Filed Pursuant to Rule 424(b)(5)
Registration No. 333-246071

The information in this preliminary prospectus supplement is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. This preliminary prospectus supplement and the accompanying prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 18, 2021

PRELIMINARY PROSPECTUS SUPPLEMENT

(To Prospectus Dated July 2, 2021)

The Korea Development Bank

US$                         % Notes due 20            

US$                         % Notes due 20            

US$                         % Green Notes due 20            

Our US$             aggregate principal amount of notes due 20             (the “20             Notes”) will bear interest at a rate of             % per annum, our US$             aggregate principal amount of notes due 20             (the “20             Notes”) will bear interest at a rate of             % per annum and our US$             aggregate principal amount of green notes due 20             (the “20             Notes”, and together with the 20             Notes and the 20             Notes, the “Notes”) will bear interest at a rate of             % per annum. Interest on the Notes is payable semi-annually in arrears on              and              of each year, in each case beginning on             , 2022. The 20             Notes will mature on             , 20            , the 20             Notes will mature on             , 20             and the 20             Notes will mature on             , 20            .

The Notes will be issued in minimum denominations of US$200,000 principal amount and integral multiples of US$1,000 in excess thereof. The Notes will be represented by one or more global notes registered in the name of a nominee of The Depository Trust Company, as depositary.

The payment of interest and the repayment of principal on the Notes will not be guaranteed by the Government (as defined herein).

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	20             Notes			20             Notes			20             Notes
	Per Note		Total	Per Note		Total	Per Note		Total
Public offering price		%	US$		%	US$		%	US$
Underwriting discount		%	US$		%	US$		%	US$
Proceeds to us (before deduction of expenses)		%	US$		%	US$		%	US$

In addition to the initial public offering price, you will have to pay for accrued interest, if any, from and including             , 2021.

Applications will be made to the Singapore Exchange Securities Trading Limited (the “SGX-ST”) for the listing and quotation of the Notes on the SGX-ST. The SGX-ST assumes no responsibility for the correctness of any of the statements made, opinions expressed or reports contained in this prospectus supplement and the accompanying prospectus. Approval in-principle from, admission to the Official List of, and listing and quotation of the Notes on, the SGX-ST are not to be taken as an indication of the merits of us or the Notes. Currently, there is no public market for the Notes.

We expect to make delivery of the Notes to investors through the book-entry facilities of The Depository Trust Company on or about             , 2021.

Joint Bookrunners and Lead Managers

Citigroup
	Credit Agricole CIB
		HSBC
			KDB Asia
				Mirae Asset Securities
					Mizuho Securities
						Standard Chartered Bank

Prospectus Supplement Dated             , 2021

You should rely only on the information contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you with different information. We are not making an offer to sell these securities in any state or jurisdiction where the offer or sale is not permitted.

TABLE OF CONTENTS

Prospectus Supplement

	Page
Summary of the Offering		S-5
Use of Proceeds		S-7
Recent Developments		S-9
Description of the Notes		S-151
Clearance and Settlement		S-153
Taxation		S-156
Underwriting		S-157
Legal Matters		S-163
Official Statements and Documents		S-163
General Information		S-163

Prospectus

	Page
CERTAIN DEFINED TERMS AND CONVENTIONS		1
USE OF PROCEEDS		2
THE KOREA DEVELOPMENT BANK		3
Overview		3
Capitalization		5
Business		6
Selected Financial Statement Data		8
Operations		15
Sources of Funds		22
Debt		24
Overseas Operations		25
Property		26
Directors and Management; Employees		26
Tables and Supplementary Information		26
Financial Statements and the Auditors		33
THE REPUBLIC OF KOREA		170
Land and History		170
Government and Politics		172
The Economy		175
Principal Sectors of the Economy		184
The Financial System		191
Monetary Policy		196
Balance of Payments and Foreign Trade		200
Government Finance		208
Debt		210
Tables and Supplementary Information		213

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	Page
DESCRIPTION OF THE SECURITIES		216
Description of Debt Securities		216
Description of Warrants		223
Terms Applicable to Debt Securities and Warrants		223
Description of Guarantees to be Issued by Us		224
Description of Guarantees to be Issued by The Republic of Korea		225
LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES AND BEARER WARRANTS		226
TAXATION		227
Korean Taxation		227
U.S. Federal Income Tax Considerations		229
PLAN OF DISTRIBUTION		237
LEGAL MATTERS		238
AUTHORIZED REPRESENTATIVES IN THE UNITED STATES		238
OFFICIAL STATEMENTS AND DOCUMENTS		238
EXPERTS		238
FORWARD-LOOKING STATEMENTS		239
FURTHER INFORMATION		241

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Certain Defined Terms

All references to “we” or “us” mean The Korea Development Bank. All references to “Korea” or the “Republic” contained in this prospectus supplement mean The Republic of Korea. All references to the “Government” mean the government of Korea. Terms used but not defined in this prospectus supplement shall have the same meanings given to them in the accompanying prospectus.

Our separate financial information as of December 31, 2020 and June 30, 2021 and for the six months ended June 30, 2020 and 2021 included in this prospectus supplement has been prepared in accordance with International Financial Reporting Standards as adopted in Korea (“Korean IFRS” or “K-IFRS”). References in this prospectus supplement to “separate” financial statements and information are to financial statements and information prepared on a non-consolidated basis. Unless specified otherwise, our financial and other information included in this prospectus supplement is presented on a separate basis in accordance with Korean IFRS and does not include such information with respect to our subsidiaries.

In this prospectus supplement and the accompanying prospectus, where information has been provided in units of thousands, millions or billions, such amounts have been rounded up or down. Accordingly, actual numbers may differ from those contained herein due to rounding. Any discrepancy between the stated total amount and the actual sum of the itemized amounts listed in a table is due to rounding.

Additional Information

The information in this prospectus supplement is in addition to the information contained in our prospectus dated July 2, 2021. The accompanying prospectus contains information regarding us and Korea, as well as a description of some terms of the Notes. You can find further information regarding us, Korea and the Notes in registration statement no. 333-246071, as amended, relating to our debt securities, with or without warrants, and guarantees, which is on file with the U.S. Securities and Exchange Commission.

We are Responsible for the Accuracy of the Information in this Document

We are responsible for the accuracy of the information in this document and confirm that to the best of our knowledge we have included all facts that should be included not to mislead potential investors. The SGX-ST assumes no responsibility for the correctness of any of the statements made, opinions expressed or reports contained in this prospectus supplement and the accompanying prospectus. Approval in-principle from, admission to the Official List of, and listing and quotation of the Notes on, the SGX-ST are not to be taken as an indication of the merits of us or the Notes.

Not an Offer if Prohibited by Law

The distribution of this prospectus supplement and the accompanying prospectus, and the offer of the Notes, may be legally restricted in some countries. If you wish to distribute this prospectus supplement or the accompanying prospectus, you should observe any restrictions. This prospectus supplement and the accompanying prospectus should not be considered an offer and should not be used to make an offer, in any state or country which prohibits the offering.

The Notes may not be offered or sold in Korea, directly or indirectly, or to any resident of Korea, except as permitted by Korean law. For more information, see “Underwriting—Foreign Selling Restrictions.”

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The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (“EEA”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended, the “Insurance Distribution Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II.

The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the United Kingdom (“UK”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client, as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 (“EUWA”); or (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000 (“FSMA”) and any rules or regulations made under the Insurance Distribution Directive, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law by virtue of the EUWA.

Information Presented Accurate as of Date of Document

This prospectus supplement and the accompanying prospectus are the only documents on which you should rely for information about the offering. We have authorized no one to provide you with different information. You should not assume that the information in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the front of each document.

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SUMMARY OF THE OFFERING

This summary highlights selected information from this prospectus supplement and the accompanying prospectus and may not contain all of the information that is important to you. To understand the terms of our Notes, you should carefully read this prospectus supplement and the accompanying prospectus.

The Notes

We are offering US$             aggregate principal amount of             % notes due             , 20             (the “20             Notes”), US$             aggregate principal amount of             % notes due             , 20             (the “20             Notes”), and US$             aggregate principal amount of             % green notes due             , 20             (the “20             Notes”, and together with the 20             Notes and the 20             Notes, the “Notes”).

The 20             Notes will bear interest at a rate of             % per annum, the 20             Notes will bear interest at a rate of             % per annum, and the 20             Notes will bear interest at a rate of             % per annum, in each case payable semi-annually in arrears on              and              of each year, beginning on             , 2022. Interest on the Notes will accrue from             , 2021 and will be computed based on a 360-day year consisting of twelve 30-day months. See “Description of the Notes—Payment of Principal and Interest.”

The Notes will be issued in minimum denominations of US$200,000 principal amount and integral multiples of US$1,000 in excess thereof. The Notes will be represented by one or more global securities registered in the name of a nominee of The Depository Trust Company (“DTC”), as depositary.

The payment of interest and the repayment of principal on the Notes will not be guaranteed by the Government.

We do not have any right to redeem the Notes prior to maturity.

Listing

Applications will be made to the SGX-ST for the listing and quotation of the Notes on the SGX-ST. Settlement of the Notes is not conditioned on obtaining the listing. For so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, the Notes, if traded on the SGX-ST, will be traded in a minimum board lot size of S$200,000 (or its equivalent in foreign currencies). Accordingly, the Notes, if traded on the SGX-ST, will be traded in a minimum board lot size of US$200,000.

Form and Settlement

We will issue each series of the Notes in the form of one or more fully registered global notes, registered in the name of a nominee of DTC, as depositary. Except as described in the accompanying prospectus under “Description of the Securities—Description of Debt Securities—Global Securities,” the global notes will not be exchangeable for Notes in definitive registered form, and will not be issued in definitive registered form. Financial institutions, acting as direct and indirect participants in DTC, will represent your beneficial interests in the global notes. These financial institutions will record the ownership and transfer of your beneficial interest through book-entry accounts. You may hold your beneficial interests in the Notes through Euroclear Bank S.A./N.V. (“Euroclear”) or Clearstream Banking, société anonyme (“Clearstream”) if you are a participant in such systems, or indirectly through organizations that are participants in such systems. Any secondary market trading of book-entry interests in the Notes will take place through DTC participants, including Euroclear and Clearstream. See “Clearance and Settlement—Transfers Within and Between DTC, Euroclear and Clearstream”.

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Further Issues

We may from time to time, without the consent of the holders of the Notes, create and issue additional debt securities with the same terms and conditions as either series of the Notes in all respects so that such further issue shall be consolidated and form a single series with the relevant series of the Notes. We will not issue any such additional debt securities unless such additional securities have no more than a de minimis amount of original issue discount or such issuance would otherwise constitute a “qualified reopening” for U.S. federal income tax purposes.

Delivery of the Notes

We expect to make delivery of the Notes, against payment in same-day funds on or about             , 2021, which we expect will be the              business day following the date of this prospectus supplement, referred to as “T+            .” You should note that initial trading of the Notes may be affected by the T+             settlement. See “Underwriting—Delivery of the Notes”.

Underwriting

KDB Asia Limited, one of the underwriters, is our affiliate and has agreed to offer and sell the Notes only outside the United States to non-U.S. persons. See “Underwriting—Relationship with the Underwriters”.

S-6

USE OF PROCEEDS

The 20             Notes

Use of Proceeds from the Sale of the 20             Notes

The net proceeds from the issue of the 20             Notes, after deducting the underwriting discount but not estimated expenses, will be US$            . An amount equal to the net proceeds of the 20             Notes (the “Green Bond Proceeds”) will be allocated toward financing and/or refinancing of new and/or existing projects from the Eligible Green Categories (the “Eligible Green Projects”) as set forth in the KDB Sustainable Bond Framework, for which we have obtained a second party opinion from Sustainalytics, an external consultant, in June 2019 (the “Second Party Opinion”). The KDB Sustainable Bond Framework and the Second Party Opinion are publicly available on the following website: https://www.kdb.co.kr/index.jsp.

Project Evaluation and Selection Process

We will use our existing project evaluation and selection process to select Eligible Green Projects by evaluating their financial viability and environmental and social impact. In this process, the ESG-New Deal Planning Department and the Credit Review Division, among others, will be responsible for conducting due diligence, project approval review, and technical monitoring in respect of environment and social risk management and supervising mitigation activities throughout the project life cycle.

Management of the Green Bond Proceeds

The Green Bond Proceeds will be allocated and managed by the Treasury Department based on an internal management system that will track the allocation of proceeds to selected Eligible Green Projects within its internal management system, including brief descriptions of the projects, the regions in which the projects are located and the amount of proceeds allocated to the projects. Pending allocation, the Green Bond Proceeds may be invested in cash, cash equivalents and/or marketable securities, in accordance with our cash management policies.

Reporting

With respect to use of the Green Bond Proceeds, we plan to include information regarding the allocation of the Green Bond Proceeds on an annual basis in an investor newsletter, which will be made available on our website. Such information will include amounts allocated to Eligible Green Projects, a brief description of select projects and, where feasible, the environmental and/or social impact of such projects on a per project or project portfolio basis. Disclosure of the allocation of the Green Bond Proceeds and impact reporting on a per project basis will be subject to any restrictions included in the disclosure agreement with the relevant borrower.

Investment Considerations

The 20             Notes may not be a suitable investment for all investors seeking exposure to green assets. The description of the Eligible Green Projects provided herein is for illustrative purposes only and no assurance can be provided that loans to entities with these specific characteristics will be made by us during the term of the 20             Notes.

There is currently no market consensus on what precise attributes are required for a particular loan or series of notes to be defined as “green,” and therefore no assurance can be provided to investors that selected Eligible Green Projects will meet all investor expectations regarding environmental impact. Although the Eligible Green Projects will be selected in accordance with the categories recognized under the Green Bond Principles as published by the International Capital Market Association (the “ICMA Green Bond Principles”), and will be

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developed in accordance with relevant legislation and standards, there can be no guarantee that the loans will deliver the environmental benefits as anticipated, or that adverse environmental impact will not occur during the term of the 20             Notes. In addition, our use of the Green Bond Proceeds may not comply with all or part of the ICMA Green Bond Principles or any relevant legislation or standards, and where any negative impact is insufficiently mitigated, any loans extended may become controversial and may be criticized by activist groups or other stakeholders.

In addition, although we have agreed to certain reporting and use of proceeds obligations in connection with certain environmental criteria, our failure to comply with such obligations will not constitute a breach or an event of default under the 20             Notes. Any failure by us to use an amount equivalent to the net proceeds from the issuance of the 20             Notes on Eligible Green Projects or to meet or continue to meet the investment requirements of certain environmentally-focused investors with respect to the 20             Notes may affect the value of the 20             Notes and may have consequences for certain investors with portfolio mandates to invest in green assets.

No assurance can be provided that the 20             Notes will fulfill the criteria required to qualify as green bonds. Each potential purchaser of the 20             Notes should determine for itself the relevance of the information contained in this prospectus supplement and the accompanying prospectus regarding the use of the net proceeds from the issuance of the 20             Notes and its purchase of the 20             Notes should be based upon such investigation as it deems necessary. Neither the KDB Sustainable Bond Framework nor the Second Party Opinion is incorporated into, or forms part of, this prospectus supplement or the accompanying prospectus.

The 20             Notes and the 20             Notes

The aggregate amount of the net proceeds from the issue of the 20             Notes and the 20             Notes, after deducting the underwriting discount but not estimated expenses, will be US$            . We will use the net proceeds from the sale of the 20             Notes and the 20             Notes for our general operations, including extending foreign currency loans and repayment of our maturing debt and other obligations.

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RECENT DEVELOPMENTS

This section provides information that supplements the information about our bank and the Republic included under the headings corresponding to the headings below in the accompanying prospectus dated July 2, 2021. Defined terms used in this section have the meanings given to them in the accompanying prospectus. If the information in this section differs from the information in the accompanying prospectus, you should rely on the information in this section.

THE KOREA DEVELOPMENT BANK

Unless specified otherwise, the information provided below is stated on a separate basis in accordance with Korean IFRS (“K-IFRS”).

Overview

As of June 30, 2021, we had W167,372.2 billion of loans outstanding (including loans, call loans, domestic usance, bills of exchange bought, local letters of credit negotiation and loan-type suspense accounts pursuant to the applicable guidelines without adjusting for allowance for loan losses, present value discounts and deferred loan fees), total assets of W275,830.0 billion and total equity of W39,758.9 billion, as compared to W159,083.6 billion of loans outstanding, W251,852.0 billion of total assets and W30,382.5 billion of total equity as of December 31, 2020. For the six months ended June 30, 2021, we recorded interest income of W1,993.3 billion, interest expense of W1,206.3 billion and net income of W2,377.6 billion, as compared to W2,353.1 billion of interest income, W1,771.8 billion of interest expense and W369.3 billion of net income for the six months ended June 30, 2020. See “—Selected Financial Statement Data.”

Capitalization

As of June 30, 2021, our authorized capital was W30,000 billion and our capitalization was as follows:

	June 30,  2021(1)
	(billions of won)
	(unaudited)
Long-term debt(2)(3):
Won currency borrowings		3,897.5
Industrial finance bonds		85,700.9
Foreign currency borrowings		341.0
Total long-term debt		89,939.4
Capital:
Paid-in capital		21,886.6
Capital surplus		2,479.0
Retained earnings(4)		7,251.0
Accumulated other comprehensive income		8,142.3
Total capital		39,758.9
Total capitalization		129,698.3

(1) Except as disclosed in this prospectus supplement, there has been no material change in our capitalization since June 30, 2021.

(2) We have translated borrowings in foreign currencies into Won at the rate of W1,130.00 to US$1.00, which was the market average exchange rate, as announced by the Seoul Money Brokerage Services Ltd., on June 30, 2021.

(3) As of June 30, 2021, we had confirmed acceptances and guarantees totaling W7,072.7 billion under outstanding guarantees issued on behalf of our clients. See Note 40 of the notes to our unaudited separate

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financial statements as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 included in this prospectus supplement.

(4) Includes planned regulatory reserve for credit losses of W482.9 billion as of June 30, 2021. If our allowance for credit losses is deemed insufficient for regulatory purposes, we compensate for the difference by recording a regulatory reserve for credit losses, which is shown as a separate item included in retained earnings.

Business

Government Support and Supervision

The Government contributed W510.0 billion and W610.8 billion in cash to our capital in January and May 2021. As of June 30, 2021, our paid-in capital was W21,886.6 billion compared to W20,765.7 billion as of December 31, 2020.

Selected Financial Statement Data

Separate Financial Statement Data

The following tables present our selected separate financial information as of December 31, 2020 and June 30, 2021 and for the six months ended June 30, 2020 and 2021, which has been derived from our unaudited separate financial statements as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 prepared in accordance with K-IFRS and included in this prospectus supplement.

Separate K-IFRS Financial Statement Data

	Six Months Ended June 30,
	2020		2021
	(billions of won) (unaudited)
Income Statement Data
Total Interest Income		2,353.1		1,993.3
Total Interest Expenses		1,771.8		1,206.3
Net Interest Income		581.3		786.9
Operating Income		688.9		2,362.4
Income before Income Tax		473.8		2,991.6
Income Tax Expense (Benefit)		104.5		614.0
Net Income		369.3		2,377.6

	As of December 31, 2020		As of June 30, 2021
	(billions of won) (unaudited)
Statements of Financial Position Data
Total Loans(1)		159,083.6		167,372.2
Total Borrowings(2)		204,780.7		215,119.8
Total Assets		251,852.0		275,830.0
Total Liabilities		221,469.5		236,071.1
Equity		30,382.5		39,758.9

(1) Gross amount, which includes loans for facility development, loans for working capital, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans without adjusting for

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allowance for loan losses, present value discounts and deferred loan fees. See Note 9 of the notes to our unaudited separate financial statements as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 included in this prospectus supplement.

(2) Total borrowings include financial liabilities designated at fair value through profit or loss due to customers, borrowings and debt issued.

Six Months Ended June 30, 2021

In the first half of 2021, we had net income of W2,377.6 billion compared to net income of W369.3 billion in the corresponding period of 2020, on a separate basis. The principal factors for the increase in net income included:

• an increase in gains on disposal of loans measured at fair value through profit or loss to W1,832.6 billion in the first half of 2021 from W2.7 billion in the corresponding period of 2020, primarily due to the exercise of our right to convert our convertible bonds of HMM Company Limited into common shares, the value of which increased significantly subsequent to such conversion in in the first half of 2021;

• an increase in net interest income to W786.9 billion in the first half of 20201 from W581.3 billion in the corresponding period of 2020, primarily due to a decrease in interest expense that outpaced the decrease in interest income, which reflected a decrease in the general level of interest rates in Korea in the first half of 2021 compared to the corresponding period of 2020; and

• an increase in dividend income to W642.6 billion in the first half of 2021 from W400.6 billion in the corresponding period of 2020, primarily due to an increase in dividends received from Korea Electric Power Corporation in the first half of 2021 compared to the corresponding period of 2020.

The above factors were partially offset by an increase in provision for credit losses to W836.1 billion in the first half of 2021 from W204.7 billion in the corresponding period of 2020, primarily due to an increase in expected credit loss in anticipation of a deterioration in the overall asset quality of our loan portfolio due to the ongoing global outbreak of the COVID-19 pandemic.

Allowances for Loan Losses and Loans in Arrears

As of June 30, 2021, we had established allowances of W4,474.3 billion for loan losses under Korean IFRS.

Certain of our customers have restructured loans with their creditor banks. As of June 30, 2021, we have provided loans of W938.7 billion for companies under workout, court receivership, court mediation and other restructuring procedures. As of June 30, 2021, we had established allowances of W440.0 billion for loan losses with respect to such companies. We cannot assure you that actual credit losses from the loans to these customers will not exceed the allowances established.

The following table provides information on our loan loss allowances.

		As of June 30, 2021(1)
		Loan Amount		Loan Loss Allowances
		(in billions of won, except percentages)
Loan Classification	Normal(2)	W	161,421.2	W	2,024.2
	Precautionary		3,238.2		879.7
	Substandard		1,563.4		731.2
	Doubtful		152.2		133.9
	Expected Loss		997.2		705.3
	Total	W	167,372.2	W	4,474.3

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(1) These figures include loans for facility development, loans for working capital, loans for households, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans.

(2) Includes loans guaranteed by the Government. Under Korean IFRS, we establish loan loss allowances for all loans including loans guaranteed by the Government.

As of June 30, 2021, our non-performing loans totaled W2,712.8 billion, representing 1.6% of our outstanding loans as of such date. Non-performing loans are defined as loans that are classified as substandard or below. On June 30, 2021, our legal reserve was W1,551.2 billion, representing 0.9% of our outstanding loans as of such date.

Loans to Financially Troubled Companies

We have credit exposure (including loans, guarantees and equity investments) to a number of financially troubled Korean companies including DSME, HMM Company Limited (formerly, Hyundai Merchant Marine Co., Ltd.), Hanjin Heavy Industries and Construction Co., Ltd., Daehan Shipbuilding Co., Ltd., K Shipbuilding Co., Ltd. (formerly, STX Offshore & Shipbuilding), KG Dongbu Steel Co., Ltd., Doosan Heavy Industries & Construction Co., Ltd., Doosan Infracore Co., Ltd. and GM Korea Company. As of June 30, 2021, our credit extended to these companies totaled W26,349.2 billion, accounting for 9.6% of our total assets as of such date.

The following table provides the loan amounts (including loans classified as substandard or below and equity investment classified as estimated loss or below) extended to these companies as of the dates indicated:

Company	As of December  31, 2020		As of June  30, 2021		Primary Reason for Change
	(billions of won)
HMM Company Limited	W	4,771.5	W	15,191.8	Increase due to increase in the value of perpetual bonds
DSME		4,463.1		5,656.8	Increase due to increase in refund guarantees and an increase in the value of the shares of DSME
Doosan Heavy Industries & Construction		1,644.2		1,332.7	Decrease due to redemption of loans
Daehan Shipbuilding		1,047.4		989.5	Decrease due to redemption of loans
Hanjin Heavy Industries and Construction		927.2		860.9	Decrease due to decrease in loans
KG Dongbu Steel		695.9		746.8	Increase due to an increase in usance bills
Doosan Infracore		688.2		633.9	Decrease due to redemption of loans
K Shipbuilding		531.3		533.9	Increase due to increase in loans
GM Korea Company		436.9		402.9	Decrease due to a decline in the value of the shares of GM Korea Company
Total	W	15,205.7	W	26,349.2

As of June 30, 2021, we established allowances of W35.6 billion for our exposure to HMM Company Limited, W1,235.2 billion for DSME, W92.6 billion for Doosan Heavy Industries & Construction, W432.8 billion for Daehan Shipbuilding, W136.4 billion for Hanjin Heavy Industries and Construction, W4.1 billion for KG Dongbu Steel, W1.7 billion for Doosan Infracore, W415.3 billion for K Shipbuilding, and none for GM Korea.

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During 2015, DSME, one of the largest shipbuilding and offshore construction companies in Korea, suffered from financial difficulties primarily due to significant losses incurred in connection with the construction of offshore plants resulting from a prolonged slowdown in the global shipbuilding industry. In October 2015, we announced that we, along with The Export-Import Bank of Korea, would extend additional financing of up to W4.2 trillion to DSME by the end of 2016 in the form of debt-to-equity swaps, extension of additional loans and provision of other forms of liquidity support. In this connection, in December 2015, we acquired W382.9 billion of new equity shares of DSME, which increased our equity interest in DSME from 31.5% to 49.7%, and we became its largest shareholder. In December 2016, we increased our equity interest in DSME to 79.0% through an additional debt for equity swap. In March 2017, we and The Export-Import Bank of Korea announced a second joint plan to provide an additional W2.9 trillion in financial support to DSME, which was approved by the other creditors in April 2017. Based on such plan, we provided additional debt-to-equity swaps of W0.3 trillion in June 2017 and The Export-Import Bank of Korea exchanged a term loan in the amount of W1.28 trillion provided by it to DSME for perpetual bonds issued by DSME. Other creditors also provided debt-to-equity swaps for up to 80% of their debt with DSME and rescheduled the maturities of the remainder. Subsequently, in March 2019, Hyundai Heavy Industries entered into a definitive agreement with us to acquire DSME. Pursuant to such agreement, we plan to transfer all of our shares in DSME amounting to approximately W2 trillion (in the form of contributions-in-kind) to Korea Shipbuilding & Offshore Engineering, a newly established sub-holding company spun off from Hyundai Heavy Industries to control its shipbuilding companies, in return for an equity stake in Korea Shipbuilding & Offshore Engineering. It is expected that, following the completion of this transaction, Hyundai Heavy Industries will become the largest shareholder of DSME, followed by us holding the second largest stake in DSME. The completion of this transaction is subject to various conditions, including approval from the antitrust authorities of the European Union and applicable countries.

In July 2016, HMM Company Limited executed a debt-to-equity swap with us and other creditors, as part of its continued restructuring led by us as its largest creditor, and affiliates of the Hyundai group reduced their shareholdings in HMM Company Limited, which resulted in us becoming the largest shareholder of HMM Company Limited. In October 2018, we injected W1 trillion in emergency aid into HMM Company Limited in order to normalize its operations by purchasing bonds with warrants and convertible bonds issued by HMM Company Limited. In June 2021, we exercised our right to convert W300 billion of our convertible bonds into 60 million common shares of HMM Company Limited. As a result of such conversion, our equity interest in HMM Company Limited amounted to 25.0% as of June 30, 2021.

In January 2019, Hanjin Heavy Industries and Construction Philippines, a subsidiary of Hanjin Heavy Industries and Construction at Subic Bay in the Philippines, declared bankruptcy and filed for corporate rehabilitation with a regional trial court following its failure to comply with loan obligations to its Philippine lenders. In March 2019, creditors in Korea (including us) and lenders in the Philippines agreed on, and executed, a business normalization plan including a debt-to-equity swap and capital reduction for Hanjin Heavy Industries and Construction, as a result of which we became the largest shareholder of Hanjin Heavy Industries and Construction. In September 2021, creditors of Hanjin Heavy Industries and Construction (including us) sold a 66.85% interest in the company to a consortium led by Dongbu Corporation.

K Shipbuilding has faced financial difficulties for the past several years due to prolonged slowdowns in the Korean shipbuilding and shipping industries. K Shipbuilding, which had filed for court receivership in May 2016 and executed debt-to-equity swaps with their creditors (including us) in December 2016 under a rehabilitation plan through which we increased our equity interest to 43.9% and became its largest shareholder, exited court receivership in July 2017. In November 2020, we selected a consortium consisting of KH Investment and UAMCO Ltd. as the preferred bidder for the sale of shares of K Shipbuilding. In July 2021, the consortium acquired a 97% interest in K Shipbuilding for W250 billion.

Dongbu Steel has also been facing financial difficulties for the past several years due to the prolonged slowdown in the Korean construction industry and in the Korean economy in general. Dongbu Steel entered into a voluntary workout agreement with its creditors, including us, in October 2015. Such agreement expired in

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September 2019 when KG Steel, a subsidiary of KG Group established in May 2019, became the largest shareholder of Dongbu Steel, which was subsequently re-named to KG Dongbu Steel. As of June 30, 2021, our equity interest in KG Dongbu Steel amounted to 4.0%.

Doosan Heavy Industries & Construction Co., Ltd. has also faced financial difficulties due to the prolonged slowdown in the Korean heavy and construction industries and in the Korean economy in general, as well as the Government’s initiative to support clean and renewable energy sources while phasing out nuclear and coal-fired plants in recent years. Doosan Heavy Industries submitted a self-rescue plan to its creditors, including us, and we agreed to provide Doosan Heavy Industries with loans amounting to W500 billion, W400 billion and W600 billion in March, April and June 2020, respectively. In August 2021, as part of the self-rescue plan, a consortium comprised of Hyundai Heavy Industries Holdings Co. and KDB Investment, our investment unit, purchased a 35.0% equity interest in Doosan Infracore from Doosan Heavy Industries & Construction Co., Ltd. for W850 billion.

In the first half of 2021, we sold non-performing loans worth W244.2 billion to UAMCO Ltd.

Our large exposure to financially troubled companies in Korea means that we are also exposed to financial difficulties experienced by our borrowers as a result of, among other things, adverse economic conditions in Korea and globally, which could disrupt the business, activities and operations of many of our borrowers, which in turn could have an adverse impact on the ability of our borrowers to meet existing payment or other obligations to us. For example, COVID-19, an infectious disease that was first reported to have been transmitted to humans in late 2019 and was declared a “pandemic” by the World Health Organization in March 2020, has spread globally over the course of 2020 and 2021 to date and has led to significant global and domestic economic and financial disruptions. See “The Republic of Korea—The Economy—Worldwide Economic and Financial Difficulties.” The COVID-19 pandemic has had an especially direct negative impact on certain of our borrowers, among them the airline industry, which has been in significant need of liquidity following a sharp decline in aircraft traffic and a dramatic increase in the number of suspended flights due to entry restrictions imposed by many countries in response to COVID-19 throughout 2020 and 2021 to date.

In May 2020, we injected W720 billion (consisting of W420 billion in securities collateralized by income receivables, W180 billion in perpetual bonds and W120 billion in loans) into Korean Air Lines Co., Ltd., a subsidiary of Hanjin Group and Korea’s largest airline and flagship carrier, in order to provide liquidity support. As of June 30, 2021, our loan amounts (including loans classified as substandard or below and equity investment classified as estimated loss or below) extended to Korean Air Lines amounted to W1,233.9 billion, a decrease from W1,374.5 billion as of December 31, 2020.

In April 2020, we provided Asiana Airlines, a subsidiary of Kumho Asiana Group and the second-largest airline in Korea, with liquidity support by providing a credit line in the amount of W1.2 trillion. Our decision to take such measure was largely driven by a need to address Asiana Airlines’ financial difficulties resulting from the negative impact of the COVID-19 pandemic on the airline industry. In September 2020, we decided to inject W2.4 trillion from the Key Industry Stabilization Fund (explained further below) into Asiana Airlines in order to normalize its operations following the cancellation of plans by a consortium led by HDC Hyundai Development to acquire Asiana Airlines. Subsequently, in November 2020, we signed an investment agreement with Hanjin KAL, the parent company of Korean Air Lines, to inject W800 billion (consisting of W500 billion through participation in a rights offering and W300 billion through purchase of perpetual exchangeable bonds) into Hanjin KAL in connection with Korean Air Lines’ acquisition of a 63.9% stake in Asiana Airlines through a transaction valued at W1.8 trillion (the “Acquisition”), subsequent to which we expect our equity interest in Hanjin KAL to amount to approximately 10.7%. In December 2020, Asiana Airlines’ shareholders approved a 3-to-1 share capital reduction plan, which was aimed at offsetting part of Asiana Airlines’ deficits in preparation for the Acquisition. The consummation of the Acquisition currently remains subject to a number of factors, including uncertainties regarding opposition to the Acquisition by labor unions of Korean Air Lines and Asiana Airlines, and approval of the Acquisition from antitrust authorities of a number of jurisdictions, including Korea,

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the United States, the European Union, China, Japan and Vietnam, which have yet to be obtained. If the Acquisition is completed, Asiana Airlines would become Korean Air Lines’ consolidated subsidiary. In June 2021, we approved an integration plan pursuant to which Korean Air Lines would merge with Asiana Airlines by 2024.

In addition, the ongoing global outbreak of the COVID-19 pandemic has prompted the Government in 2020 and 2021 to date to implement various emergency aid initiatives involving Korean banks, including us, to provide liquidity assistance to a range of financially troubled companies. Such initiatives include, among others, the provision of new loans provided to financially troubled companies, extension of maturity dates for existing loans and suspension of interest payment obligations for an extended period of time. Most recently, in May 2020, the Government provided for the establishment of the Key Industry Stabilization Fund, a fund amounting to W40 trillion to be administered by us mainly through the issuance of industrial finance bonds, to support businesses in certain key industries that face financial difficulties resulting from the ongoing global outbreak of the COVID-19 pandemic, such as the air transport and maritime industries. The Key Industry Stabilization Fund has supported those businesses that meet certain pre-determined criteria, including those aimed at stabilizing the job markets. Our participation in such Government-led initiatives may lead us to extend credit to financially troubled 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 financially troubled 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 financially troubled borrowers resulting from such Government-led initiatives may have a material adverse effect on our financial condition and results of operations.

A deterioration in the financial condition of our borrowers, including those described above as well as other companies under workout, court receivership, court mediation and other restructuring procedures, could result in a deterioration in the quality of our loan portfolio. This, in turn, could result in an increase in delinquency ratios, increased charge-offs and higher provisioning, as well as an increase in impairment losses on such loans, particularly if businesses remain closed, the impact of the COVID-19 pandemic on the global economy worsens, or more of our borrowers draw on their lines of credit or seek additional loans from us to help finance their business, which could have a material adverse impact on our business, financial condition or results of operations.

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Operations

Loan Operations

The following table sets out, by currency and category of loan, our total outstanding loans as of June 30, 2021:

Loans⁽¹⁾

	June 30, 2021
	(billions of won)
Equipment Capital Loans:
Domestic currency	W	53,224.3
Foreign currency		8,570.5
		61,794.8
Working Capital Loans:
Domestic currency(2)		65,554.5
Foreign currency		10,164.9
		75,719.4
Other Loans(3)		29,858.0
Total loans	W	167,372.2

(1) Includes loans extended to affiliates.

(2) Includes loans on households.

(3) Includes inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans.

As of June 30, 2021, we had W167,372.2 billion in outstanding loans, which represents a 5.2% increase from W159,083.6 billion of outstanding loans as of December 31, 2020.

Maturities of Outstanding Loans

The following table categorizes our outstanding equipment capital and working capital loans by their remaining maturities:

Outstanding Equipment Capital and Working Capital Loans by Remaining Maturities⁽¹⁾

	June 30, 2021		As % of June 30, 2021 Total
	(billions of won, except percentages)
Loans with remaining maturities of one year or less	W	58,634.7		42.6	%
Loans with remaining maturities of more than one year		78,879.5		57.4
Total	W	137,514.2		100.0	%

(1) Includes loans extended to affiliates.

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Loans by Industrial Sector

The following table sets out the total amount of our outstanding equipment capital and working capital loans, categorized by industry sector as of June 30, 2021:

Outstanding Equipment Capital and Working Capital Loans by Industry Sector⁽¹⁾

	June 30, 2021			As % of June 30, 2021 Total
	(billions of won, except percentages)
Manufacturing	W	63,787.6			46.4	%
Banking and Insurance		33,340.8			24.2
Transportation		10,200.3			7.4
Public Administration		635.9			0.5
Electric, Gas and Water Supply Industry		3,839.4			2.8
Others(2)		25,710.2			18.7
Total	W	137,514.2			100.0	%
Percentage increase from December 31, 2020		4.0	%

(1) Includes loans extended to affiliates.

(2) Includes wholesale and retail trade, real estate and leasing, and construction.

The manufacturing sector accounted for 46.4% of our outstanding equipment capital and working capital loans as of June 30, 2021. As of June 30, 2021, loans to the auto vehicle and trailer manufacturing businesses and the chemical and chemical product manufacturing businesses accounted for 12.8% and 12.7%, respectively, of our outstanding equipment capital and working capital loans to the manufacturing sector.

Industrial Bank of Korea was our single largest borrower as of June 30, 2021, accounting for 5.3% of our outstanding equipment capital and working capital loans. As of June 30, 2021, our five largest borrowers and 20 largest borrowers accounted for 13.2% and 23.9%, respectively, of our outstanding equipment capital and working capital loans.

The following table breaks down the equipment capital and working capital loans to our 20 largest borrowers outstanding as of June 30, 2021 by industry sector:

20 Largest Borrowers by Industry Sector

	As % of June 30, 2021 Total Outstanding Equipment Capital and Working Capital Loans to Our 20 Largest Borrowers
Banking and Insurance		54.0	%
Manufacturing		29.0
Transportation		11.5
Others(1)		5.5
Total		100.0

(1) Includes wholesale and retail trade, real estate and leasing, and construction.

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Loans by Categories

The following table sets out equipment capital and working capital loans by categories as of June 30, 2021:

	Equipment Capital Loans					Working Capital Loans
	June 30, 2021		%			June 30, 2021		%
	(billions of won, except percentages)
Industrial fund loans	W	48,432.8		78.4	%	W	48,627.2		64.2	%
On-lending loans		2,917.3		4.7			16,002.4		21.1
Foreign currency loans		5,794.5		9.4			1,517.2		2.1
Local currency loans denominated in foreign currencies		2.6		0.0			25.5		0.1
Offshore loans in foreign currencies		2,428.3		3.9			7,753.5		10.2
Government fund loans		115.8		0.2			—		—
Overdraft		—		—			102.0		0.1
Others(1)		2,103.4		3.4			1,691.6		2.2
Total	W	61,794.8		100.0	%	W	75,719.4		100.0	%

(1) Includes loans on households and loans extended to affiliates.

Guarantee Operations

The following table shows our outstanding guarantees as of June 30, 2021:

	June 30, 2021
	(billions of won)
Acceptances	W	332.4
Guarantees on local borrowings		856.9
Guarantees on foreign borrowings		5,794.7
Letters of guarantee for importers		88.7
Total	W	7,072.7

Investments

Our equity investments increased to W42,117.3 billion as of June 30, 2021 from W38,227.6 billion as of December 31, 2020. As of June 30, 2021, the cost basis of our equity investments subject to restriction under the KDB Act and our Articles of Incorporation totaled W19,598.3 billion, equal to 41.0% of our equity investment ceiling.

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The following table sets out our equity investments by industry sector on a book value basis as of June 30, 2021:

Equity Investments

	Book Value as of June 30, 2021
	(billions of won)
Electric, Gas and Water Supply Industry	W	18,010.2
Banking and Insurance		11,277.9
Transportation		5,475.0
Real Estate Business		3,777.5
Construction		1,025.0
Manufacturing		660.9
Others		1,890.8
Total	W	42,117.3

As of June 30, 2021, we held total equity investments, on a book value basis, of W602.8 billion in one of our five largest borrowers and W2,928.0 billion in four of our 20 largest borrowers.

When possible, we use the prevailing market price of a security to determine the value of our interest. However, if no readily ascertainable market value exists for our holdings, we record these investments at the cost of acquisition. With respect to our equity interests in enterprises in which we hold more than 15% of interest, we value these investments annually, with certain exceptions, on a net asset value basis when the investee company releases its financial statements. As of June 30, 2021, the aggregate value of our equity investments accounted for approximately 92.5% of their aggregate cost basis.

Other Activities

As of June 30, 2021, we held in trust cash and other assets totaling W35,989.8 billion, and we generated in the first half of 2021 trust fee income equaling W63.9 billion.

Source of Funds

Borrowings from the Government

The following table sets out our Government borrowings as of June 30, 2021:

Type of Funds Borrowed	As of June 30, 2021
	(billions of won)
General purpose	W	117.0
Special purpose		4,254.5
Total	W	4,371.5

Domestic and International Capital Markets

The following table sets out the outstanding balance of our industrial finance bonds as of June 30, 2021:

Outstanding Balance	As of June 30, 2021
	(billions of won)
Denominated in Won	W	110,087.6
Denominated in other currencies		34,524.7
Total	W	144,612.3

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As of June 30, 2021, the aggregate amount of our industrial finance bonds and guarantee obligations (including guarantee obligations relating to loans that had not been borrowed as of June 30, 2021) was W156,806.0 billion, equal to 21.9% of our authorized amount under the KDB Act, which was W717,617.9 billion.

Foreign Currency Borrowings

As of June 30, 2021, the outstanding amount of our foreign currency borrowings was US$12.9 billion. Our long-term and short-term foreign currency borrowings increased to W14,562.4 billion as of June 30, 2021 from W12,795.0 billion as of December 31, 2020.

Deposits

As of June 30, 2021, demand deposits held by us totaled W1,832.3 billion and time and savings deposits held by us totaled W43,344.2 billion.

Debt

Debt Repayment Schedule

The following table sets out our principal repayment schedule as of June 30, 2021:

Debt Principal Repayment Schedule⁽¹⁾

Currency(2)(3)	Maturing on or before December 31,
	2021		2022		2023		2024		2025		Thereafter
	(billions of won)
Won	W	25,878.0	W	43,339.2	W	23,310.9	W	7,942.3	W	4,073.7	W	9,870.7
Foreign		15,365.5		9,979.6		6,887.6		6,214.1		4,615.3		5,364.2
Total Won Equivalent	W	41,243.4	W	53,318.8	W	30,198.5	W	14,156.4	W	8,698.0	W	15,234.9

(1) Excludes bonds sold under repurchase agreements and call money.

(2) Borrowings in foreign currencies have been translated into Won at the market average exchange rates on June 30, 2021, as announced by the Seoul Money Brokerage Services Ltd.

(3) We categorize debt with respect to which we have entered into currency swap agreements by our repayment currency under such agreements.

Directors and Management; Employees

Currently, the members of our Board of Directors are:

Position	Name	Expiration of Term
Chief Executive Officer and Chairman of the Board of Directors	Dong Gull Lee	September 10, 2023
Chief Operating Officer and Vice Chairman of the Board of Directors	Joo Yung Sung	January 2, 2022
Auditor	Tae Hyun Joo	March 14, 2024
Independent Non-executive Directors	Han Hong Cho	June 27, 2023
	Dong Han Yook	June 28, 2022
	Yeong Ook Kim	May 25, 2023
	Kyo Deog Son	March 29, 2022

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Financial Statements and the Auditors

Our interim separate financial statements as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 appearing in this prospectus supplement were prepared in conformity with K-IFRS, as summarized in Note 2 of the notes to our unaudited separate financial statements as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 included in this prospectus supplement.

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Korea Development Bank

Interim Separate Statements of Financial Position

June 30, 2021 (Unaudited) and December 31, 2020

(In millions of won)	Notes		June 30, 2021		December 31, 2020
Assets
Cash and due from banks		4,45,46,49	W	11,269,255		10,528,978
Securities measured at FVTPL		5,45,46,49		10,272,772		8,320,631
Securities measured at FVOCI		6,39,45,46,49		42,010,506		34,141,325
Securities measured at amortized cost		7,39,45,46,49		2,417,134		785,264
Loans measured at FVTPL		8,45,46,49		701,288		1,434,514
Loans measured at amortized cost		9,45,46,49		162,894,536		155,300,178
Derivative financial assets		10,45,46,47,49		5,146,121		8,329,376
Investments in subsidiaries and associates		11,48		28,325,984		25,553,561
Property and equipment, net		12,48		811,219		811,382
Investment property, net		13,48		81,313		81,065
Intangible assets, net		14,48		167,784		188,417
Current tax assets				1,783		3,722
Assets held for sale		16		2,207,733		1,713,347
Other assets		15,45,46,49		9,522,565		4,660,285
Total assets			W	275,829,993		251,852,045
Liabilities
Financial liabilities measured at FVTPL		17,45,46,49	W	1,892,708		1,694,957
Deposits		18,45,46,49		48,875,219		45,879,419
Borrowings		19,45,46,49		20,975,895		18,887,611
Debentures		20,45,46,49		143,375,963		138,318,728
Derivative financial liabilities		10,45,46,47,49		3,653,173		6,305,287
Net defined benefit liabilities		21		70,474		50,546
Provisions		22		1,445,904		1,515,170
Deferred tax liabilities		37		4,821,576		1,719,100
Current tax liabilities				25,104		29,691
Other liabilities		23,45,46,49		10,935,050		7,069,006
Total liabilities				236,071,066		221,469,515
Equity
Issued capital		1,24		21,886,559		20,765,729
Capital surplus		24		2,479,010		2,484,398
Accumulated other comprehensive income		24		8,142,327		2,064,371
Retained earnings		24		7,251,031		5,068,032
(Regulatory reserve for credit losses of W482,885 million as of June 30, 2021 and W1,146,038 million as of December 31, 2020, respectively)
(Required provision for (reversal of) regulatory reserve for credit losses of W76,926 million as of June 30, 2021 and W(663,153) million as of December 31, 2020, respectively)
(Planned provision for (reversal of) regulatory reserve for credit losses of W76,926 million as of June 30, 2021 and W(663,153) million as of December 31, 2020, respectively)
Total equity				39,758,927		30,382,530
Total liabilities and equity			W	275,829,993		251,852,045

See accompanying notes to the interim separate financial statements.

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Korea Development Bank

Interim Separate Statements of Comprehensive Income

Six-month periods ended June 30, 2021 and 2020 (Unaudited)

			June 30, 2021						June 30, 2020
(In millions of won, except earnings per share information)	Notes		Three-month period ended			Six-month period  ended			Three-month period ended			Six-month period ended
Interest income		25	W	999,352			1,993,256			1,170,560			2,353,110
Interest expense		25		(592,784	)		(1,206,346	)		(853,780	)		(1,771,847	)
Net interest income		48		406,568			786,910			316,780			581,263
Net fees and commission income		26		83,928			168,268			77,161			162,846
Dividend income		27		111,067			642,599			140,416			400,605
Net gain (loss) on securities measured at FVTPL		28		5,721			(3,887	)		44,090			67,178
Net gain (loss) on financial liabilities measured at FVTPL		29		28,477			106,104			(28,799	)		(28,499	)
Net gain (loss) on securities measured at FVOCI		30		(6,462	)		(9,890	)		33,429			52,013
Net gain (loss) on derivatives		31		(30,382	)		(131,082	)		117,034			(79,021	)
Net gain on foreign currency transaction		32		33,580			108,720			21,065			214,221
Other operating income (expense), net		33		989,810			1,900,478			(72,713	)		(124,309	)
Non-interest income, net				1,215,739			2,781,310			331,683			665,034
Provision for credit losses		34		901,759			836,089			102,828			204,697
General and administrative expenses		35,48		178,727			369,716			172,058			352,701
Operating income		48		541,821			2,362,415			373,577			688,899
Reversal of impairment loss (impairment loss) on investments in subsidiaries and associates				132,334			126,248			(155,388	)		(165,865	)
Other non-operating income		36		448,205			508,944			863			2,540
Other non-operating expense		36		(745	)		(6,011	)		807,691			(51,781	)
Non-operating income (expense), net				579,794			629,181			653,166			(215,106	)
Profit before income taxes				1,121,615			2,991,596			1,026,743			473,793
Income tax expense		37		198,686			613,988			256,665			104,450
Profit for the period		24		922,929			2,377,608			770,078			369,343
(Profit for the period adjusted for regulatory reserve for credit losses: W1,081,638 million and W2,300,682 million for the three-month and six-month periods ended June 30, 2021, respectively; W861,829 million and W404,373 million for the three-month and six-month periods ended June 30, 2020, respectively)
Other comprehensive income for the period, net of tax		24
Items that are or may be reclassified subsequently to profit or loss:
Net gain (loss) on securities measured at FVOCI				(13,756	)		(56,026	)		285,871			173,298
Exchange differences on translation of foreign operations				(3,098	)		41,880			(16,508	)		32,160
Valuation gain on cash flow hedge				23			657			23			235
Net gain (loss) on hedges of net investments in foreign operations				2,013			(23,963	)		9,881			(19,355	)
				(14,818	)		(37,452	)		279,267			186,338
Items that will not be reclassified to profit or loss:
Net gain (loss) on securities measured at FVOCI				3,083,003			6,130,023			39,295			(142,912	)
Fair value changes on financial liabilities designated at fair value due to credit risk				(300	)		414			(6,720	)		657
				3,082,703			6,130,437			32,575			(142,255	)
				3,067,885			6,092,985			311,842			44,083
Total comprehensive income for the period			W	3,990,814			8,470,593			1,081,920			413,426
Earnings per share
Basic and diluted earnings per share (in won)		38	W	215			558			202			98

See accompanying notes to the interim separate financial statements.

