		—		250
Stratio, Inc.	Financial assets at fair value through profit or loss		—		1,000
KB No.8 Special Purpose Acquisition Company1	Derivative financial assets		2,122		—
	Loans at amortized cost (Gross amount)		2,296		—
	Deposits		2,339		—
	Other liabilities		19		—
KB No.9 Special Purpose Acquisition Company	Financial assets at fair value through profit or loss		—		2,481
	Derivative financial assets		2,241		—
	Loans at amortized cost (Gross amount)		2,356		—
	Deposits		2,309		2,275
	Other liabilities		38		42
KB No.10 Special Purpose Acquisition Company	Financial assets at fair value through profit or loss		—		2,025
	Derivative financial assets		1,930		1,659
	Loans at amortized cost (Gross amount)		1,603		—
	Deposits		1,698		1,666
	Other liabilities		10		11
KB No.11 Special Purpose Acquisition Company	Financial assets at fair value through profit or loss		—		737
	Derivative financial assets		846		873
	Loans at amortized cost (Gross amount)		697		—
	Deposits		530		658
	Other liabilities		—		2

F-229

		2017		2018
		(In millions of Korean won)
Key management	Loans at amortized cost (Gross amount)		1,665		2,338
	Other assets		2		2
	Deposits		8,707		10,828
	Insurance contract liabilities		809		1,092
	Other liabilities		124		178
Other
Retirement pension	Other assets		348		331
	Other liabilities		10,056		25,238

¹  The amounts are not disclosed as the entity is excluded from the Group’s related party as of December 31, 2018.

According to IAS 24, the Group includes associates, key management (including family members), and post-employment benefit plans of the Group and its related party companies in the scope of related parties. Additionally, the Group discloses balances (receivables and payables) and other amounts arising from the related party transactions in the notes to the consolidated financial statements. Refer to Note 13 for details on investments in associates and joint ventures.

Significant lending transactions with related parties for the years ended December 31, 2017 and 2018, are as follows:

	20171
	Beginning		Increase		Decrease			Ending
	(In millions of Korean won)
Associates
KB Insurance Co., Ltd.2	￦	6,791	￦	—	￦	(6,791	)	￦	—
Korea Credit Bureau Co., Ltd.		14		8		—			22
Incheon Bridge Co., Ltd.		209,105		202,503		(211,194	)		200,414
Dongjo Co., Ltd.		—		116		—			116
Jaeyang Industry Co., Ltd.		303		—		(303	)		—
KB Star Office Private Real Estate Investment Trust No.1		10,000		—		—			10,000
RAND Bio Science Co., Ltd.		1		—		—			1
Inno Lending Co., Ltd.2		—		2		—			2
SY Auto Capital Co., Ltd.		30,049		44,039		(34,031	)		40,057
Food Factory Co., Ltd.		—		700		(21	)		679
Builton Co., Ltd.		—		1		—			1
Acts Co., Ltd.		—		1,927		—			1,927
Bungaejanter. Inc.2		—		425		—			425
Paycoms Co., Ltd.		—		1,066		—			1,066
Big Dipper Co., Ltd.		—		6		—			6
KB No.8 Special Purpose Acquisition Company2		2,490		—		(194	)		2,296
KB No.9 Special Purpose Acquisition Company		2,584		—		(228	)		2,356
KB No.10 Special Purpose Acquisition Company		1,495		295		(187	)		1,603
KB No.11 Special Purpose Acquisition Company		790		—		(93	)		697
Key management		1,982		—		(317	)		1,665

F-230

	20181
	Beginning		Increase		Decrease			Ending
	(In millions of Korean won)
Associates
Korea Credit Bureau Co., Ltd.	￦	22	￦	22	￦	(22	)	￦	22
Incheon Bridge Co., Ltd.		200,414		5,388		(14,714	)		191,088
Dongjo Co., Ltd.		116		—		(116	)		—
KB Star Office Private Real Estate Investment Trust No.1		10,000		—		—			10,000
RAND Bio Science Co., Ltd.		1		1		(1	)		1
Inno Lending Co., Ltd.2		2		—		(2	)		—
SY Auto Capital Co., Ltd.		40,057		50,109		(41,810	)		48,356
Food Factory Co., Ltd.		679		51		—			730
Builton Co., Ltd.		1		402		(2	)		401
Acts Co., Ltd.		1,927		—		(1,927	)		—
Bungaejanter. Inc.2		425		—		(425	)		—
Paycoms Co., Ltd.		1,066		1,032		(1,066	)		1,032
Big Dipper Co., Ltd.		6		5		(6	)		5
JLK INSPECTION Inc.		—		7,300		—			7,300
TESTIAN Inc.		—		615		—			615
RMGP Bio-Pharma Investment Fund, L.P.		—		3,051		—			3,051
RMGP Bio-Pharma Investment, L.P.		—		4		—			4
Hasys.		—		6,000		(136	)		5,864
Rainist Co., Ltd.		—		2,504		—			2,504
Spark Biopharma, Inc.		—		6,500		—			6,500
HEYBIT, Inc.,		—		250		—			250
Stratio, Inc.		—		1,000		—			1,000
KB No.8 Special Purpose Acquisition Company2		2,296		—		(2,296	)		—
KB No.9 Special Purpose Acquisition Company		2,356		2,481		(2,356	)		2,481
KB No.10 Special Purpose Acquisition Company		1,603		2,025		(1,603	)		2,025
KB No.11 Special Purpose Acquisition Company		697		737		(697	)		737
Key management		1,665		1,509		(836	)		2,338

¹  Transactions from operating activities with related parties (i.e. such as settlement, daily overdraft loans, etc.) are excluded.

² Excluded from the Group’s related party as of December 31, 2018.

F-231

Significant borrowing transactions with related parties for the years ended December 31, 2017 and 2018, are as follows:

	2017
	Beginning		Borrowing		Repayment			Others1			Ending
	(In millions of Korean won)
Associates
Korea Credit Bureau Co., Ltd.	￦	26,827	￦	11,000	￦	(6,000	)	￦	(6,314	)	￦	25,513
Incheon Bridge Co., Ltd.		38,556		1,270		(21,270	)		30,239			48,795
Terra Co., Ltd.		—		—		—			10			10
Jungdong Steel Co., Ltd.		3		—		—			—			3
Jungdo Co., Ltd.		—		—		—			4			4
Dae-A Leisure Co., Ltd.		—		—		—			466			466
Daesang Techlon Co., Ltd.2		—		—		—			2			2
Aju Good Technology Venture Fund		1,201		—		—			1,570			2,771
KB Pre IPO Secondary Venture Fund 1st		—		—		—			7,500			7,500
Ejade Co., Ltd.2		2		—		—			(2	)		—
KB Star office Private real estate Investment Trust No.1		6,682		303		—			(23	)		6,962
KB No.8 Special Purpose Acquisition Company2		2,342		2,300		(2,300	)		(3	)		2,339
KB No.9 Special Purpose Acquisition Company		2,399		—		(100	)		10			2,309
KB No.10 Special Purpose Acquisition Company		1,754		1,618		(1,600	)		(74	)		1,698
KB No.11 Special Purpose Acquisition Company		—		530		—			—			530
SY Auto Capital Co., Ltd.		3,997		2,000		(2,000	)		(3,991	)		6
RAND Bio Science Co., Ltd.		2,356		1,000		(2,500	)		176			1,032
Wise Asset Management Co., Ltd.		—		1,346		(1,475	)		469			340
Builton Co., Ltd.		—		—		—			26			26
Food Factory Co., Ltd.		—		—		—			1			1
Acts Co., Ltd.		—		—		—			4			4
Big Dipper Co., Ltd.		—		—		—			473			473
KB Pre IPO Secondary Venture Fund 1st		—		13,000		(11,000	)		690			2,690
POSCO-KB Shipbuilding Fund		—		3,000		(3,000	)		—			—
Inno Lending Co., Ltd.2		1,902		—		—			(1,861	)		41
KBIC Private Equity Fund No. 32		700		—		(700	)		—			—