S-23

Korea Development Bank

Interim Separate Statements of Changes in Equity

Six-month periods ended June 30, 2021 and 2020 (Unaudited)

(In millions of won)	Issued capital		Capital surplus			Accumulated other comprehensive income			Retained earnings			Total equity
Balance at January 1, 2020	W	18,663,099		2,494,504			(88,092	)		4,733,320			25,802,831
Profit for the period		—		—			—			369,343			369,343
Net gain on securities measured at FVOCI		—		—			95,348			(64,962	)		30,386
Exchange differences on translation of foreign operations		—		—			32,160			—			32,160
Valuation gain on cash flow hedge		—		—			235			—			235
Net loss on hedges of net investments in foreign operations		—		—			(19,355	)		—			(19,355	)
Fair value changes on financial liabilities designated at fair value due to credit risk		—		—			657			—			657
Total comprehensive income for the period		—		—			109,045			304,381			413,426
Dividends		—		—			—			(111,978	)		(111,978	)
Paid in capital increase		450,500		(2,166	)		—			—			448,334
Transaction with owners		450,500		(2,166	)		—			(111,978	)		336,356
Balance at June 30, 2020	W	19,113,599		2,492,338			20,953			4,925,723			26,552,613
Balance at January 1, 2021	W	20,765,729		2,484,398			2,064,371			5,068,032			30,382,530
Profit for the period		—		—			—			2,377,608			2,377,608
Net gain on securities measured at FVOCI		—		—			6,058,968			15,029			6,073,997
Exchange differences on translation of foreign operations		—		—			41,880			—			41,880
Valuation gain on cash flow hedge		—		—			657			—			657
Net loss on hedges of net investments in foreign operations		—		—			(23,963	)		—			(23,963	)
Fair value changes on financial liabilities designated at fair value due to credit risk		—		—			414			—			414
Total comprehensive income for the period		—		—			6,077,956			2,392,637			8,470,593
Dividends		—		—			—			(209,638	)		(209,638	)
Paid in capital increase		1,120,830		(5,388	)		—			—			1,115,442
Transaction with owners		1,120,830		(5,388	)		—			(209,638	)		905,804
Balance at June 30, 2021	W	21,886,559		2,479,010			8,142,327			7,251,031			39,758,927

See accompanying notes to the interim separate financial statements.

S-24

Korea Development Bank

Interim Separate Statements of Cash Flows

Six-month periods ended June 30, 2021 and 2020 (Unaudited)

(In millions of won)	Notes		2021			2020
Cash flows from operating activities
Profit for the period			W	2,377,608			369,343
Adjustments for:
Income tax expense		37		613,988			104,450
Interest income		25		(1,993,256	)		(2,353,110	)
Interest expense		25		1,206,346			1,771,847
Dividend income		27		(642,599	)		(400,605	)
Gain on valuation of securities measured at FVTPL		28		(1,514	)		(31,895	)
Gain on disposal of securities measured at FVTPL				(3,736	)		(12,745	)
Loss (gain) on financial liabilities measured at FVTPL		29		(106,104	)		28,499
Loss (gain) on securities measured at FVOCI		30		9,890			(52,013	)
Impairment loss on securities measured at amortized cost		7		89			2
Gain on loans measured at FVTPL		33		(1,933,124	)		(55,338	)
Loss (gain) on valuation of derivatives				587,596			(638,510	)
Net loss (gain) on fair value hedged items		31		(201,419	)		492,044
Gain on foreign exchange translations		32		(119,440	)		(214,547	)
Gain on disposal of investments in subsidiaries and associates		33		(77,546	)		(10,623	)
Impairment loss (reversal of impairment loss) on investments in subsidiaries and associates				(126,248	)		165,865
Provision for loan loss allowance		34		928,606			338,691
Increase of provision for other assets		34		5,077			1,681
Reversal of provision for payment guarantees		22		(47,063	)		(167,940	)
Reversal of provision for unused commitments		22		(22,477	)		(8,568	)
Increase (reversal) of financial guarantee provision		22		(28,054	)		40,833
Increase of provision for possible losses from lawsuits		22		1,122			—
Reversal of provision for restoration		22		(1,211	)		(269	)
Defined benefit costs		21		19,974			19,238
Depreciation of property and equipment		35		36,874			33,971
Impairment loss (reversal of impairment loss) on assets held for sale		36		(499,976	)		46,775
Gain on disposal of property and equipment		36		(3,220	)		(604	)
Gain on disposal of assets held for sale		36		(3,610	)		—
Depreciation of investment property		36		1,246			604
Amortization of intangible assets		35		26,623			27,212
Loss on redemption of debentures				—			3
				(2,373,166	)		(875,052	)
Changes in operating assets and liabilities:
Due from banks				(451,496	)		(2,756,511	)
Securities measured at FVTPL				(903,120	)		378,702
Loans measured at FVTPL				8,350			108,695
Loans measured at amortized cost				(6,630,749	)		(18,015,223	)
Derivative financial instruments				(88,601	)		(10,837	)
Other assets				(4,811,520	)		(3,282,400	)
Financial liabilities measured at FVTPL				290,878			—
Deposits				2,992,486			15,490,684
Defined benefit liabilities				(46	)		(109	)
Other liabilities				4,037,287			3,202,650
				(5,556,531	)		(4,884,349	)
Income taxes refund (paid)				190,594			(177,446	)
Interest received				1,988,788			2,378,040
Interest paid				(1,356,846	)		(1,738,176	)
Dividends received				646,459			399,389
Net cash used in operating activities			W	(4,083,094	)		(4,528,251	)

(Continued)

S-25

Korea Development Bank

Interim Separate Statements of Cash Flows, Continued

Six-month periods ended June 30, 2021 and 2020 (Unaudited)

(In millions of won)	Notes		2021			2020
Cash flows from investing activities
Net decrease (increase) of securities measured at FVTPL			W	(1,044,527	)		(1,218,560	)
Disposal of securities measured at FVOCI				20,308,243			19,139,143
Acquisition of securities measured at FVOCI		6		(19,575,204	)		(30,145,312	)
Redemption of securities measured at amortized cost		7		170,000			1,340,002
Acquisition of securities measured at amortized cost		7		(1,804,677	)		(657,702	)
Disposal of property and equipment				9,518			5,192
Acquisition of property and equipment		12		(16,611	)		(13,289	)
Acquisition of intangible assets		14		(5,945	)		(2,199	)
Disposal of investments in subsidiaries and associates				395,129			317,211
Acquisition of investments in subsidiaries and associates				(305,758	)		(295,661	)
Disposal of assets held for sale				9,200			—
Net cash used in investing activities				(1,860,632	)		(11,531,175	)
Cash flows from financing activities
Increase of financial liabilities measured at FVTPL				50,000			120,000
Decrease of financial liabilities measured at FVTPL				(36,452	)		(731,288	)
Proceeds from borrowings				20,352,814			26,812,220
Repayment of borrowings				(18,280,199	)		(25,137,667	)
Proceeds from issuance of debentures				62,262,832			67,721,628
Repayment of debentures				(57,069,434	)		(50,012,932	)
Decrease in lease liabilities				(11,492	)		(12,308	)
Dividends				(209,638	)		(111,978	)
Paid in capital increase				1,115,442			448,334
Net cash provided by financing activities				8,173,873			19,096,009
Effects from changes in foreign currency exchange rate for cash and cash equivalents held				100,705			338,998
Net increase in cash and cash equivalents				2,330,852			3,375,581
Cash and cash equivalents at beginning of the period				5,729,194			5,252,825
Cash and cash equivalents at end of the period		43	W	8,060,046			8,628,406

See accompanying notes to the interim separate financial statements.

S-26

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

1. Reporting Entity

Korea Development Bank (the “Bank”) was established on April 1, 1954, in accordance with The Korea Development Bank Act to finance and manage major industrial projects.

The Bank is engaged in the banking industry under The Korea Development Bank Act and other applicable statutes, and in the fiduciary in accordance with the Financial Investment Services and Capital Markets Act.

Korea Finance Corporation (KoFC), the former ultimate parent company, and KDB Financial Group Inc. (KDBFG), the former immediate parent company, were established by spin-offs of divisions of the Bank as of October 28, 2009. KoFC and KDBFG were merged into the Bank, effective as of December 31, 2014. Issued capital is W21,886,559 million with 4,377,311,768 shares of issued and outstanding as of June 30, 2021 and 100% of the Bank’s shares are owned by the government of the Republic of Korea.

The Bank’s head office is located in 14, Eunhaeng-ro (Yeouido-dong), Yeongdeungpo-gu, Seoul and its service network as of June 30, 2021 is as follows:

	Domestic				Overseas
	Head Office		Branches		Branches		Subsidiaries		Representative offices		Total
KDB		1		61		10		7		8		87

2. Basis of Preparation

(1) Application of accounting standards

These interim financial statements have been prepared in accordance with the Korean International Financial Reporting Standards (“K-IFRS”) 1034 Interim Financial Reporting and provide less information as compared with its annual financial statements. The interim financial statements have been prepared in accordance with K-IFRS effective as of June 30, 2021 and the significant accounting policies applied in the preparation of these interim financial statements have been consistently applied to all periods presented unless otherwise specified.

(2) Changes and disclosures of accounting policies

(i) New and amended standards adopted

The Bank newly applied the following amended and enacted standards for the annual period beginning on January 1, 2021. The nature and the impact of each new standard or amendment are described below:

Amendments to K-IFRS 1109 ‘Financial Instruments’, K-IFRS 1039 ‘Financial Instruments: Recognition and Measurement’, K-IFRS 1107 ‘Financial Instruments: Disclosure’, K-IFRS 1104 ‘Insurance Contracts’ and K-IFRS 1116 ‘Lease’ – Interest Rate Benchmark Reform

In relation to interest rate benchmark reform, the amendments provide a practical expedient allowing entities to change the effective interest rate instead of changing the carrying amount and apply hedge accounting without discontinuance although the interest rate benchmark is replaced in hedging relationship. The amendment does not have a significant impact on the separate financial statements.

S-27

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

2. Basis of Preparation, Continued

(ii) New standards and interpretations issued but not effective

The following new standards, interpretations and amendments to existing standards have been issued but not effective for annual periods beginning after January 1, 2021, and the Bank has not early adopted them. The nature and the impact of each new standard, amendment and enactments are described below:

Amendments to K-IFRS 1103 ‘Business Combination’ – Reference to the Conceptual Framework

The amendments update a reference of definition of assets and liabilities to qualify for recognition in revised Conceptual Framework for Financial Reporting. However, the amendments add an exception for the recognition of liabilities and contingent liabilities within the scope of K-IFRS 1037 ‘Provisions, Contingent Liabilities and Contingent Assets’, and K-IFRS 2121 ‘Levies’. The amendments also confirm that contingent assets should not be recognized at the acquisition date. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

Amendments to K-IFRS 1016 ‘Property, Plant and Equipment’ – Proceeds before intended use

The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use. Instead, the entity will recognize and disclose the proceeds from selling such items, and the costs of producing those items, as profit or loss. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

Amendments to K-IFRS 1037 ‘Provisions, Contingent Liabilities and Contingent Assets’ – Onerous Contracts: Cost of Fulfilling a Contract

The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts when assessing whether the contract is onerous. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

Amendments to K-IFRS 1001 ‘Presentation of Financial Statements’ – Classification of Liabilities as Current or Non-current

The amendments clarify that liabilities are classified as either current or non-current, depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise right to defer settlement of the liability or the management’s expectations thereof. Also, the settlement of liability includes the transfer of the entity’s own equity instruments; however, it would be excluded if an option to settle the liability by the transfer of the entity’s own equity instruments is recognized separately from the liability as an equity component of a compound financial instrument. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

S-28

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

2. Basis of Preparation, Continued

Amendments to K- IFRS 1116 ‘Lease’ – Covid-19-Related Rent Concessions etc. beyond June 30, 2021

The application of the practical expedient, a lessee may elect not to assess whether a rent concession occurring as a direct consequence of the COVID-19 pandemic is a lease modification, is extended to lease payments originally due on or before 30 June 2022. A lessee shall apply the practical expedient consistently to eligible contracts with similar characteristics and in similar circumstances. The amendments should be applied for annual periods beginning on or after April 1, 2021, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

Annual improvements to K-IFRS 2018-2020

Annual improvements of K-IFRS 2018-2020 Cycle should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

• K-IFRS 1109 ‘Financial Instruments’ – Fees related to the 10% test for derecognition of financial liabilities

The amendment clarifies that in applying the ‘10 per cent’ test to assess whether to derecognise a financial liability, an entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf.

• K-IFRS 1101 ‘First time Adoption of Korean International Financial Reporting Standards’ – Subsidiaries that are first-time adopters

• K-IFRS 1116 ‘Leases’ – Lease incentives

• K-IFRS 1041 ‘Agriculture’ – Measuring fair value

(3) Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:

• Derivative financial instruments measured at fair value

• Financial instruments measured at fair value through profit or loss

• Financial instruments measured at fair value through other comprehensive income

• Fair value hedged financial instruments with changes in fair value, due to hedged risks, recognized in profit or loss

• Liabilities for defined benefit plans, which are recognized as net of the total present value of defined benefit obligations less the fair value of plan assets.

(4) Functional and presentation currency

These financial statements are presented in Korean won (“W”), which is the Bank’s functional currency and the currency of the primary economic environment in which the Bank operates.

S-29

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

2. Basis of Preparation, Continued

(5) Use of estimates and judgments

The preparation of the financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and 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.

The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

(i) Fair value of financial instruments

Financial instruments measured at fair value through profit or loss and other comprehensive income, and derivative instruments are recognized and measured at fair value. 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.

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.

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.

(ii) Credit losses allowance

The Bank tests impairment and recognizes loss allowances on financial assets classified at amortized cost, debt instruments measured at fair value through other comprehensive income and recognizes provisions for payment guarantee, financial guarantee and unused commitments. Accuracy of allowances and 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.

The pandemic of COVID-19 in 2021 has a negative impact on the global economy despite of the Korean government’s financial and economic stabilization packages. It may have a negative impact on the financial position and financial performance of the Bank due to the increase of the expected credit losses on specific portfolios and the potential losses on financial assets. The detail of credit risk exposures by industry affected by the pandemic of COVID-19 as of June 30, 2021 is disclosed in Note 49. (2) and the exposures by industries could be changed according to economic fluctuations.

S-30

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

2. Basis of Preparation, Continued

Taking these circumstances into account comprehensively, the Bank recalculated the forward-looking information used to estimate the expected credit loss in accordance with K-IFRS 1109 ‘Financial Instruments’ as of June 30, 2021. During the six-month period since the end of the previous year, there have been changes in the forward-looking information that affects expected credit losses, and it is predicted that major economic factors such as the 2021 unemployment rate and economic growth rate will deteriorate due to the impact of COVID-19. To reflect these changes, the Bank recalculated the forward-looking information by means of increasing the probability of recession used in generating future economic scenarios and will continue to monitor the forward-looking information on a quarterly basis.

(iii) Deferred taxes

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred income tax assets are recognised to the extent that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Actual income taxes in the future may not be identical to the recognised deferred tax assets and liabilities.

(iv) Defined benefit liabilities

The Bank operates a defined benefit plan. Defined benefit liability is calculated by annual actuarial valuations as of the reporting date. To perform the actuarial valuations, assumptions for discount rates, future salary increases and others are required to be estimated. Defined benefit plans contain significant uncertainties in estimations due to its long-term nature.

3. Significant Accounting Policies

The significant accounting policies applied by the Bank in preparation of its separate financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in these separate financial statements.

(1) Investments in subsidiaries and associates

The accompanying financial statements are separate financial statements in accordance with K-IFRS 1027 ‘Separate Financial Statements’ and investments in subsidiaries and associates are accounted for at cost, not by performance and net asset reported by the investee.

Dividends received from subsidiaries and associates are recognised as income as of the time the right to receive the dividends is established.

(2) Business combination of entities under common control

The assets and liabilities acquired under business combinations under common control are recognised at the carrying amounts recognised previously in the consolidated financial statements of the ultimate parent. The difference between consideration transferred and carrying amounts of net assets acquired is recognised as part of share premium.

(3) Operating segments

The Bank makes decisions regarding allocation of resources to segments and categorizes segments, based on internal reports reviewed periodically by the chief operating decision maker, to assess performance. Information

S-31

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

on segments reported to the chief operating decision maker includes items directly attributable to segments as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise corporate assets (such as the Bank Headquarters), head office expenses, and income tax assets and liabilities. The Bank recognises the CEO as the chief operating decision maker.

(4) Foreign exchange

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the functional currency of the Bank, at exchange rates of the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on transactions and translations of monetary items are recognised in profit or loss, except for differences arising on the translation of a financial instruments designated as hedges of the net investment in foreign operations, or cash flow hedge, which are recognised in other comprehensive income.

When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss is recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss shall be recognised in profit or loss.

(ii) Foreign operations

If the presentation currency of the Bank is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

Unless the functional currency of foreign operations is in a state of hyperinflation, assets and liabilities of foreign operations are translated at the closing exchange rate at the end of the reporting period. Revenues and expenses on the statement of comprehensive income are translated at the exchange rates of the date of transaction. Foreign currency differences that arise from translation are recognized as other comprehensive income, and the disposal of a foreign operation is re-categorized as profit or loss as of the moment of the disposal profit or loss is recognized.

Any goodwill arising on the acquisition of a foreign operation, and any adjustments in fair value to the carrying amounts of assets and liabilities due to such acquisition, are treated as assets and liabilities of the foreign operation. Therefore, such are expressed in the functional currency of the foreign operations and, alongside other assets and liabilities of the foreign operation, translated at the closing exchange rate.

In the case of the disposal of a foreign operation, cumulative amounts of exchange difference regarding the foreign operation, recognized separately from other comprehensive income, are re-categorized from assets to profit or loss as of the disposal profit or loss is recognized.

S-32

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

(iii) Foreign exchange of net investment in foreign operations

Monetary items receivable from or payable to a foreign operation, with none or little possibility of being settled in the foreseeable future, are considered a part of the net investment in the foreign operation. Therefore, the exchange difference is recognised as comprehensive income or loss in the financial statement and re-categorized to profit or loss as of the disposal of the related net investment.

(5) Recognition and measurement of financial instruments

(i) Initial recognition

The Bank recognizes a financial asset or a financial liability in its separate statement of financial position when the Bank becomes a party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets is recognized and derecognized using trade date accounting. The Bank 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 on the basis of the Bank’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. The Bank classifies financial liabilities as financial liabilities at fair value through profit or loss, or financial liabilities at amortized cost.

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.

(ii) 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 is the amount at which the financial asset or financial liability is measured at 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 and, for financial assets, adjusted for any loss allowance.

Fair value

Fair values, which the Bank 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.

S-33

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

The Bank uses valuation models that are commonly used by market participants and customized for the Bank 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 Bank 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.

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 Bank 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.

(iii) Derecognition

Derecognition is the removal of a previously recognized financial asset or financial liability from the statement of financial position. The Bank 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 Bank has not retained control. If the Bank neither transfers nor disposes of substantially all the risks and rewards of ownership of the financial assets, the Bank continues to recognize the financial asset to the extent of its continuing involvement in the financial asset.

If the Bank 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 Bank continues to recognize the transferred asset in its entirety and recognize a financial liability for the consideration received.

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.

(iv) Offsetting

Financial assets and liabilities are offset and the net amount reported in the separate 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.

S-34

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

(6) Cash and cash equivalents

Cash and cash equivalents comprise balances with original maturities of three months or less from the date of acquisition that are subject to an insignificant risk of changes in their fair value, including cash on hand, deposits held at call with banks and other highly liquid short-term investments with original maturities of three months or less.

(7) Non-derivative financial assets

(i) Financial assets at fair value through profit or loss

Any non-derivative financial asset classified as held for trading or not classified as financial assets at fair value through other comprehensive income or financial assets measured at amortized cost is categorized under financial assets at fair value through profit or loss.

The Bank 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 profit or loss.

(ii) Financial assets at fair value through other comprehensive income

The Bank classifies financial assets as financial assets at fair value through other comprehensive income if they meet the following conditions: 1) 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 2) 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 profit or loss, 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.

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.

(iii) 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

S-35

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

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.

(8) Expected credit loss of financial assets

The Bank 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.

The expected credit loss (“ECL”) is the weighted average amount of possible outcomes within a certain range, reflecting the time value of money, estimates on the past, current and future situations, and information accessible without excessive cost of effort.

The Bank uses the following three measurement techniques in accordance with K-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

The general approach is applied differently depending on the significance of the increase of the credit risk. If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, an entity shall measure the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses. If the credit risk on that financial instrument has increased significantly since initial recognition, an entity shall measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses at each reporting date.

The Bank applies the simplified approach to 1) trade receivables and contract assets that do not have a significant financing component or 2) trade receivables, contract assets and lease receivables upon determining the Bank’s accounting policies as the application of the simplified approach. The approach requires expected lifetime losses to be recognized from initial recognition of the financial assets. Under credit-impaired approach, the Bank 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.

The following non-exhaustive list of information may be relevant in assessing changes in credit risk:

• Significant changes in internal price indicators of credit risk as a result of a change in credit risk since inception

• Other changes in the rates or terms of an existing financial instrument that would be significantly different if the instrument was newly originated or issued at the reporting date

• An actual or expected significant change in the financial instrument’s external credit rating

• An actual or expected internal credit rating downgrade for the borrower or decrease in behavioural scoring used to assess credit risk internally

• An actual or expected significant change in the operating results of the borrower

• Past due information

S-36

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

(i) Forward-looking information

The Bank uses forward-looking information, when it determines whether the credit risk has increased significantly since initial recognition and measures expected credit losses.

The Bank 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.

Forward looking information used in calculation of expected credit loss is derived after comprehensive consideration of a variety of factors including scenario in management planning, worst-case scenario used for stress testing, third party forecast, and others.

(ii) 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 Bank estimates expected future cash flows for financial assets that are individually significant (individual assessment of impairment).

For financial assets that are not individually significant, the Bank 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 is calculated using management’s best estimate on present value of expected future cashflows. The Bank 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 on a group of assets and loss given default 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.

The expected credit loss for financial assets measured at amortized cost is recognized as the loss allowance, and when the financial asset is determined to be irrecoverable, the carrying amount and loss allowance are decreased. If financial assets previously written off are recovered, the loss allowance is increased and the difference is recognized in the current profit or loss.

(iii) 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 changes in loss allowances that are

S-37

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

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.

(9) Derivative financial instruments including hedge accounting

Derivative financial instruments are initially recognised at fair value at the inception of the contract and re-estimated at fair value subsequently. The recognition of profit or loss due to changes in fair value of derivative instruments is as described below:

(i) Hedge accounting

Derivative financial instruments are accounted differently depending on whether hedge accounting is applied, and therefore, are classified into trading purpose derivatives and hedging purpose derivatives.

Upon the transaction of hedging purpose derivatives, two different types of hedge accounting are applied; a fair value hedge, and a cash flow hedge. A fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. A cash flow hedge is a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss.

At the inception of the hedge relationship, the Bank formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge, and the method that will be used to assess the effectiveness of the hedging relationship.

Fair value hedge

For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognised in profit or loss in the statement of comprehensive income. Meanwhile, the change in the fair value of the hedged item, attributable to the risk hedged, is recorded as part of the carrying value of the hedged item and is also recognised in profit or loss in the statement of comprehensive income. When the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged item recorded at amortized cost, the difference between the carrying value of the hedged item on termination and the face value is amortized over the remaining term of the original hedge using the EIR.

Cash flow hedge

For designated and qualifying cash flow hedges, the effective portion of gain or loss on the hedging instruments is initially recognised directly in equity. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately in the statement of comprehensive income. When the hedged cash flow affects the profit or loss in statement of comprehensive income, the gain or loss on the hedging instrument is recorded in the corresponding income or expense line in profit or loss in the statement of comprehensive income.

When a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the hedged forecasted transaction is ultimately

S-38

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

recognised in the statement of comprehensive income. When a forecasted transaction is no longer expected to occur, the cumulative gain and loss that was reported in equity is immediately transferred to profit or loss in the statement of comprehensive income.

Hedges of net investments in foreign operations

The Bank designates non-derivative financial instruments as hedging instruments for foreign currency risk arising from net investments in foreign operations and recognises the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge in other comprehensive income. The cumulative amounts recognised in other comprehensive income relating to both the foreign exchange differences arising on translation of the results and financial position of the foreign operation and the gain or loss on the hedging instrument that is determined to be an effective hedge of the net investment are reclassed from equity to profit or loss as a reclassification adjustment when the Bank disposes of the foreign operation.

(ii) Trading purpose derivatives

For trading purpose derivatives transaction, changes in the fair value of derivatives are recognised in net income.

(10) Day one profit or loss recognition

For financial instruments classified as level 3 on the fair value level hierarchy measured using assess variables not observable in the market, the difference between the fair value at initial recognition and the transaction price, which is equivalent to Day one profit or loss, is amortized by using the straight-line method over time.

(11) Property and equipment

The Bank’s property and equipment are recognised at the carrying amount at historical costs less accumulated depreciation and accumulated impairment in value. Historical costs include the expenditures directly related to the acquisition of assets.

Subsequent costs are recognised in the carrying amount of assets or, if appropriate, as separate assets if the probabilities future economic benefits associated with the assets will flow into the Bank and the costs can be measured reliably; the carrying amount of the replaced part is derecognised. Furthermore, any other repairs or maintenances are charged to profit or loss as incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to the amount of residual value less acquisition cost over the following estimated useful lives:

Type	Useful lives (years)
Buildings		20 ~ 50
Structure		10 ~ 40
Movable property		4

S-39

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

Property and equipment are impaired when the carrying amount exceeds the recoverable amount. The Bank assesses residual value and economic life of its assets at each reporting date and adjusts useful lives when necessary. Any gain or loss arising from the disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in non-operating income (expense) in the statement of comprehensive income.

(12) Investment property

The Bank classifies property held for rental income or benefits from capital appreciation as investment property. Investment property is measured initially at cost, including transaction costs. Subsequent to initial recognition, the cost model is applied. Subsequent to initial recognition, an item of investment property is carried at its cost less any accumulated depreciation and any accumulated impairment loss.

Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the statement of comprehensive income in the period of de-recognition. Reclassification to other account is made if there is a change in use of corresponding investment property.

Depreciation of investment property is calculated using the straight-line method over its estimated useful lives as follows:

Type	Useful lives (years)
Buildings		20 ~ 50
Structure		10 ~ 40

(13) Intangible assets

An intangible asset is recognised only when its cost can be measured reliably, and the probabilities future economic benefits from the asset will flow into the Bank are high. Separately acquired intangible assets are recognised at the acquisition cost, and subsequently, the cost less accumulated depreciation and accumulated impairment is recognised as the carrying amount.

Intangible assets with finite lives are amortized over the four-year to 30-year period of useful economic lives using the straight-line method. At the end of each reporting period, the Bank reviews intangible assets for any evidence that indicate impairment, and upon the presence of such evidence, the Bank estimates the amount recoverable and recognises the loss accordingly.

Intangible assets with indefinite useful lives are not amortized but are tested for impairment annually. Furthermore, the Bank reviews such intangible assets to determine whether it is appropriate to consider these assets to have indefinite useful lives. If in the case the Bank concludes an asset is not qualified to be classified as non-finite, prospective measures are taken to consider such an asset as finite.

(14) Leases

The Bank recognizes 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 at the commencement date of the lease. The Bank elected not to apply the requirements to the short-term leases and leases of low value assets.

S-40

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

Right-of-use asset

The right-of-use asset is measured at its cost less subsequent accumulated depreciation and accumulated impairment loss with adjustments reflected arising from remeasurements of the lease liability. The cost of the right-of-use asset comprise the amount of the initial measurement of the lease liability, any initial direct costs incurred by the lessee and any lease payments made at or before the commencement date, less any lease incentive received. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis from the commencement date of the lease.

Lease liabilities

At the commencement date, the lease liability is measured at present value of the lease payments that are not paid at that date. Lease payments include fixed payments (including in-substance fixed payments), less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. The variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers those payments occurs.

When measuring the present value, the lease payments are discounted using the interest rate implicit in the lease. If such implicit rate cannot be readily determined, the Bank uses the Bank’s incremental borrowing rate. The lease liability is subsequently increased by the amount of interest expenses recognized on the lease liability and reduced by the lease payments made.

Short-term lease and lease of low-value assets

The Bank does not apply the requirements of lessee accounting to short-term leases and leases of low-value assets. The Bank recognizes the lease payments associated with these leases as expenses on a straight-line basis over the lease term.

(15) Impairment of non-financial assets

The Bank tests for any evidence of impairment in assets and reviews whether the impairment has taken place by estimating the recoverable amount, at the end of each reporting period. The recoverable amount is the higher of the fair value less cost and value in use of an asset.

Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.

(16) Assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. To be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale

S-41

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

must be highly probable. The assets or disposal group that are classified as assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Bank recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized.

Non-current assets that are classified as held for sale or part of a disposal group classified as held for sale are not depreciated (or amortized).

(17) Non-derivative financial liabilities

The Bank 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 liability. The Bank recognizes these financial liabilities in the statement of financial position when the Bank becomes a party to the contractual provisions of the financial liability.

(i) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated at FVTPL upon initial recognition. Financial liabilities and derivatives are classified as financial instruments held for trading if they are acquired for repurchasing soon. Financial liabilities are classified as financial liabilities at FVTPL upon initial recognition, if the profit or loss from the liabilities indicates to be more purpose-appropriate to be recognised as profit or loss. Financial liabilities at FVTPL are designated at fair value in subsequent measurements, and any related un-realized profit or loss is recognised as profit or loss. 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 Bank present this change in other comprehensive income, and does not recycle this other comprehensive income to profit or loss, subsequently.

(ii) Financial liabilities measured at amortized cost

Financial liabilities measured at amortized cost are recognised at fair value less cost less transaction cost upon initial recognition, and subsequently at amortized costs. The difference between the proceeds (net of transaction cost) and the redemption value is recognised in the statement of comprehensive income over the periods of the liabilities using the effective interest method.

Fees paid on the establishment of a loan facility are recognised as transaction costs of the loan, if the probability that some or all the facility will be drawn down is high. If, however, there is not enough evidence to conclude a draw-down of some or all the facility will occur, the fee is capitalized as a prepayment for liquidity services and amortized over the period of the facility to which it relates.

(18) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled wholly before 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Bank during an accounting period, the Bank recognises the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

S-42

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

(ii) Retirement benefits: defined contribution plans

A defined contribution plan is a pension plan under which the Bank pays fixed contributions into a separate fund. The Bank is no longer responsible for any foreseeable future liability after a certain amount or percentage of money is set aside for defined contribution plans. If the pension plan allows for early retirement, payments are recognised as employee benefits. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Bank recognises that excess as an asset to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(iii) Retirement benefits: defined benefit plans

The Bank classifies all the pensions as defined benefit plans except defined contribution plans. The Bank’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and have terms to maturity like the terms of the related pension liability.

Remeasurements of the net defined benefit liabilities (assets), which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income.

(19) Provisions

Provisions are recognized when the Bank has a present legal or constructive obligation because of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

(20) Financial guarantees

Financial guarantee contracts are contracts that require the issuer (the Bank) 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 changed terms of a debt instrument. Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the Bank’s liabilities under such guarantees are measured at the higher of:

• The amount determined in accordance with K-IFRS 1109 ‘Financial Instruments’ and

• The initial amount recognized, less, when appropriate, cumulative amortization recognized in accordance with K-IFRS 1115 ‘Revenue from Contracts with Customers’.

(21) Securities under resale or repurchase agreements

Securities purchased under agreements to resell are recorded as other loans and receivables and the related interest from these securities is recorded as interest income; securities sold under agreements to repurchase are recorded as other borrowings, and the related interest from these securities is recorded as interest expense.

S-43

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

(22) Interest income and expense

Interest income and expense are recognized in profit or loss using the effective interest method. The effective interest method measures the amortized costs of financial instruments and allocates the interest income or expense during the related period.

Upon the calculation of the effective interest rate, the Bank estimates future cash flows by taking into consideration all contractual terms of the financial instrument, but not future credit loss. The calculation also reflects any fees or points paid or received, transaction costs and any related premiums or discounts. In the case that the cash flow and expected duration of a financial instrument cannot be estimated reliably, the effective interest rate is calculated by the contractual cash flow during the contract period.

Once an impairment loss has been recognized on a financial asset or a group of similar assets, subsequent interest income is recognized on the interest rate that was used to discount future cash flow for measuring the impairment loss.

(23) Fees and commission income

Fees and commission income and expense are classified as follows according to related regulations:

(i) Fees and commission from financial instruments

Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. It includes those related to evaluation of the borrowers’ financial status, guarantee, collateral, other agreements and related evaluation as well as business transaction, rewards for activities, such as document preparation and recording and setup fees incurred during issuance of financial liabilities. However, when financial instruments are classified as financial instruments at fair value through profit or loss, fees and commission are recognized as revenue upon initial recognition.

(ii) Fees and commission from services

Fees and commission income charged in exchange for services to be performed during a certain period of time such as asset management fees, consignment fees and assurance service fees are recognized as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan and K-IFRS 1039 ‘Financial Instrument: Recognition and Measurement’ is not applied for the commitment, the related loan commitment fees are recognized as revenue proportionally to time over the commitment period.

(iii) Fees and commission from significant transaction

Fees and commission from significant transactions, such as trading stocks and other securities, negotiation and mediation activities for third parties, for instance business transfer and takeover, are recognized when transactions are completed.

(24) Dividend income

Dividend income is recognized upon the establishment of the Bank’s right to receive the payment.

(25) Income tax expense

Income tax expense comprises current and deferred income tax. Current income tax and deferred income tax are recognized in profit or loss except to the extent that the tax arises from a transaction or event, which is recognized in other comprehensive income or directly in equity, or a business combination.

S-44

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

The Bank recognizes deferred income tax liabilities for all taxable temporary differences associated with investments in subsidiaries, associates, except to the extent that the Bank can control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Bank recognizes deferred income tax assets for all deductible temporary differences arising from investments in associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the reporting period when the assets are realized, or the liabilities 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 assets and liabilities reflects the income tax effects that would follow from the manner in which the Bank expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period and reduced 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 off-set only if the Bank has a legally enforceable right to off-set the related current income tax assets and liabilities, and the assets and liabilities relate to income tax levied by the same tax authority and are intended to be settled on a net basis.

(26) Accounting for trust accounts

The Bank, for financial reporting, differentiates trust assets from identifiable assets according to the Financial Investment Services and Capital Markets Act. Furthermore, the Bank receives trust fees from the application, management and disposal of trust assets, and appropriates such amounts for fees from trust accounts.

Meanwhile, in the case the fee from an unspecified principal or interests guaranteed money in trust does not meet the principal or interest amount, even after appropriating deficit with trust fees and special reserve, the Bank fills in the remaining deficit in the trust account and appropriates such amounts for losses on trust accounts.

(27) Regulatory reserve for credit losses

When the total sum of allowance for possible credit losses is lower than the amount prescribed in Article 29(1) of the Regulations on Supervision of Banking Business, the Bank records the difference as regulatory reserve for credit losses at the end of each reporting period.

In the case that the existing regulatory reserve for credit losses exceeds the amount needed to be set aside at the reporting date, the surplus may be reversed. Furthermore, in the case that undisposed deficit exists, regulatory reserve for credit losses is saved from the time the undisposed deficit is disposed.

(28) Earnings per share

The Bank represents its diluted and basic earnings per common share in the separate statement of comprehensive income. Basic earnings per share (EPS) is calculated by dividing net profit attributable to

S-45

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

3. Significant Accounting Policies, Continued

shareholders of the Bank by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is calculated by adjusting net profit attributable to common shareholders of the Bank, considering dilution effects from all potential common shares, and the weighted average number of common shares outstanding.

(29) Corrections of errors

Prior period errors shall be corrected by retrospective restatement in the first set of financial statements authorised for issue after their discovery except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error.

4. Cash and Due from Banks

(1) Cash and due from banks as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Cash	W	53,847		52,240
Due from banks in Korean won:
Due from Bank of Korea		4,158,855		4,140,277
Other due from banks in Korean won		580,636		347,074
		4,739,491		4,487,351
Due from banks in foreign currencies / off-shores		6,475,917		5,989,387
	W	11,269,255		10,528,978

(2) Restricted due from banks as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Reserve deposit	W	3,644,433		3,052,883
Deposit of monetary stabilization account		700,000		1,300,000
Others		405,986		216,549
	W	4,750,419		4,569,432

S-46

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

5. Securities Measured at FVTPL

(1) Details of securities measured at fair value through profit or loss as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Face value		Acquisition cost		Fair value (Carrying amounts)
Securities denominated in Korean won:
Stocks	W	—		865,077		739,169
Equity investments		—		285,098		312,240
Beneficiary certificates		—		6,384,689		6,574,017
Government and public bonds		1,618,000		1,583,369		1,574,273
Financial bonds		335,000		336,164		335,502
Others		40,000		40,193		40,040
		1,993,000		9,494,590		9,575,241
Securities denominated in foreign currencies/off-shores:
Equity investments		—		26,291		51,284
Beneficiary certificates		—		674,879		642,882
Debt securities		3,390		3,313		3,365
		3,390		704,483		697,531
	W	1,996,390		10,199,073		10,272,772

	December 31, 2020
	Face value		Acquisition cost		Fair value (Carrying amounts)
Securities denominated in Korean won:
Stocks	W	—		745,860		622,918
Equity investments		—		233,467		291,984
Beneficiary certificates		—		5,726,787		5,841,059
Government and public bonds		1,024,950		1,031,165		1,023,738
		1,024,950		7,737,279		7,779,699
Securities denominated in foreign currencies/off-shores:
Equity investments		—		21,177		19,800
Beneficiary certificates		—		555,149		507,518
Debt securities		13,600		14,532		13,614
		13,600		590,858		540,932
	W	1,038,550		8,328,137		8,320,631

S-47

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

5. Securities Measured at FVTPL, Continued

(2) Securities measured at fair value through profit or loss with disposal restrictions as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
Company	Number of shares		Carrying amount		Restricted period
National Happiness Fund Co., Ltd.		34,066	W	47,647		Undecided
Shinhan Metal Co., Ltd.		7,692		—		Until December 31, 2021
		41,758	W	47,647
	December 31, 2020
Company	Number of shares		Carrying amount		Restricted period
National Happiness Fund Co., Ltd.		34,066	W	66,934		Undecided
Shinhan Metal Co., Ltd.		7,692		—		Until December 31, 2021
		41,758	W	66,934

6. Securities Measured at FVOCI

(1) Details of securities measured at FVOCI as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Face value		Acquisition cost		Fair value (Carrying amounts)
Securities denominated in Korean won:
Stocks and equity investments	W	—		10,159,230		10,479,901
Government and public bonds		970,000		977,750		971,397
Financial bonds		2,670,000		2,675,915		2,672,381
Corporate bonds		8,292,641		8,294,165		8,250,448
Others		2,141,115		2,137,849		13,013,856
		14,073,756		24,244,909		35,387,983
Securities denominated in foreign currencies/off-shores:
Equity securities		—		1,657		998
Debt securities		5,634,704		5,787,500		5,762,364
		5,634,704		5,789,157		5,763,362
Loaned securities:
Loaned securities		870,000		864,198		859,161
	W	20,578,460		30,898,264		42,010,506

S-48

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

6. Securities Measured at FVOCI, Continued

	December 31, 2020
	Face value		Acquisition cost		Fair value (Carrying amounts)
Securities denominated in Korean won:
Stocks and equity investments	W	—		9,964,039		10,060,520
Government and public bonds		1,900,000		1,923,926		1,918,765
Financial bonds		4,230,000		4,236,741		4,237,990
Corporate bonds		7,570,541		7,570,748		7,558,145
Others		2,141,115		2,137,849		4,803,611
		15,841,656		25,833,303		28,579,031
Securities denominated in foreign currencies/off-shores:
Equity securities		—		1,640		984
Debt securities		5,104,050		5,206,146		5,271,504
		5,104,050		5,207,786		5,272,488
Loaned securities:
Debt securities		290,000		289,641		289,806
	W	21,235,706		31,330,730		34,141,325

Equity instruments that are acquired due to debt-to-equity swap, investment in kind and investment in ventures and small and medium-sized enterprises are designated as measured at FVOCI. The realized pre-tax income and loss on disposal of equity securities for the six-month periods ended June 30, 2021 and 2020 and W20,729 million of gain and W89,603 million of loss, respectively, which are directly recognized in retained earnings.

(2) Changes in securities measured at FVOCI for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021			2020
Beginning balance	W	34,141,325			24,249,160
Acquisition		19,575,204			30,145,312
Disposal		(20,294,995	)		(19,164,238	)
Change due to amortization		(22,899	)		(24,236	)
Change in fair value		8,333,060			205,116
Foreign exchange differences		197,447			203,509
Others (*)		81,364			13,513
Ending balance	W	42,010,506			35,628,136

(*) For the six-month period ended June 30, 2021, others represent the increase in securities measured at FVOCI including shares of DAEHAN SHIPBUILDING CO., LTD., HEUNG-A SHIPPING CO.,LTD. and others acquired in accordance with the workout plan decided by the Council of Financial Creditors and shares of Woongjin Energy Co., Ltd acquired in accordance with the rehabilitation plan under the Debtor Rehabilitation and Bankruptcy Act. For the six-month period ended June 30, 2020, others represent the increase in securities measured at FVOCI including shares of SOLUM CO., LTD. acquired through exercise of conversion rights of the convertible bonds and shares of Barun Electronics Co., Ltd., Korea Heat

S-49

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

6. Securities Measured at FVOCI, Continued

Exchanger Co.,Ltd., SUNGCHANG ENGINEERING & CONSTRUCTION CO., LTD., NEOV INC. and others acquired in accordance with the rehabilitation plan under the Debtor Rehabilitation and Bankruptcy Act.

(3) Securities measured at FVOCI with disposal restrictions in securities measured at FVOCI as of June 30, 2021 and December 31, 2020 are as follows:

Company (*1)	June 30, 2021
	Number of shares		Carrying amount		Restricted period
UAMCO., Ltd.		113,050	W	160,818	Undecided
High Gain Antenna Co., Ltd.		18,138		265	Undecided
Engine Tech Co., Ltd.		500,000		1	Undecided
CREA IN Co., Ltd.		14,383		107	Until December 21, 2021
Heung-A Shipping Co., Ltd.		3,019,800		3	Until July 11, 2022
Kumho Tire Co., Inc.		21,339,320		171,141	Until July 6, 2023(*2)
POSCO Plantec Co., Ltd.		1,838,744		2,214	Until December 31, 2023 or listing date
	26,843,435		W  334,549

(*1) For the six-month period ended June 30, 2021, shares of Taihan Electric Wire Co., Ltd. held as of December 31, 2020 have been sold.

(*2) From July 6, 2021, 50% of the shares may be sold every year.

Company	December 31, 2020
	Number of shares		Carrying amount		Restricted period
UAMCO., Ltd.		113,050	W	150,244	Undecided
High Gain Antenna Co., Ltd.		18,138		—	Undecided
Engine Tech Co., Ltd.		500,000		1	Undecided
Taihan Electric Wire Co., Ltd.		15,892,055		21,772	Undecided
POSCO Plantec Co., Ltd.		1,838,744		2,468	Until June 9, 2021
CREA IN Co., Ltd.		14,383		140	Until December 21, 2021
Kumho Tire Co., Inc.		21,339,320		80,769	Until July 6, 2023(*)
	39,715,690		W255,394

(*) From July 6, 2021, 50% of the shares may be sold every year.

S-50

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

6. Securities Measured at FVOCI, Continued

(4) Changes in the loss allowance in relation to securities measured at FVOCI for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
				Lifetime expected credit loss
	12-month expected credit loss			Non  credit- impaired			Credit- impaired		Total
Beginning balance	W	9,671			1,209			70,398		81,278
Transfer to 12-month expected credit loss		76			(76	)		—		—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired		(1,895	)		1,895			—		—
Transfer to credit-impaired debt		—			—			—		—
Provision for loss allowance		1,292			1,290			345		2,927
Disposal		(542	)		—			—		(542	)
Foreign currency translation and others		1,585			(1,238	)		196		543
Ending balance	W	10,187			3,080			70,939		84,206

	2020
				Lifetime expected credit loss
	12-month expected credit loss			Non  credit- impaired			Credit- impaired		Total
Beginning balance	W	2,354			116			71,336		73,806
Transfer to 12-month expected credit loss		—			—			—		—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired		(189	)		189			—		—
Transfer to credit-impaired debt		—			—			—		—
Provision for loss allowance		7,139			248			482		7,869
Disposal		(63	)		—			—		(63	)
Foreign currency translation and others		462			(153	)		61		370
Ending balance	W	9,703			400			71,879		81,982

S-51

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

7. Securities Measured at Amortized Cost

(1) Securities measured at amortized cost as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Amortized cost			Fair value
Securities denominated in Korean won:
Government and public bonds	W	1,094,179			1,094,179
Financial bonds		1,040,319			1,040,284
Corporate bonds		282,734			282,671
		2,417,232			2,417,134
Less: loss allowance		(98	)		—
	W	2,417,134			2,417,134

	December 31, 2020
	Amortized cost			Fair value
Securities denominated in Korean won:
Government and public bonds	W	665,183			665,183
Financial bonds		120,090			120,081
		785,273			785,264
Less: loss allowance		(9	)		—
	W	785,264			785,264

(2) Changes in securities measured at amortized cost for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021			2020
Beginning balance	W	785,264			1,501,947
Acquisition		1,804,677			657,702
Redemption		(170,000	)		(1,340,002	)
Change due to amortization		(2,718	)		(2,247	)
Impairment loss		(89	)		(2	)
Ending balance	W	2,417,134			817,398

S-52

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

8. Loans Measured at FVTPL

(1) Loans measured at FVTPL as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021				December 31, 2020
	Amortized cost		Fair  value (Carrying amounts)		Amortized cost		Fair value (Carrying amounts)
Loans in Korean won:
Privately placed corporate bonds	W	467,762		696,048		795,871		1,429,258
Loans in foreign currencies/off-shores:
Privately placed corporate bonds		5,650		5,240		5,440		5,256
	W	473,412		701,288		801,311		1,434,514

(2) Gains (losses) related to loans measured at FVTPL for the six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Transaction gains (losses) on loans measured at FVTPL
Transaction gains	W	1,820,467			1,832,631			1,171			2,678
Transaction losses		(3,494	)		(4,461	)		(13,948	)		(17,188	)
		1,816,973			1,828,170			(12,777	)		(14,510	)
Valuation gains (losses) on loans measured at FVTPL
Valuation gains		(830,230	)		121,556			43,623			62,057
Valuation losses		(1,111	)		(4,899	)		(1,407	)		(6,719	)
		(831,341	)		116,657			42,216			55,338
	W	985,632			1,944,827			29,439			40,828

S-53

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

9. Loans Measured at Amortized Cost

(1) Loans measured at amortized cost and loss allowance for loan as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021					December 31, 2020
	Amortized cost			Fair value		Amortized cost			Fair value
Loans in Korean won:
Loans for working capital	W	65,337,331			63,612,342		63,711,135			62,132,170
Loans for facility development		53,224,325			52,256,010		51,237,311			50,692,553
Loans for households		217,119			216,641		238,011			240,468
Inter-bank loans		2,864,969			2,690,196		2,710,868			2,589,344
		121,643,744			118,775,189		117,897,325			115,654,535
Loans in foreign currencies:
Loans		18,908,566			18,653,701		17,196,875			16,860,390
Inter-bank loans		2,488,936			2,488,529		1,636,589			1,636,166
Off-shore loans		15,453,865			15,097,262		14,697,580			14,387,438
		36,851,367			36,239,492		33,531,044			32,883,994
Other loans:
Bills bought in foreign currency		2,210,969			2,209,807		2,198,964			2,198,079
Advances for customers on acceptances and guarantees		39,447			9,789		49,908			10,776
Privately placed corporate bonds		1,120,043			909,380		1,182,436			969,648
Others		5,506,649			5,384,093		4,223,895			4,102,454
		8,877,108			8,513,069		7,655,203			7,280,957
					163,527,750					155,819,486
Less:
Loss allowance for loan		(4,474,340	)				(3,776,491	)
Present value discount		(16,128	)				(15,906	)
Deferred loan origination costs and fees		12,785					9,003
	W	162,894,536					155,300,178

S-54

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

9. Loans Measured at Amortized Cost, Continued

(2) Changes in loss allowance for loan for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
				Lifetime expected credit losses
	12-month expected credit loss			Non  credit- impaired			Credit- impaired			Total
Beginning balance	W	640,094			1,398,461			1,737,936			3,776,491
Transfer to 12-month expected credit loss		7,761			(7,761	)		—			—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired		(602,527	)		602,583			(56	)		—
Transfer to credit-impaired		(152,782	)		(241,699	)		394,481			—
Provision for loss allowance		393,374			421,122			114,110			928,606
Write-offs		—			—			(20,000	)		(20,000	)
Recovery		—			—			38,992			38,992
Disposal		—			—			(195,323	)		(195,323	)
Debt-to-equity swap		—			—			(118,676	)		(118,676	)
Foreign currency translation		2,252			19,747			9,561			31,560
Other		(2,199	)		19,566			15,323			32,690
Ending balance	W	285,973			2,212,019			1,976,348			4,474,340
	2020
				Lifetime expected credit losses
	12-month expected credit loss			Non  credit- impaired			Credit- impaired			Total
Beginning balance	W	169,293			1,045,942			1,890,547			3,105,782
Transfer to 12-month expected credit loss		21,459			(21,459	)		—			—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired		(146,311	)		153,243			(6,932	)		—
Transfer to credit-impaired		(41,745	)		(182,592	)		224,337			—
Provision for (reversal of) loss allowance		267,324			204,994			(133,627	)		338,691
Write-offs		—			—			(122,638	)		(122,638	)
Recovery		—			—			23,367			23,367
Disposal		—			—			(164,270	)		(164,270	)
Debt-to-equity swap		—			—			(21,116	)		(21,116	)
Foreign currency translation		1,680			17,511			10,457			29,648
Other		70			12,830			21,737			34,637
Ending balance	W	271,770			1,230,469			1,721,862			3,224,101

S-55

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

9. Loans Measured at Amortized Cost, Continued

(3) Gains (losses) related to loans measured at amortized cost for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021					June 30, 2020
	Three-month period ended		Six-month period ended			Three-month period ended			Six-month period ended
Provision for loan allowance for loan	W	(838,872)		(928,606	)		(139,199	)		(338,691	)
Gains(losses) on disposal of loan		4,129		32,525			(39,296	)		(41,783	)
	W	(834,743)		(896,081	)		(178,495	)		(380,474	)

(4) Changes in net deferred loan origination costs and fees for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021			2020
Beginning balance	W	9,003			7,188
New deferrals		11,060			7,963
Amortization		(7,278	)		(6,025	)
Ending balance	W	12,785			9,126

10. Derivative Financial Instruments

The Bank’s derivative financial instruments consist of trading derivatives and hedging derivatives, depending on the nature of each transaction. The Bank enters into hedging derivative transactions mainly for the purpose of hedging risk related to changes in fair values of the underlying assets and liabilities and future cash flows.