F-232

	2018
	Beginning		Borrowing		Repayment			Others1			Ending
	(In millions of Korean won)
Associates
Korea Credit Bureau Co., Ltd.	￦	25,513	￦	8,000	￦	(16,000	)	￦	(1,839	)	￦	15,674
Incheon Bridge Co., Ltd.		48,795		1,260		(1,270	)		(5,119	)		43,666
Terra Co., Ltd.		10		—		—			(10	)		—
Jungdong Steel Co., Ltd.		3		—		—			(3	)		—
Doosung Metal Co., Ltd		—		—		—			3			3
Jungdo Co., Ltd.		4		—		—			—			4
Dae-A Leisure Co., Ltd.		466		479		(466	)		750			1,229
Daesang Techlon Co., Ltd.2		2		—		—			(2	)		—
CARLIFE CO., LTD.		—		—		—			2			2
COMPUTERLIFE CO., LTD.		—		—		—			1			1
SKYDIGITAL INC		—		—		—			16			16
Aju Good Technology Venture Fund		2,771		—		—			3,668			6,439
KB-KDBC New Technology Business Fund		7,500		—		—			(412	)		7,088
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		—		—		—			18,813			18,813
KB Star Office Private Real Estate Investment Trust No.1		6,962		351		—			633			7,946
SY Auto Capital Co., Ltd.		6		—		—			(1	)		5
KB No.8 Special Purpose Acquisition Company2		2,339		—		(2,300	)		(39	)		—
KB No.9 Special Purpose Acquisition Company		2,309		2,266		(2,234	)		(66	)		2,275
KB No.10 Special Purpose Acquisition Company		1,698		1,618		(1,618	)		(32	)		1,666
KB No.11 Special Purpose Acquisition Company		530		530		(530	)		128			658
RAND Bio Science Co., Ltd.		1,032		—		(500	)		(300	)		232
Wise Asset Management Co., Ltd.		340		2,366		(2,008	)		(2	)		696
Builton Co., Ltd.		26		—		—			(19	)		7
Food Factory Co., Ltd.		1		—		—			67			68
Acts Co., Ltd.		4		—		—			25			29
Paycoms Co., Ltd.		—		—		—			1			1
Big Dipper Co., Ltd.		473		—		—			(291	)		182
A-PRO Co., Ltd.		—		—		—			2,201			2,201
Rainist Co., Ltd.		—		—		—			1			1
Spark Biopharma, Inc.		—		4,300		(3,300	)		1,630			2,630
KB IGen Private Equity Fund No.1		—		—		—			148			148
KB Pre IPO Secondary Venture Fund 1st		2,690		2,000		(4,000	)		425			1,115
POSCO-KB Shipbuilding Fund		—		32,800		(32,800	)		—			—
Inno Lending Co., Ltd.2		41		—		—			(41	)		—
Key management3		8,260		7,587		(5,283	)		264			10,828

¹ Transactions from operating activities with related parties (i.e. such as settlement, deposit on demand, etc.) are netted.

² Excluded from the Group’s related party as of December 31, 2018.

³  Represents the transactions have started occurring since the current year.

F-233

Significant investment and collection transaction with related parties for the year ended December 31, 2018 is as follows:

	2018
	Equity investments		Withdrawal and others
	(In millions of Korean won)
Korea Credit Bureau Co., Ltd.	￦	—	￦	113
Balhae Infrastructure Company		4,645		8,623
Daesang Techlon Co., Ltd.1		—		42
PT Bank Bukopin TBK		116,422		—
KoFC KBIC Frontier Champ 2010-5(PEF)		—		4,800
KB GwS Private Securities Investment Trust		—		6,386
Aju Good Technology Venture Fund		9,808		—
KB-KDBC Pre-IPO New Technology Business Fund		10,000		—
KBTS Technology Venture Private Equity Fund		14,224		—
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		8,000		—
KB Star office Private real estate Investment Trust No.1		—		1,162
KB No.8 Special Purpose Acquisition Company1		—		5
Hyundai-Tongyang Agrifood Private Equity Fund1		—		82
KB IGen Private Equity Fund No.1		—		3
GH Real Estate I LP		17,678		—
KB-SJ Tourism Venture Fund		1,500		—
CUBE Growth Fund No.2		1,300		1,300
UNION Media Commerce Fund		1,000		—

¹ Excluded from the Group’s related party as of December 31, 2018.

F-234

Unused commitments to related parties as of December 31, 2017 and 2018, are as follows:

		2017		2018
		(In millions of Korean won)
Associates and joint ventures
Balhae Infrastructure Fund	Purchase of security investment	￦	12,564	￦	10,453
Korea Credit Bureau Co., Ltd.	Unused commitments of credit card		108		108
KoFC KBIC Frontier Champ 2010-5(PEF)	Purchase of security investment		2,150		2,150
KB GwS Private Securities Investment Trust	Purchase of security investment		876		876
Aju Good Technology Venture Fund	Purchase of security investment		11,768		1,960
Incheon Bridge Co., Ltd.	Loan commitments in Korean won		20,000		20,000
	Unused commitments of credit card		86		94
KoFC POSCO HANHWA KB Shared Growth Private Equity Fund No. 2	Purchase of security investment		12,550		12,550
SY Auto Capital Co., Ltd.	Loan commitments in Korean won		10,000		6,700
	Unused commitments of credit card		92		94
KB No.9 Special Purpose Acquisition Company	Unused commitments of credit card		1		1
KB No.10 Special Purpose Acquisition Company	Unused commitments of credit card		5		5
RAND Bio Science Co., Ltd.	Unused commitments of credit card		24		24
Builton Co., Ltd.	Unused commitments of credit card		4		3
Food Factory Co., Ltd.	Unused commitments of credit card		11		11
Inno Lending Co., Ltd.1	Unused commitments of credit card		13		—
Big Dipper Co., Ltd.	Unused commitments of credit card		94		95
KB-KDBC New Technology Business Investment Fund	Purchase of security investment		15,000		5,000
KBTS Technology Venture Private Equity Fund	Purchase of security investment		—		13,776
KB-SJ Tourism Venture Fund	Purchase of security investment		—		3,500
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund	Purchase of security investment		—		32,000
Key management	Loan commitments in Korean won		984		1,559

¹  Excluded from the Group’s related party as of December 31, 2018.

Compensation to key management for the years ended December 31, 2016, 2017 and 2018, are as follows:

	2016
	Short-term employee benefits		Post-employment benefits		Share-based payments		Total
	(In millions of Korean won)
Registered directors (executive)	￦	1,165	￦	63	￦	863	￦	2,091
Registered directors (non-executive)		796		—		—		796
Non-registered directors		6,637		208		8,776		15,621
Total	￦	8,598	￦	271	￦	9,639	￦	18,508
	2017
	Short-term employee benefits		Post-employment benefits		Share-based payments		Total
	(In millions of Korean won)
Registered directors (executive)	￦	2,026	￦	87	￦	2,991	￦	5,104
Registered directors (non-executive)		896		—		—		896
Non-registered directors		8,420		338		14,610		23,368
Total	￦	11,342	￦	425	￦	17,601	￦	29,368

F-235

	2018
	Short-term employee benefits		Post-employment benefits		Share-based payments		Total
	(In millions of Korean won)
Registered directors (executive)	￦	7,757	￦	418	￦	4,213	￦	12,388
Registered directors (non-executive)		960		—		—		960
Non-registered directors		7,135		273		3,314		10,722
Total	￦	15,852	￦	691	￦	7,527	￦	24,070

Collateral received from related parties as of December 31, 2017 and 2018, are as follows:

		2017		2018
		(In millions of Korean won)
Associates
KB Star Office Private Real Estate Investment Trust No.1	Real estate	￦	13,000	￦	13,000
Key management	Time deposits and others		388		401
	Real estate		2,287		3,182

As of December 31, 2018, Incheon Bridge Co., Ltd., a related party, provides fund management account, insurance for civil engineering completion, and management rights as senior collateral amounting to ￦ 611,000 million to a financial syndicate that consists of the Group and five other institutions, and as subordinated collateral amounting to ￦ 384,800 million to subordinated debt holders that consist of the Group and two other institutions. Also, it provides certificate of credit guarantee amounting to ￦ 400,000 million as collateral to a financial syndicate consisting of the Group and five other institutions.