The Bank enters into trading derivative transactions such as futures, forwards, swaps and options for arbitrage transactions by speculating on the future value of the underlying asset. Derivatives held-for trading transactions include contracts with the Bank’s clients and its liquidation position.

For the purpose of hedging the exposure to the variability of fair values and cash flows of funds in Korean won by changes in interest rate, the Bank mainly uses interest swaps or currency swaps. The main counterparties are foreign financial institutions and local banks. In addition, to hedge the exposure to the variability of fair values of bonds in foreign currencies by changes in interest rate or foreign exchange rate, the Bank mainly uses interest swaps or currency swaps.

The Bank applies net investment hedge accounting by designating non-derivative financial instruments as hedging instruments and any gain or loss on the hedging instruments relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated in the foreign currency translation reserve.

Gains and losses on the hedging instrument accumulated in the foreign currency translation reserve are reclassified to profit or loss on the disposal or partial disposal of the foreign operation.

S-56

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

10. Derivative Financial Instruments, Continued

(1) The notional amounts outstanding for derivative contracts and the carrying amounts of the derivative financial instruments as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Notional amounts				Carrying amounts
	Buy		Sell		Asset			Liability
Trading purpose derivative financial instruments:
Interest rate
Futures	W	—		1,784,822		—			—
Swaps		200,478,063		200,477,826		1,027,740			614,939
Options		8,518,394		13,037,459		290,111			327,618
		208,996,457		215,300,107		1,317,851			942,557
Currency
Futures		16,950		—		—			—
Forwards		67,811,241		52,534,086		1,082,293			1,005,986
Swaps		53,101,754		65,242,631		1,738,484			1,637,398
Options		240,979		241,302		1,816			1,171
		121,170,924		118,018,019		2,822,593			2,644,555
Stock
Options		355,321		485,257		8,596			439
Allowance and other adjustments		—		—		(22,721	)		(642	)
		330,522,702		333,803,383		4,126,319			3,586,909
Hedging purpose derivative financial instruments:
Interest rate (*)
Swaps		23,714,892		23,714,892		586,723			30,763
Currency
Swaps		9,008,004		8,703,870		433,438			39,698
Allowance and other adjustments		—		—		(359	)		(4,197	)
		32,722,896		32,418,762		1,019,802			66,264
	W	363,245,598		366,222,145		5,146,121			3,653,173

(*) The expected maximum period for which derivative contracts, applied the cash flow hedge accounting, are exposed to risk of cash flow fluctuation is until April 29, 2025.

S-57

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

10. Derivative Financial Instruments, Continued

	December 31, 2020
	Notional amounts				Carrying amounts
	Buy		Sell		Asset			Liability
Trading purpose derivative financial instruments:
Interest rate
Futures	W	55,000		151,200		—			—
Swaps		187,095,329		187,096,172		1,493,796			811,643
Options		9,055,649		12,890,976		291,068			329,946
		196,205,978		200,138,348		1,784,864			1,141,589
Currency
Futures		16,320		—		—			—
Forwards		58,129,120		49,012,225		1,807,677			2,251,316
Swaps		50,228,615		56,919,490		3,285,228			2,808,945
Options		422,146		403,029		2,909			5,299
		108,796,201		106,334,744		5,095,814			5,065,560
Stock
Options		53,571		7,315		8,214			661
Allowance and other adjustments		—		—		(7,921	)		(908	)
		305,055,750		306,480,407		6,880,971			6,206,902
Hedging purpose derivative financial instruments:
Interest rate (*)
Swaps		18,877,120		18,877,120		885,364			19,567
Currency
Swaps		8,308,800		7,985,902		563,558			83,201
Allowance and other adjustments		—		—		(517	)		(4,383	)
		27,185,920		26,863,022		1,448,405			98,385
	W	332,241,670		333,343,429		8,329,376			6,305,287

(*) The expected maximum period for which derivative contracts, applied the cash flow hedge accounting, are exposed to risk of cash flow fluctuation is until April 29, 2025.

(2) The notional amounts outstanding for the hedging instruments by period as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Interest rate:
Notional amounts outstanding	W	50,000		1,023,346		3,366,541		14,690,423		4,584,582		23,714,892
Currency:
Notional amounts outstanding	W	340,938		716,220		926,812		6,284,581		739,453		9,008,004

S-58

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

10. Derivative Financial Instruments, Continued

	December 31, 2020
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Interest rate:
Notional amounts outstanding	W	47,200		154,043		3,015,053		10,843,135		4,817,689		18,877,120
Currency:
Notional amounts outstanding	W	77,504		290,040		1,851,289		5,711,249		378,718		8,308,800

(3) Details of the balances of the hedging instruments by risk type as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Notional amounts				Balances				Changes in fair value for the period
	Buy		Sell		Assets		Liabilities
Cash flow hedge accounting:
Interest rate risk:
Swaps	W	79,100		79,100		—		—		962
Fair value hedge accounting:
Interest rate risk:
Swaps		23,635,792		23,635,792		586,723		30,763		(342,181	)
Currency risk:
Swaps		9,008,004		8,703,870		433,438		39,698		(143,716	)
		32,643,796		32,339,662		1,020,161		70,461		(485,897	)
	W	32,722,896		32,418,762		1,020,161		70,461		(484,935	)

	December 31, 2020
	Notional amounts				Balances				Changes in fair value for 2020
	Buy		Sell		Assets		Liabilities
Cash flow hedge accounting:
Interest rate risk
Swaps	W	76,160		76,160		—		—		23
Fair value hedge accounting:
Interest rate risk
Swaps		18,800,960		18,800,960		885,364		19,567		358,347
Currency risk
Swaps		8,308,800		7,985,902		563,558		83,201		502,957
		27,109,760		26,786,862		1,448,922		102,768		861,304
	W	27,185,920		26,863,022		1,448,922		102,768		861,327

S-59

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

10. Derivative Financial Instruments, Continued

(4) Details of the balances of the hedged items by risk type as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Carrying amounts				Change in value of the hedged item					Changes in fair value for the period			Cash flow hedge reserve
	Assets		Liabilities		Assets			Liabilities
Cash flow hedge accounting:
Interest rate risk:
Debt debentures	W	—		79,100		—			—		—			953
Fair value hedge accounting:
Interest rate risk:
Securities measured at FVOCI		2,006,650		—		(64,837	)		—		(21,208	)		—
Debt debentures		—		22,248,893		—			290,748		358,272			—
Other liabilities (Deposits, etc.)		—		118,661		—			5,611		6,430			—
		2,006,650		22,367,554		(64,837	)		296,359		343,494			—
Currency risk:
Debt debentures		—		9,041,822		—			251,458		148,226			—
		2,006,650		31,409,376		(64,837	)		547,817		491,720			—
	W	2,006,650		31,488,476		(64,837	)		547,817		491,720			953
	December 31, 2020
	Carrying amounts				Change in value of the hedged item					Changes in fair value for 2020			Cash flow hedge reserve
	Assets		Liabilities		Assets			Liabilities
Cash flow hedge accounting:
Interest rate risk
Debt debentures	W	—		76,160		—			—		—			47
Fair value hedge accounting:
Interest rate risk
Securities measured at FVOCI		1,922,565		—		18,217			—		47,606			—
Debt debentures		—		18,549,949		—			628,869		(396,922	)		—
Other liabilities (Deposits, etc.)		—		120,394		—			11,594		(8,770	)		—
		1,922,565		18,670,343		18,217			640,463		(358,086	)		—
Currency risk
Debt debentures		—		8,413,087		—			24,675		(503,895	)		—
		1,922,565		27,083,430		18,217			665,138		(861,981	)		—
	W	1,922,565		27,159,590		18,217			665,138		(861,981	)		47

S-60

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

10. Derivative Financial Instruments, Continued

(5) Details of hedge ineffectiveness recognized in profit or loss from derivatives for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021		2020
Interest rate risk	W	1,313		(4,447	)
Currency risk		4,510		(179	)
	W	5,823		(4,626	)

(6) The summary of the amounts that have affected the statement of comprehensive income as a result of applying cash flow hedge accounting for the six-month periods ended June 30, 2021 and 2020 is as follows:

	2021
	Change in the value of the hedging instrument recognized in other comprehensive income	Hedge ineffectiveness recognized in profit or loss(*)	Amount reclassified from other comprehensive income to profit or loss(*)
Interest rate risk	W  906	56	—

(*) Recognized in gains or losses related to hedging purpose derivatives.

	2020
	Change in the value of the hedging instrument recognized in other comprehensive income	Hedge ineffectiveness recognized in profit or loss(*)	Amount reclassified from other comprehensive income to profit or loss(*)
Interest rate risk	W    20	(60)	304

(*) Recognized in gains or losses related to hedging purpose derivatives.

(7) Details of net investments in foreign operations for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	Changes in fair value	Other comprehensive income for hedges of net investments in foreign operations
Currency (foreign exchange risk)	W  33,052	15,923
	2020
	Changes in fair value	Other comprehensive income for hedges of net investments in foreign operations
Currency (foreign exchange risk)	W  (43,437)	48,975

S-61

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

10. Derivative Financial Instruments, Continued

(8) Details of hedging instruments in hedge of net investments in foreign operations as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Carrying amount		Changes in fair value for the period			Change in the value of the hedging instrument recognized in other comprehensive income for the period			Hedge ineffectiveness recognized in profit or loss for the period
Debentures in foreign currencies	W	944,270		(33,052	)		(33,052	)		—
	December 31, 2020
	Carrying amount		Changes in fair value for 2020			Change in the value of the hedging instrument recognized in other comprehensive income for 2020			Hedge ineffectiveness recognized in profit or loss for 2020
Debentures in foreign currencies	W	732,566		43,437			43,437			—

(9) In relation to interest rate benchmark reform, the amendments provide a practical expedient allowing entities to change the effective interest rate instead of changing the carrying amount and apply hedge accounting without discontinuance although the interest rate benchmark is replaced in hedging relationship. The Bank’s notional amounts outstanding for hedging derivative instruments affected by Interest Rate Benchmark Reform as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
USD 3M LIBOR	W	22,775,296		17,393,414
KRW 3M CD		3,705,000		2,635,000
EUR 3M EURIBOR		516,376		537,149
EUR 6M EURIBOR		672,210		669,120
GBP 6M LIBOR		216,293		205,904
JPY 3M LIBOR		22,487		23,194

S-62

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

11. Investments in Subsidiaries and Associates

(1) Investments in subsidiaries and associates as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Subsidiaries:(*1)
KDB Asia Ltd.	W	332,907		332,907
KDB Bank Europe Ltd.(*2)		144,790		144,659
KDB Ireland Ltd.		62,389		62,389
KDB Bank Uzbekistan Ltd.		47,937		47,937
Banco KDB Do Brazil S.A.(*3)		34,032		31,270
KDB Indonesia Ltd.		40,288		40,233
KDB Silicon Valley LLC		5,565		—
KDB Investment Co., Ltd.		70,000		70,000
KDB Biz Co., Ltd.		1,500		1,500
KDB Capital Corporation		597,290		597,290
Korea BTL Financing 1		149,526		156,109
Korea Railroad Financing 1		87,469		90,316
Korea Education Financing		47,939		50,274
KDB Infrastructure Investment Asset Management Co., Ltd.		16,843		16,843
Korea Infrastructure Financing Co.(*4)		—		2,313
KDB Investment PEF No.1(*5)		1,137,683		977,570
KDB Consus Value PEF(*6)		157,525		157,759
KDB Sigma PEF II		10,356		18,468
KDB Value PEF VII(*7)		350		9,231
KDB-IAP OBOR PEF(*8)		—		6,086
KDB Asia PEF		36,672		26,326
KDB Small Medium Mezzanine PEF		81,740		81,740
Corporate Liquidity Assistance Agency Co., Ltd.		1,000,000		1,000,000
		4,062,801		3,921,220
Associates:
Korea Electric Power Co., Ltd.		16,921,067		16,921,067
Korea Tourism Organization		337,286		337,286
Korea Infrastructure Financing 2 Co.		213,028		219,902
Korea Ocean Business Corporation		631,777		631,777
Korea Real Estate Board		58,492		58,492
HMM Co., Ltd.		2,736,835		78,835
GM Korea Company(*9)		402,942		436,930
Hanjin Heavy Industries & Construction Co., Ltd.(*10)		—		—
HANJIN KAL		500,000		500,000
Multi Asset Electronic Power PEF(*11)		—		19,464
Shinbundang Railroad Co., Ltd.(*12)		30,999		30,999
Troika Resources Investment PEF(*13)		2,294		2,336
Others(*14)		2,428,463		2,395,253
		24,263,183		21,632,341
	W	28,325,984		25,553,561

S-63

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

(*1) The Bank acquired an additional 172,732 of common shares of Daehan Shipbuilding Co., Ltd. and recognized W1,727 million of impairment losses for the year ended December 31, 2020, considering the impaired capital of Daehan Shipbuilding Co., Ltd. as objective evidence of impairment.

(*2) For the period ended June 30, 2021, the Bank recognized W131 million of reversal of impairment losses considering increase in value in use due to enhancement of expected cash flows from the shares held by the Bank, while for the year ended December 31, 2020 the Bank recognized W58,965 million of impairment losses.

(*3) For the period ended June 30, 2021, the Bank recognized W2,762 million of reversal of impairment losses considering increase in value in use due to enhancement of expected cash flows from the shares held by the Bank, while for the year ended December 31, 2020 the Bank recognized W14,279 million of impairment losses.

(*4) For the period ended June 30, 2021, Korea Infrastructure Financing Co. was liquidated and excluded from the Bank’s subsidiaries.

(*5) The Bank recognized W146,779 million and W2,153 million of reversal of impairment losses for the period ended June 30, 2021 and the year ended December 31, 2020, respectively, considering the increase in the value in use of the shares of Daewoo Engineering & Construction Co., Ltd. held by KDB Investment PEF NO.1 as objective evidence of recovery of impairment.

(*6) The Bank made a stock purchase agreement with JC Partners on the December 31, 2020 to sell the Bank’s shares of KDB Life Insurance Co., Ltd., the Bank’s sub-subsidiary. The Bank recognized W234 million and W176,327 million of impairment losses for the period ended June 30, 2021 and the year ended December 31, 2020, respectively, based on the expected cash flows distributed to the Bank through the disposal of KDB Life Insurance Co., Ltd.

(*7) The Bank recognized W2,200 million of impairment losses for the period ended June 30, 2021, considering the decline in net asset values due to the decrease in fair value of assets held as objective evidence of impairment.

(*8) The Bank recognized W6,086 million and W28,054 million of impairment losses for the period ended June 30, 2021 and the year ended December 31, 2020, respectively, considering the decline in net asset values due to the decrease in fair value of assets held as objective evidence of impairment.

(*9) For the period ended June 30, 2021, the Bank recognized W33,988 million of impairment losses considering decrease in value in use due to deterioration of operating cash flows, while for the year ended December 31, 2020 the Bank recognized W35,417 million of reversal of impairment losses.

(*10) As described in Note 16, the Bank selected Dongbu-led consortium as the preferred bidder for Hanjin Heavy Industries & Construction Co., Ltd. on December 22, 2020, and made the share purchase agreement on April 15, 2021. The relevant investments in associates were reclassified as assets held for sale. The Bank recognized W11,613 million of reversal of impairment losses for the year ended December 31, 2020 based on the expected cash flows distributed to the Bank through the disposal of Hanjin Heavy Industries & Construction Co., Ltd.

(*11) For the period ended June 30, 2021, Multi Asset Electronic Power PEF was liquidated and excluded from the Bank’s subsidiaries.

(*12) The Bank recognized W21,577 million of reversal of impairment losses for the year ended December 31, 2020, respectively, considering increase in fair value due to improvement of expected dividend cash flows from the shares held by the Bank.

(*13) The Bank recognized W42 million and W1,222 million of impairment losses for the period ended June 30, 2021 and the year ended December 31, 2020, respectively, considering the decline in net asset values due to the decrease in fair value of assets held as objective evidence of impairment.

S-64

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

(*14) The Bank recognized W19,126 million of impairment losses for KoFC Value-up Private Equity Fund and 16 other companies for the period ended June 30, 2021. The Bank recognized W29,503 million of impairment losses for KBS KDB PEF and 19 other companies for the year ended December 31, 2020.

(2) The market value of marketable investments in subsidiaries and associates as of June 30, 2021 and December 31, 2020 are as follows:

	Market value				Carrying amounts
	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Korea Electric Power Co., Ltd.	W	5,249,196		5,787,846		16,921,067		16,921,067
HMM Co., Ltd.		4,442,649		574,730		2,736,835		78,835
HANJIN KAL		466,102		445,621		500,000		500,000
KG Dongbu Steel Co., Ltd.		71,511		127,359		24,652		67,599

(3) The key financial information of subsidiaries and associates invested and ownership ratios as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Country	Fiscal year end		Industry	Assets		Liabilities		Equity			Operating revenue		Net income (loss)			Total compre- hensive income (loss)			Owner- ship (%)
Subsidiaries:
KDB Asia Ltd.	Hong Kong		December	Finance	W	3,001,896		2,494,360		507,536			67,250		18,848			36,169			100
KDB Bank Europe Ltd.	Hungary		December	Finance		1,064,542		948,913		115,629			17,754		1,806			4,234			100
KDB Ireland Ltd.	Ireland		December	Finance		514,786		411,133		103,653			9,193		962			4,553			100
KDB Bank Uzbekistan Ltd.	Uzbekistan		December	Finance		672,128		594,928		77,200			12,978		4,725			11,313			86.32
Banco KDB Do Brazil S.A.	Brazil		December	Finance		368,628		304,161		64,467			29,818		598			5,901			100
KDB Indonesia Ltd.	Indonesia		December	Finance		85,196		55,484		29,712			4,332		(963	)		(724	)		84.65
KDB Silicon Valley LLC	USA		December	Finance		5,652		—		5,652			2		2			—			100
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	Korea		December	Manufacturing		9,816,076		7,189,675		2,626,401			2,171,179		(1,246,945	)		(1,241,471	)		55.68
Sam Woo Heavy Industries Co., Ltd.(*1)	Korea		December	Manufacturing		256,441		237,764		18,677			38,022		(3,664	)		(3,664	)		100
Daehan Shipbuilding Co., Ltd.(*1)	Korea		December	Manufacturing		564,950		758,020		(193,070	)		379,533		(38,731	)		(38,731	)		70.04
KDB Capital Corporation	Korea		December	Specialized Credit Finance		7,201,847		6,018,893		1,182,954			293,389		120,105			121,691			99.92
Korea BTL Financing 1(*2)	Korea		Semi- annually	Financial investment		381,425		245		381,180			9,098		8,549			8,549			41.67
Korea Railroad Financing 1(*2)	Korea		Semi- annually	Financial investment		186,069		5		186,064			3,677		3,451			3,451			50
Korea Education Financing(*2)	Korea		Semi- annually	Financial investment		104,118		7		104,111			1,970		1,621			1,621			50
KDB Infrastructure Investment Asset Management Co., Ltd.	Korea		December	Asset management		56,823		9,423		47,400			17,862		9,097			9,097			84.16
KDB Investment Co., Ltd.	Korea		December	Finance		78,211		2,336		75,875			4,556		1,272			1,272			100
KDB Biz Co., Ltd.	Korea		December	Services		6,748		4,624		2,124			11,999		(176	)		(176	)		100
KDB Investment PEF No.1	Korea		December	Financial investment		10,718,947		7,928,160		2,790,787			4,219,728		136,810			152,468			99.40
KDB Consus Value PEF	Korea		December	Financial investment		19,633,259		19,380,190		253,069			2		(8,585	)		(259,601	)		68.20
KDB Sigma PEF II	Korea		December	Financial investment		15,117		2		15,115			24		(3,316	)		(3,316	)		60

S-65

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

	June 30, 2021
	Country	Fiscal year end		Industry	Assets		Liabilities		Equity			Operating revenue		Net income (loss)			Total compre- hensive income (loss)			Owner- ship (%)
KDB Value PEF VII(*3)	Korea		December	Financial investment		18,362		—		18,362			5		(1,137	)		(1,137	)		50
KDB-IAP OBOR PEF(*3)	Korea		December	Financial investment		52,473		52,187		286			—		(72,020	)		(70,094	)		33.52
KDB Asia PEF(*3)	Korea		December	Financial investment		69,180		181		68,999			—		(1,842	)		1,634			50
KDB Small Medium Mezzanine PEF	Korea		December	Financial investment		102,162		218		101,944			8,182		(8,159	)		(7,371	)		66.67
Corporate Liquidity Assistance Agency Co., Ltd.	Korea		December	Financial investment		4,417,448		3,398,050		1,019,398			39,305		16,689			16,689			100
Components and Materials M&A PEF	Korea		December	Financial investment		1,047		1,831		(784	)		1		(33	)		(33	)		83.33
Associates:
Korea Electric Power Co., Ltd.	Korea		December	Electricity Generation		206,982,941		137,290,234		69,692,707			28,594,215		(610,120	)		(275,589	)		32.90
Korea Tourism Organization	Korea		December	Culture and Tourism administration		1,236,590		369,410		867,180			160,124		(70,915	)		(68,557	)		43.58
Korea Infrastructure Financing 2 Co.	Korea		December	Financial investment		839,048		44,724		794,324			32,424		6,069			6,069			26.67
Korea Ocean Business Corporation	Korea		December	Finance		19,780,026		7,073,807		12,706,219			10,719,866		7,718,473			7,725,648			22.11
Korea Real Estate Board	Korea		December	Appraisal		299,149		76,072		223,077			99,958		13,958			13,771			30.60
GM Korea Company (*4)	Korea		December	Manufacturing		4,853,377		3,464,004		1,389,373			3,961,834		(293,362	)		(290,418	)		17.02
HMM Co., Ltd.(*5)	Korea		December	Foreign cargo transportation		12,467,253		7,290,562		5,176,691			5,334,746		364,570			465,962			24.96
HANJIN KAL(*4)	Korea		December	Holding compnay		3,510,994		1,977,693		1,533,301			175,667		(118,275	)		(109,509	)		10.66
Shinbundang Railroad Co., Ltd.(*6)	Korea		December	Other		654,510		973,492		(318,982	)		66,206		(191,263	)		(191,263	)		10.98
Troika Resources Investment PEF(*7)	Korea		December	Financial investment		5,573		1,371		4,202			51		(9	)		(9	)		54.94

	December 31, 2020
	Country	Fiscal year end		Industry	Assets		Liabilities		Equity			Operating revenue		Net income (loss)			Total compre- hensive income (loss)			Owner- ship (%)
Subsidiaries:
KDB Asia Ltd.	Hong Kong		December	Finance	W	2,693,398		2,222,031		471,367			132,319		12,603			(18,151	)		100
KDB Bank Europe Ltd.	Hungary		December	Finance		1,191,023		1,079,628		111,395			55,804		(15,780	)		(26,355	)		100
KDB Ireland Ltd.	Ireland		December	Finance		468,754		369,654		99,100			23,062		4,572			(1,828	)		100
KDB Bank Uzbekistan Ltd.	Uzbekistan		December	Finance		628,874		562,988		65,886			24,028		8,401			(4,776	)		86.32
Banco KDB Do Brazil S.A.	Brazil		December	Finance		315,666		257,100		58,566			96,007		1,917			(19,812	)		100
KDB Indonesia Ltd.	Indonesia		December	Finance		87,891		57,455		30,436			12,345		1,831			1,831			84.65
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	Korea		December	Manufacturing		10,320,775		6,451,804		3,868,971			7,030,175		86,573			114,107			55.68
Sam Woo Heavy Industries Co., Ltd.(*1)	Korea		December	Manufacturing		253,735		231,394		22,341			135,932		1,037			1,104			100
Daehan Shipbuilding Co., Ltd.(*1)	Korea		December	Manufacturing		636,255		790,594		(154,339	)		765,204		(5,518	)		(5,704	)		70.04
KDB Capital Corporation	Korea		December	Specialized Credit Finance		6,607,724		5,518,888		1,088,836			431,722		173,681			171,657			99.92
Korea BTL Financing 1(*2)	Korea		Semi- annually	Financial investment		395,038		259		394,779			14,120		6,822			6,822			41.67

S-66

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

	December 31, 2020
	Country	Fiscal year end		Industry	Assets		Liabilities		Equity			Operating revenue		Net income (loss)			Total compre- hensive income (loss)			Owner- ship (%)
Korea Railroad Financing 1(*2)	Korea		Semi- annually	Financial investment		190,706		9		190,697			9,681		9,201			9,201			50
Korea Education Financing(*2)	Korea		Semi- annually	Financial investment		108,656		7		108,649			7,275		6,994			6,994			50
KDB Infrastructure Investment Asset Management Co., Ltd.	Korea		December	Asset management		59,818		10,715		49,103			35,072		17,972			17,951			84.16
KDB Investment Co., Ltd.	Korea		December	Finance		77,601		2,997		74,604			9,420		3,042			3,054			100
KDB Biz Co., Ltd.	Korea		December	Services		8,207		5,907		2,300			25,468		1,149			603			100
Korea Infrastructure Financing Co.	Korea		December	Financial investment		2,777		12		2,765			191		(22	)		(22	)		85
KDB Investment PEF No.1	Korea		December	Financial investment		9,701,074		7,233,393		2,467,681			8,361,795		58,745			23,799			99.40
KDB Consus Value PEF	Korea		December	Financial investment		19,548,528		19,015,550		532,978			8		(140,754	)		(172,013	)		68.20
KDB Sigma PEF II	Korea		December	Financial investment		39,432		1		39,431			51,694		51,465			52,715			60
KDB Value PEF VII(*3)	Korea		December	Financial investment		27,294		82		27,212			763		(154	)		(154	)		50
KDB-IAP OBOR PEF(*3)	Korea		December	Financial investment		119,687		49,307		70,380			—		(23,969	)		(28,026	)		33.52
KDB Asia PEF(*3)	Korea		December	Financial investment		46,847		175		46,672			—		4,910			(5,606	)		50
KDB Small Medium Mezzanine PEF	Korea		December	Financial investment		120,692		377		120,315			9,416		(4,740	)		(5,655	)		66.67
Corporate Liquidity Assistance Agency Co., Ltd.	Korea		December	Financial investment		2,992,986		1,990,277		1,002,709			20,419		2,709			2,709			100
Components and Materials M&A PEF	Korea		December	Financial investment		1,076		1,827		(751	)		2		(13	)		(13	)		83.33
Associates:
Korea Electric Power Co., Ltd.	Korea		December	Electricity Generation		203,142,111		132,475,265		70,666,846			58,569,314		1,991,347			1,802,824			32.90
Korea Tourism Organization	Korea		December	Culture and Tourism administration		1,351,779		388,854		962,925			488,285		(56,712	)		(60,819	)		43.58
Korea Infrastructure Financing 2 Co.	Korea		December	Financial investment		874,470		31,518		842,952			68,022		47,318			47,318			26.67
Korea Ocean Business Corporation	Korea		December	Finance		8,826,068		3,842,127		4,983,941			3,597,982		2,689,659			2,690,496			22.33
Korea Real Estate Board (formerly known as Korea Appraisal Board)	Korea		December	Appraisal		263,852		52,438		211,414			177,955		5,540			3,093			30.60
GM Korea Company(*4)	Korea		December	Manufacturing		5,415,322		3,739,509		1,675,813			8,504,588		(302,847	)		(302,847	)		17.02
HMM Co., Ltd.(*5)	Korea		December	Foreign cargo transportation		9,373,360		7,684,812		1,688,548			6,413,270		123,889			(33,766	)		12.61
HANJIN KAL(*4)	Korea		December	Holding compnay		3,488,569		1,824,304		1,664,265			408,827		(269,846	)		(222,157	)		10.66
Multi Asset Electronic Power PEF	Korea		December	Financial investment		70,913		213		70,700			36,330		36,218			36,218			50
Shinbundang Railroad Co., Ltd.(*6)	Korea		December	Other		679,176		999,986		(320,810	)		76,427		(50,329	)		(50,329	)		10.98
Troika Resources Investment PEF(*7)	Korea		December	Financial investment		5,496		1,286		4,210			312		(131	)		(131	)		54.94

(*1) The Bank consolidates the investees which were subsidiaries of Daewoo Shipbuilding & Marine Engineering Co., Ltd. as the Bank has had control over the investees through the commencement of the administrative proceeding since the past.

S-67

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

(*2) The investees are financed by the Bank and managed by KDB Infrastructure Investments Asset Management Co., Ltd. They were included in the scope of consolidation even though the Bank holds less than half of the voting rights because the Bank is exposed to variable returns and has the ability to affect those returns through its power over the investee.

(*3) Although the Bank’s shareholding in the investee is less than 50%, it controls the investee since it is exposed, or has right to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

(*4) Although the Bank’s shareholding is less than 20%, the Bank has significant influence considering the right to elect the investees’ directors and the Bank classifies the companies as associates.

(*5) Although the Bank’s shareholding is less than 20%, the Bank is considered to have significant influence as the principal creditor bank for the year ended December 31, 2020. For the period ended June 30, 2021, the Bank exercised the conversion right and hold more than 20% of the shares.

(*6) The shareholding is above 20% upon the consideration of shares owned by the Bank’s subsidiaries. Therefore, the Bank exercises significant influence over the associate.

(*7) Although the Bank’s shareholding in Troika Resources Investment PEF is above 50%, the Bank as joint managing member does not have the ability to direct the relevant activities unilaterally.

S-68

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

12. Property and Equipment

Changes in property and equipment for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	January 1, 2021		Acquisition/ depreciation		Disposal			Reclassification			Foreign exchange differences			June 30, 2021
Acquisition cost:
Land	W	305,836		—		(62	)		(543	)		—			305,231
Buildings and structures		600,627		2,548		(660	)		(525	)		—			601,990
Leasehold improvements		42,180		578		(4,525	)		—			23			38,256
Vehicles		734		—		—			—			15			749
Equipment		54,528		1,385		(1,704	)		—			67			54,276
Construction in progress		13,615		8,712		—			(573	)		—			21,754
Right-of-use assets (Real estate)		81,203		26,163		(17,371	)		—			1,365			91,360
Right-of-use assets (Vehicles)		5,989		703		(516	)		—			24			6,200
Right-of-use assets (Others)		27		—		—			—			1			28
Others		179,109		3,388		(32,878	)		—			105			149,724
		1,283,848		43,477		(57,716	)		(1,641	)		1,600			1,269,568
Accumulated depreciation:
Buildings and structures(*)		200,349		8,463		(289	)		(147	)		—			208,376
Leasehold improvements		36,025		1,839		(3,997	)		—			(2	)		33,865
Vehicles		533		31		—			—			8			572
Equipment(*)		44,197		1,527		(1,186	)		—			50			44,588
Right-of-use assets (Real estate)		39,533		15,315		(13,059	)		—			446			42,235
Right-of-use assets (Vehicles)		2,604		1,038		(273	)		—			11			3,380
Right-of-use assets (Others)		24		4		—			—			1			29
Others		143,817		8,657		(32,614	)		—			60			119,920
		467,082		36,874		(51,418	)		(147	)		574			452,965
Accumulated impairment losses:
Land		3,023		—		—			—			—			3,023
Buildings and structures		2,361		—		—			—			—			2,361
		5,384		—		—			—			—			5,384
	W	811,382		6,603		(6,298	)		(1,494	)		1,026			811,219

(*) The amounts include government grants.

S-69

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

12. Property and Equipment, Continued

	2020
	January 1, 2020		Acquisition/ depreciation			Disposal			Reclassification			Foreign exchange differences			June 30, 2020
Acquisition cost:
Land	W	318,940		437			(120	)		1,128			—			320,385
Buildings and structures		607,036		2,137			(932	)		4,496			—			612,737
Leasehold improvements		43,058		1,982			(2,833	)		—			(25	)		42,182
Vehicles		740		—			(123	)		—			161			778
Equipment		53,170		1,754			(1,932	)		—			75			53,067
Construction in progress		1,588		6,217			—			(3,396	)		—			4,409
Right-of-use assets (Real estate)		74,792		14,943			(9,376	)		—			1,340			81,699
Right-of-use assets (Vehicles)		5,007		1,228			(441	)		—			17			5,811
Right-of-use assets (Others)		29		—			—			—			1			30
Others		165,032		1,032			(353	)		—			237			165,948
		1,269,392		29,730			(16,110	)		2,228			1,806			1,287,046
Accumulated depreciation:
Buildings and structures(*)		191,473		8,527			(210	)		573			—			200,363
Leasehold improvements		36,078		1,562			(1,807	)		—			(55	)		35,778
Vehicles		596		26			(113	)		—			10			519
Equipment(*)		43,348		1,488			(1,374	)		—			56			43,518
Right-of-use assets (Real estate)		29,059		13,983			(7,976	)		—			670			35,736
Right-of-use assets (Vehicles)		1,997		819			(5	)		—			(383	)		2,428
Right-of-use assets (Others)		13		6			—			—			1			20
Others		128,593		7,830			(37	)		—			4			136,390
		431,157		34,241			(11,522	)		573			303			454,752
Accumulated impairment losses:
Land		3,023		—			—			—			—			3,023
Buildings and structures		2,361		—			—			—			—			2,361
		5,384		—			—			—			—			5,384
	W	832,851		(4,511	)		(4,588	)		1,655			1,503			826,910

(*) The amounts include government grants.

S-70

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

13. Investment Property

Changes in investment property for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	January 1, 2021		Acquisition/ depreciation			Reclassification			June 30, 2021
Acquisition cost:
Land	W	57,778		—			543			58,321
Buildings and structures		56,089		—			1,098			57,187
		113,867		—			1,641			115,508
Accumulated depreciation:
Buildings and structures		29,827		1,246			147			31,220
Accumulated impairment losses:
Land		1,197		—			—			1,197
Buildings and structures		1,778		—			—			1,778
		2,975		—			—			2,975
	W	81,065		(1,246	)		1,494			81,313
	2020
	January 1, 2020		Acquisition/ depreciation			Reclassification			June 30, 2020
Acquisition cost:
Land	W	49,913		—			(1,128	)		48,785
Buildings and structures		40,474		—			(1,100	)		39,374
		90,387		—			(2,228	)		88,159
Accumulated depreciation:
Buildings and structures		21,003		604			(573	)		21,034
Accumulated impairment losses:
Land		1,197		—			—			1,197
Buildings and structures		1,778		—			—			1,778
		2,975		—			—			2,975
	W	66,409		(604	)		(1,655	)		64,150

The fair value of the Bank’s investment property, as determined based on valuation by an independent appraiser, amounts to W97,264 million and W96,959 million as of June 30, 2021 and December 31, 2020, respectively. Additionally, fair value of investment in property is classified as level 3 according to the fair value hierarchy in Note 45.

S-71

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

14. Intangible Assets

Changes in intangible assets for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	January 1, 2021		Acquisition		Disposal		Amortization			Foreign exchange differences		June 30, 2021
Development expense	W	155,479		2,676		—		(21,740	)		5		136,420
Equipment usage right		482		—		—		(22	)		16		476
Other deposits provided		11,940		—		—		—			19		11,959
Others		20,516		3,269		—		(4,861	)		5		18,929
	W	188,417		5,945		—		(26,623	)		45		167,784
	2020
	January 1, 2020		Acquisition		Disposal		Amortization			Foreign exchange differences		June 30, 2020
Development expense	W	194,680		1,111		—		(22,318	)		—		173,473
Equipment usage right		553		—		—		(23	)		17		547
Other deposits provided		10,984		—		—		—			2		10,986
Others		24,712		1,088		—		(4,871	)		38		20,967
	W	230,929		2,199		—		(27,212	)		57		205,973

15. Other Assets

Other assets as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021			December 31, 2020
Accounts receivable	W	7,216,599			2,662,879
Unsettled domestic exchange receivables		1,747,817			1,313,958
Accrued income		366,955			343,901
Guarantee deposits		205,658			193,003
Financial guarantee asset		19,238			22,982
Prepaid expenses		13,712			14,121
Advance payments		7,996			7,953
Others		29,880			182,484
		9,607,855			4,741,281
Loss allowance for other assets		(84,077	)		(79,474	)
Present value discount		(1,213	)		(1,522	)
	W	9,522,565			4,660,285

The carrying amounts of financial assets included in other assets above amounted to W9,487,732 million and W4,463,726 million as of June 30, 2021 and December 31, 2020, respectively, and their fair value amounted to W9,486,382 million and W4,461,117 million as of June 30, 2021 and December 31, 2020, respectively.

S-72

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

16. Assets Held for Sale

Assets held for sale as of June 30, 2021 and December 31, 2020 are as follows:

	2021
	Acquisition cost		Fair value less costs to sell		Carrying amount		Reversal of impairment loss
Assets held for sale:
Investments in subsidiaries(*1)	W	2,244,664		2,129,428		2,129,428		(499,949	)
Investments in associates(*2)		78,278		78,305		78,305		(27	)
	W	2,322,942		2,207,733		2,207,733		(499,976	)
	2020
	Acquisition cost		Fair value less costs to sell		Carrying amount		Impairment loss
Assets held for sale:
Investments in subsidiaries(*1)	W	2,244,664		1,629,479		1,629,479		25,926
Investments in associates(*2)		78,278		78,278		78,278		—
Property and equipment		5,590		5,590		5,590		—
	W	2,328,532		1,713,347		1,713,347		25,926

(*1) For attracting investment in Daewoo Shipbuilding & Marine Engineering Co., Ltd. (“Daewoo Shipbuilding & Marine Engineering”), the Bank’s subsidiary, the Bank and Hyundai Heavy Industries Co., Ltd. (“Hyundai Heavy Industries”) made the basic agreement on January 31, 2019 and the contract on investment on March 8, 2019. According to the contract, Hyundai Heavy Industries will make shipbuilding segment, special ship segment, industrial plant segment and engine & machinery segment into each new company and surviving company, Korea Shipbuilding & Offshore Engineering Co., Ltd. (“Korea Shipbuilding & Offshore Engineering”), into holding company defined in the Monopoly Regulation and Fair Trade Act. The Bank will invest the common shares of Daewoo Shipbuilding & Marine Engineering into the common shares and redeemable convertible preference shares of Korea Shipbuilding & Offshore Engineering. Also, Korea Shipbuilding & Offshore Engineering will finance new common shares of Daewoo Shipbuilding & Marine Engineering and be obliged to fund Daewoo Shipbuilding & Marine Engineering.

The Bank made the adjusted contract on investment with Korea Shipbuilding & Offshore Engineering Co., Ltd. on January 22, 2021, reflecting some adjustments to the previous contract on investment made between the Bank and Hyundai Heavy Industries on March 8, 2019.

The contract will be completed after the satisfaction of the contract’s precondition including governmental permission of different countries.

(*2) The Bank selected Dongbu-led consortium as the preferred bidder for Hanjin Heavy Industries & Construction Co., LTD. on December 22, 2020, and made the share purchase agreement on April 15, 2021. The relevant investments in associates were reclassified as assets held for sale.

S-73

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

17. Financial Liabilities Measured at FVTPL

(1) Financial liabilities designated at fair value through profit or loss as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Debentures	W	1,449,313		1,510,793
Deposits		443,395		184,164
	W	1,892,708		1,694,957

Changes in fair value of structured debentures and deposits which hedge accounting are applied, are recognized in profit or loss, but structured debentures with no hedge accounting applied to, are measured at amortized costs. Therefore, such structured debentures and deposits, not applied to hedge accounting, have been designated at FVTPL to eliminate mismatch in measurements of accounting profit and loss.

(2) The difference between the carrying amount and contractual cash flow amount of financial liabilities designated at fair value through profit or loss as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Carrying amount	W	1,892,708		1,694,957
Contractual cash flow amounts		1,885,000		1,580,800
Difference	W	7,708		114,157

18. Deposits

Deposits as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021				December 31, 2020
	Amortized cost		Fair value		Amortized cost		Fair value
Deposits in Korean won:
Demand deposits	W	109,226		109,226		109,570		109,570
Time and savings deposits		39,748,850		39,732,134		37,097,869		37,110,866
Certificates of deposit		27,135		27,059		467,329		467,342
		39,885,211		39,868,419		37,674,768		37,687,778
Deposits in foreign currencies:
Demand deposits		1,130,402		1,130,402		1,534,717		1,534,717
Time and savings deposits		3,595,362		3,594,596		2,775,150		2,774,425
Certificates of deposit		3,671,536		3,654,389		3,289,651		3,271,530
		8,397,300		8,379,387		7,599,518		7,580,672
Off-shore deposits in foreign currencies:
Demand deposits		592,708		592,708		605,133		605,133
	W	48,875,219		48,840,514		45,879,419		45,873,583

S-74

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

19. Borrowings

(1) Borrowings as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Borrowings in Korean won		—		3.15	W	4,371,533			4,363,152
Borrowings in foreign currencies		—		5.25		11,915,755			11,912,412
Off-shore borrowings in foreign currencies		—		1.89		1,988,201			1,987,854
Others		0.01		3.29		2,700,581			2,699,971
						20,976,070			20,963,389
Deferred borrowing costs						(175	)
					W	20,975,895
	December 31, 2020
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Borrowings in Korean won		—		3.15	W	4,216,659			4,210,221
Borrowings in foreign currencies		—		3.86		9,996,208			9,988,337
Off-shore borrowings in foreign currencies		—		2.50		1,790,665			1,791,294
Others		0.01		2.55		2,884,139			2,884,301
						18,887,671			18,874,153
Deferred borrowing costs						(60	)
					W	18,887,611

(2) Borrowings in Korean won before adjusting for gains and losses on deferred borrowing costs as of June 30, 2021 and December 31, 2020 are as follows:

Lender	Classification	Annual interest rate (%)		June 30, 2021		December 31, 2020
Ministry of Economy and Finance	Borrowings from government fund(*)		0.47 ~ 0.76	W	117,023		125,101
Korea SMEs and Startups Agency	Borrowings from small and medium enterprise promotion fund		0.51 ~ 2.76		61,766		64,892
Ministry of Culture, Sports and Tourism	Borrowings from tourism promotion fund		0.20 ~ 2.00		3,081,365		2,934,681
Korea Energy Agency	Borrowings from fund for rational use of energy		0.25 ~ 2.30		292,741		295,088
Local governments	Borrowings from local small and medium enterprise promotion fund		0.00 ~ 2.95		32,857		37,198
The Bank of Korea	Borrowings from Bank of Korea		0.25		387,829		373,881
Others	Borrowings from petroleum enterprise fund and others		0.00 ~ 3.15		397,952		385,818
				W	4,371,533		4,216,659

(*) Borrowings from government fund are subordinated borrowings.

S-75

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

19. Borrowings, Continued

(3) Borrowings and off-shore borrowings in foreign currencies before adjusting for gains and losses on deferred borrowing costs as of June 30, 2021 and December 31, 2020 are as follows:

Lender	Classification	Annual interest rate (%)	June 30, 2021		December 31, 2020
Mizuho and others	Bank loans from foreign funds	3M Libor + 0.24 ~ 3M Libor + 0.78	W	452,000		435,200
Ministry of Economy and Finance	Exchange equalization fund borrowings in foreign currencies	3M Libor + 0.22 ~ 3M Libor + 0.74		190,439		183,360
Central Bank of the Republic Uzbekistan and others	Off-shore short term borrowings	0.16 ~ 1.89		1,207,328		1,487,973
HSBC and others	Off-shore long term borrowings	3M Libor + 0.36		780,873		302,692
Others	Short-term borrowings in foreign currencies	0.08 ~ 5.25		10,571,801		8,567,852
	Long term borrowings in foreign currencies	0.10 ~ 1.02		701,515		809,796
			W	13,903,956		11,786,873

20. Debentures

Details of debentures as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Debentures in Korean won:
Debentures		0.60		6.60	W	108,756,966			109,033,706
Discount on debentures						(59,755	)
Valuation adjustment for fair value hedges						(57,622	)
						108,639,589
Debentures in foreign currencies:
Debentures		—		6.90		19,038,337			20,309,452
Discount on debentures						(36,096	)
Premium on debentures						1,490
Valuation adjustment for fair value hedges						369,818
						19,373,549
Off-shore debentures:
Debentures		—		7.00		15,160,939			15,436,622
Discount on debentures						(28,163	)
Premium on debentures						39
Valuation adjustment for fair value hedges						230,010
						15,362,825
					W	143,375,963			144,779,780

S-76

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

20. Debentures, Continued

	December 31, 2020
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Debentures in Korean won:
Debentures		0.55		6.60	W	107,480,364			108,542,792
Discount on debentures						(57,255	)
Valuation adjustment for fair value hedges						49,070
						107,472,179
Debentures in foreign currencies:
Debentures		—		6.90		15,799,118			16,883,195
Discount on debentures						(31,438	)
Premium on debentures						1,677
Valuation adjustment for fair value hedges						452,330
						16,221,687
Off-shore debentures:
Debentures		—		7.00		14,496,508			14,662,046
Discount on debentures						(23,869	)
Premium on debentures						79
Valuation adjustment for fair value hedges						152,144
						14,624,862
					W	138,318,728			140,088,033

21. Net Defined Benefit Liabilities

The Bank implements a defined benefit retirement pension plan based on employee compensation benefits and service periods. The plan assets are in trusts with Kookmin Bank, Samsung Life Insurance Co., Ltd., etc.