44. Business Combination

On July 6, 2018, the Group obtained control over KB Daehan Specialized Bank (which was renamed from Tomato Specialized Bank in March 2018) in Cambodia by acquiring 90% share of interests.

Regarding the business combination above, the amounts of the consideration transferred and the assets and liabilities acquired at the acquisition date are as follows:

	2018
	(In millions of Korean won)
Consideration
Cash and cash equivalents	￦	21,654
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and Due from financial institutions		11,995
Loans at amortized cost		8,484
Property and equipment		765
Intangible assets		17
Other assets		1,389
Total Assets		22,650
Other liabilities		273
Total liabilities		273
Total identifiable net assets		22,377
Non-controlling interest		2,238
Goodwill		1,515

As a result of business combination goodwill has been recognized, and the Group has accounted for as an intangible asset in the consolidated financial statements.

F-236

45. Application of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers

The Group has applied IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers, which was issued on September 25, 2015, for the first time for their annual reporting period commencing January 1, 2018. Impact of the application of IFRS 9 and IFRS 15 on the Group’s consolidated financial statements is as follows:

The Group’s categories and carrying amounts of financial assets per IAS 39 and IFRS 9 as of the initial application date are as follows:

Measurement categories		Carrying amounts
December 31, 2017 (IAS 39)	January 1, 2018 (IFRS 9)	IAS 391		Reclassification			Remeasurement			IFRS 91
		(In millions of Korean won)
Cash and due from financial institutions	Financial assets at amortized cost	￦	19,817,825	￦	(2,795,301	)	￦	(1,797	)	￦	17,020,727
	Financial assets at fair value through profit or loss2		—		2,795,702			(12,881	)		2,782,821
	Sub-total		19,817,825		401			(14,678	)		19,803,548
Financial assets at fair value through profit or loss
Financial assets held for trading: debt securities	Financial assets at fair value through profit or loss		25,168,338		—			—			32,227,345
Financial assets held for trading: equity securities			4,935,100
Financial assets held for trading: others			73,855
Financial assets designated at fair value through profit or loss3			2,050,052
	Sub-total		32,227,345		—			—			32,227,345
Derivative financial instruments held for trading	Derivative financial instruments held for trading		2,998,042		(43,787	)		—			2,954,255
Derivative instruments designated for hedging	Derivative instruments designated for hedging		312,124		—			—			312,124
	Sub-total		3,310,166		(43,787	)		—			3,266,379
Loans	Financial assets at amortized cost		290,122,838		(608,156	)		(544,468	)		288,970,214
	Financial assets at fair value through profit or loss2		—		616,666			12,557			629,223
	Sub-total		290,122,838		8,510			(531,911	)		289,599,437

F-237

Measurement categories		Carrying amounts
December 31, 2017 (IAS 39)	January 1, 2018 (IFRS 9)	IAS 391		Reclassification			Remeasurement			IFRS 91
		(In millions of Korean won)
Financial investments
Available-for-sale financial assets: debt securities	Financial assets at fair value through other comprehensive income		38,959,401		(5,347,493	)		—			33,611,908
	Financial assets at fair value through profit or loss2		—		2,511,902			—			2,511,902
	Financial assets at amortized cost		—		2,835,591			4,118			2,839,709
Available-for-sale financial assets: equity securities	Financial assets measured at fair value through other comprehensive income		9,156,862		(6,789,392	)		275			2,367,745
	Financial assets at fair value through profit or loss2		—		6,800,720			(88	)		6,800,632
Held-to-maturity financial assets	Financial assets at amortized cost		18,491,980		(274,020	)		4,116			18,222,076
	Financial assets at fair value through profit or loss2		—		274,020			(4,359	)		269,661
	Sub-total		66,608,243		11,328			4,062			66,623,633
Other financial assets	Financial assets at amortized cost		10,195,015		(1,637	)		(5,085	)		10,188,293
	Total	￦	422,281,432	￦	(25,185	)	￦	(547,612	)	￦	421,708,635

¹  Net of allowance.

²  In accordance with IFRS 4, the Group has designated the financial assets related with insurance contract (cash and due from financial institutions amounting to ￦ 186,293 million, loans amounting to ￦ 587 million, available-for-sale financial assets amounting to ￦ 6,349,091 million, and held-to-maturity investments amounting to ￦ 57,386 million) to use overlay approach. Regarding the designated financial assets, the Group has reclassified the profit or loss amount that the Group would have applied ISA 39, instead of IFRS 9.

³  Financial assets amounting to ￦ 2,050,052 million under ISA 39, which were classified as financial assets designated at fair value through profit or loss, have been reclassified to financial assets at fair value through profit or loss by applying IFRS 9, without designation of fair value option.

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The Group’s categories and carrying amounts of financial liability per ISA 39 and IFRS 9 as of the initial application date are as follows:

Measurement categories		Carrying amounts
December 31, 2017 (IAS 39)	January 1, 2018 (IFRS 9)	IAS 39		Reclassification			Remeasurement		IFRS 9
		(In millions of Korean won)
Financial liabilities held for trading	Financial liabilities at fair value through profit or loss	￦	1,944,770	￦	—		￦	—	￦	1,944,770
Financial liabilities designated at fair value through profit or loss	Financial liabilities designated at fair value through profit or loss		10,078,288		—			—		10,078,288
Derivative financial instruments held for trading	Derivative financial instruments held for trading		3,054,614		(3,737	)		—		3,050,877
Derivative instruments designated as fair value hedge	Derivative instruments designated as fair value hedge		88,151		(404	)		—		87,747
Deposits	Financial liabilities at amortized cost		255,800,048		—			—		255,800,048
Debts	Financial liabilities at amortized cost		28,820,928		—			—		28,820,928
Debentures	Financial liabilities at amortized cost		44,992,724		—			—		44,992,724
Other financial liabilities	Financial liabilities at amortized cost		18,330,004		(21,043	)		2,899		18,311,860
Total		￦	363,109,527	￦	(25,184	)	￦	2,899	￦	363,087,242

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The carrying amounts of the categories of financial assets per IFRS 9 as of the initial application date are as follows:

	January 1, 2018
	Financial assets at fair value through profit or loss		Financial assets at fair value through other comprehensive income		Financial assets at amortized cost1		Derivative instruments designated for hedging		Total
	(In millions of Korean won)
Cash and due from financial institutions	￦	—	￦	—	￦	17,020,727	￦	—	￦	17,020,727
Financial assets at fair value through profit or loss		45,221,584		—		—		—		45,221,584
Derivative instruments designated for trading		2,954,255		—		—		—		2,954,255
Derivative instruments designated for hedging		—		—		—		312,124		312,124
Loans at amortized cost		—		—		288,970,214		—		288,970,214
Financial investments		—		35,979,653		21,061,785		—		57,041,438
Other financial assets		—		—		10,188,293		—		10,188,293
Total	￦	48,175,839	￦	35,979,653	￦	337,241,019	￦	312,124	￦	421,708,635

¹  Net of allowance.

On January 1, 2018 (the date of the initial application of IFRS 9), there were no financial assets at fair value through profit or loss reclassified to financial assets at amortized cost or financial assets at fair value through other comprehensive income.