(1) Details of net defined benefit liabilities as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021			December 31, 2020
Present value of defined benefit obligation	W	427,349			415,529
Fair value of plan assets		(356,875	)		(364,983	)
	W	70,474			50,546

S-77

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

21. Net Defined Benefit Liabilities, Continued

(2) Changes in net defined benefit liabilities for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	Present value of defined benefit obligation			Fair value of plan assets			Net defined benefit liabilities
Beginning balance	W	415,529			(364,983	)		50,546
Current service costs		19,668			—			19,668
Interest expense (income)		4,925			(4,619	)		306
Benefits paid by the plan		(12,773	)		12,727			(46	)
Ending balance	W	427,349			(356,875	)		70,474

	2020
	Present value of defined benefit obligation			Fair value of plan assets			Net defined benefit liabilities
Beginning balance	W	379,728			(326,587	)		53,141
Current service costs		18,778			—			18,778
Interest expense (income)		4,393			(3,933	)		460
Benefits paid by the plan		(8,453	)		8,344			(109	)
Ending balance	W	394,446			(322,176	)		72,270

(3) Fair value of plan assets for each type as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021				December 31, 2020
	Quoted market prices		Unquoted market prices		Quoted market prices		Unquoted market Prices
Due from banks	W	—		356,875		—		364,983

(4) Defined benefit costs recognized in profit or loss for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021				June 30, 2020
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Current service costs	W	9,834		19,668		9,386		18,778
Interest expense (income), net		154		306		230		460
	W	9,988		19,974		9,616		19,238

S-78

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

21. Net Defined Benefit Liabilities, Continued

(5) The principal actuarial assumptions used as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Discount rate (%)		2.54		2.54
Future salary increasing rate (%)		6.08		6.08

(6) The present value sensitivity of defined benefit obligation as changes in principal actuarial assumptions as of December 31, 2020 is as follows:

	Sensitivity
	1% increase in assumption		1% decrease in assumption
Discount rate		10.16% decrease		12.06% increase
Future salary increasing rate		11.51% increase		9.94% decrease

(7) The weighted average duration of defined benefit obligation is 11.82 years as of December 31, 2020.

22. Provisions

(1) Details of provisions as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Provision for unused commitments	W	764,099		770,760
Provision for financial guarantee		49,444		77,498
Provision for payment guarantees		568,867		603,648
Provision for possible losses from lawsuits		1,563		441
Provision for restoration		14,490		15,365
Other provision		47,441		47,458
	W	1,445,904		1,515,170

(2) Changes in provision for unused commitments for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired		Total
Beginning balance	W	479,933			290,827			—		770,760
Transfer to 12-month expected credit loss		294,249			(294,249	)		—		—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired		(61,883	)		61,883			—		—
Transfer to credit-impaired		(2,887	)		(4,324	)		7,211		—
Impairment loss (gain)		(321,210	)		298,565			168		(22,477	)
Foreign currency translation		14,763			1,024			29		15,816
Ending balance	W	402,965			353,726			7,408		764,099

S-79

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

22. Provisions, Continued

	2020
				Lifetime expected credit losses
	12-month expected credit loss			Non  credit- impaired			Credit- impaired			Total
Beginning balance	W	428,388			314,204			—			742,592
Transfer to 12-month expected credit loss		5,354			(5,243	)		(111	)		—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired		(7,735	)		7,735			—			—
Impairment loss (gain)		18,899			(27,578	)		111			(8,568	)
Foreign currency translation		16,317			1,610			—			17,927
Ending balance	W	461,223			290,728			—			751,951

(3) Changes in provision for financial guarantee for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
				Lifetime expected credit losses
	12-month expected credit loss			Non  credit- impaired			Credit- impaired			Total
Beginning balance	W	45,567			26,007			5,924			77,498
Transfer to 12-month expected credit loss		97			(17	)		(80	)		—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired		(5,593	)		5,792			(199	)		—
Transfer to credit-impaired		(8,063	)		(93	)		8,156			—
Impairment loss (gain)		(31,012	)		3,700			(742	)		(28,054	)
Ending balance	W	996			35,389			13,059			49,444
	2020
				Lifetime expected credit losses
	12-month expected credit loss			Non  credit- impaired			Credit- impaired			Total
Beginning balance	W	1,123			23,121			11,648			35,892
Transfer to 12-month expected credit loss		—			—			—			—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired		(2,368	)		2,368			—			—
Transfer to credit-impaired		(79	)		—			79			—
Impairment loss (gain)		2,968			3,790			34,075			40,833
Ending balance	W	1,644			29,279			45,802			76,725

S-80

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

22. Provisions, Continued

(4) Changes in provision for payment guarantees for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired		Total
Beginning balance	W	183,963			155,646			264,039		603,648
Transfer to 12-month expected credit loss		27,229			(27,229	)		—		—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired exposures		(55,070	)		55,070			—		—
Transfer to credit-impaired exposures		(4,820	)		(761	)		5,581		—
Provision for (reversal of) unused commitments		2,736			(77,483	)		27,684		(47,063	)
Foreign currency translation		1,597			2,802			7,883		12,282
Ending balance	W	155,635			108,045			305,187		568,867

	2020
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired			Total
Beginning balance	W	170,320			167,939			336,669			674,928
Transfer to 12-month expected credit loss		82			(82	)		—			—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired exposures		(954	)		954			—			—
Provision for (reversal of) unused commitments		(24,112	)		(101,750	)		(42,078	)		(167,940	)
Foreign currency translation		1,508			3,868			14,922			20,298
Ending balance	W	146,844			70,929			309,513			527,286

(5) Changes of lawsuit provision and other provision for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	Lawsuit provision		Provision for restoration			Other provision
Beginning balance	W	441		15,365			47,458
Increase (decrease) of provision		1,122		(1,211	)		—
Provision used and others		—		336			(17	)
Ending balance	W	1,563		14,490			47,441

S-81

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

22. Provisions, Continued

	2020
	Lawsuit provision		Provision for restoration			Other provision
Beginning balance	W	12,302		15,167			38,983
Increase (decrease) of provision		—		(269	)		—
Provision used and others		—		391			—
Ending balance	W	12,302		15,289			38,983

(6) Provision for payment guarantees and financial guarantee

Confirmed acceptances and guarantees, unconfirmed acceptances and guarantees and bills endorsed are not recognized on the statement of financial position, but are disclosed as off-statement of financial position items in the notes to the financial statements. The Bank provides a provision for such off-statement of financial position items, applying a Credit Conversion Factor (CCF) and provision rates under the Bank’s expected credit loss model, and records the provision as a reserve for expected credit losses on acceptances and guarantees.

In the case of financial guarantee contracts, when the amount calculated using the same method as above is greater than the initial amount less amortization of fees recognized, the difference is recorded as provision for financial guarantee.

(7) Provision for unused commitments

The Bank records a provision for a certain portion of unused credit lines which is calculated using a CCF as provision for unused commitments applying provision rates under the Bank’s expected credit loss model.

(8) Provision for possible losses from lawsuits

As of June 30, 2021, the Bank is involved in 21 lawsuits as a plaintiff and 32 lawsuits as a defendant. The aggregate amounts of claims as a plaintiff and a defendant amounted to W196,869 million and W213,778 million, respectively. The Bank provided a provision against contingent loss from pending lawsuits as of June 30, 2021 and additional losses may be incurred depending on the result of pending lawsuits.

S-82

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

22. Provisions, Continued

Major lawsuits in progress as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Contents	Amounts		Status of lawsuit
Plaintiff:
Korea Trade Insurance Corporation and one other	Claim for guarantee insurance	W	136,538	1st trial ruled against the Bank; 2nd trial in progress
KAMCO 1st JV Securitization Specialty Co., Ltd.	Transfer of claim		8,792	1st trial in progress
Korea Land & Housing Corporation	Claim for return of residual property		4,568	2nd trial in progress
Kappa Korea and one other	Claim for loans		1,000	1st trial in progress
Defendant:
Shinhan Bank and one other	Claim for damages		58,474	1st trial in progress
Defense Acquisition Program Administration	Claim for guaranteed debt		56,977	1st, 2nd trial ruled partially against the Bank; 3rd trial in progress
Dongbu Corporation	Claim for nullity of table of rehabilitation creditor		33,997	1st trial ruled in favor of the Bank; 2nd trial ruled against the Bank; 3rd trial in progress
Dongbu Corporation	Claim for objection of request (participation to support)		19,658	1st trial in progress
Hana Bank	Claim for settlement money and others		7,500	1st, 2nd trial ruled in favor of the Bank; 3rd trial in progress

	December 31, 2020
	Contents	Amounts		Status of lawsuit
Plaintiff:
Korea Trade Insurance Corporation and one other	Claim for guarantee insurance	W	136,538	1st trial ruled against the Bank; 2nd trial in progress
KAMCO 1st JV Securitization Specialty Co., Ltd.	Transfer of claim		8,792	1st trial in progress
Dadae Construction Co., Ltd.	Absence of liens		2,900	1st trial ruled in favor of the Bank; 2nd trial in progress
Korea Technology Finance Corporation	Claim for guarantee		872	1st trial ruled partially in favor of the Bank; 2nd trial in progress
Defendant:
Shinhan Bank and one other	Claim for damages		58,474	1st trial in progress
Defense Acquisition Program Administration	Claim for guaranteed debt		56,977	1st, 2nd trial ruled partially against the Bank; 3rd trial in progress

S-83

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

22. Provisions, Continued

	December 31, 2020
	Contents	Amounts		Status of lawsuit
Dongbu Corporation	Claim for nullity of table of rehabilitation creditor		33,997	1st trial ruled in favor of the Bank; 2nd trial ruled against the Bank; 3rd trial in progress
Dongbu Corporation	Claim for objection of request (participation to support)		19,658	1st trial in progress
Woori Bank	Claim for disposal of debt		12,470	1st, 2nd trial ruled in favor of the Bank; 3rd trial in progress

(9) Other provision

The Bank recognised other provision as a reserve for other miscellaneous purpose.

23. Other Liabilities

(1) Other liabilities as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021			December 31, 2020
Accounts payable	W	6,880,712			2,623,207
Lease liabilities		133,840			75,523
Accrued expense		1,494,709			1,657,438
Advance received		—			920
Unearned income		33,110			45,344
Deposits withholding tax		22,912			22,019
Guarantee money received		398,896			720,932
Foreign exchanges payable		26,873			307,935
Domestic exchanges payable		410,087			587,194
Borrowing from trust accounts		1,494,132			973,885
Financial guarantee liability		21,660			25,347
Others		103,604			64,153
		11,020,535			7,103,897
Present value discount		(85,485	)		(34,891	)
	W	10,935,050			7,069,006

The carrying amount of financial liabilities included in other liabilities above amounted to W10,751,127 million and W6,896,581 million as of June 30, 2021 and December 31, 2020, respectively, and their fair value amounted to W10,739,115 million and W6,889,375 million as of June 30, 2021 and December 31, 2020, respectively.

S-84

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

23. Other Liabilities, Continued

(2) Details of lease liabilities as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Face value		Discount			Carrying amounts
Real estate	W	129,858		(82,540	)		47,318
Vehicles		3,981		(1,059	)		2,922
Others		1		—			1
	W	133,840		(83,599	)		50,241
	December 31, 2020
	Face value		Discount			Carrying amounts
Real estate	W	71,207		(31,964	)		39,243
Vehicles		3,923		(639	)		3,284
Others		393		(197	)		196
	W	75,523		(32,800	)		42,723

(3) The amount related to lease recognized in the separate statement of comprehensive income for the six-month periods ended June 30, 2021 and 2020 is as follows:

	June 30, 2021				June 30, 2020
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Depreciation of right-of-use assets
Real estate	W	7,322		15,315		6,293		13,983
Vehicles		527		1,038		265		819
Others		1		4		3		6
		7,850		16,357		6,561		14,808
Interest expenses on the lease liabilities		342		357		217		477
Expense relating to short-term leases		—		—		—		66
Expense relating to leases of low-value assets		3,342		3,776		79		150
	W	11,534		20,490		6,857		15,501

(4) Cash flows used in lease liabilities for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021		2020
Decrease in lease liabilities	W	11,492		12,308
Lease payments relating to short-term leases		—		66
Lease payments relating to leases of low-value assets		3,776		150
	W	15,268		12,524

S-85

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

23. Other Liabilities, Continued

(5) Maturity analysis of undiscounted lease payments relating to lease liabilities as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Within 3 months		3 months ~ 1 year		1 year ~ 5 years		Over 5 years		Total
Lease payments	W	15,328		36,174		82,338		—		133,840
	December 31, 2020
	Within 3 months		3 months ~ 1 year		1 year ~ 5 years		Over 5 years		Total
Lease payments	W	10,659		26,225		38,639		—		75,523

24. Equity

(1) Issued capital

The Bank is authorized to issue up to 6,000 million shares of common stock and has 4,377,311,768 shares issued and 4,153,145,768 shares issued as of June 30, 2021 and December 31, 2020, respectively, and outstanding with a total par value (W5,000 of par value per share) of W21,886,559 million and W20,765,729 million as of June 30, 2021 and December 31, 2020, respectively.

(2) Capital surplus

Capital surplus as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Paid-in capital in excess of par value	W	44,142		49,530
Surplus from capital reduction(*1)		44,373		44,373
Other capital surplus(*2)		2,390,495		2,390,495
	W	2,479,010		2,484,398

(*1) The Bank reduced W5,178,600 million of its issued capital in 1998 and 2000 to offset its accumulated deficit amounting to W5,134,227 million. As the result of the capital reduction, W44,373 million of surplus exceeding accumulated deficit was recorded in capital surplus in equity.

(*2) The difference in the amount of shares issued and the carrying value of net asset acquired occurring from the merger of the Bank with KDB Financial Group Inc. and Korea Finance Corporation are recognized as other capital surplus.

S-86

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Equity, Continued

(3) Accumulated other comprehensive income

(i) Accumulated other comprehensive income as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021			December 31, 2020
Net gain (loss) on securities measured at FVOCI
Valuation gain (loss) on securities measured at FVOCI (before tax)	W	11,141,788			2,787,519
Loss allowance for securities measured at FVOCI (before tax)		84,206			81,278
Income tax effect		(3,087,148	)		(788,919	)
		8,138,846			2,079,878
Exchange differences on translation of foreign operations:
Exchange differences on translation of foreign operations (before tax)		(19,032	)		(60,912	)
Income tax effect		—			—
		(19,032	)		(60,912	)
Valuation gain (loss) on cash flow hedge:
Valuation gain (loss) on cash flow hedge (before tax)		953			47
Income tax effect		(262	)		(13	)
		691			34
Net gain on hedges of net investments in foreign operations:
Net gain on hedges of net investments in foreign operations (before tax)		15,923			48,975
Income tax effect		(4,379	)		(13,468	)
		11,544			35,507
Remeasurements of defined benefit liabilities:
Remeasurements of defined benefit liabilities (before tax)		21,562			21,562
Income tax effect		(5,928	)		(5,928	)
		15,634			15,634
Fair value changes on financial liabilities designated at fair value due to credit risk:
Valuation loss on financial liabilities designated at fair value due to credit risk (before tax)		(7,388	)		(7,959	)
Income tax effect		2,032			2,189
		(5,356	)		(5,770	)
	W	8,142,327			2,064,371

S-87

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Equity, Continued

(ii) Changes in accumulated other comprehensive income for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	January 1, 2021			Increase (Decrease)			Tax Effect			June 30, 2021
Gain (loss) on Securities Measured at FVOCI	W	2,079,878			8,357,197			(2,298,229	)		8,138,846
Exchange differences on translation of foreign operations		(60,912	)		41,880			—			(19,032	)
Valuation gain (loss) on cash flow hedge		34			906			(249	)		691
Valuation gain (loss) on hedges of net investments in foreign operations		35,507			(33,052	)		9,089			11,544
Remeasurements of defined benefit liabilities		15,634			—			—			15,634
Valuation gain (loss) on financial liabilities designated at fair value due to credit risk		(5,770	)		571			(157	)		(5,356	)
	W	2,064,371			8,367,502			(2,289,546	)		8,142,327
	2020
	January 1, 2020			Increase (Decrease)			Tax Effect			June 30, 2020
Gain (loss) on Securities Measured at FVOCI	W	(99,406	)		131,514			(36,166	)		(4,058	)
Exchange differences on translation of foreign operations		(7,158	)		32,160			—			25,002
Valuation gain (loss) on cash flow hedge		(292	)		324			(89	)		(57	)
Valuation gain (loss) on hedges of net investments in foreign operations		4,015			(26,697	)		7,342			(15,340	)
Remeasurements of defined benefit liabilities		19,331			—			—			19,331
Valuation gain (loss) on financial liabilities designated at fair value due to credit risk		(4,582	)		906			(249	)		(3,925	)
	W	(88,092	)		138,207			(29,162	)		20,953

(4) Retained earnings

In accordance with the Korea Development Bank Act, the Bank is required to appropriate at least 40% of net income as a legal reserve. This reserve can be transferred to paid-in capital or offset an accumulated deficit.

In accordance with the Korea Development Bank Act, the Bank offsets an accumulated deficit with reserves. If the reserve is insufficient to offset the accumulated deficit, the Korean government is responsible for the deficit.

S-88

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Equity, Continued

(i) Retained earnings as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Legal reserve	W	1,551,154		1,356,142
Voluntary reserve
Regulatory reserve for loan losses		482,885		1,146,038
Unappropriated retained earnings		5,216,992		2,565,852
	W	7,251,031		5,068,032

(ii) Changes in legal reserve for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021		2020
Beginning balance	W	1,356,142		1,177,851
Transfer from retained earnings		195,012		178,291
Ending balance	W	1,551,154		1,356,142

(iii) Changes in unappropriated retained earnings for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021			2020
Beginning balance	W	2,565,852			2,327,769
Contribution to legal reserve		(195,012	)		(178,291	)
Transfer from regulatory reserve for credit losses		663,153			81,662
Dividends		(209,638	)		(111,978	)
Reclassification of gain or loss on equity securities measured at FVOCI		15,029			(64,962	)
Profit for the period		2,377,608			369,343
Ending balance	W	5,216,992			2,423,543

(5) Regulatory reserve for credit losses

The Bank is required to provide a regulatory reserve for credit losses in accordance with Regulations on Supervision of Banking Business 29(1) and (2). The details of regulatory reserve for credit losses are as follows:

(i) Regulatory reserve for credit losses as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Beginning balance	W	482,885		1,146,038
Planned provision for (reversal of) regulatory reserve for credit losses		76,926		(663,153	)
Ending balance	W	559,811		482,885

S-89

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

24. Equity, Continued

(ii) Required reversal of regulatory reserve for credit losses and profit (loss) after adjusting regulatory reserve for loan losses for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021					June 30, 2020
	Three-month period ended		Six-month period ended			Three-month period ended		Six-month period ended
Profit for the period	W	922,929		2,377,608			770,078		369,343
Obligated amount of reversal of (provision for) regulatory reserve for credit losses		158,709		(76,926	)		91,751		35,030
Profit after adjusting regulatory reserve for credit losses	W	1,081,638		2,300,682			861,829		404,373
Earnings per share after adjusting regulatory reserve for credit losses (in won)	W	252		540			226		107

25. Net Interest Income

Net interest income for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Interest income:
Due from banks	W	6,289			13,234			20,566			39,070
Securities measured at FVTPL		7,916			13,724			5,647			15,246
Securities measured at FVOCI		84,687			169,696			103,114			194,100
Securities measured at amortized cost		4,742			7,464			3,623			9,590
Loans measured at FVTPL		5,635			9,703			10,789			14,803
Loans measured at amortized cost		890,083			1,779,435			1,026,821			2,080,301
		999,352			1,993,256			1,170,560			2,353,110
Interest expense:
Financial liabilities measured at FVTPL		(20,204	)		(38,721	)		(20,458	)		(43,103	)
Deposits		(83,906	)		(167,904	)		(144,234	)		(281,609	)
Borrowings		(31,116	)		(62,883	)		(81,612	)		(179,772	)
Debentures		(457,558	)		(936,838	)		(607,476	)		(1,267,363	)
		(592,784	)		(1,206,346	)		(853,780	)		(1,771,847	)
	W	406,568			786,910			316,780			581,263

S-90

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

26. Net Fees and Commission Income

Net fees and commission income for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Fees and commission income:
Loan commissions	W	29,142			58,413			31,037			63,836
Underwriting and investment consulting commissions		26,644			48,470			22,767			46,297
Brokerage and agency commissions		1,935			3,388			2,056			3,539
Trust and retirement pension plan commissions		8,879			17,553			8,235			17,109
Fees on asset management		662			1,156			445			805
Other fees		24,333			54,759			20,433			47,339
		91,595			183,739			84,973			178,925
Fees and commission expenses:
Brokerage and agency fees		(1,963	)		(3,509	)		(2,362	)		(4,723	)
Other fees		(5,704	)		(11,962	)		(5,450	)		(11,356	)
		(7,667	)		(15,471	)		(7,812	)		(16,079	)
	W	83,928			168,268			77,161			162,846

27. Dividend Income

Dividend income for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021				June 30, 2020
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Securities measured at FVTPL	W	34,329		67,101		66,316		93,036
Securities measured at FVOCI		1,939		112,366		1,820		122,994
Investments in subsidiaries and associates		74,799		463,132		72,280		184,575
	W	111,067		642,599		140,416		400,605

S-91

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

28. Net Gain on Securities Measured at FVTPL

Net gain related to securities measured at FVTPL for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Gains on securities measured at FVTPL:
Gains on sale	W	11,391			18,214			16,945			62,626
Gains on valuation		58,803			125,947			61,157			112,471
		70,194			144,161			78,102			175,097
Losses on securities measured at FVTPL:
Losses on sale		(13,413	)		(23,496	)		(9,414	)		(27,304	)
Losses on valuation		(50,943	)		(124,433	)		(24,593	)		(80,576	)
Purchase related expense		(117	)		(119	)		(5	)		(39	)
		(64,473	)		(148,048	)		(34,012	)		(107,919	)
	W	5,721			(3,887	)		44,090			67,178

29. Net Gain (Loss) on Financial Liabilities Measured at FVTPL

Net gain (loss) related to financial liabilities designated at fair value through profit or loss (“FVTPL”) for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021					June 30, 2020
	Three-month period ended		Six-month period ended			Three-month period ended			Six-month period ended
Gains on financial liabilities measured at FVTPL:
Gains on redemption	W	—		—			—			96
Gains on valuation		28,365		106,413			(9,326	)		4,459
		28,365		106,413			(9,326	)		4,555
Losses on financial liabilities measured at FVTPL:
Losses on redemption		—		(309	)		(3,506	)		(6,101	)
Losses on valuation		112		—			(15,967	)		(26,953	)
		112		(309	)		(19,473	)		(33,054	)
	W	28,477		106,104			(28,799	)		(28,499	)

S-92

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

30. Net Gain (Loss) on Securities Measured at FVOCI

Net gain (loss) related to securities measured at FVOCI for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Gains on securities measured at FVOCI:
Gains on sale	W	2,549			7,794			36,918			67,134
Reversal of impairment losses		(175	)		—			—			—
		2,374			7,794			36,918			67,134
Losses on securities measured at FVOCI:
Losses on sale		(6,574	)		(14,757	)		(1,211	)		(7,252	)
Impairment losses		(2,262	)		(2,927	)		(2,278	)		(7,869	)
		(8,836	)		(17,684	)		(3,489	)		(15,121	)
	W	(6,462	)		(9,890	)		33,429			52,013

31. Net Gain (Loss) on Derivatives

Net gain (loss) on derivatives for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Net gain (loss) on trading purpose derivatives:
Gains on trading purpose derivatives:
Interest	W	350,922			1,391,147			501,482			1,703,007
Currency		983,473			5,529,736			6,433			7,660,733
Stock		2,243			4,140			9,613			21,875
Gains on adjustment of derivatives		(246	)		2,939			(25	)		1,461
		1,336,392			6,927,962			517,503			9,387,076
Losses on trading purpose derivatives:
Interest		(357,110	)		(1,401,176	)		(470,199	)		(1,772,695	)
Currency		(1,013,039	)		(5,339,116	)		(115,102	)		(7,397,381	)
Stock		(1,216	)		(3,270	)		(863	)		(15,929	)
Losses on adjustment of derivatives		(10,379	)		(18,911	)		22,339			(30,049	)
		(1,381,744	)		(6,762,473	)		(563,825	)		(9,216,054	)
		(45,352	)		165,489			(46,322	)		171,022
Net gain (loss) on hedging purpose derivatives:
Gains on hedging purpose derivatives:
Interest		(4,169	)		8,306			77,446			609,865
Currency		81,548			183,844			89,899			143,339
Gains on adjustment of derivatives		(37	)		181			(61	)		36
		77,342			192,331			167,284			753,240

S-93

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

31. Net Gain (Loss) on Derivatives, Continued

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Losses on hedging purpose derivatives:
Interest	W	(27,355	)		(347,618	)		(9,361	)		(54,285	)
Currency		97,512			(342,458	)		105,723			(456,560	)
Losses on adjustment of derivatives		(140	)		(245	)		(179	)		(394	)
		70,017			(690,321	)		96,183			(511,239	)
		147,359			(497,990	)		263,467			242,001
Net gain (loss) on fair value hedged items:
Gains on fair value hedged items:
Gains on valuation		(61,894	)		424,743			(120,631	)		292,534
Gains on redemption		22,681			99,671			138,970			171,820
		(39,213	)		524,414			18,339			464,354
Losses on fair value hedged items:
Losses on valuation		(65,111	)		(217,629	)		(75,028	)		(907,902	)
Losses on redemption		(28,065	)		(105,366	)		(43,422	)		(48,496	)
		(93,176	)		(322,995	)		(118,450	)		(956,398	)
		(132,389	)		201,419			(100,111	)		(492,044	)
	W	(30,382	)		(131,082	)		117,034			(79,021	)

Related with cash flow hedge, the Bank recognized W56 million of gain and W60 million of loss in the statement of comprehensive income as the ineffective portion for the period ended June 30, 2021 and 2020, respectively.

32. Net Gain on Foreign Currency Transaction

Net gain on foreign currency transaction for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Net gain (loss) on foreign exchange transactions:
Gains on foreign exchange transactions	W	112,166			245,413			180,378			346,058
Losses on foreign exchange transactions		(117,936	)		(256,133	)		(180,514	)		(346,384	)
		(5,770	)		(10,720	)		(136	)		(326	)
Net gain on foreign exchange translations:
Gains on foreign exchange translations		425,213			3,760,632			(16,068	)		4,086,100
Losses on foreign exchange translations		(385,863	)		(3,641,192	)		37,269			(3,871,553	)
		39,350			119,440			21,201			214,547
	W	33,580			108,720			21,065			214,221

S-94

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

33. Other Operating Expense, net

Other operating income and expense for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Other operating income:
Gains on sale of loans	W	31,927			60,323			7,422			7,959
Gains on disposal of loans measured at FVTPL		1,820,467			1,832,631			1,171			2,678
Gains on valuation of loans measured at FVTPL		(830,230	)		121,556			43,623			62,057
Gains on disposal of investments in subsidiaries and associates		72,508			78,121			10,963			10,963
Reversal of provisions		398			1,580			33			353
Others		5,542			8,977			5,833			9,129
		1,100,612			2,103,188			69,045			93,139
Other operating expenses:
Losses on sale of loans		(27,798	)		(27,798	)		(46,718	)		(49,742	)
Losses on disposal of loans measured at FVTPL		(3,494	)		(4,461	)		(13,948	)		(17,188	)
Losses on valuation of loans measured at FVTPL		(1,111	)		(4,899	)		(1,407	)		(6,719	)
Losses on disposal of investments in subsidiaries and associates		—			(575	)		(339	)		(340	)
Increase of provisions		178			(1,492	)		(31	)		(84	)
Insurance expenses		(18,265	)		(35,796	)		(15,929	)		(29,441	)
Credit guarantee fund salary		(46,894	)		(94,207	)		(42,807	)		(79,792	)
Educational taxes		(11,407	)		(24,310	)		(14,314	)		(21,680	)
Foreign security contributions		(22	)		(1,939	)		(2,972	)		(4,878	)
Others		(1,989	)		(7,233	)		(3,293	)		(7,584	)
		(110,802	)		(202,710	)		(141,758	)		(217,448	)
	W	989,810			1,900,478			(72,713	)		(124,309	)

34. Provision for Credit Losses

Provision for credit losses for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021					June 30, 2020
	Three-month period ended		Six-month period ended			Three-month period ended			Six-month period ended
Provision for loss allowance for loan	W	838,872		928,606			139,199			338,691
Provision for loss allowance for other assets		1,791		5,077			417			1,681
Provision for (reversal of) unused commitments		24,131		(22,477	)		44,395			(8,568	)
Provision for (reversal of) financial guarantee		7,107		(28,054	)		37,259			40,833
Provision for (reversal of) payment guarantees		29,858		(47,063	)		(118,442	)		(167,940	)
	W	901,759		836,089			102,828			204,697

S-95

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

35. General and Administrative Expenses

General and administrative expenses for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021				June 30, 2020
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Payroll costs:
Short-term employee benefits	W	82,114		174,264		80,253		170,344
Defined benefit costs		9,988		19,974		9,616		19,238
Defined contribution costs		340		937		836		2,648
		92,442		195,175		90,705		192,230
Depreciation and amortization:
Depreciation of property and equipment		17,899		36,874		16,403		33,971
Amortization of intangible assets		13,368		26,623		13,514		27,212
		31,267		63,497		29,917		61,183
Other:
Employee welfare benefits		9,118		17,356		8,291		16,125
Rent expenses		1,518		3,337		1,624		3,449
Taxes and dues		5,198		12,808		4,446		13,118
Advertising expenses		3,127		4,825		3,080		4,933
Electronic data processing expenses		20,496		41,084		19,322		32,477
Fees and charges		8,272		17,364		9,142		15,625
Others		7,289		14,270		5,531		13,561
		55,018		111,044		51,436		99,288
	W	178,727		369,716		172,058		352,701

36. Other Non-Operating Income and Expense

Other non-operating income and expense for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021				June 30, 2020
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Other non-operating income:
Gains on disposal of assets held for sale	W	—		3,610		—		—
Reversal of impairment losses on assets held for sale		446,451		499,976		—		—
Gains on disposal of property and equipment		1,260		3,391		537		604
Rental income on investment property		122		246		156		362
Others		372		1,721		170		1,574
		448,205		508,944		863		2,540

S-96

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

36. Other Non-Operating Income and Expense, Continued

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Other non-operating expenses:
Impairment losses on assets held for sale	W	—			—			808,796			(46,775	)
Losses on disposal of property and equipment		(59	)		(171	)		—			—
Depreciation of investment property		(625	)		(1,246	)		(43	)		(604	)
Donations		(132	)		(257	)		(166	)		(678	)
Others		71			(4,337	)		(896	)		(3,724	)
		(745	)		(6,011	)		807,691			(51,781	)
	W	447,460			502,933			808,554			(49,241	)

37. Income Tax Expense

(1) Income tax expense for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Current income tax(*)	W	(224,351)			(193,242	)		(102,571	)		135,808
Changes in deferred income taxes on temporary differences		1,587,891			3,102,476			483,781			(26,837	)
Deferred income tax recognized directly to equity
Other comprehensive income		(1,159,765	)		(2,289,546	)		(147,448	)		(29,162	)
Retained earnings		(5,089	)		(5,700	)		22,903			24,641
Income tax expense	W	198,686			613,988			256,665			104,450

(*) Includes changes such as those that arise from final tax returns.

(2) Profit before income taxes and income tax expense for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021			2020
Profit before income taxes	W	2,991,596			473,793
Income taxes calculated using enacted tax rates		822,689			130,293
Adjustments:
Non-deductible losses and tax-free gains		(47,172	)		(15,159	)
Non-recognition effect of deferred income taxes and others		(130,608	)		(16,101	)
Net adjustments for prior years		(34,033	)		1,100
Others		3,112			4,317
		(208,701	)		(25,843	)
Income tax expense	W	613,988			104,450
Effective tax rate (%)		20.52			22.05

S-97

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

37. Income Tax Expense, Continued

(3) Changes in deferred income taxes recognized directly to equity for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	June 30, 2021						January 1, 2021
	Amounts before tax			Tax effect			Amounts before tax			Tax effect			Changes in tax effect
Net gain (loss) on securities measured at FVOCI	W	8,138,846			(3,087,148	)		2,079,878			(788,919	)		(2,298,229	)
Exchange differences on translation of foreign operations		(19,032	)		—			(60,912	)		—			—
Net gain (loss) on valuation of cash flow hedge		691			(262	)		34			(13	)		(249	)
Net gain on hedges of net investments in foreign operations		11,544			(4,379	)		35,507			(13,468	)		9,089
Remeasurements of defined benefit liabilities		15,634			(5,928	)		15,634			(5,928	)		—
Fair value changes on financial liabilities designated at fair value due to credit risk		(5,356	)		2,032			(5,770	)		2,189			(157	)
	W	8,142,327			(3,095,685	)		2,064,371			(806,139	)		(2,289,546	)

Income tax benefit recognized direct to retained earnings amounting to W5,700 million is the tax effect of realized income amounting to W20,729 million from disposal of equity securities measured at FVOCI.

	2020
	June 30, 2020						January 1, 2020
	Amounts before tax			Tax effect			Amounts before tax			Tax effect			Changes in tax effect
Net gain (loss) on securities measured at FVOCI	W	(4,058	)		1,540			(99,406	)		37,706			(36,166	)
Exchange differences on translation of foreign operations		25,002			—			(7,158	)		—			—
Losses on valuation of cash flow hedge		(57	)		22			(292	)		111			(89	)
Net gain on hedges of net investments in foreign operations		(15,340	)		5,819			4,015			(1,523	)		7,342
Remeasurements of defined benefit liabilities		19,331			(7,331	)		19,331			(7,331	)		—
Fair value changes on financial liabilities designated at fair value due to credit risk		(3,925	)		1,489			(4,582	)		1,738			(249	)
	W	20,953			1,539			(88,092	)		30,701			(29,162	)

Income tax expense recognized direct to retained earnings amounting to W24,641 million is the tax effect of realized loss amounting to W89,603 million from disposal of equity securities measured at FVOCI.

S-98

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

38. Earnings per Share

(1) Basic earnings per share

The Bank’s basic earnings per share for the three-month and six-month periods ended June 30, 2021 and 2020 are computed as follows:

(i) Basic earnings per share

	June 30, 2021				June 30, 2020
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Profit attributable to ordinary shareholders of the Bank (A) (in won)	W	922,930,059,256		2,377,608,342,739		770,077,848,944		369,342,875,100
Weighted-average number of ordinary shares outstanding (B)		4,295,420,273		4,260,178,807		3,820,739,548		3,776,679,658
Basic earnings per share (A/B) (in won)	W	215		558		202		98

(ii) Weighted-average number of ordinary shares outstanding

	2021
	Number of ordinary shares		Days		Cumulative shares
Three-month period ended:
Number of ordinary shares outstanding (A)		4,153,145,768		91		377,936,264,888
Increased paid-in capital (B)		102,000,000		91		9,282,000,000
Increased paid-in capital (C)		122,166,000		30		3,664,980,000
Cumulative shares (D = A+B+C)						390,883,244,888
Weighted-average number of ordinary shares outstanding (D/91)						4,295,420,273
Six-month period ended:
Number of ordinary shares outstanding (A)		4,153,145,768		181		751,719,384,008
Increased paid-in capital (B)		102,000,000		154		15,708,000,000
Increased paid-in capital (C)		122,166,000		30		3,664,980,000
Cumulative shares (D = A+B+C)						771,092,364,008
Weighted-average number of ordinary shares outstanding (D/181)						4,260,178,807

S-99

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

38. Earnings per Share, Continued

	2020
	Number of ordinary shares		Days		Cumulative shares
Three-month period ended:
Number of ordinary shares outstanding (A)		3,732,619,768		91		339,668,398,888
Increased paid-in capital (B)		90,100,000		89		8,018,900,000
Cumulative shares (C = A+B)						347,687,298,888
Weighted-average number of ordinary shares outstanding (C/91)						3,820,739,548
Six-month period ended:
Number of ordinary shares outstanding (A)		3,732,619,768		182		679,336,797,776
Increased paid-in capital (B)		90,100,000		89		8,018,900,000
Cumulative shares (C = A+B)						687,355,697,776
Weighted-average number of ordinary shares outstanding (C/182)						3,776,679,658

(2) Diluted earnings per share

Diluted and basic earnings per share for the three-month and six-month periods ended June 30, 2021 and 2020 are equal because there is no potential dilutive instrument.

39. Pledged Assets

Assets pledged by the Bank as collateral as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021				December 31, 2020
	Pledged assets		Related liabilities		Pledged assets		Related liabilities
Securities measured at FVOCI(*)	W	3,646,158		2,429,469		5,701,903		2,249,385
Securities measured at amortized cost(*)		1,432,377				313,631
	W	5,078,535		2,429,469		6,015,534		2,249,385

(*) Pledged as collateral related to bonds sold under repurchase agreements and borrowings.

S-100

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

40. Guarantees and Commitments

Guarantees and commitments as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Confirmed acceptances and guarantees:
Acceptances in foreign currency	W	332,372		408,155
Guarantees for bond issuance		2,424,483		2,281,329
Guarantees for loans		522,378		485,483
Letter of guarantee		88,711		42,965
Guarantees for on-lending debt		9,202		11,127
Others		3,695,542		3,734,283
		7,072,688		6,963,342
Unconfirmed acceptances and guarantees:
Letter of credit		2,194,279		1,252,411
Others		3,079,299		1,882,381
		5,273,578		3,134,792
Commitments:
Commitments on loans		42,376,831		42,787,113
Others		2,078,318		2,075,621
		44,455,149		44,862,734
Bills endorsed:
With recourse		—		971
	W	56,801,415		54,961,839

41. Trust Accounts

(1) Trust accounts as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Accrued trust fee	W	13,667		8,010
Borrowings from trust accounts		1,415,518		906,843
Accrued expense		884		909

(2) Transactions with trust accounts for the three-month and six-month periods ended June 30, 2021 and 2020 are as follows:

	June 30, 2021						June 30, 2020
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Trust management fee	W	8,223			16,077			7,648			15,714
Interest expenses on deposits		—			—			(1	)		(3	)
Interest expenses of borrowings from trust accounts		(1,459	)		(2,715	)		(1,475	)		(5,314	)

S-101

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

41. Trust Accounts, Continued

(3) The carrying amounts of principals guaranteed trust and principals and interest guaranteed trust as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Principals guaranteed trust	W	243,714		251,006
Principals and interest guaranteed trust		236,651		238,320
	W	480,365		489,326
Principal of money and property trust	W	443,217		450,445
Accrued trust profit		37,148		38,881

42. Related Party Transactions

(1) The Bank’s related parties as of June 30, 2021 are as follows:

Classification	Corporate name
Subsidiaries	KDB Capital Corporation, Daewoo Shipbuilding & Marine Engineering Co., Ltd., KDB Infrastructure Investment Asset Management Co., Ltd., KDB Asia Ltd., KDB Ireland Ltd., KDB Bank Europe Ltd., Banco KDB Do Brazil S.A., KDB Bank Uzbekistan, KDB Indonesia and 9 others, KDB Investment PEF No. 1, KDB Value PEF VII, KDB Consus Value PEF, Components and Materials M&A PEF and 4 others, Principals guaranteed trust accounts of KDB, Principals and interests guaranteed interest trust accounts of KDB, UBest 5th Securitization Specialty Co., Ltd. and 6 others, KIAMCO Road Investment Private Fund Special Asset Trust 2 and 22 others
Associates	Korea Electric Power Co., Ltd., Korea Tourism Organization, KOREA REAL ESTATE BOARD, GM Korea Company, HMM Co., Ltd., Hanjin Heavy Industries & Construction Co., Ltd., HANJIN KAL, Korea Ocean Business Corporation and 76 others, Troika Resources Investment PEF and 99 others, KIP Overseas Expansion Platform Fund and 114 others
Others	Key management personnel

S-102

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

42. Related Party Transactions, Continued

(2) Significant balances with related parties as of June 30, 2021 and December 31, 2020 are as follows:

	Account	June 30, 2021			December 31, 2020
Subsidiaries:
KDB Capital Corporation	Loans	W	5,669			7,188
	Allowance for loan losses		(2	)		(3	)
	Derivative financial assets		665			293
	Other assets		5			7
	Deposits		588			2,762
	Derivative financial liabilities		618			3,756
	Other liabilities		35,304			35,513
KDB Infrastructure Investment Asset Management Co., Ltd.	Deposits		8,873			17,767
	Other liabilities		86			162
KDB Ireland Ltd.	Loans		402,558			358,393
	Allowance for loan losses		(105	)		(94	)
	Derivative financial assets		7,376			9,673
	Other assets		136			179
KDB Bank Europe Ltd.	Cash and due from banks		298,433			264,697
	Derivative financial assets		439			552
	Other assets		—			47
	Derivative financial liabilities		—			278
	Other liabilities		849			762
Banco KDB Do Brazil S.A.	Cash and due from banks		79,100			48,960
	Loans		155,375			60,384
	Allowance for loan losses		(53	)		(30	)
	Other assets		241			85
KDB Indonesia Ltd.	Loans		22,600			21,760
	Allowance for loan losses		(6	)		(6	)
	Other assets		11			12
KDB Asia Ltd.	Cash and due from banks		1,152,600			783,360
	Loans		45,200			261,120
	Allowance for loan losses		(12	)		(68	)
	Derivative financial assets		—			1,051
	Other assets		931			825
	Deposits		2			2
	Borrowings		21,163			10,736
	Derivative financial liabilities		739			370
	Other liabilities		14			23
KDB Investment PEF No.1	Loans		633,900			732,640
	Allowance for loan losses		(2,780	)		(3,443	)
	Derivative financial assets		2,423			3,109
	Other assets		9,725			8,985

S-103

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

42. Related Party Transactions, Continued

	Account	June 30, 2021			December 31, 2020
	Allowance of other assets	W	(34	)		(35	)
	Deposits		8,543			4,553
	Derivative financial liabilities		206			585
	Other liabilities		885			31
	Other provisions		1,510			1,003
KDB Consus Value PEF	Securities		40,686			40,857
	Derivative financial assets		2,096			243
	Other assets		345			345
	Deposits		116			104
	Derivative financial liabilities		4,517			9,923
	Other liabilities		705			703
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	Loans		1,358,035			1,322,265
	Allowance for loan losses		(604,419	)		(437,867	)
	Derivative financial assets		43,107			6,533
	Other assets		3,334			3,406
	Deposits		508,392			593,439
	Derivative financial liabilities		40,230			153,516
	Other liabilities		9,243			238,642
	Other provisions		656,737			769,944
Corporate Liquidity Assistance Agency Co., Ltd.	Loans		440,000			220,000
	Allowance for loan losses		(128	)		(64	)
	Other assets		14,142			4,452
	Allowance of other assets		(4	)		(1	)
	Deposits		1,421,848			696,350
	Other liabilities		186			90
	Other provisions		120			168
Others	Loans		846,347			1,032,466
	Allowance for loan losses		(330,543	)		(368,449	)
	Derivative financial assets		905			738
	Other assets		16,959			13,142
	Allowance of other assets		(6,848	)		(5,190	)
	Deposits		104,971			86,364
	Borrowings		—			42,527
	Derivative financial liabilities		6,388			25,090
	Other liabilities		865			15,675
	Other provisions		237,884			170,380

S-104

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

42. Related Party Transactions, Continued

	Account	June 30, 2021			December 31, 2020
Associates:
Korea Electric Power Co., Ltd.	Securities	W	28,003			5,779
	Loans		91,906			197,539
	Allowances for loan losses		(1,590	)		(1,778	)
	Derivative financial assets		36,036			80,203
	Other assets		11,323			20,631
	Deposits		61,863			135,837
	Borrowings		22,871			53,107
	Derivative financial liabilities		78,001			41,212
	Other liabilities		994			10,599
	Other provisions		27			10
KG Dongbu Steel Co., Ltd.	Loans		666,671			614,062
	Allowances for loan losses		(3,199	)		(55,321	)
	Other assets		109,785			622
	Deposits		23,962			3,871
	Other liabilities		165			129
	Other provisions		917			15,320
HMM Co., Ltd.	Securities		11,928,326			3,866,467
	Loans		200,571			1,040,638
	Allowances for loan losses		(31,476	)		(93,017	)
	Other assets		15,009			7,302
	Deposits		1,209,097			440,127
	Other liabilities		7,877			2,536
	Other provisions		4,126			8,200
Hanjin Heavy Industries & Construction Co., Ltd.	Loans		215,887			213,052
	Allowances for loan losses		(2,228	)		—
	Other assets		440			—
	Deposits		53,957			110,914
	Other liabilities		1,055			1,464
	Other provisions		121,804			128,819
HANJIN KAL	Securities		—			20,098
	Loans		490,273			390,902
	Other assets		1,073			616
Korea Ocean Business Corporation	Loans		15,292			15,464
	Allowances for loan losses		(1	)		(1	)
	Other assets		16			17
	Other liabilities		59			4

S-105

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

42. Related Party Transactions, Continued

	Account	June 30, 2021			December 31, 2020
Others	Securities	W	665			—
	Loans		800,538			803,266
	Allowances for loan losses		(353,742	)		(355,141	)
	Other assets		6,530			6,390
	Deposits		577,292			439,113
	Other liabilities		1,566			2,169
	Other provisions		45,952			60,070

(3) Significant profit or loss with related parties for the six-month periods ended June 30, 2021 and 2020 are as follows:

	Account	2021			2020
Subsidiaries:
KDB Capital Corporation	Interest income	W	52			71
	Dividend income		27,956			42,866
	Reversal of allowance for loan losses		1			3
	Fees and commission income, other income		3,214			3,895
	Interest expenses		(206	)		(4	)
	Other operating expenses		(435	)		(2,554	)
KDB Infrastructure Investments Asset Management Co., Ltd.	Dividend income		9,089			12,287
	Interest expenses		(67	)		(236	)
KDB Ireland Ltd.	Interest income		625			2,596
	Fees and commission income, other income		2,730			9,054
	Interest expenses		—			(3	)
	Provision for loan losses		(8	)		(6	)
	Other operating expenses		(3,334	)		(1,743	)
KDB Bank Europe Ltd.	Interest income		494			3,458
	Reversal of allowance for loan losses		—			2
	Fees and commission income, other income		174			136
	Other operating expenses		(206	)		(135	)
Banco KDB Do Brazil S.A.	Interest income		485			1,954
	Provision for loan losses		(22	)		(3	)
KDB Indonesia Ltd.	Interest income		81			—
KDB Asia Ltd.	Interest income		4,011			8,140
	Reversal of allowance for loan losses		59			19
	Fees and commission income, other income		836			2,273
	Interest expenses		(31	)		(26	)
	Other operating expenses		(2,440	)		(1,376	)

S-106

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

42. Related Party Transactions, Continued

	Account	2021			2020
KDB Investment PEF No.1	Interest income	W	12,247			15,746
	Fees and commission income, other income		865			3,252
	Interest expenses		(14	)		(363	)
	Provision for loan losses		(672	)		—
	Other operating expenses		(1,233	)		(6,714	)
KDB Consus Value PEF	Interest income		799			799
	Fees and commission income, other income		10,626			13,935
	Interest expenses		(3	)		(6	)
	Other operating expenses		(1,102	)		(298	)
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	Interest income		13,571			18,170
	Fees and commission income, other income		339,490			411,520
	Interest expenses		(2,406	)		(3,149	)
	Provision for loan losses		(150,506	)		(62,212	)
	Other operating expenses		(55,394	)		(85,935	)
Corporate Liquidity Assistance Agency Co., Ltd.	Interest income		9,690			—
	Fees and commission income, other income		47			—
	Interest expenses		(4,440	)		—
	Provision for loan losses		(64	)		—
	Other operating expenses		(3	)		—
Others	Interest income		22,179			16,646
	Dividend income		25,810			64,423
	Reversal of allowance for loan losses		87,817			44,692
	Fees and commission income, other income		140,915			118,211
	Interest expenses		(310	)		(581	)
	Provision for loan losses		(27,259	)		(31,095	)
	Other operating expenses		(187,981	)		(88,673	)
Associates:
Korea Electric Power Co., Ltd.	Interest income		1,397			2,586
	Dividend income		256,862			—
	Reversal of allowance for loan losses		188			—
	Fees and commission income, other income		8,441			18,767
	Interest expenses		(505	)		(1,385	)
	Provision for loan losses		—			(22	)
	Other operating expenses		(116,233	)		(133,154	)

S-107

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

42. Related Party Transactions, Continued

	Account	2021			2020
KG Dongbu Steel Co., Ltd.	Interest income	W	5,851			11,959
	Dividend income		1,101			—
	Reversal of allowance for loan losses		52,122			93,914
	Fees and commission income, other income		18,964			37,739
	Interest expenses		(7	)		(20	)
	Other operating expenses		(3,553	)		(7,278	)
HMM Co., Ltd.	Interest income		22,171			18,828
	Reversal of allowance for loan losses		61,540			3,541
	Fees and commission income, other income		1,824,314			53,975
	Interest expenses		(1,262	)		(1,129	)
	Other operating expenses		(16,505	)		(8,786	)
Hanjin Heavy Industries & Construction Co., Ltd.	Interest income		2,735			3,093
	Fees and commission income, other income		22,267			4,408
	Interest expenses		(118	)		(193	)
	Provision for loan losses		(2,228	)		(8	)
	Other operating expenses		(12,273	)		(1,694	)
HANJIN KAL	Interest income		3,610			—
	Fees and commission income, other income		99,421			—
Korea Ocean Business Corporation	Interest income		108			253
	Fees and commission income, other income		593			678
	Interest expenses		(59	)		—
	Other operating expenses		—			(1	)
Others	Interest income		6,255			6,127
	Dividend income		163,508			78,637
	Reversal of allowance for loan losses		2,722			1,604
	Fees and commission income, other income		28,231			46,573
	Interest expenses		(961	)		(2,423	)
	Provision for loan losses		(801	)		(5,339	)
	Other operating expenses		(8,980	)		(11,778	)

S-108

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

42. Related Party Transactions, Continued

(4) Details of guarantees and commitments to the related parties as of June 30, 2021 and December 31, 2020 are as follows:

	Account	June 30, 2021		December 31, 2020
Subsidiaries:
KDB Capital Corporation	Commitments	W	320,000		320,000
KDB Investment PEF No.1	Unconfirmed acceptances and guarantees		6,933		7,854
	Commitments		404,667		298,706
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	Confirmed acceptances and guarantees		1,160,689		1,226,351
	Unconfirmed acceptances and guarantees		1,069,548		557,377
	Commitments		4,846,495		5,084,798
Corporate Liquidity Assistance Agency Co., Ltd.	Commitments		560,000		780,000
Others	Confirmed acceptances and guarantees		296,935		337,604
	Unconfirmed acceptances and guarantees		254,585		175,716
	Commitments		65,000		178,200
Associates:
KG Dongbu Steel Co., Ltd.	Confirmed acceptances and guarantees		1,704		—
	Unconfirmed acceptances and guarantees		78,386		20,265
	Commitments		239,473		339,823
HMM Co., Ltd.	Confirmed acceptances and guarantees		13,560		13,056
Hanjin Heavy Industries & Construction Co., Ltd.	Confirmed acceptances and guarantees		347,886		414,630
	Unconfirmed acceptances and guarantees		3,359		3,337
	Commitments		91,080		22,614
Others	Confirmed acceptances and guarantees		53,075		76,628
	Unconfirmed acceptances and guarantees		53,973		28,431
	Commitments		332,894		244,384
		W	10,200,242		10,129,774

S-109

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

42. Related Party Transactions, Continued

(5) Details of compensation to key management personnel for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021		2020
Short-term employee benefits	W	337		330
Post-employment benefits		3		—
	W	340		330

(6) The Bank are not pledged any assets as collaterals to the related parties and from the related parties as of June 30, 2021 and December 31, 2020.