On January 1, 2018 (the date of the initial application of IFRS 9), the Group classified certain financial assets, other than financial assets at amortized cost as at January 1, 2018, to amortized cost as follows:

	Measurement categories before reclassification	Fair value		Recognizable valuation gain or loss if not reclassified
	(In millions of Korean won)
Currency stabilization bond	Available-for-sale	￦	1,975,001	￦	(248	)
Asset backed securities	Available-for-sale		860,590		(4,046	)
Total		￦	2,835,591	￦	(4,294	)

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The reconciliation of the ending allowances/provision in accordance with IAS 39 to the opening allowances in accordance with IFRS 9 is as follows:

Measurement categories		Allowances/Provision
December 31, 2017 (IAS 39)	January 1, 2018 (IFRS 9)	IAS 39		Reclassification			Remeasurement		IFRS 9
		(In millions of Korean won)
Loans and receivables
Due from financial institutions	Financial assets at amortized cost	￦	—	￦	—		￦	1,797	￦	1,797
Loans	Financial assets at amortized cost		2,064,469		—			544,468		2,608,937
	Financial assets at fair value through profit or loss		45,763		(45,763	)		—		—
Other financial assets	Financial assets at amortized cost		104,813		—			5,086		109,899
Available-for-sale
Debt securities	Financial assets at fair value through other comprehensive income		—		—			4,433		4,433
	Financial assets at amortized cost		—		—			176		176
Held-to-maturity securities
Debt securities	Financial assets at amortized cost		—		—			1,530		1,530
	Sub-total		2,215,045		(45,763	)		557,490		2,726,772
Unused commitments and guarantees			267,011		—			28,637		295,648
Financial guarantees			2,682		—			2,175		4,857
	Total	￦	2,484,738	￦	(45,763	)	￦	588,302	￦	3,027,277

On January 1, 2018 (the date of the initial application of IFRS 9 and IFRS 15), the impact on other comprehensive income due to financial liabilities designated at fair value through profit or loss is as follows:

	Impact of application
	(In millions of Korean won)
December 31, 2017 (before adoption of IFRS 9)	￦	—
Valuation loss from own credit risk of financial liabilities designated at fair value through profit or loss		(14,397	)
Tax effect		3,959
January 1, 2018 (after adoption of IFRS 9)	￦	(10,438	)

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On January 1, 2018 (the date of the initial application of IFRS 9), the impact on other comprehensive income due to financial assets designated at fair value through other comprehensive income and others is as follows:

	Impact of application
	(In millions of Korean won)
December 31, 2017 (before adoption of IFRS 9)	￦	537,668
Change of classification/subsequent measurement category: available for sale to financial assets at amortized cost		4,295
Change of classification/subsequent measurement category: available for sale to financial assets at fair value through profit or loss		145,670
Reclassification of valuation gain or loss of derivatives from equity securities at other comprehensive income		5,854
Recognition of expected credit losses on debt securities at other comprehensive income		4,433
Reversal of impairment on equity securities at other comprehensive income		(617,004	)
Changes in other comprehensive income of associates and joint ventures		(3,611	)
Application of overlay approach		(10,903	)
Adjustment of shares between contracting party		3,809
Others		391
Tax effect		128,028
January 1, 2018 (after adoption of IFRS 9)	￦	198,630

On January 1, 2018 (the date of the initial application of IFRS 9 and IFRS 15), the impact on retained earnings is as follows:

	Impact of application
	(In millions of Korean won)
December 31, 2017 (before adoption of IFRS 9)	￦	15,044,204
Change of classification/subsequent measurement category: available for sale to financial assets at fair value through profit or loss		(145,670	)
Reclassification of valuation gain or loss of derivatives from equity securities at other comprehensive income		(5,854	)
Recognition of expected credit losses on debt securities at other comprehensive income		(4,433	)
Reversal of impairment loss on equity securities at other comprehensive income		617,004
Changes in gains or losses on equity method for investments in associates and joint ventures		4,061
Effect of adjustment in convertible private bond		12,558
Valuation of fair value of structured deposits and debts		(17,291	)
Application of expected credit losses on financial assets at amortized cost		(553,057	)
Effect of changes in provision for unused commitment, etc.		(30,812	)
Valuation loss from self-credit-risk of financial liabilities designated at fair value through profit or loss		14,397
Application of overlay approach		10,903
Effect of Retained Earnings by application of IFRS 151		883
Others		2,527
Tax effect		23,060
January 1, 2018 (after adoption of IFRS 9)	￦	14,972,480

¹  The Group has applied the revenue recognition with distinguishing between the duty to perform management and agency service for fee.