43. Statements of Cash Flows

(1) Cash and cash equivalents in the separate statements of cash flows as of June 30, 2021 and 2020 are as follows:

	June 30, 2021		June 30, 2020
Cash and due from banks:
Cash and foreign currencies	W	53,847		59,917
Due from banks in Korean won		4,739,491		4,854,243
Due from banks in foreign currencies		6,475,917		7,531,806
		11,269,255		12,445,966
Less: Restricted due from banks, others		(6,075,890)		(6,123,060	)
Add: Financial instruments reaching maturity within three months from date of acquisition
Loans measured at amortized cost:
Call-loans		1,564,172		1,234,328
Inter-bank loans		1,302,509		1,071,172
		2,866,681		2,305,500
	W	8,060,046		8,628,406

(2) Significant transactions not involving cash flows for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021			2020
Decrease in loans due to write-offs	W	20,000			122,638
Increase in securities measured at FVOCI due to debt-to-equity swap		81,364			13,513
Increase in investments in subsidiaries and associates due to debt-to-equity swap		2,658,000			750
Increase in accumulated other comprehensive income due to securities valuation		8,357,197			131,514
Deferred income tax effect due to securities valuation		(2,298,229	)		(36,166	)
Transfer from investment property to property and equipment		—			1,655

S-110

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

43. Statements of Cash Flows, Continued

Transfer from property and equipment to investment property	1,494	—
Recognition of right-of-use assets and lease liabilities	26,866	16,171

44. Transfers of Financial Instruments

Details of financial assets and liabilities related to repurchase agreements and loaned securities that do not qualify for derecognition as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021				December 31, 2020
Characteristics of transactions	Carrying amounts for transferred assets		Carrying amounts for related liabilities		Carrying amounts for transferred assets		Carrying amounts for related liabilities
Repurchase agreements	W	1,974,244		2,041,640		2,762,065		1,875,504
Loaned securities		859,161		—		289,806		—
	W	2,833,405		2,041,640		3,051,871		1,875,504

45. Fair Value of Financial Assets and Liabilities

The Bank classifies and discloses fair value of the financial instruments into the following three-level hierarchy:

• Level 1: Financial instruments measured at quoted prices from active markets are classified as level 1.

• Level 2: Financial instruments measured using valuation techniques where all significant inputs are observable market data are classified as level 2.

• Level 3: Financial instruments measured using valuation techniques where one or more significant inputs are not based on observable market data are classified as level 3.

S-111

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

(1) Fair value hierarchy of financial instruments measured at fair value

(i) The fair value hierarchy of financial instruments measured at fair value as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Level 1		Level 2		Level 3		Total
Financial assets:
Securities measured at FVTPL	W	1,574,273		1,415,111		7,283,388		10,272,772
Securities measured at FVOCI		2,155,521		16,685,193		23,169,792		42,010,506
Loans measured at FVTPL		—		—		701,288		701,288
Derivative financial assets		179		5,137,525		8,417		5,146,121
	W	3,729,973		23,237,829		31,162,885		58,130,687
Financial liabilities:
Financial liabilities designated at FVTPL	W	—		1,892,708		—		1,892,708
Derivative financial liabilities		217		3,647,605		5,351		3,653,173
	W	217		5,540,313		5,351		5,545,881

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Financial assets:
Securities measured at FVTPL	W	1,023,738		1,064,829		6,232,064		8,320,631
Securities measured at FVOCI		2,439,145		17,067,639		14,634,541		34,141,325
Loans measured at FVTPL		—		—		1,434,514		1,434,514
Derivative financial assets		—		8,321,162		8,214		8,329,376
	W	3,462,883		26,453,630		22,309,333		52,225,846
Financial liabilities:
Financial liabilities designated at FVTPL	W	—		1,694,957		—		1,694,957
Derivative financial liabilities		—		6,298,836		6,451		6,305,287
	W	—		7,993,793		6,451		8,000,244

S-112

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

(ii) Changes in the fair value of level 3 financial instruments for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	Financial assets														Financial liabilities
	Securities measured at FVTPL			Securities measured at FVOCI			Loans measured at FVTPL			Derivative financial assets		Total			Derivative financial liabilities
January 1, 2021	W	6,232,064			14,634,541			1,434,514			8,214		22,309,333			6,451
Profit or loss		21,782			—			116,657			203		138,642			(1,100	)
Other comprehensive income		—			8,427,801			—			—		8,427,801			—
Acquisition / Issue		1,174,381			348,188			17,500			—		1,540,069			—
Sale / Settlement		(144,839	)		(150,920	)		(867,383	)		—		(1,163,142	)		—
Transfer out(*)		—			(89,818	)		—			—		(89,818	)		—
Transfer in(*)		—			—			—			—		—			—
June 30, 2021	W	7,283,388			23,169,792			701,288			8,417		31,162,885			5,351

	2020
	Financial assets														Financial liabilities
	Securities measured at FVTPL			Securities measured at FVOCI			Loans measured at FVTPL			Derivative financial assets		Total			Derivative financial liabilities
January 1, 2020	W	4,804,158			10,865,012			604,380			10,007		16,283,557			75
Profit or loss		160,145			—			55,337			9,354		224,836			4,884
Other comprehensive income		—			82,366			—			—		82,366			—
Acquisition / Issue		1,303,693			829,765			13,000			—		2,146,458			—
Sale / Settlement		(202,197	)		(109,021	)		(121,694	)		—		(432,912	)		—
Transfer out(*)		(1,178	)		(21,575	)		—			—		(22,753	)		—
Transfer in(*)		—			71,697			—			—		71,697			—
June 30, 2020	W	6,064,621			11,718,244			551,023			19,361		18,353,249			4,959

(*) When significant inputs become observable market data, the financial instruments are transferred to (from) other levels.

(iii) Changes in deferred day one profit or loss for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021			2020
Beginning balance	W	4,375			4,763
Amortization		(191	)		(193	)
Ending balance	W	4,184			4,570

S-113

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

(iv) Details of valuation technique and inputs used in the fair value measurement categorized within level 2 of the fair value hierarchy of financial instruments measured at fair value as of June 30, 2021 and December 31, 2020 are as follows:

	Valuation technique	Input
Securities measured at FVTPL and financial assets held for trading:
Equity securities	Net asset value approach	Underlying asset price
Debt securities	Discounted cash flow method	Discount rate
Securities measured at FVOCI and available-for-sale financial assets:
Equity securities	Net asset value approach	Underlying asset price
Debt securities	Discounted cash flow method	Discount rate
Derivatives financial assets:
Interest rate swaps	Discounted cash flow method,	Discount rate, exchange rate,
Currency forwards and swaps	Black-Scholes model, Modified	volatility, commodity index,
Currency options	Black model, Formula model	etc.
Commodities options
Financial liabilities measured at FVTPL:
Debentures	Discounted cash flow method	Discount rate

S-114

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

(v) Details of valuation technique and quantitative information about unobservable inputs used in the fair value measurement categorized within level 3 of the fair value hierarchy of financial instruments measured at fair value as of June 30, 2021 and December 31, 2020 are as follows:

		June 30, 2021
	Valuation technique	Unobservable input	Range (%)
Securities measured at FVTPL
Equity securities	Discounted cash flow	Discount rate	6.49 ~ 13.68
	method, Relative value	Rate of increase in	—
	approach, Net asset	liquidation value
	value approach	Rate of increase in	—
		property disposal price
		Volatility	14.35 ~ 37.31
Securities measured at FVOCI
Equity securities	Discounted cash flow	Discount rate	7.38 ~ 18.72
	method, Relative value	Growth rate	—
	approach, Net asset	Volatility	16.63 ~ 34.96
	value approach
Loans measured at FVTPL
Convertible bonds, etc.	Binomial model, LSMC	Volatility	14.35 ~37.31
Derivatives financial assets
Interest rate swaps	Discounted cash flow	Volatility	38.89 ~ 49.27
		Correlation coefficient	0.74 ~ 0.80
Interest rate options	Modified Black model	Volatility	38.89 ~ 49.27
Stock index options	Black-Scholes model	Volatility	8.10 ~ 50.60
Equity options	Discounted cash flow	Volatility	25.67 ~ 34.96
	method and others

S-115

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

		December 31, 2020
	Valuation technique	Unobservable input	Range (%)
Securities measured at FVTPL
Equity securities	Discounted cash flow	Discount rate	0.72 ~ 19.05
	method, Relative value	Rate of increase in	—
	approach, Net asset	liquidation value
	value approach	Rate of increase in	—
		property disposal price
		Volatility	17.53 ~ 33.00
Securities measured at FVOCI
Equity securities	Discounted cash flow	Discount rate	0.20 ~19.05
	method, Relative value	Growth rate	—
	approach, Net asset	Volatility	18.49 ~ 26.45
	value approach
Loans measured at FVTPL
Convertible bonds, etc.	Binomial model	Volatility	17.53 ~ 32.59
Derivatives financial assets
Interest rate swaps	Discounted cash flow	Volatility	36.02 ~ 44.87
		Correlation coefficient	0.83 ~ 0.91
Interest rate options	Modified Black model	Volatility	36.02 ~ 44.87
Stock index options	Black-Scholes model	Volatility	17.20 ~ 27.30
Equity options	Discounted cash flow	Volatility	18.49 ~ 33.00
	method and others

(vi) The sensitivity analysis on changes in unobservable inputs for financial instruments categorized within level 3 of the fair value hierarchy of financial instruments measured at fair value as of June 30, 2021 and December 31, 2020 is as follows:

	December 31, 2020
	Profit(loss) for the year					Other comprehensive income(loss)
	Favorable change		Unfavorable change			Favorable change		Unfavorable change
Securities measured at FVTPL(*1)	W	8,549		(6,903	)		—		—
Securities measured at FVOCI(*1)		—		—			63,426		(97,729	)
Loans measured at FVTPL(*2)		56,861		(54,828	)		—		—
Derivative financial assets(*2)		4,244		(1,778	)		—		—
	W	69,654		(63,509	)		63,426		(97,729	)

S-116

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

	December 31, 2020
	Profit(loss) for the year					Other comprehensive income(loss)
	Favorable change		Unfavorable change			Favorable change		Unfavorable change
Securities measured at FVTPL(*1)	W	8,478		(7,355	)		—		—
Securities measured at FVOCI(*1)		—		—			45,231		(75,780	)
Loans measured at FVTPL(*2)		64,022		(28,054	)		—		—
Derivative financial assets(*2)		4,364		(1,846	)		—		—
	W	76,864		(37,255	)		45,231		(75,780	)

(*1) Sensitivity amounts of equity securities are calculated by increasing and decreasing the correlations between the discount rates and the growth rates (0~1%) or the rate of increase in liquidation value (-1~1%) which are significant unobservable inputs. Sensitivity amounts for beneficiary certificates are calculated by increasing and decreasing the correlations between the discount rate of rent cash flow (-1~1%) and the rate of increase in property disposal price (-1~1%), only when they consist of real properties. Other than that, it is difficult to measure the sensitivity amounts of beneficiary certificates for practical reasons. Also, for financial instruments categorized within level 3 as of June 30, 2021 and December 31, 2020, W17,702,274 million and W20,500,366 million, respectively, are excluded from the sensitivity disclosure because it is impossible to calculate the sensitivity due to changes in unobservable variables for practical reasons.

(*2) Sensitivity amounts of loans measured at FVTPL and derivatives financial instruments are calculated by increasing and decreasing the correlation coefficient and volatility (-10~10%) which are significant unobservable inputs.

(2) Fair value hierarchy of financial instruments measured at amortized cost

(i) The Bank’s policies for measuring fair value of financial instruments at amortized costs are as follows:

• Cash and due from banks: Fair value of cash is considered equivalent to the carrying amount. In the case of due from banks on demand, which do not have a set maturity and can be realized instantly, the carrying amount is a close estimate of the fair value and is assumed so. In the case of other ordinary due from banks, the cash flow discount method is used to estimate the fair value.

• Securities measured at amortized cost: The fair value of securities measured at amortized cost is computed by widely-accepted appraisal agencies upon request.

• Loans measured at amortized cost: The fair value of loans measured at amortized cost is the expected future cash flows, reflecting premature redemption ratio, discounted by the market interest rate, adjusted by a spread sheet considering the probability of default. Exceptions to this method include loans with credit line facilities, loans with a maturity of three months or less left and impaired loans, which the Bank assumes the carrying amount as the fair value.

• Deposits: The fair value of deposits is computed using the discounted cash flow method. However, for deposits, whose cash flows cannot be estimated reasonably, the Bank assumes the carrying amount as the fair value.

S-117

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

• Borrowings: The fair value of industrial financial debentures is computed using the discounted cash flow method by the Bank’s Fair Value Evaluation System. However, for borrowings including call money whose contractual maturity is three months or less, the Bank assumes the carrying amount as the fair value.

• Debentures: The fair value of industrial financial debentures is computed using the discounted cash flow method by the Bank’s Fair Value Evaluation System.

• Other financial assets and liabilities: The fair value of other financial assets and liabilities is computed using the discounted cash flow method. However, in cases cash flow cannot be estimated reasonably, the Bank assumes the carrying amount as the fair value.

(ii) The fair value hierarchy of financial instruments measured at amortized cost as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks(*)	W	5,193,365		6,075,890		—		11,269,255
Securities measured at amortized cost		1,094,179		1,322,955		—		2,417,134
Loans measured at amortized cost(*)		—		1,564,172		161,963,578		163,527,750
Other financial assets(*)		—		8,402,449		1,083,933		9,486,382
	W	6,287,544		17,365,466		163,047,511		186,700,521
Financial liabilities:
Deposits(*)	W	—		1,832,336		47,008,178		48,840,514
Borrowings(*)		—		658,941		20,304,448		20,963,389
Debentures		—		144,779,780		—		144,779,780
Other financial liabilities(*)		—		7,064,215		3,674,900		10,739,115
	W	—		154,335,272		70,987,526		225,322,798

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks(*)	W	4,904,584		5,624,394		—		10,528,978
Securities measured at amortized cost		665,183		120,081		—		785,264
Loans measured at amortized cost(*)		—		465,485		155,354,001		155,819,486
Other financial assets(*)		—		3,831,087		630,030		4,461,117
	W	5,569,767		10,041,047		155,984,031		171,594,845
Financial liabilities:
Deposits(*)	W	—		2,249,420		43,624,163		45,873,583
Borrowings(*)		—		1,008,635		17,865,518		18,874,153
Debentures		—		140,088,033		—		140,088,033
Other financial liabilities(*)		—		3,104,887		3,784,488		6,889,375
	W	—		146,450,975		65,274,169		211,725,144

(*) For financial instruments categorized as level 2, the carrying amount is considered as a reasonable approximation of the fair value and is thus, disclosed by fair value.

S-118

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

(iii) Details of valuation technique and inputs used in the fair value measurement categorized within level 2 and level 3 of the fair value hierarchy of financial instruments measured at amortized cost as of June 30, 2021 and December 31, 2020 are as follows:

	Valuation technique	Input
Level 2
Financial assets:
Securities measured at amortized cost	Discounted cash flow method	Discount rate
Financial liabilities:
Debentures	Discounted cash flow method	Discount rate
Level 3
Financial assets:
Loans measured at amortized cost	Discounted cash flow method	Credit spread, Other spread, Prepayment rate
Other financial assets	Discounted cash flow method	Other spread
Financial liabilities:
Deposits	Discounted cash flow method	Other spread, Prepayment rate
Borrowings	Discounted cash flow method	Other spread
Other financial liabilities	Discounted cash flow method	Other spread

46. Categories of Financial Assets and Liabilities

Categories of financial assets and liabilities as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Cash and cash equivalents		Financial instruments measured at FVTPL		Financial instruments designated at FVTPL		Financial instruments measured at FVOCI		Financial instruments designated at FVOCI		Financial instruments measured at amortized cost		Hedging purpose derivative instruments		Total
Financial assets:
Cash and due from banks	W	5,193,365		—		—		—		—		6,075,890		—		11,269,255
Securities measured at FVTPL		—		10,272,772		—		—		—		—		—		10,272,772
Securities measured at FVOCI		—		—		—		18,515,751		23,494,755		—		—		42,010,506
Securities measured at amortized cost		—		—		—		—		—		2,417,134		—		2,417,134
Loans measured at FVTPL		—		701,288		—		—		—		—		—		701,288
Loans measured at amortized cost		2,866,681		—		—		—		—		160,027,855		—		162,894,536
Derivative financial assets		—		4,126,319		—		—		—		—		1,019,802		5,146,121
Other financial assets		—		—		—		—		—		9,487,732		—		9,487,732
	W	8,060,046		15,100,379		—		18,515,751		23,494,755		178,008,611		1,019,802		244,199,344

S-119

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

46. Categories of Financial Assets and Liabilities, Continued

	June 30, 2021
	Cash and cash equivalents		Financial instruments measured at FVTPL		Financial instruments designated at FVTPL		Financial instruments measured at FVOCI		Financial instruments designated at FVOCI		Financial instruments measured at amortized cost		Hedging purpose derivative instruments		Total
Financial liabilities:
Financial liabilities measured at FVTPL	W	—		—		1,892,708		—		—		—		—		1,892,708
Deposits		—		—		—		—		—		48,875,219		—		48,875,219
Borrowings		—		—		—		—		—		20,975,895		—		20,975,895
Debentures		—		—		—		—		—		143,375,963		—		143,375,963
Derivative financial liabilities		—		3,586,909		—		—		—		—		66,264		3,653,173
Other financial liabilities		—		—		—		—		—		10,751,127		—		10,751,127
	W	—		3,586,909		1,892,708		—		—		223,978,204		66,264		229,524,085

	December 31, 2020
	Cash and cash equivalents		Financial instruments measured at FVTPL		Financial instruments designated at FVTPL		Financial instruments measured at FVOCI		Financial instruments designated at FVOCI		Financial instruments measured at amortized cost		Hedging purpose derivative instruments		Total
Financial assets:
Cash and due from banks	W	4,904,584		—		—		—		—		5,624,394		—		10,528,978
Securities measured at FVTPL		—		8,320,631		—		—		—		—		—		8,320,631
Securities measured at FVOCI		—		—		—		19,276,210		14,865,115		—		—		34,141,325
Securities measured at amortized cost		—		—		—		—		—		785,264		—		785,264
Loans measured at FVTPL		—		1,434,514		—		—		—		—		—		1,434,514
Loans measured at amortized cost		824,610		—		—		—		—		154,475,568		—		155,300,178
Derivative financial assets		—		6,880,971		—		—		—		—		1,448,405		8,329,376
Other financial assets		—		—		—		—		—		4,463,726		—		4,463,726
	W	5,729,194		16,636,116		—		19,276,210		14,865,115		165,348,952		1,448,405		223,303,992
Financial liabilities:
Financial liabilities measured at FVTPL	W	—		—		1,694,957		—		—		—		—		1,694,957
Deposits		—		—		—		—		—		45,879,419		—		45,879,419
Borrowings		—		—		—		—		—		18,887,611		—		18,887,611
Debentures		—		—		—		—		—		138,318,728		—		138,318,728
Derivative financial liabilities		—		6,206,902		—		—		—		—		98,385		6,305,287
Other financial liabilities		—		—		—		—		—		6,896,581		—		6,896,581
	W	—		6,206,902		1,694,957		—		—		209,982,339		98,385		217,982,583

S-120

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

47. Offsetting of Financial Assets and Liabilities

Details of financial instruments subject to offsetting, enforceable master netting agreements or similar agreements as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Gross amounts of recognized financial asset		Gross amounts of recognized financial liabilities set off in the statement of financial position		Net amounts of financial assets presented in  the statement of financial position		Related amounts not set off in the statement of  financial position
							Financial instruments		Cash collateral received		Net amounts
Derivative financial assets(*)	W	5,146,121		—		5,146,121		2,261,781		270,615		2,613,725
Unsettled spot exchange receivables(*)		6,654,631		—		6,654,631		6,653,380		—		1,251
Unsettled domestic exchange receivables		3,469,076		1,721,259		1,747,817		—		—		1,747,817
Security pledged as collateral for repurchase agreements		1,974,244		—		1,974,244		2,041,640		—		(67,396	)
Reverse repurchase agreements		785,600		—		785,600		785,600		—		—
Loaned securities		859,161		—		859,161		859,161		—		—
Receivables from securities transaction		401,990		—		401,990		401,990		—		—
	W	19,290,823		1,721,259		17,569,564		13,003,552		270,615		4,295,397

	June 30, 2021
	Gross amounts of recognized financial liabilities		Gross amounts of recognized financial assets set off in the statement of financial position		Net amounts of financial liabilities presented in the statement of financial position		Related amounts not set off in the statement of  financial position
							Financial instruments		Cash collateral pledged		Net amounts
Derivative financial liabilities(*)	W	3,653,173		—		3,653,173		2,598,470		101,022		953,681
Unsettled spot exchange payables(*)		6,654,129		—		6,654,129		6,653,380		—		749
Unsettled domestic exchange payables		2,131,346		1,721,259		410,087		—		—		410,087
Repurchase agreements		2,041,640		—		2,041,640		2,041,640		—		—
Payables from securities transaction		112,156		—		112,156		112,156		—		—
	W	14,592,444		1,721,259		12,871,185		11,405,646		101,022		1,364,517

S-121

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

47. Offsetting of Financial Assets and Liabilities, Continued

	December 31, 2020
	Gross amounts of recognized financial asset		Gross amounts of recognized financial liabilities set off in the statement of financial position		Net amounts of financial assets presented in the statement of financial position		Related amounts not set off in the statement of  financial position
							Financial instruments		Cash collateral received		Net amounts
Derivative financial assets(*)	W	8,329,376		—		8,329,376		5,414,190		526,608		2,388,578
Unsettled spot exchange receivables(*)		2,517,129		—		2,517,129		2,516,540		—		589
Unsettled domestic exchange receivables		2,731,336		1,417,378		1,313,958		—		—		1,313,958
Security pledged as collateral for repurchase agreements		2,762,065		—		2,762,065		1,875,504		—		886,561
Reverse repurchase agreements		1,440,000		—		1,440,000		1,440,000		—		—
Loaned securities		289,806		—		289,806		289,806		—		—
Receivables from securities transaction		18,519		—		18,519		18,519		—		—
	W	18,088,231		1,417,378		16,670,853		11,554,559		526,608		4,589,686

	December 31, 2020
	Gross amounts of recognized financial liabilities		Gross amounts of recognized financial assets set off in the statement of financial position		Net amounts of financial liabilities presented in the statement of financial position		Related amounts not set off in the statement of  financial position
							Financial instruments		Cash collateral pledged		Net amounts
Derivative financial liabilities(*)	W	6,305,287		—		6,305,287		4,261,659		40,158		2,003,470
Unsettled spot exchange payables(*)		2,517,693		—		2,517,693		2,516,540		—		1,153
Unsettled domestic exchange payables		2,004,572		1,417,378		587,194		—		—		587,194
Repurchase agreements		1,875,504		—		1,875,504		1,875,504		—		—
Payables from securities transaction		14,766		—		14,766		14,766		—		—
	W	12,717,822		1,417,378		11,300,444		8,668,469		40,158		2,591,817

(*) For the derivatives covered by the ISDA derivative contracts, all contracts are settled and the net amount of derivative contracts is measured and paid based on the liquidation value if the counterparty files for bankruptcy or has any credit issues.

S-122

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

48. Operating Segments

(1) The Bank has four reportable segments, as described below, which are the Bank’s strategic business units. They are managed separately because each business requires different technology and marketing strategies.

The following summary describes general information about each of the Bank’s reportable segments:

Segments	General information
Corporate finance	Provides trade finance and loans to corporate customers
Investment finance	Provides consulting services to corporate such as capital finance, restructuring, etc.
Asset management	Provides asset management services to individual and corporate customers
Others	Any other segment not mentioned above

(2) Operating income (loss) from external customers and among operating segments for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	Corporate finance			Investment finance		Asset management		Others			Total
Operating income from external customers	W	18,227			1,730,000		13,064		601,124			2,362,415
Operating income (loss) from intersegment sales		(12,026	)		403,962		—		(391,936	)		—
	W	6,201			2,133,962		13,064		209,188			2,362,415

	2020
	Corporate finance			Investment finance			Asset management		Others			Total
Operating income (loss) from external customers	W	235,168			810,711			11,597		(368,577	)		688,899
Operating income (loss) from intersegment sales		(86,638	)		(361,048	)		—		447,686			—
	W	148,530			449,663			11,597		79,109			688,899

(3) Details of segment results for the Bank’s reportable segments for the six-month periods ended June 30, 2021 and 2020 are as follows:

	2021
	Corporate finance			Investment finance			Asset management			Others			Total
Net interest income	W	610,452			(33,082	)		381			209,159			786,910
Non-interest income
Income related to securities(*1)		12,074			(35,130	)		—			9,279			(13,777	)
Other non-interest income		480,696			2,176,824			18,447			(14,026	)		2,661,941
		492,770			2,141,694			18,447			(4,747	)		2,648,164
Provision for loan losses and others(*2)		(783,463	)		75,236			—			5,284			(702,943	)
General and administrative expenses		(313,558)			(49,886	)		(5,764	)		(508	)		(369,716	)
Operating income	W	6,201			2,133,962			13,064			209,188			2,362,415

S-123

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

48. Operating Segments, Continued

	2020
	Corporate finance			Investment finance			Asset management			Others			Total
Net interest income	W	592,853			(15,920	)		(332	)		4,662			581,263
Non-interest income
Income related to securities(*1)		26,497			99,321			—			(6,627	)		119,191
Other non-interest income		264,352			197,674			17,901			81,307			561,234
		290,849			296,995			17,901			74,680			680,425
Provision for loan losses and others(*2)		(436,563	)		216,708			—			(233	)		(220,088	)
General and administrative expenses		(298,609)			(48,120	)		(5,972	)		—			(352,701	)
Operating income	W	148,530			449,663			11,597			79,109			688,899

(*1) Income related to securities is composed of net gain (loss) on securities measured at FVTPL, securities measured at FVOCI and securities measured at amortized cost.

(*2) Provision for loan losses and others comprises of provision for loan losses, provision for derivative credit risks, gains (losses) on sales of loans, and increase (reversal) of provision.

(4) Geographical revenue information about the Bank’s operating segments for the six-month periods ended June 30, 2021 and 2020 and the geographical non-current asset information as of June 30, 2021 and December 31, 2020 are as follows:

	Revenues (*1)				Non-current assets (*2)
	2021		2020		June 30, 2021		December 31, 2020
Domestic	W	15,368,839		17,317,451		29,346,230		26,606,309
Overseas		665,469		855,124		40,070		28,116
	W	16,034,308		18,172,574		29,386,300		26,634,425

(*1) Revenues consist of interest income, fees and commission income, dividend income, income related to securities, foreign currency transaction gain, gain on derivatives, other operating income and provision for loan losses.

(*2) Non-current assets consist of investments in subsidiaries and associates, property and equipment, investment property and intangible assets.

S-124

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management

(1) Introduction

(i) Objectives and principles

The Bank’s risk management aims to maintain financial soundness and effectively manage various risks pertinent to the nature of the Bank’s business. The Bank has set up and fulfilled policies to manage risks timely and effectively. Pursuant to the policies, the Bank’s risks shall be

• managed comprehensively and independently,

• recognized timely, evaluated exactly and managed effectively,

• maintained to the extent that the risks balance with profit,

• diversified appropriately to avoid concentration on specific segments,

• managed to prevent excessive exposure by the setting up and managing of tolerance limits and guidelines.

(ii) Risk management strategy and process

The Bank’s risk management business is separated into two different stages; the ‘metrification stage,’ in which risks are estimated and monitored, and the ‘integration stage,’ in which information gained during the risk management process is integrated and used in management strategies. Risk management is recognized as a key component of the Bank’s management and seeks to change from its previously adaptive and limited role to more leading and comprehensive role.

Furthermore, the Bank focuses on consistent communication among different departments to establish a progressive consensus on risk management.

(iii) Risk management governance

Risk Management Committee

The Bank’s Risk Management Committee (the “Committee”) is composed of the President of the committee (an outside director), and three other commissioners. The Committee functions to establish policies of risk management, evaluate the capital adequacy of the Bank, discuss material issues relating to risk management, and present preliminary decisions on such matters.

The CEO of the Bank and the head of Risk Management Segment

The CEO of the Bank, according to the policies of risk management, performs his or her role to manage and direct risk management to sustain efficiency and internal control. The head of the Risk Management Segment is responsible for supervising the overall administration of the Bank’s risk management business and providing risk-related information to members of the board of directors and the Bank’s management.

Risk Management Policy Committee

The Bank’s Risk Management Policy Committee is composed of the leaders of all business segments. and exercises its role to decide important matters relating to the Bank’s portfolio including allocating internal capital

S-125

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

limits by segment and setting exposure limits by industry within the scope that Risk Management Committee regulated.

(iv) Performance of risk management committee

The Risk Management Committee performs comprehensive reviews of all the affairs related to risk management and deliberates the decisions of the board of directors. For the year ended June 30, 2021, the key activities of the Risk Management Committee are as follows:

• Major decision

• Risk management plan for 2021

• Setting and managing exposure limits by country for 2021

• Contingency funding plan for 2021

• Major reporting

• Result of integrated crisis analysis for the second half of 2020

• Result of assessment of suitability for internal capital for 2020

• Resolution of Credit Committee for the fourth quarter of 2020

• Result of ex-post validation of credit rating system and default rates, and verification of risk measurement factors for internal purposes

(v) Improvement of risk management system

For the continuous improvement of risk management, financial soundness and capital adequacy, the Bank performs the following:

• Continuous improvement of Basel

• Improvements in the internal capital adequacy assessment system, in line with the guidelines set by the Financial Supervisory Service (FSS) in 2008, to manage capital adequacy more effectively

• Improvements in the credit assessment system on Low Default Portfolio (LDP)

• Elaboration of risk measuring criteria including credit risk parameters and measurement logics

• Development of the application system for timely calculation of LCR and NSFR

• Rebuilding the Corporate Credit Rating System (approved by Financial Supervisory Services on October 26, 2017)

• Establishment of the system to calculate Basel Interest Rate Risk in the Banking Book coming to domestic in September 2018

• Establishment of the system to comply with the amended regulation relating to risk-weighted assets under Basel III in December 2020

S-126

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

• Expansion of risk management infrastructure

• Establishment of the RAPM system to reflect risks to the Bank’s business and support decision-making upon management, and application of performance assessment at the branch level since 2010

• Enforcement of risk management related to irregular compound derivatives and validation of the derivative pricing model developed by the Bank’s Front Office

• Establishment of IFRS 9 accounting system to calculate a loan loss allowances under IFRS 9 in March 2017 and, since then, run of IFRS 9 accounting system in January 2018

(vi) Risk management reporting and measuring system

The Bank endeavours consistently to objectively and rationally measure and manage all significant risks considering the characteristics of operational areas, assets and risks. In relation to reporting and measurement, the Bank has developed application systems as follows:

Application system	Approach	Completion date	Major function
Corporate Credit Rating System	Logit Model	Oct. 2017	Rebuilding the Corporate Credit Rating System
Market Risk Management System	Risk Watch	Jun. 2002 Feb. 2019	Summarize position, manage exposure limits and calculate Market VaR
	RS Model	Sep. 2012	Calculate regulatory capital by Standardized Approach
	Murex M/O	Apr. 2013	Supplement of RiskWatch to calculate VaR
Interest/Liquidity Risk Management System	In-house	May. 2019	Calculation of interest risk, liquidity risk, etc.
Operational Risk Management System	Standardized Approach	May. 2006	Manage process and calculate CSA, KRI and OP VaR, etc.
	AMA	May. 2009	Measure by Advanced Measurement Approach
BIS Capital Ratio Calculation/Credit Risk Measurement System	Fermat RaY (*)	Sep. 2006 Dec. 2013	Calculate equity, credit risk-weighted assets and credit risk, etc.
Loan Loss Allowance Calculation System	IFRS IFRS 9	Jan. 2011 Mar. 2017	Incurred loss model Expected loss model

(*) To comply with the amended regulation relating to risk-weighted assets under Basel III, the upgrade of relevant systems was completed in March 2021.

S-127

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

(vii) Response to Basel

The Korean financial authorities have implemented Basel II since January 2008, and the Standardized Approach and the Foundation Internal Ratings-Based Approach for calculating credit risk are applicable.

In conformity with the implementation roadmap of Basel II, the Bank obtained the approval to use the Foundation Internal Ratings-Based Approach on credit risk from the FSS in July 2008 and has applied the approach since late June 2008. The Bank applies the Standardized Approach on market risks and operational risks.

The Bank completed the Basel III standard risk management system in preparation of the adoption of the Basel III regulations announced on December 1, 2013. Starting from 2013 year-end, the BIS capital adequacy ratio has been measured in accordance to the Basel III regulations.

Responding to the requirements of the financial authorities, the Bank recognizes interest rate risk, liquidity risk, credit bias risk and reputation risk besides Pillar I risks (credit risk, market risk and operational risk). The Bank has actively responded to the Pillar 2 regulation, including additional capital requirements based on comprehensive assessment of risk management levels since 2015. In addition, from the end of 2015, the Bank has applied the uniform standards for the public announcement of financial business for Basel compliance.

The Bank completed revised standards such as capital requirements for banks’ investments in funds in 2017, capital requirements for securitization in 2018, and the Standardised Approach for measuring counterparty credit risk (SA-CCR) in 2019.

To comply with the amended regulation relating to risk-weighted assets under Basel III, the Bank completed the consultation and the development of the relevant systems and the amended regulation has been applied since the calculation of the BIS ratio at the end of 2020.

(viii) Internal capital adequacy assessment process

Internal capital adequacy assessment process is defined as the process that the Bank aggregates significant risks, calculates its internal capital, compares the internal capital with the available capital and assesses its internal capital adequacy. The internal capital adequacy report including the assessment results at the end of the year is prepared and reported to the Risk Management Policy Committee.

• Internal capital adequacy assessment

For the internal capital adequacy assessment, the Bank calculates its aggregated internal capital by evaluating all significant risks and available capital considering the quality and components of capital, and then assesses the internal capital adequacy by comparing the aggregated internal capital with the available capital.

In addition, the Bank conducts periodic stress tests more than once every six months to assess potential weakness in crisis situations and uses its results to assess the internal capital adequacy. The Bank assumes the macroeconomic situation as three stages of ‘normal- pessimistic-serious’ and is preparing countermeasures such as checking the adequacy of capital by each stage.

S-128

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

• Goal setting of internal capital management

The Bank sets up and manages an internal capital limit on an annual basis, through the approval of the Risk Management Committee, to maintain internal capital adequacy by managing internal capital (integrated risks) within the extent of available capital.

The prior year’s internal capital, analysis of domestic and foreign environment changes in the current year, and the direction and size of operations are all reflected in the goal setting of internal capital management to calculate the integrated internal capital scale. Moreover, Bank for International Settlements(BIS) capital adequacy ratio and risk appetite are taken into consideration in the goal setting of internal capital management.

• Allocation of internal capital

The Bank’s Risk Management Committee approves entire internal capital and the Risk Management Policy Committee allocates the capital to each segment and department, considering the extent of possible risk faced and size of operations. The allocated internal capital is monitored regularly and managed using various management methods. The results of monitoring and managing the allocated internal capital are reported to the Risk Management Committee. In case of any material changes in the Bank’s business plan or risk operation strategy, the Bank adjusts the allocations elastically.

• Composition of internal capital

Internal capital comprises all the significant risks of the Bank and is composed of quantifiable and non-quantifiable risks. Quantifiable risks are composed of credit risk, market risk, interest rate risk, operational risk and credit concentration risk, foreign currency settlement risk, and are risks measured quantitatively by applying reasonable methodology using objective data. Non-quantifiable risks are composed of strategy risk, reputation risk, residual risk on asset securitization and furthermore. Non-quantifiable risks are those risks that cannot be measured quantitatively because of lack of data or the absence of appropriate measuring methodologies.

(2) Credit Risk

(i) Concept

Credit risk can be defined as potential loss resulting from the refusal to perform obligations or default of counterparties. More generally, it is used to refer to the possibility of loss from engaged bonds that cannot be redeemed properly or from substitute payments.

(ii) Approach to credit risk management

Summary of credit risk management

The Bank regards credit risk as the most significant risk area in its business operations, and accordingly, closely monitors its credit risk exposure. The Bank manages both credit risks at portfolio level and at individual credit level. At portfolio level, the Bank reduces credit concentration and restructures the portfolio in such a way to maximize profitability considering the risk level. To avoid credit concentration on a particular sector, the Bank manages credit limits by client, group, and industry. The Bank also resets exposure management directives for each industry by conducting an industry credit evaluation twice a year.

S-129

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

At the individual credit level, the relationship manager (RM), the credit officer (CO) and the Credit Review Committee manage each borrower’s credit risk.

Post management and insolvent borrower management

The Bank monitors the borrower’s credit rating from the date of the loan to the date of the final collection of debt consistently and inspects the borrower’s status regularly and frequently to prevent the generation of new bad debts and to stabilize the number of debt recoveries.

In addition, an early warning system is operated to spot borrowers that are highly likely to be insolvent. The early warning system provides financial information, financial transaction information, public information and market information of the borrower, and such information is used by the RM and the CO to monitor and manage changes in the borrower’s credit rating.

A borrower that is likely to be insolvent is classified as an early warning borrower or a precautionary borrower, depending on the level of insolvency risk. The Bank sets up a specific and applicable stabilization plan for such a borrower considering the borrower’s characteristics. Furthermore, sub-standard borrowers are classified as insolvent borrowers, and are managed intensively by the Bank, which takes legal proceedings, disposals or corporate turnaround measures if necessary.

Classification of asset soundness and provision of allowance for loss

Classification of asset soundness is fulfilled by the analysis and assessment of credit risk. The classification is used to provide an appropriate allowance, prevent further occurrences of insolvent assets and promote the normalization of existing insolvent assets to enhance the stabilization of asset operations.

Based on the Financial Supervisory Regulations of the Republic of Korea, the Bank has established standards and guidelines on the classification of asset soundness, according to the Forward-Looking Criteria, which reflects not only the borrower’s past records of repayment but also their future debt repayment capability.

In conformity with these standards, the Bank classifies the soundness of its assets as “normal”, “precautionary”, “substandard”, “doubtful”, or “estimated loss” and differentiates the coverage ratio by the level of classification.

S-130

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

Details of loans by credit rating as of June 30, 2021 and December 31, 2020 are as follows:

< Corporate >
	June 30, 2021
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
AAA ~ BBB1	W	129,490,010		114,044,676		15,445,334		—
BBB2 ~ CCC		35,106,425		10,220,515		23,055,370		1,830,540
Below CC		2,558,665		—		53,258		2,505,407
	W	167,155,100		124,265,191		38,553,962		4,335,947
	December 31, 2020
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
AAA ~ BBB1	W	119,275,121		116,563,480		2,711,641		—
BBB2 ~ CCC		36,638,249		22,365,102		14,262,908		10,239
Below CC		2,932,191		—		85,070		2,847,121
	W	158,845,561		138,928,582		17,059,619		2,857,360
< Retail >
	June 30, 2021
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Grade 1 ~ Grade 6	W	213,300		201,641		11,635		24
Grade 7 ~ Grade 8		3,182		—		3,127		55
Grade 9 ~ Grade 10		637		—		—		637
	W	217,119		201,641		14,762		716
	December 31, 2020
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Grade 1 ~ Grade 6	W	234,096		223,180		10,623		293
Grade 7 ~ Grade 8		3,561		—		3,444		117
Grade 9 ~ Grade 10		354		—		—		354
	W	238,011		223,180		14,067		764

S-131

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

Details of payment guarantees (including financial guarantees) and unused commitments by credit rating as of June 30, 2021 and December 31, 2020 are as follows:

< Corporate >
	June 30, 2021
	Exposures		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Unused commitments:
AAA ~ BBB1	W	33,439,515		30,974,518		2,464,997		—
BBB2 ~ CCC		8,926,129		4,575,438		4,295,125		55,566
Below CC		—		—		—		—
	W	42,365,644		35,549,956		6,760,122		55,566
Payment guarantees (including financial guarantees):
AAA ~ BBB1	W	6,371,249		5,381,161		990,088		—
BBB2 ~ CCC		5,274,696		2,656,257		2,561,738		56,701
Below CC		700,321		—		—		700,321
	W	12,346,266		8,037,418		3,551,826		757,022
	December 31, 2020
	Exposures		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Unused commitments:
AAA ~ BBB1	W	32,811,121		32,391,593		419,528		—
BBB2 ~ CCC		9,970,279		6,922,824		3,047,455		—
Below CC		97		—		97		—
	W	42,781,497		39,314,417		3,467,080		—
Payment guarantees (including financial guarantees):
AAA ~ BBB1	W	4,743,686		4,412,348		331,338		—
BBB2 ~ CCC		4,665,561		2,814,897		1,846,293		4,371
Below CC		689,858		—		1,351		688,507
	W	10,099,105		7,227,245		2,178,982		692,878

S-132

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

< Retail >
	June 30, 2021
	Exposures		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Unused commitments:
Grade 1 ~ Grade 6	W	68,872		68,354		518		—
Grade 7 ~ Grade 8		1		—		1		—
Grade 9 ~ Grade 10		38		—		—		38
	W	68,911		68,354		519		38
	December 31, 2020
	Exposures		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Unused commitments:
Grade 1 ~ Grade 6	W	60,583		59,203		1,380		—
Grade 7 ~ Grade 8		59		—		59		—
Grade 9 ~ Grade 10		—		—		—		—
	W	60,642		59,203		1,439		—

(iii) Measurement methodology of credit risk

Pursuant to Basel III, the Bank selects the measurement methodology of credit risk considering the complexity of measurement, measurement factors, estimating methods and others. Measurement approaches are divided into Standardized Approach and Internal Ratings-Based Approach.

Standardized Approach (“SA”)

In the case of the Standardized Approach, the risk weights are applied according to the credit rating assessed by External Credit Assessment Institution (“ECAI”). Risk weights in each credit rating are as follows:

Credit rating	Corporate	Country	Bank
AAA ~ AA-	20.0%	0.0%	20.0%
A+ ~ A-	50.0%	20.0%	30.0%
BBB+ ~ BBB-	75.0%	50.0%	50.0%
BB+ ~ BB-	100.0%	100.0%	100.0%
B+ ~ B-	150.0%	100.0%	100.0%
Below B-	150.0%	150.0%	150.0%
Unrated	100.0% (*)	100.0%	Rating based on due diligence

(*) In case of small and medium-sized business, 85.0% is applied.

S-133

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

The OECD is designated as foreign ECAI and Korea Investrors Service Co., Ltd., NICE Investors Services Co., Ltd. and the Korea Ratings Co., Ltd. are designated as domestic ECAI.

The Bank applies the credit rating based on the corresponding loan and same borrower’s unsecured senior loans. In the case the borrower’s risk weight is higher than the unrated exposure’s risk weight (100%), the higher weight is applied. In the case the borrower has more than one rating, the higher weight of the two lowest weights (Second Best Criteria) is applied.

Internal Ratings-Based Approach (IRB)

To use the Internal Ratings-Based Approach, a bank must be approved by the FSS and should also meet the requirement pre-set by the FSS.

In relation to Basel II that has been adopted domestically as of January 2008, the Bank gained approval from the FSS to use the Foundation Internal Ratings-Based Approach in July 2008. The Bank has calculated credit risk-weighted assets using the approach since late June 2008.

Measurement method of credit risk-weighted asset

The Bank calculates credit risk-weighted assets of corporate exposures and asset securitization exposures using the Foundation Internal Ratings-Based Approach as of December 31, 2020.

The Standardized Approach is applied to country exposures, public institution exposures and bank exposures permanently and applied to overseas subsidiary and the Bank’s branch pursuant to prior consultation with the FSS.

<Approved measurement method>
Measurement method		Exposure
Standardized Approach	Permanent
	SA	—Countries, public institutions and banks
	SA	—Overseas subsidiaries and branches, and other assets, retail, residential mortgage, commercial properties
Foundation Internal Ratings-Based Approach		—Corporate, small and medium enterprises, asset securitization (at each credit level) and equity
Application of IRB by phase		—Special lending, non-residence and others

The mitigated effect of credit risks reflects the related policies which consider eligible collateral and guarantees. The Bank calculates the credit risk-weighted assets using the capital adequacy ratio.

Upon the calculation of credit risk-weighted assets for derivatives, the Bank takes into consideration the set-off effects of transactions under legally enforceable rights to set-off to calculate exposures.

S-134

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

Credit rating model

The results of credit rating are presented as grades through an assessment of the debt repayment capacity that the principal and interest of debt securities or loans are redeemed while complying with contractual redemption schedule.

Using the Bank’s internal credit rating model, the Bank classifies debtors’ credit rating into 14 grades (AAA~D). To distinguish the difference between credits in the same grade, the Bank uses 20 stages as auxiliaries to 14 grades.

The Bank’s regular credit rating process is carried out once a year and in the case of the change of debtor’s credit condition, the credit rating is frequently adjusted as necessary to retain the adequacy of credit rating.

The results of credit rating are applied to various areas such as discrimination of loan processes, loan limit, loan interest rate, post loan management standard process, credit risk measurement, and allowance for loan losses assessment.

Credit rating process control structure

According to the Principle of Checks and Balances, the Bank has established the credit rating process control structure by which the credit rating system operates appropriately.

• Independent assessment of credit rating: The Bank’s business segment (RM) and credit rating assessment segment (Credit Rating Officer) are independently operated.

• Independent control of credit rating system: The control of credit rating system including the development of credit rating model is independently implemented by the Bank’s Risk Management Department.

• Independent verification of credit rating system: Credit rating system is independently verified by Risk Validation Team of the Financial Planning Department.

• Internal audit of credit rating process: Credit rating process is audited by the Bank’s internal audit department.

• Role of the Board of Directors and the Bank’s management: Major issues relating to credit process are approved by the Board of Directors and are regularly monitored by the Bank’s top management.

The Bank reviews debt serviceability based on a credit analysis when handling loans. Depending on the results, credit loan preservation is adjusted as necessary using such methods as interest rate preservation due to credit risk.

The Bank evaluates the value of the collateral, performing ability and legal validity of the guarantee at the initial acquisition. The Bank re-evaluates the provided collateral and guarantees regularly for them to be reasonably preserved.

For guarantees, the Bank demands a corresponding written guarantee according to loan handling standards and the guarantor’s credit rating is independently calculated when in conformance with the credit rating endowment method.

S-135

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

The quantification of the extent to which collateral and other credit enhancements mitigate credit risk of impaired financial assets as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Securities measured at FVOCI	W	70,939		70,397
Loans measured at amortized cost		4,384,695		3,009,118
Other assets		33,736		21,817

(iv) Credit exposure

Geographical information of credit exposure as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Korea		UK		USA		Others		Total
Due from banks (excluding due from BOK)	W	6,014,384		405,372		71,974		501,257		6,992,987
Securities measured at FVOCI:
Bonds (excluding government bonds)		10,353,184		1,087,839		686,921		1,628,373		13,756,317
Loans		150,100,711		1,714,363		1,334,026		12,109,060		165,258,160
Derivative financial assets		1,009,002		—		—		11,220		1,020,222
Other assets		9,412,366		47,170		8,913		161,535		9,629,984
		176,889,647		3,254,744		2,101,834		14,411,445		196,657,670
Guarantees (including financial guarantees)		12,239,840		—		83,990		22,436		12,346,266
Commitments		41,044,161		339,123		164,271		886,999		42,434,554
		53,284,001		339,123		248,261		909,435		54,780,820
	W	230,173,648		3,593,867		2,350,095		15,320,880		251,438,490
	December 31, 2020
	Korea		UK		USA		Others		Total
Due from banks (excluding due from BOK)	W	5,468,189		238,108		129,309		465,850		6,301,456
Securities measured at FVOCI:
Bonds (excluding government bonds)		9,821,122		1,082,184		628,370		1,322,310		12,853,986
Loans		144,418,267		1,530,962		1,167,894		10,506,187		157,623,310
Derivative financial assets		1,432,559		—		—		16,347		1,448,906
Other assets		4,436,564		72,082		7,943		60,769		4,577,358
		165,576,701		2,923,336		1,933,516		12,371,463		182,805,016
Guarantees (including financial guarantees)		9,977,111		—		82,408		39,586		10,099,105
Commitments		41,901,283		287,840		128,131		524,886		42,842,140
		51,878,394		287,840		210,539		564,472		52,941,245
	W	217,455,095		3,211,176		2,144,055		12,935,935		235,746,261

S-136

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

Industry information of credit exposure as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Manufacturing		Service		Others		Total
Due from banks (excluding due from BOK)	W	—		6,470,566		522,421		6,992,987
Securities measured at FVOCI:
Bonds (excluding government bonds)		2,650,142		8,511,249		2,594,926		13,756,317
Loans		70,838,082		81,930,518		12,489,560		165,258,160
Derivative financial assets		—		1,020,222		—		1,020,222
Other assets		116,566		197,138		9,316,280		9,629,984
		73,604,790		98,129,693		24,923,187		196,657,670
Guarantees (including financial guarantees)		8,936,595		3,107,564		302,107		12,346,266
Commitments		18,509,131		17,185,436		6,739,987		42,434,554
		27,445,726		20,293,000		7,042,094		54,780,820
	W	101,050,516		118,422,693		31,965,281		251,438,490
	December 31, 2020
	Manufacturing		Service		Others		Total
Due from banks (excluding due from BOK)	W	—		5,909,550		391,906		6,301,456
Securities measured at FVOCI:
Bonds (excluding government bonds)		2,570,583		7,762,090		2,521,313		12,853,986
Loans		70,089,916		75,782,918		11,750,476		157,623,310
Derivative financial assets		—		1,448,906		—		1,448,906
Other assets		115,348		176,753		4,285,257		4,577,358
		72,775,847		91,080,217		18,948,952		182,805,016
Guarantees (including financial guarantees)		7,622,494		2,197,060		279,551		10,099,105
Commitments		16,211,814		15,785,658		10,844,668		42,842,140
		23,834,308		17,982,718		11,124,219		52,941,245
	W	96,610,155		109,062,935		30,073,171		235,746,261

S-137

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

The detail of credit exposures by industry affected by the pandemic of COVID-19 as of June 30, 2021 and December 31, 2020 are as follows and the exposures by industries could be changed according to economic fluctuations.

	June 30, 2021
			Securities measured at FVOCI
	Due from banks (excluding due from BOK)		Bonds (excluding government bonds)		Loans		Derivative financial assets		Other assets		Subtotal		Guarantees (including financial guarantees)		Commit- ments		Subtotal		Total
Manufacturing:
Display	W	—		—		716,704		—		3,002		719,706		173,997		249,598		423,595		1,143,301
Semiconductor /Mobile phone		—		186,524		3,924,500		—		8,387		4,119,411		141,733		588,548		730,281		4,849,692
Automotive		—		231,300		10,447,567		—		13,366		10,692,233		379,013		1,491,312		1,870,325		12,562,558
Refinery/Chemical/Energy		—		679,083		12,342,492		—		22,022		13,043,597		204,753		4,737,044		4,941,797		17,985,394
Steel/Metal		—		135,684		10,138,314		—		12,210		10,286,208		912,395		1,906,119		2,818,514		13,104,722
Others		—		1,417,551		33,268,505		—		57,579		34,743,635		7,124,704		9,536,510		16,661,214		51,404,849
		—		2,650,142		70,838,082		—		116,566		73,604,790		8,936,595		18,509,131		27,445,726		101,050,516
Service:
Air transportation		—		5,634		3,267,983		—		8,613		3,282,230		293,729		21,000		314,729		3,596,959
Sea transportation		—		—		2,265,698		—		18,773		2,284,471		84,461		323,602		408,063		2,692,534
Other transportation		—		125,317		6,056,295		—		11,668		6,193,280		14,367		3,594,361		3,608,728		9,802,008
Leisure/Travel industry		—		—		180,631		—		413		181,044		—		3,387		3,387		184,431
Food/Accommodation		—		72,435		2,156,095		—		3,830		2,232,360		51,695		302,175		353,870		2,586,230
Automotive-related		—		—		534,256		—		687		534,943		14,383		53,429		67,812		602,755
Finance/Insurance		2,558		108,222		229,219		—		682		340,681		—		473,120		473,120		813,801
Others		6,468,008		8,199,641		67,240,341		1,020,222		152,472		83,080,684		2,648,929		12,414,362		15,063,291		98,143,975
		6,470,566		8,511,249		81,930,518		1,020,222		197,138		98,129,693		3,107,564		17,185,436		20,293,000		118,422,693
Other:
Construction		—		297,468		2,590,516		—		3,615		2,891,599		180,388		1,140,658		1,321,046		4,212,645
Others		522,421		2,297,458		9,899,044		—		9,312,665		22,031,588		121,719		5,599,329		5,721,048		27,752,636
		522,421		2,594,926		12,489,560		—		9,316,280		24,923,187		302,107		6,739,987		7,042,094		31,965,281
	W	6,992,987		13,756,317		165,258,160		1,020,222		9,629,984		196,657,670		12,346,266		42,434,554		54,780,820		251,438,490

S-138

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

	December 31, 2020
	Due from banks (excluding due from BOK)		Securities measured at FVOCI		Loans		Derivative financial assets		Other assets		Subtotal		Guarantees (including financial guarantees)		Commit- ments		Subtotal		Total
			Bonds (excluding government bonds)
Manufacturing:
Display	W	—		—		739,944		—		3,016		742,960		168,168		236,421		404,589		1,147,549
Semiconductor /Mobile phone		—		146,790		4,403,204		—		8,850		4,558,844		104,489		399,119		503,608		5,062,452
Automotive		—		176,401		10,602,271		—		13,778		10,792,450		314,583		1,363,455		1,678,038		12,470,488
Refinery/Chemical/Energy		—		623,842		11,147,364		—		20,666		11,791,872		158,665		4,010,584		4,169,249		15,961,121
Steel/Metal		—		182,011		10,269,067		—		14,946		10,466,024		684,582		1,905,452		2,590,034		13,056,058
Others		—		1,441,539		32,928,066		—		54,092		34,423,697		6,192,007		8,296,783		14,488,790		48,912,487
		—		2,570,583		70,089,916		—		115,348		72,775,847		7,622,494		16,211,814		23,834,308		96,610,155
Service:
Air transportation		—		3,156		3,437,648		—		7,991		3,448,795		287,309		28,000		315,309		3,764,104
Sea transportation		—		—		2,331,411		—		16,875		2,348,286		28,297		327,689		355,986		2,704,272
Other transportation		—		90,643		5,543,443		—		9,307		5,643,393		32,136		2,269,016		2,301,152		7,944,545
Leisure/Travel industry		—		—		177,498		—		403		177,901		—		3,315		3,315		181,216
Food/Accommodation		—		104,057		2,093,370		—		3,917		2,201,344		48,226		281,437		329,663		2,531,007
Automotive-related		—		—		475,921		—		669		476,590		18,174		35,615		53,789		530,379
Finance/Insurance		2,013		139,662		8,948		—		944		151,567		—		300		300		151,867
Others		5,907,537		7,424,572		61,714,679		1,448,906		136,647		76,632,341		1,782,918		12,840,286		14,623,204		91,255,545
		5,909,550		7,762,090		75,782,918		1,448,906		176,753		91,080,217		2,197,060		15,785,658		17,982,718		109,062,935
Other:
Construction		—		210,744		2,505,959		—		3,806		2,720,509		160,829		1,110,573		1,271,402		3,991,911
Others		391,906		2,310,569		9,244,517		—		4,281,451		16,228,443		118,722		9,734,095		9,852,817		26,081,260
		391,906		2,521,313		11,750,476		—		4,285,257		18,948,952		279,551		10,844,668		11,124,219		30,073,171
	W	6,301,456		12,853,986		157,623,310		1,448,906		4,577,358		182,805,016		10,099,105		42,842,140		52,941,245		235,746,261

Credit exposures of debt securities by credit rating as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
AAA ~ BBB1	W	20,901,797		20,559,403		342,394		—
BBB2 ~ CCC		31,088		21,067		10,021		—
Below CC		—		—		—		—
	W	20,932,885		20,580,470		352,415		—

S-139

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

	December 31, 2020
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
AAA ~ BBB1	W	20,015,223		19,837,158		178,065		—
BBB2 ~ CCC		46,251		36,205		10,046		—
Below CC		—		—		—		—
	W	20,061,474		19,873,363		188,111		—

(3) Capital management activities

(i) Capital adequacy

The FSS approved the Bank’s use of the Foundation Internal Ratings-Based Approach in July 2008. The Bank has been using the same approach when calculating credit risk-weighted assets since the end of June 2008. The equity capital ratio and equity capital according to the standards of the Bank for International Settlements are calculated for such disclosure. The equity capital ratio and equity capital are calculated on a consolidated basis. In conformity with the Banking Act, which is based on the implementation of Basel III on December 1, 2013, the regulatory capital is divided into the following two categories.

Tier 1 capital

• Common Equity Tier 1

Regulatory capital that represents the most subordinated claim in liquidation of the Bank, takes the first and proportionately greatest share of any losses as they occur, and which principal is never repaid outside of liquidation meets the criteria for classification as common equity, including capital stock, capital surplus, retained earnings and accumulated other comprehensive income as common equity Tier 1.

• Additional Tier 1 capital

Capital stock and capital surplus related to issuance of capital securities that are subordinated, have non-cumulative and conditional dividends or interests, and have no maturity or step-up conditions.

Tier 2 capital (Supplementary Tier 2 capital)

Regulatory capital that fulfills supplementary capital adequacy requirements, and includes subordinated debt with maturities over 5 years and allowance for loan losses in conformity with external regulatory standards and internal standards.

S-140

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

The BIS capital adequacy ratio and capital in accordance to Basel III standards as of June 30, 2021 and December 31, 2020 are as follows:

BIS capital adequacy ratio

	June 30, 2021			December 31, 2020
Equity capital based on BIS (A):
Tier 1 capital:
Common Equity Tier 1	W	45,527,997			36,021,786
Additional Tier 1 capital		—			—
		45,527,997			36,021,786
Tier 2 capital		3,406,176			4,312,476
	W	48,934,173			40,334,262
Risk-weighted assets (B):
Credit risk-weighted assets	W	299,499,823			246,279,611
Market risk-weighted assets		1,930,386			1,490,013
Operational risk-weighted assets		6,522,832			4,880,008
	W	307,953,041			252,649,632
BIS capital adequacy ratio (A/B):		15.89	%		15.96	%
Tier 1 capital ratio:		14.78	%		14.26	%
Common Equity Tier 1 ratio		14.78	%		14.26	%
Additional Tier 1 capital ratio		—			—
Tier 2 capital ratio		1.11	%		1.71	%

Equity capital based on BIS

	June 30, 2021			December 31, 2020
Tier 1 capital (A):
Common Equity Tier 1
Capital stock	W	21,886,559			20,765,729
Capital surplus, etc.		1,030,452			1,036,196
Retained earnings		14,763,294			12,326,526
Accumulated other comprehensive income		8,479,619			2,324,417
Common stock deductibles		(631,927	)		(431,082	)
		45,527,997			36,021,786
Tier 2 capital (B):
Allowance for doubtful accounts, etc.		537,147			1,057,559
Qualified capital securities		2,652,000			2,780,000
Non-qualified capital securities		258,060			516,119
Additional stock deductibles		(41,031	)		(41,202	)

S-141

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

		3,406,176	4,312,476
Equity capital (A+B)	W	48,934,173	40,334,262

(4) Market risk

(i) Concept

Market risk is defined as the possibility of potential loss resulting from fluctuations in interest rates, foreign exchange rates and the price of stocks and commodities. Trading position is exposed to risks, such as interest rate, stock price, and foreign exchange rate, etc. Non-trading position is mostly exposed to interest rates. Accordingly, the Bank classifies market risks into those exposed from trading position or those exposed from non-trading position.

(ii) Market risks of trading positions

Management method on market risks arising from trading positions

In estimating market risk, the Standardized Approach and the internal model are used. The Standardized Approach is used to calculate the required capital from market risk and the internal model is used to manage risks internally. Since July 2007, the Bank has measured one-day VaR through the historical simulation method using the time series data of past 250 days under a 99% confidence level. The calculated VaR is monitored daily.

The Bank sets total limit of market risk based on annual business plan, risk appetite and others and monitors VaR limit of each department on a daily basis.

Capital Requirements for Market risk

The Bank’s Capital Requirements for Market risk as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
Interest rate risk	W	82,521		45,739
Equity risk		620		—
Foreign exchange (FX) risk		24,960		32,118
Option risk		29,437		30,055
	W	137,538		107,912

(iii) Market risks of non-trading positions

Management method on market risks arising from non-trading positions

The most critical market risk that arises in non-trading position is the interest rate risk. Interest rate risk is defined as the likely loss resulting from the unfavorable fluctuation of interest rate in the Bank’s financial condition and is measured by interest rate VaR and interest rate EaR.

S-142

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

Interest rate VaR is the maximum amount of decrease in net asset value resulting from the unfavorable fluctuation of interest rate. Interest rate EaR is the maximum amount of decrease in net interest income resulting from the unfavorable fluctuation of interest rate for a year.

The Bank’s interest rate VaR and interest rate EaR are measured through the simulation of conclusive interest rate scenario and are periodically reported to the Risk Management Policy Committee and the head of Risk Management Segment. The Risk Management Committee’s target of interest rate VaR and interest rate EaR are approved at the beginning of the year. To disclose the Bank’s interest risk, interest rate VaR and interest rate EaR are disclosed calculating change in economic value of equity (“ EVE”) and in net interest income (“ NII”) based on the application of IRRBB (“Interest Rate Risk in Banking Book”) method.

EVE and NII of the Bank’s non-trading positions as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021		December 31, 2020
EVE	W	714,541		461,158
NII		135,027		90,081

(iv) Foreign currency risk

Outstanding balances by currency with significant exposure as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	KRW		USD		EUR		JPY			GBP			Others			Total
Financial assets:
Cash and due from banks	W	4,776,770		6,163,509		41,251		33,048			21,492			233,185			11,269,255
Securities measured at FVTPL		9,575,239		625,624		—		855			—			71,054			10,272,772
Securities measured at FVOCI		36,247,144		5,323,108		25		259,038			—			181,191			42,010,506
Securities measured at amortized cost		2,417,134		—		—		—			—			—			2,417,134
Loans measured at FVTPL		696,048		5,240		—		—			—			—			701,288
Loans measured at amortized cost		120,613,307		36,510,224		2,534,041		1,187,795			636,436			1,412,733			162,894,536
Derivative financial assets		3,653,695		1,375,258		60,455		809			34,416			21,488			5,146,121
Other financial assets		5,537,172		2,238,767		239,704		41,667			120,867			1,309,555			9,487,732
		183,516,509		52,241,730		2,875,476		1,523,212			813,211			3,229,206			244,199,344
Financial liabilities:
Financial liabilities measured at FVTPL		1,774,006		118,702		—		—			—			—			1,892,708
Deposits		39,885,211		8,652,354		45,454		290,826			69			1,305			48,875,219
Borrowings		6,413,661		13,199,181		148,661		610,377			158			603,857			20,975,895
Debentures		108,891,048		24,922,262		1,922,846		737,684			827,947			6,074,176			143,375,963
Derivative financial liabilities		2,739,492		875,461		5,814		4,750			10,752			16,904			3,653,173
Other financial liabilities		5,871,511		3,038,387		297,263		54,200			122,232			1,367,534			10,751,127
		165,574,929		50,806,347		2,420,038		1,697,837			961,158			8,063,776			229,524,085
Net financial position	W	17,941,580		1,435,383		455,438		(174,625	)		(147,947	)		(4,834,570	)		14,675,259

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Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

	December 31, 2020
	KRW		USD		EUR		JPY			GBP			Others			Total
Financial assets:
Cash and due from banks	W	4,523,911		5,783,607		34,968		71,912			17,964			96,616			10,528,978
Securities measured at FVTPL		7,779,699		488,359		—		316			—			52,257			8,320,631
Securities measured at FVOCI		28,868,837		5,018,056		25		206,249			—			48,158			34,141,325
Securities measured at amortized cost		785,264		—		—		—			—			—			785,264
Loans measured at FVTPL		1,429,258		5,256		—		—			—			—			1,434,514
Loans measured at amortized cost		117,661,851		32,590,755		1,977,320		1,281,467			434,845			1,353,940			155,300,178
Derivative financial assets		6,395,927		1,736,642		86,654		353			72,523			37,277			8,329,376
Other financial assets		3,034,997		877,574		230,329		12,274			32,848			275,704			4,463,726
		170,479,744		46,500,249		2,329,296		1,572,571			558,180			1,863,952			223,303,992
Financial liabilities:
Financial liabilities measured at FVTPL		1,578,544		116,413		—		—			—			—			1,694,957
Deposits		37,674,768		7,870,846		26,068		305,890			85			1,762			45,879,419
Borrowings		6,092,647		11,794,352		160,347		679,535			—			160,730			18,887,611
Debentures		107,496,854		21,485,451		1,923,888		674,748			818,290			5,919,497			138,318,728
Derivative financial liabilities		5,103,794		1,122,091		10,475		6,639			32,574			29,714			6,305,287
Other financial liabilities		3,831,466		2,630,783		73,055		13,336			26,678			321,263			6,896,581
		161,778,073		45,019,936		2,193,833		1,680,148			877,627			6,432,966			217,982,583
Net financial position	W	8,701,671		1,480,313		135,463		(107,577	)		(319,447	)		(4,569,014	)		5,321,409

(5) Liquidity risk management

(i) Concept

Liquidity risk is defined as the possibility of potential loss due to a temporary shortage in funds caused by a maturity mismatch or an unexpected capital outlay. Liquidity risk soars when funding rates rise, assets are sold below a normal price, or a good investment opportunity is missed.

(ii) Approach to liquidity risk management

The Bank manages its liquidity risks as follows:

Allowable limit for liquidity risk

• The allowable limit for liquidity risk sets LCR, NSFR and Mid- to long-term foreign currency fund management ratio

• The management standards with regards to the allowable limit for liquidity risk should be set using separate and stringent set ratios in accordance with the FSS guidelines.

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Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

<Measurement Methodology>

• LCR: (High quality liquid assets / Total net cash outflows over the next 30 calendar days) X 100

• NSFR: Available Stable Funding / Required Stable Funding X 100

• Mid- to long-term foreign currency fund management ratio: Foreign currency funding being repaid after 1 year / Foreign currency lending being collected after 1 year X 100

Early warning indicator

To identify prematurely and cope with worsening liquidity risk trends, the Bank has set up 15 indexes such as the “Foreign Exchange Stabilization Bond CDS Premium,” and measures the trend monthly as a means for establishing the allowable liquidity risk limit complementary measures.

Stress-Test analysis and contingency plan

• The Bank evaluates the effects on the liquidity risk and identifies the inherent flaws. In the case where an unpredictable and significant liquidity crisis occurs, the Bank executes risk situation analysis quarterly based on crisis specific to the Bank, market risk and complex emergency, and reports to the Risk Management Committee for the Bank’s solvency securitization.

• The Bank established detailed contingency plan to manage the liquidity risks at every risk situations.

(iii) Analysis on remaining contractual maturity of financial instruments

Remaining contractual maturity risks of non-derivative financial instruments including interest payment as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Financial assets:
Cash and due from banks	W	9,158,104		93,636		581,486		754,482		—		10,587,708
Securities measured at FVTPL		36,619		57,413		1,769,342		2,052,045		8,935,694		12,851,113
Securities measured at FVOCI		728,887		1,580,952		4,000,385		10,782,740		13,926,470		31,019,434
Securities measured at amortized cost		—		170,000		690,000		610,000		—		1,470,000
Loans		12,942,089		20,029,586		49,466,396		63,251,891		14,939,395		160,629,357
Other financial assets		6,865,304		—		—		—		1,238,201		8,103,505
	W	29,731,003		21,931,587		56,507,609		77,451,158		39,039,760		224,661,117

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Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

	June 30, 2021
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Financial liabilities:
Financial liabilities measured at FVTPL	W	25,852		102,214		677,280		300,606		224,659		1,330,611
Deposits		24,742,126		6,321,471		14,484,247		3,207,806		113,484		48,869,134
Borrowings		3,489,272		5,268,002		8,236,988		2,832,432		1,132,152		20,958,846
Debentures		5,359,025		10,916,270		43,537,667		76,871,577		6,918,239		143,602,778
Other financial liabilities		8,600,763		1,744,406		—		—		459,562		10,804,731
	W	42,217,038		24,352,363		66,936,182		83,212,421		8,848,096		225,566,100

	December 31, 2020
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Financial assets:
Cash and due from banks	W	9,137,776		91,051		464,395		760,273		21,263		10,474,758
Securities measured at FVTPL		136,016		124,287		915,490		1,883,117		8,107,999		11,166,909
Securities measured at FVOCI		553,784		1,025,117		4,845,370		11,070,430		13,737,878		31,232,579
Securities measured at amortized cost		—		—		210,000		570,000		—		780,000
Loans		9,232,537		13,540,396		56,829,822		60,814,868		14,671,105		155,088,728
Other financial assets		3,831,145		—		—		—		705,630		4,536,775
	W	22,891,258		14,780,851		63,265,077		75,098,688		37,243,875		213,279,749
Financial liabilities:
Financial liabilities measured at FVTPL	W	49,541		—		500,167		605,760		238,914		1,394,382
Deposits		22,271,587		6,814,661		12,791,098		3,881,550		109,333		45,868,229
Borrowings		3,873,926		3,441,014		7,757,486		2,688,791		1,125,536		18,886,753
Debentures		4,822,104		10,036,440		45,530,833		70,427,784		7,428,100		138,245,261
Other financial liabilities		4,110,621		1,766,297		—		—		1,074,478		6,951,396
	W	35,127,779		22,058,412		66,579,584		77,603,885		9,976,361		211,346,021

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Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

Remaining contractual maturity risks of derivative financial instruments as of June 30, 2021 and December 31, 2020 are as follows:

Net settlement of derivative financial instruments

	June 30, 2021
	Within 1 month			1~3 months			3~12 months			1~5 years			Over 5 years		Total
Trading purpose derivatives:
Currency	W	(336	)		—			—			—			—		(336	)
Interest rate		6,950			(21,778	)		(22,859	)		(161,736	)		468,586		269,163
Stock		4			—			—			—			—		4
Hedging purpose derivatives:
Interest rate		98,918			128,691			256,954			668,001			619,003		1,771,567
	W	105,536			106,913			234,095			506,265			1,087,589		2,040,398

	December 31, 2020
	Within 1 month			1~3 months			3~12 months			1~5 years			Over 5 years		Total
Trading purpose derivatives:
Currency	W	(2,240	)		259			—			—			—		(1,981	)
Interest rate		(12,099	)		(8,965	)		(21,956	)		(154,170	)		311,267		114,077
Hedging purpose derivatives:
Interest rate		60,484			118,050			397,587			679,232			596,098		1,851,451
	W	46,145			109,344			375,631			525,062			907,365		1,963,547

Gross settlement of derivative financial instruments

	June 30, 2021
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Trading purpose derivatives:
Currency
Inflow	W	48,801,717		39,919,528		66,031,885		83,717,112		8,769,291		247,239,533
Outflow		48,420,722		39,894,034		65,834,405		83,805,021		8,806,267		246,760,449
Hedging purpose derivatives:
Currency
Inflow		1,811,193		2,179,933		1,966,090		16,606,973		2,319,898		24,884,087
Outflow		1,794,614		2,178,794		2,347,443		17,428,848		2,308,370		26,058,069
Total inflow	W	50,612,910		42,099,461		67,997,975		100,324,085		11,089,189		272,123,620
Total outflow	W	50,215,336		42,072,828		68,181,848		101,233,869		11,114,637		272,818,518

S-147

Korea Development Bank

Notes to the Interim Separate Financial Statements

June 30, 2021 and 2020 (Unaudited), and December 31, 2020

(In millions of won)

49. Risk Management, Continued

	December 31, 2020
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Trading purpose derivatives:
Currency
Inflow	W	41,628,937		28,120,676		70,926,683		68,814,581		7,423,977		216,914,854
Outflow		41,747,705		28,165,683		71,251,634		68,700,868		7,415,793		217,281,683
Hedging purpose derivatives:
Currency
Inflow		126,703		743,865		5,321,106		15,865,301		1,175,969		23,232,944
Outflow		235,842		868,872		5,398,633		16,129,256		1,162,943		23,795,546
Total inflow	W	41,755,640		28,864,541		76,247,789		84,679,882		8,599,946		240,147,798
Total outflow	W	41,983,547		29,034,555		76,650,267		84,830,124		8,578,736		241,077,229

Remaining contractual maturity risks of guarantees and commitments as of June 30, 2021 and December 31, 2020 are as follows:

	June 30, 2021
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Guarantees	W	1,303,086		1,651,849		2,785,263		6,196,066		410,002		12,346,266
Commitments		124,812		99,341		472,460		2,217,918		41,540,618		44,455,149
	W	1,427,898		1,751,190		3,257,723		8,413,984		41,950,620		56,801,415

	December 31, 2020
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Guarantees	W	1,289,198		981,555		2,624,952		4,693,645		509,755		10,099,105
Commitments		73,583		79,569		762,853		1,751,963		42,194,766		44,862,734
	W	1,362,781		1,061,124		3,387,805		6,445,608		42,704,521		54,961,839

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THE REPUBLIC OF KOREA

The Economy

Gross Domestic Product

Based on preliminary data, GDP growth in the second quarter of 2021 was 5.9% at chained 2015 year prices, primarily due to an increase in exports of goods and services by 22.4% and an increase in aggregate private and general government consumption expenditures by 3.6%, which more than offset an increase in imports of goods and services by 1.4%, each compared with the corresponding period of 2020.

Principal Sectors of the Economy

Prices, Wages and Employment

Based on preliminary data, the inflation rate was 1.8% in the first half of 2021 and the unemployment rate was 4.5% in the first half of 2021.

The Financial System

Securities Markets

The Korea Composite Stock Price Index was 3,296.7 on June 30, 2021, 3,202.3 on July 30, 2021, 3,199.3 on August 31, 2021, 3,068.8 on September 30, 2021 and 3,015.1 on October 15, 2021.

Monetary Policy

Interest Rates

On August 26, 2021, The Bank of Korea raised its policy rate to 0.75% from 0.50% in response to rising levels of household debt and inflationary pressures.

Foreign Exchange

The market average exchange rate between the Won and the U.S. Dollar (in Won per one U.S. Dollar) as announced by the Seoul Money Brokerage Service Ltd. was Won 1,130.0 to US$1.00 on June 30, 2021, Won 1,147.4 to US$1.00 on July 30, 2021, Won 1,164.4 to US$1.00 on August 31, 2021, Won 1,184.9 to US$1.00 on September 30, 2021 and Won 1,188.3 to US$1.00 on October 15, 2021.

Balance of Payments and Foreign Trade

Balance of Payments

Based on preliminary data, the Republic recorded a current account surplus of US$44.3 billion in the first half of 2021. The current account surplus in the first half of 2021 increased from the current account surplus of US$19.0 billion in the corresponding period of 2020, primarily due to an increase in surplus from the goods account.

Trade Balance

Based on preliminary data, the Republic recorded a trade surplus of US$18.1 billion in the first half of 2021. Exports increased by 26.1% to US$303.2 billion in the first half of 2021 from US$240.5 billion in the corresponding period of 2020, primarily due to an improvement in the domestic economic conditions of the Republic’s major trading partners. Imports increased by 24.0% to US$285.1 billion in the first half of 2021 from US$229.9 billion in the corresponding period of 2020, primarily due to an increase in domestic production and an improvement in consumer sentiment reflecting gradual recovery from the COVID-19 pandemic.

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Foreign Currency Reserves

The amount of the Government’s foreign currency reserves was US$464.0 billion as of September 30, 2021.

Government Finance

As part of the Government’s continued efforts to mitigate the adverse effects of the ongoing global outbreak of the COVID-19 pandemic on the Korean economy, the National Assembly approved the second supplementary budget of 2021 amounting to Won 34.9 trillion in July 2021, following a recent resurgence of COVID-19 cases in Korea. The second supplementary budget, most of which will be funded through the Government’s excess tax revenue, will be used mainly for the following purposes: (i) provision of relief packages, including support for small businesses and direct payments to eligible individuals, (ii) various forms of financial support for local communities through subsidies, (iii) purchases of vaccines and disease prevention and treatment efforts and (iv) employment support and aid for low-income households. For further information regarding the COVID-19 pandemic and the Republic’s past supplementary budgets, see “The Republic of Korea—The Economy—Worldwide Economic and Financial Difficulties” and “The Republic of Korea—Government Finance” in the accompanying prospectus.

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DESCRIPTION OF THE NOTES

The following is a description of some of the terms of the Notes we are offering. Since it is only a summary, we urge you to read the fiscal agency agreement described below and the forms of global note before deciding whether to invest in the Notes. We have filed a copy of these documents with the United States Securities and Exchange Commission as exhibits to the registration statement no. 333-246071.

The general terms of our Notes are described in the accompanying prospectus. The description in this prospectus supplement further adds to that description or, to the extent inconsistent with that description, replaces it.

Governed by Fiscal Agency Agreement

We will issue the 20             Notes, the 20             Notes and the 20             Notes under the fiscal agency agreement, dated as of February 15, 1991, as amended and supplemented from time to time, between us and The Bank of New York (now The Bank of New York Mellon), as fiscal agent (the “Fiscal Agency Agreement”). The fiscal agent will maintain a register for the Notes.

Payment of Principal and Interest

The 20             Notes are initially limited to US$             aggregate principal amount, the 20             Notes are initially limited to US$             aggregate principal amount, and the 20             Notes are initially limited to US$             aggregate principal amount. The 20             Notes will mature on             , 20             (the “20             Notes Maturity Date”), the 20             Notes will mature on             , 20             (the “20             Notes Maturity Date”), and the 20             Notes will mature on             , 20             (the “20             Notes Maturity Date”, and together with the 20             Notes Maturity Date and the 20             Notes Maturity Date, the “Maturity Dates”). The 20             Notes will bear interest at the rate of             % per annum, the 20             Notes will bear interest at the rate of             % per annum, and the 20             Notes will bear interest at the rate of             % per annum, in each case payable semi-annually in arrears on              and              of each year (each, an “Interest Payment Date”), beginning on             , 2022. Interest on the Notes will accrue from             , 2021. If any Interest Payment Date or any Maturity Date shall be a day on which banking institutions in The City of New York or Seoul are authorized or obligated by law to close, then such payment will not be made on such date but will be made on the next succeeding day which is not a day on which banking institutions in The City of New York or Seoul are authorized or obligated by law to close, with the same force and effect as if made on the date for such payment, and no interest shall be payable in respect of any such delay. We will pay interest to the person who is registered as the owner of a Note at the close of business on the fifteenth day (whether or not a business day) preceding such Interest Payment Date. Interest on the Notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. We will make principal and interest payments on the Notes in immediately available funds in U.S. dollars.

The payment of interest and the repayment of principal on the Notes will not be guaranteed by the Government.

Denomination

The Notes will be issued in minimum denominations of US$200,000 principal amount and integral multiples of US$1,000 in excess thereof.

Redemption

We may not redeem the Notes prior to maturity. At maturity, we will redeem the Notes at par.

Form and Registration

We will issue each series of the Notes in the form of one or more fully registered global notes, registered in the name of a nominee of and deposited with the custodian for DTC. Except as described in the accompanying

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prospectus under “Description of the Securities—Description of Debt Securities—Global Securities,” the global notes will not be exchangeable for Notes in definitive registered form, and will not be issued in definitive registered form. Financial institutions, acting as direct and indirect participants in DTC, will represent your beneficial interests in the global notes. These financial institutions will record the ownership and transfer of your beneficial interest through book-entry accounts. You may hold your beneficial interests in the Notes through Euroclear or Clearstream if you are a participant in such systems, or indirectly through organizations that are participants in such systems. Any secondary market trading of book-entry interests in the Notes will take place through DTC participants, including Euroclear and Clearstream. See “Clearance and Settlement—Transfers Within and Between DTC, Euroclear and Clearstream.”

The fiscal agent will not charge you any fees for the Notes, other than reasonable fees for the replacement of lost, stolen, mutilated or destroyed Notes. However, you may incur fees for the maintenance and operation of the book-entry accounts with the clearing systems in which your beneficial interests are held.

For so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, in the event that any of the global notes are exchanged for Notes in definitive registered form, we will appoint and maintain a paying agent in Singapore, where the certificates representing the Notes may be presented or surrendered for payment or redemption. In addition, in the event that any of the global notes are exchanged for Notes in definitive registered form, an announcement of such exchange will be made through the SGX-ST by or on behalf of us. Such announcement will include all material information with respect to the delivery of the certificates representing the Notes, including details of the paying agent in Singapore.

Further Issues

We may from time to time, without the consent of the holders of the Notes, create and issue additional debt securities with the same terms and conditions as either series of the Notes in all respects so that such further issue shall be consolidated and form a single series with the relevant series of the Notes. We will not issue any such additional debt securities unless such additional securities have no more than a de minimis amount of original issue discount or such issuance would otherwise constitute a “qualified reopening” for U.S. federal income tax purposes.

Notices

All notices regarding the Notes will be published in London in the Financial Times and in New York in The Wall Street Journal (U.S. Edition). If we cannot, for any reason, publish notice in any of those newspapers, we will choose an appropriate alternate English language newspaper of general circulation, and notice in that newspaper will be considered valid notice. Notice will be considered made on the first date of its publication.

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CLEARANCE AND SETTLEMENT

We have obtained the information in this section from sources we believe to be reliable, including DTC, Euroclear and Clearstream. We accept responsibility only for accurately extracting information from such sources. DTC, Euroclear and Clearstream are under no obligation to perform or continue to perform the procedures described below, and they may modify or discontinue them at any time. Neither we nor the registrar will be responsible for DTC’s, Euroclear’s or Clearstream’s performance of their obligations under their rules and procedures. Nor will we or the registrar be responsible for the performance by direct or indirect participants of their obligations under their rules and procedures.

Introduction

The Depository Trust Company

DTC is:

• a limited-purpose trust company organized under the New York Banking Law;

• a “banking organization” under the New York Banking Law;

• a member of the Federal Reserve System;

• a “clearing corporation” under the New York Uniform Commercial Code; and

• a “clearing agency” registered under Section 17A of the Securities Exchange Act of 1934.

DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between its participants. It does this through electronic book-entry changes in the accounts of its direct participants, eliminating the need for physical movement of securities certificates.

Euroclear and Clearstream

Like DTC, Euroclear and Clearstream hold securities for their participants and facilitate the clearance and settlement of securities transactions between their participants through electronic book-entry changes in their accounts. Euroclear and Clearstream provide various services to their participants, including the safekeeping, administration, clearance and settlement and lending and borrowing of internationally traded securities. Participants in Euroclear and Clearstream are financial institutions such as underwriters, securities brokers and dealers, banks and trust companies. Some of the underwriters participating in this offering are participants in Euroclear or Clearstream. Other banks, brokers, dealers and trust companies have indirect access to Euroclear or Clearstream by clearing through or maintaining a custodial relationship with a Euroclear or Clearstream participant.

Ownership of the Notes through DTC, Euroclear and Clearstream

We will issue each series of the Notes in the form of one or more fully registered global notes, registered in the name of a nominee of DTC. Financial institutions, acting as direct and indirect participants in DTC, will represent your beneficial interests in the Notes. These financial institutions will record the ownership and transfer of your beneficial interests through book-entry accounts. You may also hold your beneficial interests in the Notes through Euroclear or Clearstream, if you are a participant in such systems, or indirectly through organizations that are participants in such systems. Euroclear and Clearstream will hold their participants’ beneficial interests in the global notes in their customers’ securities accounts with their depositaries. These depositaries of Euroclear and Clearstream in turn will hold such interests in their customers’ securities accounts with DTC.

We and the fiscal agent generally will treat the registered holder of the Notes, initially Cede & Co., as the absolute owner of the Notes for all purposes. Once we and the fiscal agent make payments to the registered

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holder, we and the fiscal agent will no longer be liable on the Notes for the amounts so paid. Accordingly, if you own a beneficial interest in the global notes, you must rely on the procedures of the institutions through which you hold your interests in the Notes, including DTC, Euroclear, Clearstream and their respective participants, to exercise any of the rights granted to holders of the Notes. Under existing industry practice, if you desire to take any action that Cede & Co., as the holder of the global notes, is entitled to take, then Cede & Co. would authorize the DTC participant through which you own your beneficial interest to take such action. The participant would then either authorize you to take the action or act for you on your instructions.

DTC may grant proxies or authorize its participants, or persons holding beneficial interests in the Notes through such participants, to exercise any rights of a holder or take any actions that a holder is entitled to take under the Fiscal Agency Agreement or the Notes. Euroclear’s or Clearstream’s ability to take actions as holder under the Notes or the Fiscal Agency Agreement will be limited by the ability of their respective depositaries to carry out such actions for them through DTC. Euroclear and Clearstream will take such actions only in accordance with their respective rules and procedures.

Transfers Within and Between DTC, Euroclear and Clearstream

Trading Between DTC Purchasers and Sellers

DTC participants will transfer interests in the Notes among themselves in the ordinary way according to DTC rules. Participants will pay for such transfers by wire transfer. The laws of some states require certain purchasers of securities to take physical delivery of the securities in definitive form. These laws may impair your ability to transfer beneficial interests in the global notes to such purchasers. DTC can act only on behalf of its direct participants, who in turn act on behalf of indirect participants and certain banks. Thus, your ability to pledge a beneficial interest in the global notes to persons that do not participate in the DTC system, and to take other actions, may be limited because you will not possess a physical certificate that represents your interest.

Trading Between Euroclear and/or Clearstream Participants

Participants in Euroclear and Clearstream will transfer interests in the Notes among themselves according to the rules and operating procedures of Euroclear and Clearstream.

Trading Between a DTC Seller and a Euroclear or Clearstream Purchaser

When the Notes are to be transferred from the account of a DTC participant to the account of a Euroclear or Clearstream participant, the purchaser must first send instructions to Euroclear or Clearstream through a participant at least one business day prior to the settlement date. Euroclear or Clearstream will then instruct its depositary to receive the Notes and make payment for them. On the settlement date, the depositary will make payment to the DTC participant’s account, and the Notes will be credited to the depositary’s account. After settlement has been completed, DTC will credit the Notes to Euroclear or Clearstream, Euroclear or Clearstream will credit the Notes, in accordance with its usual procedures, to the participant’s account, and the participant will then credit the purchaser’s account. These securities credits will appear the next day (European time) after the settlement date. The cash debit from the account of Euroclear or Clearstream will be back-valued to the value date, which will be the preceding day if settlement occurs in New York. If settlement is not completed on the intended value date (i.e., the trade fails), the cash debit will instead be valued at the actual settlement date.

Participants in Euroclear and Clearstream will need to make funds available to Euroclear or Clearstream to pay for the Notes by wire transfer on the value date. The most direct way of doing this is to pre-position funds (i.e., have funds in place at Euroclear or Clearstream before the value date), either from cash on hand or existing lines of credit. Under this approach, however, participants may take on credit exposure to Euroclear and Clearstream until the Notes are credited to their accounts one day later.

As an alternative, if Euroclear or Clearstream has extended a line of credit to a participant, the participant may decide not to pre-position funds, but to allow Euroclear or Clearstream to draw on the line of credit to

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finance settlement for the Notes. Under this procedure, Euroclear or Clearstream would charge the participant overdraft charges for one day, assuming that the overdraft would be cleared when the Notes were credited to the participant’s account. However, interest on the Notes would accrue from the value date. Therefore, in many cases the interest income on the Notes which the participant earns during that one-day period will substantially reduce or offset the amount of the participant’s overdraft charges. Of course, this result will depend on the cost of funds (i.e., the interest rate that Euroclear or Clearstream charges) to each participant.

Since the settlement will occur during New York business hours, a DTC participant selling an interest in the Notes can use its usual procedures for transferring global securities to the depositories of Euroclear or Clearstream for the benefit of Euroclear or Clearstream participants. The DTC seller will receive the sale proceeds on the settlement date. Thus, to the DTC seller, a cross-market sale will settle no differently than a trade between two DTC participants.

Finally, day traders who use Euroclear or Clearstream and who purchase Notes from DTC participants for credit to Euroclear participants or Clearstream participants should note that these trades will automatically fail unless one of three steps is taken:

• borrowing through Euroclear or Clearstream for one day, until the purchase side of the day trade is reflected in the day trader’s Euroclear or Clearstream account, in accordance with the clearing system’s customary procedures;

• borrowing the Notes in the United States from DTC participants no later than one day prior to settlement, which would allow sufficient time for the Notes to be reflected in the Euroclear or Clearstream account in order to settle the sale side of the trade; or

• staggering the value dates for the buy and sell sides of the trade so that the value date for the purchase from the DTC participant is at least one day prior to the value date for the sale to the Euroclear or Clearstream participant.

Trading Between a Euroclear or Clearstream Seller and a DTC Purchaser

Due to time-zone differences in their favor, Euroclear and Clearstream participants can use their usual procedures to transfer Notes through their depositaries to a DTC participant. The seller must first send instructions to Euroclear or Clearstream through a participant at least one business day prior to the settlement date. Euroclear or Clearstream will then instruct its depositary to credit the Notes to the DTC participant’s account and receive payment. The payment will be credited in the account of the Euroclear or Clearstream participant on the following day, but the receipt of the cash proceeds will be back-valued to the value date, which will be the preceding day if settlement occurs in New York. If settlement is not completed on the intended value date (i.e., the trade fails), the receipt of the cash proceeds will instead be valued at the actual settlement date.

If the Euroclear or Clearstream participant selling the Notes has a line of credit with Euroclear or Clearstream and elects to be in debit for the Notes until it receives the sale proceeds in its account, then the back-valuation may substantially reduce or offset any overdraft charges that the participant incurs over that period.

Settlement in other currencies between DTC and Euroclear and Clearstream is possible using free-of-payment transfers to move the Notes, but funds movement will take place separately.

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TAXATION

Korean Taxation

For a discussion of certain Korean tax considerations that may be relevant to you if you invest in the Notes, see “Taxation—Korean Taxation” in the accompanying prospectus.

U.S. Federal Income Tax Considerations

For a discussion of certain U.S. federal income tax considerations that may be relevant to you if you are a beneficial owner of the Notes and are a U.S. holder, see “Taxation—U.S. Federal Income Tax Considerations” in the accompanying prospectus.

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UNDERWRITING

Relationship with the Underwriters

We and the underwriters named below (the “Underwriters”) have entered into a Terms Agreement dated             , 2021 (the “Terms Agreement”) with respect to the Notes relating to the Underwriting Agreement—Standard Terms (together with the Terms Agreement, the “Underwriting Agreement”) filed as an exhibit to the registration statement. Subject to the terms and conditions set forth in the Underwriting Agreement, we have agreed to sell to each of the Underwriters, severally and not jointly, and each of the Underwriters has, severally and not jointly, agreed to purchase, the following principal amount of the Notes set out opposite its name below:

Name of Underwriters	Principal Amount of the 20             Notes	Principal Amount of the 20             Notes	Principal Amount of the 20             Notes
Citigroup Global Markets Inc.	US$	US$	US$
Crédit Agricole Corporate and Investment Bank
The Hongkong and Shanghai Banking Corporation Limited
KDB Asia Limited
Mirae Asset Securities Co., Ltd
Mizuho Securities USA LLC
Standard Chartered Bank
	US$	US$	US$

KDB Asia Limited, one of the underwriters, is our affiliate and has agreed to offer and sell the Notes only outside the United States to non-U.S. persons.

Under the terms and conditions of the Underwriting Agreement, if the Underwriters take any series of the Notes, then the Underwriters are obligated to take and pay for all of the Notes of such series.

The Underwriters initially propose to offer the Notes directly to the public at the offering price described on the cover page of this prospectus supplement. After the initial offering of the Notes, the Underwriters may from time to time vary the offering price and other selling terms.

If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Underwriters or any affiliate of the Underwriters is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by that Underwriter or its affiliate on our behalf in such jurisdiction.

The Notes are a new class of securities with no established trading market. Applications will be made to the SGX-ST for the listing and quotation of the Notes on the SGX-ST. The Underwriters have advised us that they intend to make a market in the Notes. However, they are not obligated to do so and they may discontinue any market making activities with respect to the Notes at any time without notice. Accordingly, we cannot assure you as to the liquidity of any trading market for the Notes.

We have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments which the Underwriters may be required to make in respect of any such liabilities.

The amount of our net proceeds from the 20             Notes is US$             after deducting underwriting discounts but not estimated expenses. Expenses associated with the 20             Notes offering are estimated to be US$            . The Underwriters have agreed to pay certain of our expenses incurred in connection with the offering of the 20             Notes.

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The amount of our net proceeds from the 20             Notes is US$             after deducting underwriting discounts but not estimated expenses. Expenses associated with the 20             Notes offering are estimated to be US$            . The Underwriters have agreed to pay certain of our expenses incurred in connection with the offering of the 20             Notes.

The amount of our net proceeds from the 20             Notes is US$             after deducting underwriting discounts but not estimated expenses. Expenses associated with the 20             Notes offering are estimated to be US$            . The Underwriters have agreed to pay certain of our expenses incurred in connection with the offering of the 20             Notes.

The Underwriters and certain of their affiliates may have performed certain commercial banking, investment banking and advisory services for us and/or our affiliates from time to time for which they have received customary fees and expenses and may, from time to time, engage in transactions with and perform services for us and/or our affiliates in the ordinary course of their business.

The Underwriters or certain of their affiliates may purchase Notes and be allocated Notes for asset management and/or proprietary purposes but not with a view to distribution. The Underwriters or their respective affiliates may purchase Notes for their own account and enter into transactions, including credit derivatives, such as asset swaps, repackaging and credit default swaps relating to Notes and/or other securities of us or our subsidiaries or affiliates at the same time as the offer and sale of Notes or in secondary market transactions. Such transactions would be carried out as bilateral trades with selected counterparties and separately from any existing sale or resale of Notes to which this prospectus supplement relates (notwithstanding that such selected counterparties may also be purchasers of Notes).

Delivery of the Notes

We expect to make delivery of the Notes, against payment in same-day funds on or about             , 2021, which we expect will be the              business day following the date of this prospectus supplement. Under Rule 15c6-1 promulgated under the Securities Exchange Act of 1934, as amended, U.S. purchasers are generally required to settle trades in the secondary market in two business days, unless they and the other parties to any such trade expressly agree otherwise. Accordingly, if you wish to trade in the Notes on any day prior to the second business day from the settlement, because the Notes will initially settle in T+            , you may be required to specify an alternate settlement cycle at the time of your trade to prevent a failed settlement. Purchasers in other countries should consult with their own advisors.