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46. Approval of Issuance of the Financial Statements

The issuance of the Group’s consolidated financial statements as of and for the year ended December 31, 2018, was initially approved on February 8, 2019 and re-approved due to revision on March 8, 2019 by the Board of Directors.

47. Parent Company Information

The following tables present the Parent Company Only financial information:

Condensed Statements of Financial Position

	Dec. 31 2017		Dec. 31 2018
	(In millions of Korean won)
Assets
Cash and due from financial institutions	￦	245,400	￦	344,302
Financial assets at fair value through profit or loss (under IAS 39)		284,485		—
Financial assets at fair value through profit or loss		—		289,179
Loans at amortized cost		10,000		50,000
Investments in subsidiaries1
Banking subsidiaries		14,821,721		14,821,721
Nonbanking subsidiaries.		9,240,395		9,240,395
Investments in associate1		—		—
Other assets		500,833		877,477
Total assets	￦	25,102,834	￦	25,623,074
Liabilities and shareholders’ equity
Debts	￦	300,000		300,000
Debentures		5,162,600		5,373,266
Other liabilities		513,689		878,573
Shareholders’ equity		19,126,545		19,071,235
Total liabilities and shareholders’ equity	￦	25,102,834	￦	25,623,074

¹ Investments in subsidiaries and associate were accounted at cost method in accordance with IAS 27.

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Condensed Statements of Comprehensive Income

	2016		2017			2018
	(In millions of Korean won)
Income
Dividends from subsidiaries	￦	686,919	￦	693,660		￦	1,089,556
Dividends from an associate		7,989		15,884			—
Interest from subsidiaries		2,192		3,207			5,710
Other income		11,330		15,147			20,940
Total income		708,430		727,898			1,116,206
Expense
Interest expense		60,521		101,107			122,451
Non-interest expense		57,941		78,888			65,027
Total expense		118,462		179,995			187,478
Profit(loss) before tax expense		589,968		547,903			928,728
Tax income(expense)		164		5,522			(2,823	)
Profit(loss) for the year		590,132		553,425			925,905
Other comprehensive income(loss) for the year, net of tax		237		(491	)		(1,911	)
Total comprehensive income for the year	￦	590,369	￦	552,934		￦	923,994

Condensed Statements of Cash Flows

	2016			2017			2018
	(In millions of Korean won)
Operating activities
Net income	￦	590,132		￦	553,425		￦	925,905
Reconciliation of net income (loss) to net cash provided by operating activities:
Other operating activities, net		5,588			16,718			(1,243	)
Net cash inflow (outflow) from operating activities		595,720			570,143			924,662
Investing activities
Net payments from (to) subsidiaries		(1,684,021	)		(1,413,932	)		—
Other investing activities, net		(201,890	)		21,376			(43,554	)
Net cash outflow from investing activities		(1,885,911	)		(1,392,556	)		(43,554	)
Financing activities
Net increase(decrease) in debts		350,000			(50,263	)		(164	)
Increases in debentures		1,975,742			1,836,114			897,872
Repayments of debentures		(150,000	)		(149,669	)		(688,486	)
Cash dividends paid		(378,625	)		(497,969	)		(766,728	)
Acquisition of treasury shares		(716,808	)		(185,465	)		(224,700	)
Net cash inflow from financing activities		1,080,309			952,748			(782,206	)
Net increase in cash held at bank subsidiaries		(209,882	)		130,335			98,902
Cash and cash equivalents subsidiaries at January 1		324,944			115,062			245,397
Cash and cash equivalents subsidiaries at December 31	￦	115,062		￦	245,397		￦	344,299

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