Foreign Selling Restrictions

Each Underwriter has agreed, severally and not jointly, to the following selling restrictions in connection with the offering with respect to the following jurisdictions:

Korea

Each Underwriter has severally represented and agreed that (i) it has not offered, sold or delivered and will not offer, sell or deliver, directly or indirectly, any Notes in Korea, or to, or for the account or benefit of, any resident of Korea, except as otherwise permitted by applicable Korean laws and regulations, and (ii) any securities dealer to whom the Underwriters may sell the Notes will agree that it will not offer any Notes, directly or indirectly, in Korea, or to any resident of Korea, except as permitted by applicable Korean laws and regulations, or to any other dealer who does not so represent and agree.

United Kingdom

Each Underwriter has severally represented and agreed that (i) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in

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investment activity (within the meaning of Section 21 of the Financial Services and Markets Act of 2000 (the “FSMA”)) received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to us, and (ii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.

Prohibition of Sales to EEA

Each Underwriter has represented and agreed that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes which are the subject of the offering contemplated by this prospectus supplement and the accompanying prospectus as contemplated by the final terms in relation thereto to any retail investor in the European Economic Area. For the purposes of this provision, the expression “retail investor” means a person who is one (or more) of the following:

(a) a retail client as defined in point (11) of Article 4(1) of MiFID II; or

(b) a customer within the meaning of the Insurance Distribution Directive, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II: or

Prohibition of Sales to UK Retail Investors

Each Underwriter has represented and agreed that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes which are the subject of the offering contemplated by this prospectus supplement and the accompanying prospectus as contemplated by the final terms in relation thereto to any retail investor in the UK. For the purposes of this provision, the expression “retail investor” means a person who is one (or more) of the following:

(a) a retail client, as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of the EUWA; or

(b) a customer within the meaning of the provisions of the FSMA and any rules or regulations made under the FSMA to implement Directive (EU) 2016/97, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law by virtue of the EUWA.

Spain

The proposed offer of Notes has not been registered with the Comisión Nacional del Mercado de Valores (the “CNMV”). Accordingly, each of the Underwriters has represented and agreed that Notes can only be offered in Spain to qualified investors pursuant to and in compliance with the consolidated text of the Securities Market Law approved by Spanish Royal Legislative Decree 4/2015, Spanish Royal Decree 1310/2005, both as amended from time to time, and any regulation issued thereunder.

Japan

Each Underwriter has severally represented and agreed that the Notes have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended, the “Financial Instruments and Exchange Act”). Accordingly, each Underwriter has severally represented and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any Notes in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and other relevant laws and regulations of Japan.

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Hong Kong

Each Underwriter has severally represented and agreed that:

• it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Notes other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “SFO”) and any rules made under the SFO; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the “C(WUMP)O”) or which do not constitute an offer to the public within the meaning of the C(WUMP)O; and

• it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Notes, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under the SFO.

Singapore

Each Underwriter has acknowledged that this prospectus supplement and the accompanying prospectus have not been and will not be registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”).

Accordingly, each Underwriter has severally represented and agreed that it has not offered or sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell any Notes or cause the Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this prospectus supplement or the accompanying prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor under Section 274 of the SFA; (ii) to a relevant person pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA and (where applicable) Regulation 3 of the Securities and Futures (Classes of Investors) Regulations 2018 of Singapore; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

securities or securities-based derivatives contracts (each term as defined in the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except:

(i) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

(ii) where no consideration is or will be given for the transfer;

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(iii) where the transfer is by operation of law;

(iv) as specified in Section 276(7) of the SFA; or

(v) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 of Singapore.

Notification under Section 309B(1)(c) of the SFA — We have determined, and hereby notify all relevant persons (as defined in Section 309A(1) of the SFA), that the Notes are prescribed capital markets products (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

Australia

No prospectus or other disclosure document (as defined in the Corporations Act 2001 of Australia) in relation to the offering of the Notes has been or will be lodged with or registered by Australian Securities and Investments Commission or the Australian Securities Exchange Limited. Each Underwriter has represented and agreed that it has not:

(a) made or invited, and will not make or invite, an offer of the Notes for issue or sale in Australia (including an offer or invitation which is received by a person in Australia); and

(b) distributed or published and will not distribute or publish any draft, preliminary or final form offering memorandum, advertisement or other offering material relating to the Notes in Australia,

unless:

(i) the minimum aggregate consideration payable by each offeree is at least AUD 500,000 (or its equivalent in an alternate currency) (disregarding money lent by the offeror or its associates) or the offer otherwise does not require disclosure to investors in accordance with Part 6D.2 and Part 7 of the Corporations Act 2001 of Australia; and

(ii) such action complies with all applicable laws, directives and regulations and does not require any document to be lodged with, or registered by, the Australian Securities and Investments Commission.

Each Underwriter has agreed that it will not sell the Notes in circumstances where employees of the Underwriter aware of, or involved in, the sale know, or have reasonable grounds to suspect, that the Notes, or an interest in or right in respect of the Notes, was being, or would later be, acquired either directly or indirectly by a resident of Australia, or a non-resident who is engaged in carrying on business in Australia at or through a permanent establishment of that non-resident in Australia (the expressions “resident of Australia”, “non-resident” and “permanent establishment” having the meanings given to them by the Australian Tax Act).

Canada

Prospective Canadian investors are advised that the information contained within the preliminary prospectus and prospectus has not been prepared with regard to matters that may be of particular concern to Canadian investors. Accordingly, prospective Canadian investors should consult with their own legal, financial and tax advisers concerning the information contained within the preliminary prospectus and prospectus and as to the suitability of an investment in the Notes in their particular circumstances.

Each Underwriter has severally represented and agreed that the Notes may only be offered or sold in the provinces of Alberta, British Columbia, Ontario and Québec or to or for the benefit of a resident of these provinces pursuant to an exemption from the requirement to file a prospectus in such province in which such offer or sale is made, and only by a dealer duly registered under the applicable securities laws of that province or by a dealer that is relying in that province on the “international dealer” exemption provided by section 8.18 of

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National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103). Furthermore, the Notes may only be offered or sold to or for the benefit of a resident of any such province provided that such resident is both an “accredited investor” as defined in National Instrument 45-106 Prospectus Exemptions (NI 45-106) or subsection 73.3 (1) of the Securities Act (Ontario) and a “permitted client” as defined in NI 31-103. By purchasing any Notes and accepting delivery of a purchase confirmation a purchaser is representing to the underwriters and the dealer from whom the purchase confirmation is received that it is an “accredited investor” and “permitted client” as defined above. The distribution of the Notes in Canada is being made on a private placement basis only and any resale of the Notes must be made in accordance with applicable Canadian securities laws, which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with prospectus and registration requirements or exemptions from the prospectus and registration requirements.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this preliminary prospectus or prospectus (including any amendment hereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Under Canadian securities law, National Instrument 33-105 Underwriting Conflicts (NI 33-105) provides disclosure requirements with respect to potential conflicts of interest between an issuer and underwriters, dealers or placement agents, as the case may be. To the extent any conflict of interest between us and any of the Underwriters (or any other placement agent acting in connection with this offering) may exist in respect of this offering, the applicable parties to this offering are relying on the exemption from these disclosure requirements provided to them by section 3A.3 of NI 33-105 (exemption based on U.S. disclosure).

Upon receipt of this prospectus, each Canadian purchaser hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce prospectus, chaque acheteur canadien confirme par les présentes qu’il a expressément exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement.

Price Stabilization and Short Position

In connection with this offering, any of the Underwriters appointed and acting in its capacity as stabilizing manager (the “Stabilizing Manager”) or any person acting for it, on behalf of the Underwriters, may purchase and sell the Notes in the open market. These transactions may include over-allotment, covering transactions, penalty bids and stabilizing transactions. Over-allotment involves sales of the Notes in excess of the principal amount of Notes to be purchased by the Underwriters in this offering, which creates a short position for the Underwriters. Covering transactions involve purchases of the Notes in the open market after the distribution has been completed in order to cover short positions. A penalty bid occurs when a particular Underwriter repays to the Underwriters a portion of the underwriting discount received by it because the Underwriters or the Stabilizing Manager has repurchased Notes sold by or for the account of such Underwriter in stabilizing or short covering transactions. Stabilizing transactions consist of certain bids or purchases of Notes in the open market for the purpose of preventing or retarding a decline in the market price of the Notes while the offering is in progress. Any of these activities may have the effect of preventing or retarding a decline in the market price of the Notes. They may also cause the price of the Notes to be higher than the price that otherwise would exist in the open market in the absence of these transactions. The Stabilizing Manager may conduct these transactions in the over-the-counter market or otherwise. If the Stabilizing Manager commences any of these transactions, it may discontinue them at any time, and must discontinue them after a limited period.

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LEGAL MATTERS

The validity of the Notes is being passed upon for us by Cleary Gottlieb Steen & Hamilton LLP, New York, New York, and by Kim & Chang, Seoul, Korea. Certain legal matters will also be passed upon for the Underwriters by Linklaters LLP, Seoul, Korea. In giving their opinions, Cleary Gottlieb Steen & Hamilton LLP and Linklaters LLP may rely as to matters of Korean law upon the opinion of Kim & Chang, and Kim & Chang may rely as to matters of New York law upon the opinions of Cleary Gottlieb Steen & Hamilton LLP.

OFFICIAL STATEMENTS AND DOCUMENTS

Our Chief Executive Officer and Chairman of the Board of Directors, in his official capacity, has supplied the information set forth in this prospectus supplement under “Recent Developments—The Korea Development Bank.” Such information is stated on his authority. The documents identified in the portion of this prospectus supplement captioned “Recent Developments—The Republic of Korea” as the sources of financial or statistical data are derived from official public documents of the Republic and of its agencies and instrumentalities.

GENERAL INFORMATION

We were established in 1954 as a government-owned financial institution pursuant to The Korea Development Bank Act, as amended. The address of our registered office is 14, Eunhaeng-ro, Yeongdeungpo-gu, Seoul 07242, The Republic of Korea.

Our Board of Directors can be reached at the address of our registered office: c/o 14, Eunhaeng-ro, Yeongdeungpo-gu, Seoul 07242, The Republic of Korea.

The issue of the Notes has been authorized by a resolution of our Board of Directors passed on December 30, 2020 and a decision of our Chief Executive Officer and Chairman of the Board of Directors dated October 8, 2021. On October 13, 2021, we filed our reports on the proposed issuance of the Notes with the Ministry of Economy and Finance of Korea.

The registration statement with respect to us and the Notes has been filed with the U.S. Securities and Exchange Commission in Washington, D.C. under the Securities Act of 1933, as amended. Additional information concerning us and the Notes is contained in the registration statement and post-effective amendments to such registration statement, including their various exhibits, which may be inspected at the public reference facilities maintained by the Securities and Exchange Commission at Room 1580, 100 F Street N.E., Washington, D.C. 20549, United States.

The Notes have been accepted for clearance through DTC, Euroclear and Clearstream:

	ISIN	CUSIP
20             Notes
20             Notes
20             Notes

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PROSPECTUS

$9,547,380,000

The Korea Development Bank

Debt Securities

Warrants to Purchase Debt Securities

Guarantees

The Republic of Korea

Guarantees

We will provide the specific terms of these securities in supplements to this prospectus. You should read this prospectus and any prospectus supplement carefully before you invest.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This prospectus is dated July 2, 2021

TABLE OF CONTENTS

	Page
CERTAIN DEFINED TERMS AND CONVENTIONS		1
USE OF PROCEEDS		2
THE KOREA DEVELOPMENT BANK		3
Overview		3
Capitalization		5
Business		6
Selected Financial Statement Data		8
Operations		15
Sources of Funds		22
Debt		24
Overseas Operations		25
Property		26
Directors and Management; Employees		26
Tables and Supplementary Information		26
Financial Statements and the Auditors		33
THE REPUBLIC OF KOREA		170
Land and History		170
Government and Politics		172
The Economy		175
Principal Sectors of the Economy		184
The Financial System		191
Monetary Policy		196
Balance of Payments and Foreign Trade		200
Government Finance		208
Debt		210
Tables and Supplementary Information		213
DESCRIPTION OF THE SECURITIES		216
Description of Debt Securities		216
Description of Warrants		223
Terms Applicable to Debt Securities and Warrants		223
Description of Guarantees to be Issued by Us		224
Description of Guarantees to be Issued by The Republic of Korea		225
LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES AND BEARER WARRANTS		226
TAXATION		227
Korean Taxation		227
U.S. Federal Income Tax Considerations		229
PLAN OF DISTRIBUTION		237
LEGAL MATTERS		238
AUTHORIZED REPRESENTATIVES IN THE UNITED STATES		238
OFFICIAL STATEMENTS AND DOCUMENTS		238
EXPERTS		238
FORWARD-LOOKING STATEMENTS		239
FURTHER INFORMATION		241

i

CERTAIN DEFINED TERMS AND CONVENTIONS

All references to the “Bank”, “we”, “our” or “us” mean The Korea Development Bank. All references to “Korea” or the “Republic” contained in this prospectus mean The Republic of Korea. All references to the “Government” mean the government of Korea.

Unless otherwise indicated, all references to “won”, “Won” or “W” contained in this prospectus are to the currency of Korea, references to “U.S. dollars”, “Dollars”, “$”, “USD” or “US$” are to the currency of the United States of America, references to “Euro”, “EUR” or “€” are to the currency of the European Union, references to “Japanese Yen”, “JPY” or “¥” are to the currency of Japan, references to “Singapore dollar” or “SGD” are to the currency of Singapore, references to “Swiss franc” or “CHF” are to the currency of Switzerland, references to “pound sterling”, “GBP” or “£” are to the currency of the United Kingdom, references to “Chinese offshore renminbi” or “CNH” are to the currency of the People’s Republic of China traded outside of mainland China, references to “Hong Kong dollar” or “HKD” are to the currency of Hong Kong, S.A.R., references to “Mexican Peso” or “MXN” are to the currency of the United Mexican States, references to “Thai Bhat” or “THB” are to the currency of Thailand, references to “Australian dollar” or “AUD” are to the currency of Australia, references to “Norwegian krone” or “NOK” are to the currency of Norway, references to “Brazilian real” or “BRL” are to the currency of the Federative Republic of Brazil, references to “Indonesian Rupiah” or “IDR” are to the currency of Indonesia, references to “Indian Rupee” or “INR” are to the currency of India and references to “Swedish Krona” or “SEK” are to the currency of Sweden.

All discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

Our separate financial information as of and for the years ended December 31, 2020 and 2019 included in this prospectus has been prepared in accordance with International Financial Reporting Standards as adopted in Korea, or Korean IFRS or K-IFRS. References in this prospectus to “separate” financial statements and information are to financial statements and information prepared on a non-consolidated basis. Unless specified otherwise, our financial and other information included in this prospectus is presented on a separate basis in accordance with Korean IFRS and does not include such information with respect to our subsidiaries. KDB Financial Group, or KDBFG, a financial holding company, and Korea Finance Corporation, or KoFC, a public policy financing vehicle and the parent company of KDBFG, both of which had originally been established by spinning off a portion of our assets, liabilities and equity in October 2009, merged with and into us on December 31, 2014.

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USE OF PROCEEDS

Unless otherwise specified in the applicable prospectus supplement, we will use the net proceeds from the sale of the securities for our general operations.

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THE KOREA DEVELOPMENT BANK

Overview

We were established in 1954 as a government-owned financial institution pursuant to The Korea Development Bank Act, as amended, or the KDB Act. Since our establishment, we have been the leading bank in the Republic with respect to the provision of long-term financing for projects designed to assist the nation’s economic growth and development. The Government directly owns all of our paid-in capital. Our registered office is located at 14, Eunhaeng-ro, Yeongdeungpo-gu, Seoul, The Republic of Korea. Our primary purpose, as stated in the KDB Act, the KDB Decree and our Articles of Incorporation, is to “furnish funds in order to expedite the development of the national economy.” We make loans available to major industries for equipment, capital investment and the development of high technology, as well as for working capital.

As of December 31, 2020, we had W159,083.6 billion of loans outstanding (including loans, call loans, domestic usance, bills of exchange bought, local letters of credit negotiation and loan-type suspense accounts pursuant to the applicable guidelines without adjusting for allowance for loan losses, present value discounts and deferred loan fees), total assets of W251,852.0 billion and total equity of W30,382.5 billion, as compared to W142,986.1 billion of loans outstanding, W217,835.3 billion of total assets and W25,802.8 billion of total equity as of December 31, 2019. In 2020, we recorded interest income of W4,441.6 billion, interest expense of W3,162.0 billion and net income of W487.5 billion, as compared to W5,101.2 billion of interest income, W4,038.9 billion of interest expense and W445.7 billion of net income in 2019. See “—Selected Financial Statement Data.”

Currently, the Government directly holds 100% of our paid-in capital. In addition to contributions to our capital, the Government provides direct financial support for our financing activities, in the form of loans or guarantees. The Government has the power to elect or dismiss our Chairman and Chief Executive Officer, members of our Board of Directors and Auditor. The Government may dismiss each such person if he/she (i) violates the KDB Act, an order issued thereunder, or the Articles of Incorporation or (ii) is unable to perform his/her duties due to physical or mental disability. The Chairman may be dismissed by the President of the Republic at the recommendation of the chairman of the Financial Services Commission. The Chief Executive Officer and members of the Board of Directors may be dismissed by the Financial Services Commission at the recommendation of the Chairman and the Auditor may be dismissed by the Financial Services Commission. There is no prescribed timeline for dismissal. Pursuant to the KDB Act, the Financial Services Commission has supervisory power and authority over matters relating to our general business including, but not limited to, capital adequacy and managerial soundness.

The Government supports our operations pursuant to Article 32 of the KDB Act. Article 32 provides that “the annual net losses of the Korea Development Bank shall be offset each year by the reserve, and if the reserve be insufficient, the deficit shall be replenished by the Government.” As a result of the KDB Act, the Government is generally responsible for our operations and is legally obligated to replenish any deficit that arises if our reserve, consisting of our surplus and capital surplus items, is insufficient to cover our annual net losses. In light of the above, if we had insufficient funds to make any payment under any of our obligations, including the debt securities and guarantees covered by this prospectus, the Government would take appropriate steps, such as by making a capital contribution, by allocating funds or by taking other action, to enable us to make such payment when due. The provisions of Article 32 do not, however, constitute a direct guarantee by the Government of our obligations under the debt securities or the guarantees, and the provisions of the KDB Act, including Article 32, may be amended at any time by action of the National Assembly.

In January 1998, the Government amended the KDB Act to:

• subordinate our borrowings from the Government to other indebtedness incurred in our operations;

• allow the Government to offset any deficit that arises if our reserve fails to cover our annual net losses by transferring Government-owned property, including securities held by the Government, to us; and

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• allow direct injections of capital by the Government without prior National Assembly approval.

The Government amended the KDB Act in May 1999 and the KDB Decree in March 2000, to allow the Financial Services Commission to supervise and regulate us in terms of capital adequacy and managerial soundness.

In March 2002, the Government amended the KDB Act to enable us, among other things, to:

• obtain low-cost funds from The Bank of Korea and from the issuance of debt securities (in addition to already permitted industrial finance bonds), which funds may be used for increased levels of lending to small and medium size enterprises;

• broaden the scope of borrowers to which we may extend working capital loans to include companies in the manufacturing industry, enterprises which are “closely related” to enhancing the corporate competitiveness of the manufacturing industry and leading-edge high-tech companies; and

• extend credits to mergers and acquisitions projects intended to facilitate corporate restructuring efforts.

In July 2005 and May 2009, the Government amended the KDB Act to provide that:

(1) our annual net profit, after adequate allowances are made for depreciation in assets, shall be distributed as follows:

(i) 40% or more of the net profit shall be credited to reserve, until the reserve amounts equal the total amount of paid-in capital; and

(ii) any net profit remaining following the apportionment required under subparagraph (i) above shall be distributed in accordance with the resolution of our Board of Directors and the approval of our shareholders;

(2) accumulated amounts in reserve may be capitalized after offsetting any net losses; and

(3) any distributions made in accordance with paragraph (1)(ii) above may be in the form of cash dividends or dividends in kind, provided that any distributions of dividends in kind must be made in accordance with applicable provisions of the KDB Decree.

In February 2008, the Government further amended the KDB Act, primarily to transfer most of the Government’s supervisory authority over us from the Ministry of Economy and Finance to the Financial Services Commission.

In May 2009, the Government amended the KDB Act to facilitate our privatization. The amendment provided for, among others:

• the preparation for the transformation of us from a special statutory entity into a corporation, including the application of the Banking Act as applicable;

• the expansion of our operation scope that enables us to engage in commercial banking activities, including retail banking (which was subsequently adjusted due to a change in the Government’s decision to halt its plan for our privatization and to consolidate and strengthen our public financing role, utilizing our rich experience and expertise in public policy financing);

• the provision of government guarantees for our mid-to-long term foreign currency debt outstanding at the time of initial sale of the Government’s stake in KDBFG (subject to the National Assembly’s authorization of the Government guarantee amount) and possible guarantees for our foreign currency debt incurred for the refinancing of such mid-to-long term foreign currency debt with the government guarantee during the period when the Government owns more than 50% of our shares; and

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• the establishment of KDBFG and KoFC and application of the Financial Holding Company Act to KDBFG.

In May 2014, the Government and the National Assembly amended the KDB Act to streamline the financial policy roles among Government-owned banks and financial corporations in order to better respond systematically to rapidly changing domestic and international economic conditions by merging KDBFG and KoFC into us. The amended KDB Act provides, among others, that:

• the Government will halt its plan for our privatization;

• public policy financing will be consolidated and strengthened through the newly merged entity;

• we will comprehensively succeed to the properties, rights and obligations of KDBFG and KoFC upon the consummation of the merger;

• the bonds issued by KDBFG and the policy bank bonds issued by the KoFC shall be deemed as the industrial financial bonds issued by us;

• the business engaged in by KoFC in accordance with the Korea Finance Corporation Act or other laws and decrees will be continuously performed by us; and

• the repayment of the principal of and interest on foreign currency debt (with an original maturity of one year or more at the time of issuance) incurred by KoFC and us before this amended KDB Act comes into force shall be guaranteed by the Government at the time of initial sale by the Government of its equity interest in us, subject to the approval by the National Assembly.

In May 2020, the Government amended the KDB Act in order to provide statutory grounds for the establishment of the Key Industry Stabilization Fund to support businesses in certain key industries that face financial difficulties resulting from the ongoing global outbreak of the COVID-19 pandemic. See “The Republic of Korea—The Economy—Worldwide Economic and Financial Difficulties” and “—Selected Financial Statement Data—Loans to Financially Troubled Companies.”

The Minister of Economy and Finance of the Republic has, on behalf of the Republic, signed the registration statement of which this prospectus forms a part.

Capitalization

As of December 31, 2020, our authorized capital was W30,000 billion and our capitalization was as follows:

	December 31, 2020(1)
	(billions of won)
Long-term debt:
Won currency borrowings	W	3,842.8
Industrial finance bonds		137,087.1
Foreign currency borrowings		1,989.6
Total long-term debt		142,919.5	(2)(3)
Capital:
Paid-in capital		20,765.7
Capital surplus		2,484.4
Retained earnings(4)		5,068.0
Accumulated other comprehensive income		2,064.4
Total capital		30,382.5
Total capitalization	W	173,302.0

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(1) Except as disclosed in this prospectus, there has been no material adverse change in our capitalization since December 31, 2020.

(2) We have translated borrowings in foreign currencies into Won at the rate of W1,088.0 to US$1.00, which was the market average exchange rate, as announced by the Seoul Monetary Brokerage Services Ltd., on December 31, 2020.

(3) As of December 31, 2020, we had confirmed acceptances and guarantees totaling W6,963.3 billion under outstanding guarantees issued on behalf of our clients. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2020 and 2019—Note 40.”

(4) Includes regulatory reserve for credit losses of W1,146.0 billion as of December 31, 2020. If our allowance for credit losses is deemed insufficient for regulatory purposes, we compensate for the difference by recording a regulatory reserve for credit losses, which is shown as a separate item included in retained earnings. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2020 and 2019—Note 24.”

Business

Purpose and Authority

Since our establishment, we have been the leading bank in the Republic in providing long-term financing for projects designed to assist the nation’s economic growth and development.

Under the KDB Act, the KDB Decree and our Articles of Incorporation, our primary purpose is to “contribute to the sound development of the financial industry and the national economy by supplying and managing funds necessary for the development and promotion of industries, expansion of social infrastructure, development of regions, stabilization of the financial markets and facilitation of sustainable growth.” Since we serve the public policy objectives of the Government, we do not seek to maximize profits. We do, however, strive to maintain a level of profitability to strengthen our equity base and support growth in the volume of our business.

Under the KDB Act, we may:

• carry out activities necessary to accomplish the expansion of the national economy, subject to the approval of the Financial Services Commission;

• provide loans or discount notes;

• subscribe to, underwrite or invest in securities;

• guarantee or assume indebtedness;

• raise funds by accepting demand deposits and time and savings deposits from the general public, issuing securities, borrowing from the Government, The Bank of Korea or other financial institutions, and borrowing from overseas;

• execute foreign exchange transactions, including currency and interest swap transactions;

• provide planning, management, research and other support services at the request of the Government, public bodies, financial institutions or enterprises;

• manage and operate various funds established pursuant to Government-led initiatives; and

• carry out other businesses incidental to the foregoing (subject to the approval of the Financial Services Commission).

Government Support and Supervision

The Government owns directly all of our paid-in capital. Since our establishment, the Government has made capital contributions not only in cash but also in the form of shares of common stock of Government-affiliated entities. Recent examples include the Government’s contributions to our capital of (i) W50 billion in cash, W247.7 billion in cash and W10 billion in cash in July 2016, September 2016 and November 2016, respectively, (ii) W250 billion in the form of shares of common stock of Incheon Port Authority and Yeosu Gwangyang Port

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Authority, W80 billion in cash and W65 billion in cash in May 2017, September 2017 and December 2017, respectively, (iii) W170 billion in cash in June 2018, (iv) W500 billion in cash and W55 billion in cash in March 2019 and September 2019, respectively, and (v) W451 billion in cash and W1,652 billion in cash in April 2020 and July 2020, respectively. Taking into account these capital contributions, as of December 31, 2020, our total paid-in capital was W20,765.7 billion. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2020 and 2019—Note 24.” In January 2021, the Government contributed W510 billion in cash to our capital in January 2021.

In addition to capital contributions, the Government directly supports our financing activities by:

• lending us funds to on-lend;

• allowing us to administer Government loans made from a range of special Government funds;

• allowing us to administer some of The Bank of Korea’s surplus foreign exchange holdings; and

• allowing us to receive credit from The Bank of Korea.

The Government also supports our operations pursuant to Articles 31 and 32 of the KDB Act. Article 31 provides that “40% or more of the annual net profit of the Korea Development Bank shall be transferred to reserve, until the reserve amounts equal the total amount of authorized capital” and that accumulated amounts in reserve may be capitalized. Article 32 provides that “the net losses of the Korea Development Bank shall be offset each fiscal year by the reserve, and if the reserve be insufficient, the deficit shall be replenished by the Government.”

As a result of the KDB Act, the Government is generally responsible for our operations and is legally obligated to replenish any deficit that arises if our reserve, consisting of our surplus and capital surplus items, is insufficient to cover our annual net losses. In light of the above, if we had insufficient funds to make any payment under any of our obligations, including the debt securities and the guarantees covered by this prospectus, the Government would take appropriate steps, such as by making a capital contribution, by allocating funds or by taking other action, to enable us to make such payment when due. The provisions of Article 32 do not, however, constitute a direct guarantee by the Government of our obligations under the debt securities or the guarantees, and the provisions of the KDB Act, including Article 32, may be amended at any time by action of the National Assembly.

The Government closely supervises our operations in the following ways:

• the Government has the power to elect or dismiss our Chairman and Chief Executive Officer, members of our Board of Directors and Auditor;

• within three months after the end of each fiscal year, we must submit our financial statements for the fiscal year to the Financial Services Commission;

• the Financial Services Commission has broad authority to require reports from us on any matter and to examine our books, records and other documents. On the basis of the reports and examinations, the Financial Services Commission may issue any orders deemed necessary to enforce the KDB Act;

• the Financial Services Commission must approve our operating manual, which sets out the guidelines for all principal operating matters;

• the Financial Services Commission may supervise our operations to ensure managerial soundness based upon the KDB Decree and the Bank Supervisory Regulations of the Financial Services Commission and may issue orders deemed necessary for such supervision; and

• we may amend our Articles of Incorporation only with the approval of the Financial Services Commission.

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We have had our annual financial statements for years commencing 1998 audited by an external auditor. See “—Financial Statements and the Auditors” and “Experts.”

Pursuant to our most recently approved program of operations, we expect to support the reform and restructuring of the Republic’s economic and industrial structure, including financing of promising small and medium sized enterprises, providing export finance and encouraging investments in infrastructure necessary to promote consumer demand and industrial reorganization.

Selected Financial Statement Data

Unless specified otherwise, the information provided below is stated on a separate basis in accordance with Korean IFRS.

Consolidated Statements of Financial Position Data

The following table presents selected statements of financial position data regarding our assets, liabilities and shareholders’ equity on a consolidated basis as of December 31, 2020 and 2019, which have been derived from our audited consolidated financial statements as of and for the years ended December 31, 2020 and 2019.

	As of December 31,
	2019		2020
	(billions of won)
Statements of Financial Position Data
Total Loans (measured at amortized cost)(1)		151,808.0		166,336.5
Total Borrowings(2)		188,956.1		216,528.4
Total Assets		268,839.7		304,996.5
Total Liabilities		233,762.6		264,007.0
Equity		35,077.1		40,989.5

(1) Gross amount, which includes loans for facility development, loans for working capital, loans for households, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans without adjusting for allowance for loan losses, present value discounts and deferred loan fees.

(2) Total Borrowings include deposits, financial liabilities measured at fair value through profit or loss, borrowings and debentures.

Consolidated Income Statement Data

Our selected income statement data included in the following table have been derived from our audited consolidated financial statements as of and for the years ended December 31, 2020 and 2019.

	Year Ended December 31,
	2019(1)			2020
	(billions of Won)
Income Statement Data
Total Interest Income		5,567.1			4,876.2
Total Interest Expense		4,188.4			3,309.6
Net Interest Income		1,378.8			1,566.6
Operating Income		1,182.1			1,102.5
Non-operating Income (Loss)		(862.3	)		1,745.8
Income before Income Tax		319.8			2,848.3
Income Tax Expense		213.7			717.2
Net Income		279.1			1,961.3

(1) The figures for the year ended December 31, 2019 have been restated due to the re-classification of our interest in KDB Life Insurance Co., Ltd. as assets and liabilities held for sale pursuant to our agreement to sell our shares in KDB Life Insurance Co., Ltd. to JC Partners in December 2020. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2019 and 2018—Note 11.”

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Separate Financial Statement Data

The following tables present selected separate financial information as of and for the years ended December 31, 2020 and 2019, which has been derived from our audited separate financial statements as of and for the years ended December 31, 2020 and 2019 included in this prospectus. You should read the following financial statement data together with the financial statements and notes included in this prospectus.

	As of December 31,
	2019		2020
	(billions of won)
Statements of Financial Position Data
Total Loans (measured at amortized cost)(1)		142,986.1		159,083.6
Total Borrowings(2)		177,923.4		204,780.7
Total Assets		217,835.3		251,852.0
Total Liabilities		192,032.5		221,469.5
Equity		25,802.8		30,382.5

(1) Gross amount, which includes loans for facility development, loans for working capital, loans for households, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans without adjusting for allowance for loan losses, present value discounts and deferred loan fees.

(2) Total Borrowings include deposits, financial liabilities measured at fair value through profit or loss, borrowings and debentures.

As of December 31, 2020, our total assets increased by 15.6% to W251,852.0 billion from W217,835.3 billion as of December 31, 2019, primarily due to an increase in loans measured at amortized cost to W159,083.6 billion as of December 31, 2020 from W142,986.1 billion as of December 31, 2019 and an increase in securities measured at fair value through other comprehensive income to W34,141.3 billion as of December 31, 2020 from W24,249.2 billion as of December 31, 2019, as well as an increase in cash and due from banks to W10,529.0 billion as of December 31, 2020 from W6,592.2 billion as of December 31, 2019.

As of December 31, 2020, our total liabilities increased by 15.3% to W221,469.5 billion from W192,032.5 billion as of December 31, 2019, primarily due to an increase in debentures to W138,318.7 billion as of December 31, 2020 from W120,623.4 billion as of December 31, 2019 and an increase in deposits to W45,879.4 billion as of December 31, 2020 from W34,664.0 billion as of December 31, 2019.

As of December 31, 2020, our total equity increased by 17.7% to W30,382.5 billion from W25,802.8 billion as of December 31, 2019, primarily due to a change in accumulated other comprehensive income from a loss of W88.1 billion as of December 31, 2019 to a gain of W2,064.4 billion as of December 31, 2020 and an increase in our paid-in capital to W20,765.7 billion in 2020 from W18,663.1 billion in 2019 as a result of the Government’s W2,103 billion contribution to our capital in 2020.

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Our selected income statement data included in the following table have been derived from our audited separate financial statements as of and for the years ended December 31, 2019 and 2018 included in this prospectus.

	Year Ended December 31,
	2019		2020
	(billions of Won)
Income Statement Data
Total Interest Income		5,101.2		4,441.6
Total Interest Expense		4,038.9		3,162.0
Net Interest Income		1,062.3		1,279.6
Operating Income		1,168.6		894.5
Income before Income Tax		602.1		620.9
Income Tax Expense		156.3		133.3
Net Income		445.7		487.5

2020

We had net income of W487.5 billion in 2020 compared to net income of W445.7 billion in 2019, on a separate basis. The principal factors for the increase in net income included:

• net other operating income of W227.0 billion in 2020 compared to net other operating expense of W341.7 billion in 2019, primarily due to an increase in net gain on valuation of loans measured at fair value through profit or loss to W649.3 billion in 2020 from W42.9 billion in 2019;

• a net gain on derivatives of W397.2 billion in 2020 compared to a net loss on derivatives of W8.3 billion in 2019, primarily due to a decrease in net loss on fair value hedged items resulting from fluctuations in interest rates, foreign exchange rates and the prices of stocks and derivatives;

• a decrease in impairment loss on investments in subsidiaries and associates to W239.5 billion in 2020 from W542.9 billion in 2019, primarily due to a decrease in impairment losses recognized in connection with our holdings of equity interest in Daewoo Shipbuilding & Marine Engineering Co., Ltd., or DSME, and GM Korea; and

• an increase in net interest income to W1,279.6 billion in 2020 from W1,062.3 billion in 2019, primarily due to a decrease in interest expense to W3,162.0 billion in 2020 from W4,038.9 billion in 2019, which outpaced the decrease in interest income to W4,441.6 billion in 2020 from W5,101.2 billion in 2019.

The above factors were partially offset by an increase in provision for loan loss allowance to W1,177.0 billion in 2020 from W59.8 billion in 2019, primarily due to an increase in expected credit losses in anticipation of a deterioration in the overall asset quality of our loan portfolio due to the ongoing global outbreak of the COVID-19 pandemic.

2019

We had net income of W445.7 billion in 2019 compared to net income of W2,509.8 billion in 2018, on a separate basis. The principal factors for the decrease in net income included:

• impairment loss on investments in subsidiaries and associates of W542.9 billion in 2019 compared to a reversal of impairment loss on investments in subsidiaries and associates of W1,341.0 billion in 2018, primarily due to impairment losses of W374.4 billion relating to DSME in 2019 compared to a reversal of impairment losses of W2,014.7 billion relating to DSME in 2018 (See “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2019 and 2018—Note 11”);

• a decrease in net interest income to W1,062.3 billion in 2019 from W1,382.8 billion in 2018, primarily due to an increase in interest expense on debentures, which reflected an increase in the average cost of debentures in 2019 compared to 2018; and

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• provision for unused commitments of W263.9 billion in 2019 compared to a reversal of provision for unused commitments of W10.4 billion in 2018, primarily due to an increase in provision for unused commitments for DSME.

The above factors were partially offset by a decrease in provision for loan losses to W59.8 billion in 2019 from W377.4 billion in 2018, primarily due to a decrease in the amount of, and an improvement in the asset quality of, loans extended to Hanjin Heavy Industries and Construction Co., Ltd. and Dongbu Steel Co., Ltd. (See “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2019 and 2018—Note 34”).

Allowances for Loan Losses and Loans in Arrears

We establish allowances for losses from problem loans, including guarantees and other extensions of credit, based on the length of the delinquent periods and the nature of the loans, including guarantees and other extensions of credit. Under K-IFRS 1109, 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 K-IFRS 1039) by assessing changes in expected credit losses and recognizing such changes as impairment loss (or reversal of impairment loss) in profit or loss. Under K-IFRS 1109, 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.

As of December 31, 2020, we established allowances of W3,776.5 billion for loan losses, which was 21.6% higher than the allowances as of December 31, 2019 of W3,105.8 billion, primarily due to an increase in expected credit losses in anticipation of a deterioration in the overall asset quality of our loan portfolio due to the ongoing global outbreak of the COVID-19 pandemic. Allowances for loan losses under K-IFRS are recorded for loans based on expected credit losses, depending on whether there has been a significant increase in credit risk or a credit impairment since initial recognition and, if our allowances for loan losses are deemed insufficient for regulatory purposes, we compensate for the difference by recording a regulatory reserve for loan losses within retained earnings. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2020 and 2019—Notes 3(27), 9(1), 24(4) and 24(5).”

Certain of our customers have restructured loans with their creditor banks. As of December 31, 2020, we have provided loans of W955.1 billion for companies under workout, court receivership, court mediation and other restructuring procedures. As of December 31, 2020, we had established allowances of W438.9 billion for loan losses with respect to such companies. We cannot assure you that actual results of the credit loss from the loans to these customers will not exceed the allowances established.

The following table provides information on our loan loss allowances.

		As of December 31, 2019(1)				As of December 31, 2020(1)
		Loan Amount		Loan Loss Allowances		Loan Amount		Loan Loss Allowances
		(billions of won)
Loan Classification	Normal(2)	W	135,947.4	W	368.5	W	152,753.7	W	1,200.7
	Precautionary		4,132.7		883.5		3,300.8		805.6
	Substandard		1,485.9		676.0		1,880.7		936.5
	Doubtful		204.5		159.7		285.7		218.0
	Expected Loss		1,215.6		1,018.1		862.7		615.7
	Total	W	142,986.1	W	3,105.8	W	159,083.6	W	3,776.5

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(1) These figures include loans for facility development, loans for working capital, loans for households, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans.

(2) Includes loans guaranteed by the Government. Under Korean IFRS, we establish loan loss allowances for all loans including loans guaranteed by the Government.

As of December 31, 2020, our non-performing loans totaled W3,029.1 billion, representing 1.9% of our outstanding loans as of such date. Non-performing loans are defined as loans that are classified as substandard or below. On December 31, 2020, our legal reserve was W1,356.1 billion, representing 0.9% of our outstanding loans as of such date.

Loans to Financially Troubled Companies

We have credit exposure (including loans, guarantees and equity investments) to a number of financially troubled Korean companies including DSME, HMM Company Limited (formerly, Hyundai Merchant Marine Co., Ltd.), Hanjin Heavy Industries and Construction Co., Ltd., Daehan Shipbuilding Co., Ltd., STX Offshore & Shipbuilding, KG Dongbu Steel Co., Ltd., Doosan Heavy Industries & Construction Co., Ltd., Doosan Infracore Co., Ltd. and GM Korea Company. As of December 31, 2020, our credit extended to these companies totaled W15,205.7 billion, accounting for 6.0% of our total assets as of such date.

The following table provides the loan amounts (including loans classified as substandard or below and equity investment classified as estimated loss or below) extended to these companies as of the dates indicated:

	As of December 31,
Company	2019		2020		Primary Reason for Change
	(billions of won)
DSME	W	5,277.1	W	4,463.1	Decrease due to a decrease in refund guarantees
HMM Company Limited		1,685.2		4,771.5	Increase due to purchase of perpetual bonds
Hanjin Heavy Industries and Construction		1,089.4		927.2	Decrease due to a decrease in loans
Daehan Shipbuilding		1,087.4		1,047.4	Decrease due to a decrease in refund guarantees
STX Offshore & Shipbuilding		998.5		531.3	Decrease due to a decrease in refund guarantees
KG Dongbu Steel		755.4		695.9	Decrease due to sales of stocks and redemption of loans
Doosan Heavy Industries & Construction		599.1		1,644.2	Increase due to an increase in loans
Doosan Infracore		641.8		688.2	Increase due to purchase of corporate bonds
GM Korea Company		401.5		436.9	Increase due to an increase in the value of stocks
Total	W	13,553.3	W	15,205.7

As of December 31, 2020, we established allowances of W1,182.9 billion for our exposure to DSME, W101.2 billion for HMM Company Limited, W140.8 billion for Hanjin Heavy Industries and Construction, W439.6 billion for Daehan Shipbuilding, W430.8 billion for STX Offshore & Shipbuilding, W70.6 billion for KG Dongbu Steel, W103.3 billion for Doosan Heavy Industries & Construction, W53.6 billion for Doosan Infracore and none for GM Korea.

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During 2015, DSME, one of the largest shipbuilding and offshore construction companies in Korea, suffered from financial difficulties primarily due to significant losses incurred in connection with the construction of offshore plants resulting from a prolonged slowdown in the global shipbuilding industry. In October 2015, we announced that we, along with The Export-Import Bank of Korea, would extend additional financing of up to W4.2 trillion to DSME by the end of 2016 in the form of debt-to-equity swaps, extension of additional loans and provision of other forms of liquidity support. In this connection, in December 2015, we acquired W382.9 billion of new equity shares of DSME, which increased our equity interest in DSME from 31.5% to 49.7%, and we became its largest shareholder. In December 2016, we increased our equity interest in DSME to 79.0% through an additional debt for equity swap. In March 2017, we and The Export-Import Bank of Korea announced a second joint plan to provide an additional W2.9 trillion in financial support to DSME, which was approved by the other creditors in April 2017. Based on such plan, we provided additional debt-to-equity swaps of W0.3 trillion in June 2017 and The Export-Import Bank of Korea exchanged a term loan in the amount of W1.28 trillion provided by it to DSME for perpetual bonds issued by DSME. Other creditors also provided debt-to-equity swaps for up to 80% of their debt with DSME and rescheduled the maturities of the remainder. Subsequently, in March 2019, Hyundai Heavy Industries entered into a definitive agreement with us to acquire DSME. Pursuant to such agreement, we plan to transfer all of our shares in DSME amounting to approximately W2 trillion (in the form of contributions-in-kind) to Korea Shipbuilding & Offshore Engineering, a newly established sub-holding company spun off from Hyundai Heavy Industries to control its shipbuilding companies, in return for an equity stake in Korea Shipbuilding & Offshore Engineering. It is expected that, following the completion of this transaction, Hyundai Heavy Industries will become the largest shareholder of DSME, followed by us holding the second largest stake in DSME. The completion of this transaction is subject to various conditions, including approval from the antitrust authorities of the European Union and applicable countries.

In July 2016, HMM Company Limited executed a debt-to-equity swap with us and other creditors, as part of its continued restructuring led by us as its largest creditor, and affiliates of the Hyundai group reduced their shareholdings in HMM Company Limited, which resulted in us becoming the largest shareholder of HMM Company Limited. In October 2018, we injected W1 trillion in emergency aid into HMM Company Limited in order to normalize its operations by purchasing bonds with warrants and convertible bonds issued by HMM Company Limited. As of December 31, 2020, our equity interest in Hyundai Merchant Marine amounted to 12.6%.

In January 2019, Hanjin Heavy Industries and Construction Philippines, a subsidiary of Hanjin Heavy Industries and Construction at Subic Bay in the Philippines, declared bankruptcy and filed for corporate rehabilitation with a regional trial court following its failure to comply with loan obligations to its Philippine lenders. In March 2019, creditors in Korea (including us) and lenders in the Philippines agreed on, and executed, a business normalization plan including a debt-to-equity swap and capital reduction for Hanjin Heavy Industries and Construction, as a result of which we became the largest shareholder of Hanjin Heavy Industries and Construction. In April 2021, creditors of Hanjin Heavy Industries and Construction (including us) agreed to sell a 66.85% interest in the company to a consortium led by Dongbu Corporation, which transaction is expected to be completed by August 2021.

STX Offshore & Shipbuilding has faced financial difficulties for the past several years due to prolonged slowdowns in the Korean shipbuilding and shipping industries. STX Offshore & Shipbuilding, which had filed for court receivership in May 2016 and executed debt-to-equity swaps with their creditors (including us) in December 2016 under a rehabilitation plan through which we increased our equity interest to 43.9% and became its largest shareholder, exited court receivership in July 2017. In November 2020, we selected a consortium consisting of KH Investment and UAMCO Ltd. as the preferred bidder for the sale of shares of STX Offshore & Shipbuilding. In January 2021, the consortium agreed to invest W250 billion in STX Offshore & Shipbuilding in exchange for its newly issued shares. As of December 31, 2020, our equity interest in STX Offshore & Shipbuilding amounted to 39.8%.

Dongbu Steel has also been facing financial difficulties for the past several years due to the prolonged slowdown in the Korean construction industry and in the Korean economy in general. Dongbu Steel entered into

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a voluntary workout agreement with its creditors, including us, in October 2015. Such agreement expired in September 2019 when KG Steel, a subsidiary of KG Group established in May 2019, became the largest shareholder of Dongbu Steel, which was subsequently re-named to KG Dongbu Steel. As of December 31, 2020, our equity interest in KG Dongbu Steel amounted to 11.0%.

Doosan Heavy Industries & Construction Co., Ltd. has also faced financial difficulties due to the prolonged slowdown in the Korean heavy and construction industries and in the Korean economy in general, as well as the Government’s initiative to support clean and renewable energy sources while phasing out nuclear and coal-fired plants in recent years. Doosan Heavy Industries submitted a self-rescue plan to its creditors, including us, and we agreed to provide Doosan Heavy Industries with loans amounting to W500 billion, W400 billion and W600 billion in March, April and June 2020, respectively. In February 2021, as part of the self-rescue plan, a consortium comprised of Hyundai Heavy Industries Holdings Co. and KDB Investment, our investment unit, entered into an agreement with Doosan Heavy Industries & Construction Co., Ltd. to purchase a 35.0% equity interest in Doosan Infracore for W850 billion. The consummation of the acquisition remains subject to approval from the Korea Fair Trade Commission, which is expected to be completed in the second half of 2021.

In 2020, we sold non-performing loans worth W416.1 billion to Hana F& I Inc.

Our large exposure to financially troubled companies in Korea means that we are also exposed to financial difficulties experienced by our borrowers as a result of, among other things, adverse economic conditions in Korea and globally, which could disrupt the business, activities and operations of many of our borrowers, which in turn could have an adverse impact on the ability of our borrowers to meet existing payment or other obligations to us. For example, COVID-19, an infectious disease that was first reported to have been transmitted to humans in late 2019 and was declared a “pandemic” by the World Health Organization in March 2020, has spread globally over the course of 2020 and 2021 to date and has led to significant global and domestic economic and financial disruptions. See “The Republic of Korea—The Economy—Worldwide Economic and Financial Difficulties.” The COVID-19 pandemic has had an especially direct negative impact on certain of our borrowers, among them the airline industry, which has been in significant need of liquidity following a sharp decline in aircraft traffic and a dramatic increase in the number of suspended flights due to entry restrictions imposed by many countries in response to COVID-19 throughout 2020 and 2021 to date.

As of December 31, 2020 and 2019, our loan amounts (including loans classified as substandard or below and equity investment classified as estimated loss or below) extended to Korean Air Co., Ltd., a subsidiary of Hanjin Group and Korea’s largest airline and flagship carrier, amounted to W1,374.5 billion and W1,401.3 billion, respectively. In May 2020, we injected W720 billion (consisting of W420 billion in securities collateralized by income receivables, W180 billion in perpetual bonds and W120 billion in loans) into Korean Air in order to provide liquidity support.

In April 2020, we provided Asiana Airlines, a subsidiary of Kumho Asiana Group and the second-largest airline in Korea, with liquidity support by providing a credit line in the amount of W1.2 trillion. Our decision to take such measure was largely driven by a need to address Asiana Airlines’ financial difficulties resulting from the negative impact of the COVID-19 pandemic on the airline industry. In September 2020, we decided to inject W2.4 trillion from the Key Industry Stabilization Fund (explained further below) into Asiana Airlines in order to normalize its operations following the cancellation of plans by a consortium led by HDC Hyundai Development to acquire Asiana Airlines. Subsequently, in November 2020, we signed an investment agreement with Hanjin KAL, the parent company of Korean Air, to inject W800 billion (consisting of W500 billion through participation in a rights offering and W300 billion through purchase of exchangeable bonds) into Hanjin KAL in connection with Korean Air’s acquisition of a 63.9% stake in Asiana Airlines through a transaction valued at W1.8 trillion (the “Acquisition”), subsequent to which we expect our equity interest in Hanjin KAL to amount to approximately 10.7%. In December 2020, Asiana Airlines’ shareholders approved a 3-to-1 share capital reduction plan, which was aimed at offsetting part of Asiana Airlines’ deficits in preparation for the Acquisition, which we expect to be completed by the second half of 2021. The consummation of the Acquisition currently

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remains subject to a number of factors, including uncertainties regarding the approval of the Acquisition by Korean Air’s shareholders, opposition to the Acquisition by labor unions of Korean Air and Asiana Airlines, and approval of the Acquisition from antitrust authorities of a number of jurisdictions, including the United States, the European Union and China.

In addition, the ongoing global outbreak of the COVID-19 pandemic has prompted the Government in 2020 and 2021 to date to implement various emergency aid initiatives involving Korean banks, including us, to provide liquidity assistance to a range of financially troubled companies. Such initiatives include, among others, the provision of new loans provided to financially troubled companies, extension of maturity dates for existing loans and suspension of interest payment obligations for an extended period of time. Most recently, in May 2020, the Government provided for the establishment of the Key Industry Stabilization Fund, a fund amounting to W40 trillion to be administered by us mainly through the issuance of industrial finance bonds, to support businesses in certain key industries that face financial difficulties resulting from the ongoing global outbreak of the COVID-19 pandemic, such as the air transport and maritime industries. The Key Industry Stabilization Fund has supported those businesses that meet certain pre-determined criteria, including those aimed at stabilizing the job markets. Our participation in such Government-led initiatives may lead us to extend credit to financially troubled 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 financially troubled 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 financially troubled borrowers resulting from such Government-led initiatives may have a material adverse effect on our financial condition and results of operations.

A deterioration in the financial condition of our borrowers, including those described above as well as other companies under workout, court receivership, court mediation and other restructuring procedures, could result in a deterioration in the quality of our loan portfolio. This, in turn, could result in an increase in delinquency ratios, increased charge-offs and higher provisioning, as well as an increase in impairment losses on such loans, particularly if businesses remain closed, the impact of the COVID-19 pandemic on the global economy worsens, or more of our borrowers draw on their lines of credit or seek additional loans from us to help finance their business, which could have a material adverse impact on our business, financial condition or results of operations.

Operations

Loan Operations

We mainly provide equipment capital loans, project loans and working capital loans to private Korean enterprises that undertake major industrial projects either directly or indirectly through on-lending. The loans generally cover over 50%, and in some cases as much as 100%, of the total project cost. Equipment capital loans include loans to major industries for development of high technology and for acquisition, improvement or repair of machinery and equipment. We disburse loan proceeds in installments to ensure that the borrower uses the loan for its intended purpose.

Before approving a loan, we consider:

• the economic benefits of the project to the Republic;

• the extent to which the project serves priorities established by the Government’s industrial policy;

• the project’s operational feasibility;

• the loan’s and the project’s profitability; and

• the quality of the borrower’s management.

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The interest rate we charge on our loans varies based on a number of factors, including the purpose of the loan, maturity date and the borrower’s credit ratings. Certain loans bear interest at below market rates. Equipment capital loans generally have original maturities of three to five years, although we occasionally make equipment capital loans with longer maturities. Working capital loans usually mature within two years.

The Business Planning Department functions as our centralized policy-making and planning division with respect to our lending activities. The Business Planning Department formulates and revises our internal regulations on loan programs as well as setting basic lending guidelines.

We have multiple levels of loan approval authority, depending on the loan amount and other factors such as the availability of collateral or guarantee, debt repayment ability and business prospects. The Credit Review Committee, Division Credit Review Committee, Division Credit Review Sub-Committee, General Manager each has authority to approve loans up to a specified amount. The amount differs depending on the type of loan and certain other factors, for example, whether a loan is collateralized or guaranteed.

In 2020 and 2021 to date, many of our corporate borrowers have experienced financial difficulties due to the ongoing global outbreak of the COVID-19 pandemic. See “The Republic of Korea—The Economy—Worldwide Economic and Financial Difficulties.” We have significant exposure to certain industries particularly affected by the ongoing outbreak of the COVID-19 pandemic, such as the transportation (including airlines), hotel and leisure industries, the banking and insurance industries, the retail and wholesale industries and the manufacturing industry, among others. In the event that the financial condition of these companies to which we extended credits deteriorates in the future, we may be required to record additional allowances for loan losses, as well as charge-offs and impairment losses or losses on disposal, which may have a material adverse impact on our results of operations and financial condition.

Our overall risk management policy is set by the Risk Management Committee. For detailed information regarding our risk management policy and procedures, see “—Financial Statements and Auditors—Notes to Separate Financial Statements of December 31, 2020 and 2019—Note 49.”

The following table sets out, by currency and category of loan, our total outstanding loans:

Loans⁽¹⁾

	December 31,
	2019		2020
	(billions of won)
Equipment Capital Loans:
Domestic Currency	W	45,877.9	W	51,237.3
Foreign Currency		7,022.5		7,789.1
		52,900.4		59,026.4
Working Capital Loans:
Domestic Currency(2)		53,545.5		63,949.1
Foreign Currency		8,528.6		9,270.2
		62,074.1		73,219.3
Other Loans(3)		28,011.6		26,837.9
Total Loans	W	142,986.1	W	159,083.6

(1) Includes loans extended to affiliates.

(2) Includes loans on households.

(3) Includes inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans.

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As of December 31, 2020, we had W159,083.6 billion in outstanding loans, which represents an 11.3% increase from W142,986.1 billion of outstanding loans as of December 31, 2019.

Maturities of Outstanding Loans

The following table categorizes our outstanding equipment capital and working capital loans by their remaining maturities:

Outstanding Equipment Capital and Working Capital Loans by Remaining Maturities⁽¹⁾

	December 31,				As % of December 31, 2020 Total
	2019		2020
	(billions of won, except percentages)
Loans with Remaining Maturities of One Year or Less	W	49,600.6	W	58,273.9		44.1	%
Loans with Remaining Maturities of More Than One Year		65,373.9		73,971.8		55.9
Total	W	114,974.5	W	132,245.7		100.0	%

(1) Includes loans extended to affiliates.

Loans by Industrial Sector

The following table sets out the total amount of our outstanding equipment capital and working capital loans, categorized by industry sector:

Outstanding Equipment Capital and Working Capital Loans by Industry Sector⁽¹⁾

	December 31,						As % of December 31, 2020 Total
	2019			2020
	(billions of won, except percentages)
Manufacturing	W	56,197.4		W	62,964.5			47.6	%
Banking and Insurance		27,362.6			30,478.6			23.0
Transportation		7,653.5			10,034.6			7.6
Public Administration		685.8			590.9			0.4
Electric, Gas and Water Supply Industry		3,277.1			3,784.4			2.9
Others(2)		19,798.1			24,392.8			18.4
Total	W	114,974.5		W	132,245.7			100.0	%
Percentage increase (decrease) from previous period		3.5	%		15.0	%

(1) Includes loans extended to affiliates.

(2) Includes wholesale and retail trade, real estate and leasing, and construction.

The manufacturing sector accounted for 47.6% of our outstanding equipment capital and working capital loans as of December 31, 2020. As of December 31, 2020, loans to the transportation equipment manufacturing businesses and the metal product manufacturing businesses accounted for 10.4% and 10.1%, respectively, of our outstanding equipment capital and working capital loans to the manufacturing sector.

Industrial Bank of Korea was our single largest borrower as of December 31, 2020, accounting for 5.0% of our outstanding equipment capital and working capital loans. As of December 31, 2020, our five largest borrowers and 20 largest borrowers accounted for 12.4% and 23.7%, respectively, of our outstanding equipment capital and working capital loans.

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The following table breaks down the equipment capital and working capital loans to our 20 largest borrowers outstanding as of December 31, 2020 by industry sector:

20 Largest Borrowers by Industry Sector

	As % of December 31, 2020 Total Outstanding Equipment Capital and Working Capital Loans to Our 20 Largest Borrowers
Manufacturing		32.1	%
Banking and Insurance		51.8
Transportation		10.4
Electric, Gas and Water Supply Industry		2.0
Others(1)		3.7
Total		100.0	%

(1) Includes wholesale and retail trade, real estate and leasing, and construction.

The following table categorizes the new loans made by us by industry sector:

New Loans by Industry Sector

	Year Ended December 31,						As % of Year Ended December 31, 2020 Total
	2019			2020
	(billions of won, except percentages)
Manufacturing	W	31,646.0		W	39,368.4			55.2	%
Banking and Insurance		10,651.7			10,404.0			14.6
Transportation		4,105.8			3,856.2			5.4
Electric, Gas and Water Supply Industry		2,082.9			2,330.3			3.3
Public Administration		211.0			181.0			0.3
Others(1)		11,403.9			15,118.6			21.2
Total	W	60,101.3		W	71,258.5			100.0	%
Percentage increase (decrease) from previous period		26.1	%		18.6	%

(1) Includes wholesale and retail trade, real estate and leasing, and construction.

Loans by Categories

In addition to dividing our loans into equipment capital and working capital loans, we classify loans into several groupings, the most important being:

• industrial fund loans;

• on-lending loans;

• foreign currency loans;

• local currency loans denominated in foreign currencies;

• offshore loans in foreign countries; and

• government fund loans.

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The following table sets out equipment capital and working capital loans by categories as of December 31, 2020:

	Equipment Capital Loans(1)					Working Capital Loans(1)
	December 31, 2020		%			December 31, 2020		%
	(billions of won, except percentages)
Industrial fund loans	W	46,573.7		78.9	%	W	49,179.3		67.2	%
On-lending loans		2,812.8		4.8			13,868.6		18.9
Foreign currency loans		5,059.6		8.6			1,499.6		2.0
Local currency loans denominated in foreign currencies		4.7		0.0			26.8		0.0
Offshore loans in foreign currencies		2,331.5		3.9			6,846.5		9.4
Government fund loans		123.8		0.2			0.0		0.0
Overdraft		0.0		0.0			100.7		0.1
Others(1)		2,120.3		3.6			1,697.8		2.3
Total	W	59,026.4		100.0	%	W	73,219.3		100.0	%

(1) Includes loans on households and loans extended to affiliates.

Industrial Fund Loans. Industrial fund loans are equipment capital and working capital loans denominated in Won to borrowers in major industries to finance equipment and facilities.

We currently make equipment capital industrial fund loans at floating or fixed rates for terms of up to 10 years and for up to 100% of the equipment cost being financed. We make working capital industrial fund loans at floating or fixed rates and in amounts constituting up to 40% of the borrower’s estimated annual sales.

On-lending Loans. On-lending is a form of indirect financing that involves intermediary financial institutions which on-lend the funds provided by us to industrial borrowers and are responsible for repayment to us. Most of the funds provided by us through on-lending are ultimately lent to small- and medium-sized enterprises for their equipment purchases and working capital. We explicitly set detailed guidelines (including scope of borrowers, maturity and interest rates) for intermediary financial institutions to be followed when on-lending to the ultimate borrowers. We monitor our exposure to, and the credit standing of, each financial institution to which we lend. Borrowers do not apply directly to us and may only apply for our on-lending loans through their regular bank or another bank of their choice. The intermediary bank appraises the financial and business situation of the applicant and generally assumes liability for repayment to us. Although the processing of individual loans requires two formally separate loan approvals for each borrower, first by the intermediary bank and then by us, the ultimate borrower need only apply to the intermediary bank for approval.

Foreign Currency Loans. We extend loans denominated in U.S. dollars, Japanese Yen or other foreign currencies principally to finance the purchase of industrial equipment from abroad or the implementation of overseas industrial development projects by Korean companies. We make these loans at floating interest rates with original maturities, in the case of equipment capital foreign currency loans, of up to 10 years and, in the case of working capital foreign currency loans, of up to three years.

Local Currency Loans Denominated in Foreign Currencies. We make local currency loans denominated in foreign currencies for the same purposes, and to the same borrowers, as foreign currency loans. Although we denominate the loans in foreign currency, the borrower receives and repays the loans in Won based on foreign exchange rates at the time of receipt and repayment. We currently make loans of this type at floating interest rates, with original maturities, in the case of equipment capital loans, of up to 10 years and, in the case of working capital loans, of up to three years.

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Offshore Loans in Foreign Currencies. We extend offshore loans in foreign currencies to finance:

• the purchase of industrial equipment and the implementation of overseas industrial projects by overseas subsidiaries and branches of Korean companies; and

• the overseas industrial development projects of foreign government entities, international organizations and foreign companies.

We make these loans at floating interest rates with original maturities, in the form of equipment capital foreign currency loans, of up to 10 years and, working capital foreign currency loans, of up to three years.

Government Fund Loans. We make government fund loans primarily to finance:

• water supply and drainage facilities;

• the Seoul subway system;

• freight terminal facilities;

• hospitals; and

• other facilities.

Government fund loans that are equipment capital loans require approval by the appropriate Government ministry. We currently make government fund loans in Won at floating interest rates with original maturities of 10 to 20 years.

Other Loans. We also make special purpose fund loans for particular industries or projects using funds lent to us by the Government and foreign financial institutions. The Government funds that finance these loans include, among others:

• the Tourism Promotion Fund (hotel and resort projects);

• the Rational Use of Energy Fund (energy conservation projects and collective energy supply projects); and

• the Small- and Medium-sized Enterprises Promotion Fund (small- and medium-sized enterprises).

For further information relating to such loans, see “—Sources of Funds.”

Guarantee Operations

We extend guarantees to our clients to facilitate their other borrowings and to finance major industrial projects. We guarantee Won-denominated corporate debentures, local currency loans, and other Won liabilities and foreign currency loans from domestic and overseas Korean financial institutions and from foreign institutions. The KDB Act and our Articles of Incorporation limit the aggregate amount of our industrial finance bond obligations and guarantee obligations. See “—Sources of Funds.”

We generally obtain collateral valued in excess of the original guarantee. We appraise the value of our collateral at least once a year. Depending on the borrower, the collateral may be industrial plants, real estate and/or marketable securities.

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The following table shows our outstanding guarantees:

Guarantees Outstanding

	As of December 31,
	2019		2020
	(billions of won)
Acceptances	W	325.2	W	408.2
Guarantees on local borrowing		1,046.3		1,001.3
Guarantees on foreign borrowing		6,205.6		5,510.8
Letter of guarantee for importers		51.5		43.0
Total	W	7,628.6	W	6,963.3

Investments

We invest in a range of Korean private and Government-owned enterprises but we will not take a controlling interest in a company unless the acquisition is necessary for the corporate restructuring of the company. Although generally a long-term investor, we sell investments from time to time. In recent years, sales resulted principally from the Government’s privatization program, and we expect to continue such sales in the future. The Government plans to sell its direct or indirect interest in certain private sector companies acquired during previous restructuring programs, including Daewoo Engineering & Construction Co., Ltd., depending on market conditions. In accordance with such plan, we expect to sell our equity holdings in certain private sector companies if favorable opportunities for sale arise. Our equity investments increased to W38,227.6 billion as of December 31, 2020 from W36,616.5 billion as of December 31, 2019.

The KDB Act and our Articles of Incorporation provide that the cost basis of our total equity investments may not exceed twice the sum of our paid-in capital and our reserve from profit. In addition, pursuant to the KDB Decree, we may not acquire equity securities of a single company in excess of 15% of its entire voting shares. The 15% limit, however, does not apply to certain investments, including those in Government-controlled companies financed by capital contributions from the Government. As of December 31, 2020, the cost basis of our equity investments subject to restriction under the KDB Act and our Articles of Incorporation totaled W15,802.9 billion, equal to 34.0% of our equity investment ceiling. For a discussion of Korean accounting principles relating to our equity investments, see “—Financial Statements and the Auditors.”

The following table sets out our equity investments by industry sector on a book value basis as of December 31, 2020:

Equity Investments

	Book Value as of December 31, 2020
	(billions of won)
Electric, Gas and Water Supply Industry	W	17,990.7
Construction		1,028.3
Banking and Insurance		10,946.4
Real Estate Business		3,772.2
Manufacturing		548.8
Transportation and Communication		2,328.8
Others		1,612.4
Total	W	38,227.6

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As of December 31, 2020, we held total equity investments, on a book value basis, of W507.5 billion in one of our five largest borrowers and W2,285.3 billion in four of our 20 largest borrowers. We have not established a policy addressing loans to enterprises in which we hold equity interests or equity interests in enterprises to which we have extended loans.

When possible, we use the prevailing market price of a security to determine the value of our interest. However, if no readily ascertainable market value exists for our holdings, we record these investments at the cost of acquisition. With respect to our equity interests in enterprises in which we hold more than 15% of interest, we value these investments annually, with certain exceptions, on a net asset value basis when the investee company releases its financial statements. As of December 31, 2020, the aggregate value of our equity investments accounted for approximately 89.9% of their aggregate cost basis.

As part of our investment activities, we underwrite straight and convertible bond issuances in Won for domestic corporations. We also invest in municipal bonds, extending funds to municipalities at subsidized interest rates, mostly to finance water supply and drainage infrastructure projects.

Other Activities

We engage in a range of industrial development activities in addition to providing loans and guarantees, including:

• conducting economic and industrial research;

• performing engineering surveys;

• providing business analyzes and managerial assistance; and

• offering trust services.

As of December 31, 2020, we held in trust cash and other assets totaling W39,896.1 billion, and we generated in 2020 trust fee income equaling W188.9 billion. As of December 31, 2019, we held in trust cash and other assets totaling W36,600.1 billion, and we generated in 2019 trust fee income equaling W157.3 billion. Pursuant to Korean law, we segregate trust assets from our other assets; trust assets are not available to satisfy claims of our depositors or other creditors. Accordingly, we account for our trust accounts separately from our banking accounts. However, if our trust operations fail to preserve the principal of our clients’ trust assets, we are responsible for covering the deficit either from previously established provisions in our trust accounts or by a transfer from our banking accounts. In 2019 and 2020, we did not transfer any funds from our banking accounts to cover deficits in our trust accounts. Surplus funds generated by the trust assets may be deposited into the clients’ accounts and earn interest. We reflect trust fees earned by us on our trust account management services as other operating revenues in the income statement of the banking accounts.

Sources of Funds

In addition to our capital and reserves, we obtain funds primarily from:

• borrowings from the Government;

• issuances of bonds in the domestic and international capital markets;

• borrowings from international financial institutions or foreign banks; and

• deposits.

All of our borrowings are unsecured.

22

Borrowings from the Government

We borrow from the Government’s general purpose funds and its special purpose funds. General purpose loans generally are in Won and have fixed interest rates and maturities ranging from five to 20 years. We incur special purpose loans, principally from the Tourism Promotion Fund, the Rational Use of Energy Fund and the Small- and Medium-sized Enterprises Promotion Fund, in connection with specific projects we finance. The Government links the interest rate and maturity of each special purpose borrowing to the terms of the financing we provide for the specific project.

The following table sets out our Government borrowings as of December 31, 2020:

Type of Funds Borrowed	As of December 31, 2020
	(billions of won)
General Purpose	W	125.1
Special Purpose		4,091.6
Total	W	4,216.7

Domestic and International Capital Markets

We issue industrial finance bonds both in Korea and abroad, some of which the Government directly guarantees. We generally issue domestic bonds at fixed interest rates with original maturities of one to ten years.

The following table sets out the outstanding balance of our industrial finance bonds as of December 31, 2020:

Outstanding Balance	As of December 31, 2020
	(billions of won)
Denominated in Won	W	108,874.7
Denominated in Other Currencies		30,412.4
Total	W	139,287.1

The KDB Act provides that the aggregate outstanding principal amount of our industrial finance bonds, other than those directly guaranteed or purchased by the Government, plus the aggregate outstanding amount of debt (including bonds and loans) guaranteed or purchased by us, other than those excepted by the KDB Act, may not exceed 30 times the sum of our paid-in capital and our reserve from profit. As of December 31, 2020, the aggregate amount of our industrial finance bonds and guarantee obligations (including guarantee obligations relating to loans that had not been borrowed as of December 31, 2020) was W146,709.2 billion, equal to 21.0% of our authorized amount under the KDB Act, which was W698,037.3 billion.

In 2020, we issued W56.7 trillion in Won-denominated industrial finance bonds and W9.6 trillion in industrial finance bonds denominated in other currencies. In 2021, we are targeting to issue approximately W55 trillion in Won-denominated industrial finance bonds and approximately W9.0 trillion in industrial finance bonds denominated in other currencies, subject to change depending on our funding needs and market conditions.

Foreign Currency Borrowings

We borrow money from institutions, principally syndicates of commercial banks, outside the Republic in foreign currencies. We frequently enter into related interest rate and currency swap transactions. The loans generally have original maturities of one to five years. As of December 31, 2020, the outstanding amount of our foreign currency borrowings was US$11.8 billion.

23

Our long term and short term foreign currency borrowings decreased to W12,795.0 billion as of December 31, 2020 from W14,275.2 billion as of December 31, 2019.

Deposits

We take demand deposits and time and savings deposits from the general public. Time and savings deposits generally have maturities shorter than three years and bear interest at fixed rates. As of December 31, 2020, demand deposits held by us totaled W2,249.4 billion and time and savings deposits held by us totaled W39,873.0  billion.

Debt

Debt Repayment Schedule

The following table sets out our principal repayment schedule as of December 31, 2020:

Debt Principal Repayment Schedule⁽¹⁾

	Maturing on or before December 31,
Currency(2)(3)	2021		2022		2023		2024		Thereafter
	(billions of won)
Won	W	54,033.4	W	28,976.6	W	14,944.3	W	3,652.5	W	11,440.9
Foreign		18,259.1		7,489.2		6,509.9		3,858.3		7,090.8
Total Won Equivalent	W	72,292.5	W	36,465.8	W	21,454.2	W	7,510.8	W	18,531.7

(1) Excludes bonds sold under repurchase agreements and call money.

(2) Borrowings in foreign currencies have been translated into Won at the market average exchange rates on December 31, 2020, as announced by the Seoul Money Brokerage Services Ltd.

(3) We categorize debt with respect to which we have entered into currency swap agreements by our repayment currency under such agreements.

The following table summarizes, as of December 31 of the years indicated, our outstanding direct internal debt:

Direct Internal Debt

	(billions of Won)
2016		92,692.8
2017		103,339.2
2018		103,443.1
2019		97,087.8
2020		113,091.4

The following table summarizes, as of December 31 of the years indicated, our outstanding direct external debt:

Direct External Debt

	(billions of Won)
2016		38,264.9
2017		34,772.6
2018		41,873.4
2019		41,640.2
2020		42,207.6

24

The following table sets out, by currency and the equivalent amount in U.S. Dollars, our outstanding external bonds as of December 31, 2020:

External Bonds

	Amount in Original Currency		Equivalent Amount in U.S. Dollars(1)
	(millions)
US$		US$19,339.7	US$	19,339.7
Japanese Yen (¥)		¥    50,000.0		484.5
Euro (EUR)		EUR 1,579.3		1,942.5
Singapore dollar (SGD)		SGD 40.0		30.2
Hong Kong dollar (HKD)		HKD 4,352.0		561.4
Chinese offshore renminbi (CNH)		CNH 5,912.0		907.5
Swiss franc (CHF)		CHF 600.0		680.7
Brazilian real (BRL)		BRL 3,883.0		747.5
Australian dollar (AUD)		AUD 2,309.9		1,776.1
Great Britain Sterling (GBP)		GBP 547.0		745.3
Norwegian Krone (NOK)		NOK 400.0		46.9
Indonesian Rupiah (IDR)		IDR 2,241,000.0		159.1
Indian Rupee (INR)		INR 3,200.0		43.8
Swedish Krona (SEK)		SEK 1,410.0		172.0
Mexican Peso (MXN)		MXN 1,690.0		85.0
Thai Baht (THB)		THB 4,580.0		153.0
Total			US$	27,875.2

(1) Amounts expressed in currencies other than US$ are converted to US$ at the exchange rate announced by the Seoul Money Brokerage Services, Ltd. in effect on December 31, 2020.

For further information on our outstanding indebtedness, see “—Tables and Supplementary Information.”

Debt Record

We have never defaulted in the payment of principal or interest on any of our obligations.

Overseas Operations

We operate overseas subsidiaries in Hong Kong, Dublin, Budapest, Sao Paulo, Tashkent and Jakarta. The subsidiaries engage in a variety of banking and merchant banking services, including:

• managing and underwriting new securities issues;

• syndicating medium and long-term loans;

• trading securities;

• trading in the money market; and

• providing investment management and advisory services.

We currently maintain ten branches in Tokyo, Shanghai, Singapore, New York City, London, Beijing, Guangzhou, Qingdao, Shenyang and Yangon, and seven overseas representative offices in Frankfurt, Ho Chi Minh City, Abu Dhabi, Moscow, Sydney, Bangkok and Jakarta.

25

Property

Our head office is located at 14 Eunhaeng-ro, Yeongdeungpo-gu, Seoul, Korea, a 35,996 square meter building completed in July 2001 and owned by us. In addition to the head office, we maintain 61 branches in major cities throughout the Republic, including 18 in Seoul. We generally lease our domestic and overseas offices under long-term leases.

Directors and Management; Employees

Our Board of Directors has ultimate responsibility for management of our affairs. Under the KDB Act and our Articles of Incorporation, our Board of Directors is to consist of one Chief Executive Officer (who also serves as the Chairman of the Board of Directors), one Chief Operating Officer and not more than eight directors. Under the KDB Act, the President of the Republic appoints our Chief Executive Officer and Chairman of the Board of Directors upon the recommendation of the Chairman of the Financial Services Commission. The Financial Services Commission appoints all of our directors upon the recommendation of our Chief Executive Officer. Under our Articles of Incorporation, our executive directors serve for three-year terms and they may be re-appointed, and our independent non-executive directors serve for two-year terms and they may be re-appointed; provided, however, that our independent non-executive directors shall not serve more than one year for each reappointment and shall not serve more than five years consecutively.

Currently, the members of our Board of Directors are:

Position	Name	Expiration of Term
Chief Executive Officer and Chairman of the Board of Directors	Dong Gull Lee	September 10, 2023
Chief Operating Officer and Vice Chairman of the Board of Directors	Joo Yung Sung	January 2, 2022
Auditor	Tae Hyun Joo	March 14, 2024
Independent Non-executive Directors	Nam Joon Kim	June 27, 2021
	Dong Han Yook	June 28, 2022
	Yoon Lee	July 31, 2021
	Yeong Ook Kim	May 25, 2023
	Kyo Deog Son	March 29, 2022

As of December 31, 2020, we employed 3,541 persons with 2,158 persons located in our Seoul head office.

Tables and Supplementary Information

A. External Debt of KDB

(1) External Bonds of KDB

Currency	Original Principal Amount		Interest Rate (%)		Issue Date	Maturity Date	Principal Amount Outstanding as of December 31, 2020
USD		750,000,000		4.625	November 16, 2011	November 16, 2021		750,000,000
USD		300,000,000		3.000	September 14, 2012	September 14, 2022		300,000,000
USD		350,000,000		3.000	September 14, 2012	September 14, 2022		350,000,000
USD		100,000,000		3.000	September 14, 2012	September 14, 2022		100,000,000
USD		40,000,000		3.810	October 30, 2013	October 30, 2023		40,000,000
USD		30,000,000		4.000	November 1, 2013	November 1, 2023		30,000,000
USD		50,000,000		3.740	November 5, 2013	November 5, 2023		50,000,000

26

Currency	Original Principal Amount		Interest Rate (%)		Issue Date	Maturity Date	Principal Amount Outstanding as of December 31, 2020
USD		50,000,000		3.700	November 6, 2013	November 6, 2023		50,000,000
USD		50,000,000		3.800	November 13, 2013	November 13, 2023		50,000,000
USD		30,000,000		3.790	November 13, 2013	November 13, 2023		30,000,000
USD		50,000,000		3.750	November 15, 2013	November 15, 2023		50,000,000
USD		30,000,000		3.680	November 26, 2013	November 26, 2023		30,000,000
USD		20,000,000		3.660	November 26, 2013	November 26, 2023		20,000,000
USD		30,000,000		3.680	November 26, 2013	November 26, 2023		30,000,000
USD		50,000,000		3.800	December 12, 2013	December 12, 2023		50,000,000
USD		20,000,000		3.800	December 18, 2013	December 18, 2023		20,000,000
USD		20,000,000		3.810	December 18, 2013	December 18, 2023		20,000,000
USD		750,000,000		3.750	January 22, 2014	January 22, 2024		750,000,000
USD		200,000,000		3.850	February 20, 2014	February 20, 2024		200,000,000
USD		20,000,000		3.720	April 9, 2014	April 9, 2024		20,000,000
USD		30,000,000		3.720	April 10, 2014	April 10, 2024		30,000,000
USD		30,000,000		3.700	April 11, 2014	April 11, 2024		30,000,000
USD		50,000,000		3.700	April 11, 2014	April 11, 2024		50,000,000
USD		30,000,000		3.605	April 29, 2014	April 29, 2024		30,000,000
USD		50,000,000		3.620	April 29, 2014	April 29, 2024		50,000,000
USD		20,000,000		3.615	April 30, 2014	April 30, 2024		20,000,000
USD		50,000,000		3.250	November 14, 2014	November 14, 2024		50,000,000
USD		50,000,000		2.730	February 6, 2015	February 6, 2027		50,000,000
USD		30,000,000		3.010	June 24, 2015	June 24, 2025		30,000,000
USD		50,000,000		3.376	July 9, 2015	July 9, 2025		50,000,000
USD		50,000,000		3.330	July 22, 2015	July 22, 2025		50,000,000
USD		50,000,000		3.200	August 6, 2015	August 6, 2025		50,000,000
USD		350,000,000		3.375	September 16, 2015	September 16, 2025		350,000,000
USD		400,000,000		3.375	September 16, 2015	September 16, 2025		400,000,000
USD		1,000,000,000		3.000	January 13, 2016	January 13, 2026		1,000,000,000
USD		500,000,000		2.500	January 13, 2016	January 13, 2021*		500,000,000
USD		50,000,000		2.690	March 30, 2016	March 30, 2026		50,000,000
USD		150,000,000		3M USD Libor+0.95	April 12, 2016	April 12, 2021*		150,000,000
USD		11,700,000		1.530	July 5, 2016	July 5, 2022		11,700,000
USD		53,000,000		2.180	August 10, 2016	August 10, 2026		53,000,000
USD		500,000,000		2.000	September 12, 2016	September 12, 2026		500,000,000
USD		50,000,000		2.530	November 10, 2016	November 10, 2028		50,000,000
USD		20,000,000		2.625	December 14, 2016	December 14, 2021		20,000,000
USD		50,000,000		3.088	January 17, 2017	January 17, 2027		50,000,000
USD		500,000,000		3M USD Libor+0.705	February 27, 2017	February 27, 2022		500,000,000
USD		500,000,000		2.625	February 27, 2017	February 27, 2022		500,000,000
USD		50,000,000		2.760	March 31, 2017	March 31, 2022		50,000,000
USD		30,000,000		2.580	June 16, 2017	June 16, 2022		30,000,000
USD		300,000,000		3M USD Libor+0.725	July 6, 2017	July 6, 2022		300,000,000
USD		150,000,000		3M USD Libor+0.705	September 19, 2017	February 27, 2022		150,000,000
USD		350,000,000		2.750	September 19, 2017	March 19, 2023		350,000,000
USD		300,000,000		3M USD Libor+0.8	October 30, 2017	October 30, 2022		300,000,000
USD		20,000,000		2.890	January 29, 2018	January 29, 2021*		20,000,000
USD		50,000,000		3.800	January 29, 2018	January 29, 2038		50,000,000
USD		20,000,000		3M USD Libor+0.6	February 12, 2018	February 12, 2023		20,000,000
USD		20,000,000		3M USD Libor+0.52	March 6, 2018	March 6, 2021*		20,000,000
USD		500,000,000		3M USD Libor+0.55	March 12, 2018	March 12, 2021*		500,000,000
USD		500,000,000		3.375	March 12, 2018	March 12, 2023		500,000,000
USD		50,000,000		3M USD Libor+0.45	March 13, 2018	March 13, 2021*		50,000,000
USD		50,000,000		3M USD Libor+0.45	March 14, 2018	March 14, 2021*		50,000,000
USD		50,000,000		3M USD Libor+0.45	March 15, 2018	March 15, 2021*		50,000,000
USD		50,000,000		4.100	March 19, 2018	March 19, 2048		50,000,000
USD		20,000,000		3M USD Libor+0.61	May 14, 2018	May 14, 2023		20,000,000
USD		150,000,000		3M USD Libor+0.43	September 14, 2018	September 14, 2021		150,000,000
USD		50,000,000		3M USD Libor+0.4	January 4, 2019	January 11, 2021*		50,000,000
USD		50,000,000		3M USD Libor+0.375	January 22, 2019	January 22, 2021*		50,000,000
USD		500,000,000		3.000	February 19, 2019	March 19, 2022		500,000,000
USD		500,000,000		3.250	February 19, 2019	February 19, 2024		500,000,000
USD		50,000,000		3M USD Libor+0.37	March 4, 2019	March 4, 2021*		50,000,000
USD		100,000,000		3M USD Libor+0.42	March 28, 2019	March 28, 2022		100,000,000
USD		50,000,000		3M USD Libor+0.42	April 1, 2019	April 1, 2022		50,000,000

27

Currency	Original Principal Amount		Interest Rate (%)		Issue Date	Maturity Date	Principal Amount Outstanding as of December 31, 2020
USD		50,000,000		3M USD Libor+0.38	May 31, 2019	May 31, 2022		50,000,000
USD		50,000,000		3M USD Libor+0.37	July 5, 2019	July 5, 2022		50,000,000
USD		50,000,000		3M USD Libor+0.29	July 26, 2019	July 26, 2021		50,000,000
USD		50,000,000		3M USD Libor+0.4	August 15, 2019	August 15, 2022		50,000,000
USD		100,000,000		3M USD Libor+0.41	August 30, 2019	August 30, 2022		100,000,000
USD		100,000,000		3M USD Libor+0.3	September 17, 2019	September 17, 2021		100,000,000
USD		50,000,000		3M USD Libor+0.3	September 17, 2019	September 17, 2021		50,000,000
USD		500,000,000		2.125	October 1, 2019	October 1, 2024		500,000,000
USD		48,000,000		3M USD Libor+0.475	October 1, 2019	October 1, 2022		48,000,000
USD		452,000,000		3M USD Libor+0.475	October 1, 2019	October 1, 2022		452,000,000
USD		50,000,000		3M USD Libor+0.32	October 15, 2019	October 15, 2021		50,000,000
USD		50,000,000		3M USD Libor+0.405	October 21, 2019	October 21, 2022		50,000,000
USD		50,000,000		3M USD Libor+0.32	October 31, 2019	October 29, 2021		50,000,000
USD		20,000,000		3M USD Libor+0.31	November 7, 2019	November 7, 2021		20,000,000
USD		50,000,000		3M USD Libor+0.45	November 13, 2019	November 14, 2022		50,000,000
USD		50,000,000		3M USD Libor+0.45	November 14, 2019	November 14, 2022		50,000,000
USD		50,000,000		3M USD Libor+0.37	January 23, 2020	January 24, 2023		50,000,000
USD		30,000,000		3M USD Libor+0.35	January 29, 2020	January 29, 2023		30,000,000
USD		750,000,000		3M USD Libor+0.35	February 18, 2020	February 18, 2023		750,000,000
USD		750,000,000		1.750	February 18, 2020	February 18, 2025		750,000,000
USD		100,000,000		3M USD Libor+0.335	March 10, 2020	March 10, 2022		100,000,000
USD		500,000,000		3M USD Libor+1.45	April 16, 2020	April 16, 2023		500,000,000
USD		32,000,000		3M USD Libor+1.35	April 22, 2020	October 22, 2025		32,000,000
USD		30,000,000		3M USD Libor+1.3	April 22, 2020	April 22, 2024		30,000,000
USD		50,000,000		3M USD Libor+1.3	April 28, 2020	April 28, 2025		50,000,000
USD		20,000,000		3M USD Libor+1.1	April 28, 2020	April 28, 2023		20,000,000
USD		40,000,000		3M USD Libor+1.25	April 29, 2020	April 29, 2025		40,000,000
USD		50,000,000		3M USD Libor+1.2	May 7, 2020	May 7, 2025		50,000,000
USD		45,000,000		3M USD Libor+0.8	May 11, 2020	May 11, 2021*		45,000,000
USD		50,000,000		3M USD Libor+1.13	May 15, 2020	May 15, 2025		50,000,000
USD		50,000,000		1.360	May 15, 2020	May 15, 2023		50,000,000
USD		58,000,000		3M USD Libor+1.13	May 18, 2020	May 18, 2023		58,000,000
USD		50,000,000		3M USD Libor+1	May 19, 2020	May 27, 2023		50,000,000
USD		15,000,000		3M USD Libor+1	May 26, 2020	May 26, 2023		15,000,000
USD		50,000,000		1.350	May 27, 2020	May 27, 2023		50,000,000
USD		500,000,000		1.250	June 3, 2020	June 3, 2025		500,000,000
USD		500,000,000		1.250	June 3, 2020	June 3, 2025		500,000,000
USD		50,000,000		3M USD Libor+0.55	June 23, 2020	June 23, 2023		50,000,000
USD		25,000,000		3M USD Libor+0.7	June 23, 2020	June 23, 2023		25,000,000
USD		100,000,000		3M USD Libor+0.4	June 24, 2020	June 24, 2021*		100,000,000
USD		40,000,000		0.630	June 29, 2020	June 29, 2021		40,000,000
USD		100,000,000		3M USD Libor+0.34	July 14, 2020	July 14, 2021		100,000,000
USD		50,000,000		3M USD Libor+0.3	July 16, 2020	July 16, 2021		50,000,000
USD		100,000,000		3M USD Libor+0.45	July 20, 2020	January 20, 2022		100,000,000
USD		45,000,000		3M USD Libor+0.45	July 24, 2020	January 24, 2022		45,000,000
USD		40,000,000		3M USD Libor+0.45	July 31, 2020	February 17, 2022		40,000,000
USD		40,000,000		3M USD Libor+0.45	August 3, 2020	February 3, 2022		40,000,000
USD		45,000,000		3M USD Libor+0.55	August 11, 2020	August 11, 2023		45,000,000
USD		50,000,000		3M USD Libor+0.35	August 31, 2020	September 7, 2021		50,000,000
USD		50,000,000		3M USD Libor+0.3	September 2, 2020	September 3, 2021		50,000,000
USD		50,000,000		3M USD Libor+0.3	September 3, 2020	September 4, 2021		50,000,000
USD		200,000,000		SOFR+0.55	September 21, 2020	March 21, 2022		200,000,000
USD		50,000,000		0.720	September 22, 2020	September 22, 2023		50,000,000
USD		500,000,000		0.800	October 27, 2020	April 27, 2026		500,000,000
USD		150,000,000		0.500	October 27, 2020	October 27, 2023		150,000,000
USD		350,000,000		0.500	October 27, 2020	October 27, 2023		350,000,000
USD		40,000,000		3M USD Libor+0.23	November 20, 2020	November 22, 2021		40,000,000
USD		100,000,000		3M USD Libor+0.22	November 30, 2020	May 31, 2022		100,000,000
USD		50,000,000		3M USD Libor+0.22	December 1, 2020	June 1, 2022		50,000,000
USD		50,000,000		0.440	December 1, 2020	June 1, 2022		50,000,000
USD		20,000,000		0.470	December 2, 2020	June 2, 2022		20,000,000
USD		30,000,000		0.520	December 9, 2020	December 8, 2023		30,000,000
USD		50,000,000		0.430	December 23, 2020	June 23, 2022		50,000,000
				Subtotal in Original Currency			USD	19,339,700,000
				Subtotal in Equivalent Amount of Won(1)			W	21,041,593,600,000

28

Currency	Original Principal Amount		Interest Rate (%)		Issue Date	Maturity Date	Principal Amount Outstanding as of December 31, 2020
SGD		20,000,000		3M SOR+0.26	August 5, 2020	August 5, 2021		20,000,000
SGD		20,000,000		0.430	September 4, 2020	September 4, 2021		20,000,000
				Subtotal in Original Currency			SGD	40,000,000
				Subtotal in Equivalent Amount of Won(2)			W	32,888,800,000
JPY		50,000,000,000		0.230	September 4, 2018	September 3, 2021		50,000,000,000
				Subtotal in Original Currency			JPY	50,000,000,000
				Subtotal in Equivalent Amount of Won(3)			W	527,130,000,000
HKD		388,000,000		4.420	April 4, 2011	April 12, 2021*		388,000,000
HKD		89,000,000		3.600	September 16, 2011	September 16, 2021		89,000,000
HKD		303,000,000		4.300	October 21, 2011	October 21, 2021		303,000,000
HKD		1,042,000,000		3.200	April 3, 2014	October 3, 2021		1,042,000,000
HKD		113,000,000		1.980	April 7, 2016	March 30, 2021*		113,000,000
HKD		350,000,000		2.060	October 25, 2016	October 25, 2023		350,000,000
HKD		205,000,000		2.570	October 27, 2017	October 27, 2022		205,000,000
HKD		162,000,000		2.685	December 19, 2017	December 19, 2022		162,000,000
HKD		390,000,000		2.053	November 8, 2019	November 8, 2024		390,000,000
HKD		243,000,000		2.214	November 26, 2019	November 26, 2024		243,000,000
HKD		201,000,000		1.850	February 27, 2020	February 27, 2023		201,000,000
HKD		160,000,000		2.100	March 25, 2020	March 25, 2025		160,000,000
HKD		300,000,000		2.100	April 14, 2020	April 14, 2023		300,000,000
HKD		250,000,000		3M Hibor+1.03	April 27, 2020	April 27, 2024		250,000,000
HKD		156,000,000		0.635	September 2, 2020	September 2, 2021		156,000,000
				Subtotal in Original Currency			HKD	4,352,000,000
				Subtotal in Equivalent Amount of Won(4)			W	610,803,200,000
CNH		150,000,000		4.450	November 8, 2013	November 8, 2023		150,000,000
CNH		210,000,000		4.100	December 18, 2013	December 18, 2023		210,000,000
CNH		150,000,000		5.450	February 14, 2017	February 14, 2021*		150,000,000
CNH		150,000,000		5.265	February 21, 2017	February 21, 2021*		150,000,000
CNH		300,000,000		4.585	February 13, 2018	February 13, 2021*		300,000,000
CNH		120,000,000		4.600	February 22, 2018	February 22, 2021*		120,000,000
CNH		130,000,000		4.650	February 27, 2018	February 27, 2021*		130,000,000
CNH		190,000,000		4.650	March 12, 2018	March 12, 2021*		190,000,000
CNH		150,000,000		4.550	May 21, 2018	May 21, 2021*		150,000,000
CNH		1,750,000,000		4.600	July 3, 2018	July 3, 2021		1,750,000,000
CNH		200,000,000		4.220	July 24, 2018	July 23, 2021		200,000,000
CNH		250,000,000		2.850	February 3, 2020	February 3, 2021*		250,000,000
CNH		287,000,000		3.010	May 6, 2020	May 6, 2025		287,000,000
CNH		400,000,000		2.150	May 13, 2020	May 13, 2021*		400,000,000
CNH		355,000,000		2.700	May 14, 2020	May 14, 2023		355,000,000
CNH		250,000,000		2.600	May 15, 2020	May 15, 2023		250,000,000
CNH		250,000,000		2.650	May 15, 2020	May 15, 2023		250,000,000
CNH		150,000,000		2.800	August 12, 2020	August 12, 2022		150,000,000
CNH		200,000,000		2.800	September 1, 2020	September 1, 2022		200,000,000
CNH		270,000,000		2.800	September 7, 2020	September 7, 2022		270,000,000
				Subtotal in Original Currency			CNH	5,912,000,000
				Subtotal in Equivalent Amount of Won(5)			W	987,067,520,000
EUR		64,000,000		0.240	November 25, 2016	November 25, 2021		64,000,000
EUR		40,290,000		0.160	December 1, 2016	December 1, 2021		40,290,000
EUR		500,000,000		0.625	July 17, 2018	July 17, 2023		500,000,000
EUR		300,000,000		0.625	November 6, 2018	July 17, 2023		300,000,000
EUR		300,000,000		0.000	July 10, 2019	July 10, 2024		300,000,000
EUR		200,000,000		0.000	July 10, 2019	July 10, 2024		200,000,000
EUR		10,000,000		3M Euribor+0.7	December 12, 2019	December 12, 2024		10,000,000
EUR		25,000,000		0.000	December 23, 2019	December 23, 2021		25,000,000
EUR		50,000,000		3M Euribor+0.8	August 17, 2020	August 17, 2022		50,000,000
EUR		40,000,000		0.000	September 3, 2020	September 3, 2021		40,000,000
EUR		25,000,000		3M Euribor+0.8	September 7, 2020	September 7, 2022		25,000,000
EUR		25,000,000		3M Euribor+0.8	October 14, 2020	October 14, 2022		25,000,000
				Subtotal in Original Currency			EUR	1,579,290,000

29

Currency	Original Principal Amount		Interest Rate (%)		Issue Date	Maturity Date	Principal Amount Outstanding as of December 31, 2020
				Subtotal in Equivalent Amount of Won(6)			W	2,113,469,049,600
CHF		200,000,000		0.303	June 14, 2018	June 14, 2023		200,000,000
CHF		100,000,000		0.050	August 2, 2018	December 23, 2022		100,000,000
CHF		300,000,000		0.445	May 8, 2020	May 8, 2025		300,000,000
				Subtotal in Original Currency			CHF	600,000,000
				Subtotal in Equivalent Amount of Won(7)			W	740,598,000,000
BRL		378,000,000		5.900	February 21, 2019	February 23, 2021*		378,000,000
BRL		370,000,000		5.820	February 22, 2019	January 28, 2021*		370,000,000
BRL		501,000,000		3.100	April 2, 2020	April 6, 2021*		501,000,000
BRL		275,000,000		3.164	May 12, 2020	December 14, 2021		275,000,000
BRL		115,000,000		3.300	May 13, 2020	December 14, 2021		115,000,000
BRL		265,000,000		3.010	July 13, 2020	June 23, 2022		265,000,000
BRL		266,000,000		3.000	July 14, 2020	June 23, 2022		266,000,000
BRL		257,000,000		3.010	August 5, 2020	July 28, 2022		257,000,000
BRL		160,000,000		3.010	August 6, 2020	July 28, 2022		160,000,000
BRL		250,000,000		2.845	September 1, 2020	August 4, 2022		250,000,000
BRL		250,000,000		2.851	September 2, 2020	August 4, 2022		250,000,000
BRL		264,000,000		3.095	September 17, 2020	September 2, 2022		264,000,000
BRL		265,000,000		4.470	December 3, 2020	December 22, 2022		265,000,000
BRL		267,000,000		3.980	December 7, 2020	October 21, 2022		267,000,000
				Subtotal in Original Currency			BRL	3,883,000,000
				Subtotal in Equivalent Amount of Won(8)			W	813,372,010,000
AUD		20,000,000		3.370	February 11, 2015	February 11, 2022		20,000,000
AUD		22,900,000		2.550	July 5, 2016	July 5, 2022		22,900,000
AUD		100,000,000		3.966	November 30, 2016	November 30, 2026		100,000,000
AUD		60,000,000		3.760	January 18, 2018	January 18, 2028		60,000,000
AUD		100,000,000		3M BBSW+0.98	October 19, 2018	October 19, 2023		100,000,000
AUD		300,000,000		3M BBSW+0.98	October 19, 2018	October 19, 2023		300,000,000
AUD		100,000,000		3M BBSW+0.78	August 29, 2019	August 29, 2024		100,000,000
AUD		400,000,000		3M BBSW+0.78	August 29, 2019	August 29, 2024		400,000,000
AUD		200,000,000		1.500	August 29, 2019	August 29, 2024		200,000,000
AUD		50,000,000		1.515	November 19, 2019	November 19, 2022		50,000,000
AUD		26,000,000		1.510	November 19, 2019	November 19, 2022		26,000,000
AUD		74,000,000		1.460	February 24, 2020	February 24, 2025		74,000,000
AUD		74,000,000		1.460	February 24, 2020	February 24, 2025		74,000,000
AUD		74,000,000		1.450	February 25, 2020	February 25, 2025		74,000,000
AUD		74,000,000		1.450	February 25, 2020	February 25, 2025		74,000,000
AUD		300,000,000		0.833	August 25, 2020	August 25, 2023		300,000,000
AUD		200,000,000		3M BBSW+0.62	August 25, 2020	August 25, 2023		200,000,000
AUD		135,000,000		3M BBSW+0.11	December 1, 2020	December 1, 2021		135,000,000
				Subtotal in Original Currency			AUD	2,309,900,000
				Subtotal in Equivalent Amount of Won(9)			W	1,932,369,944,000
IDR		670,000,000,000		7.00	November 30, 2017	November 30, 2022		670,000,000,000
IDR		680,000,000,000		6.000	January 22, 2020	January 22, 2025		680,000,000,000
IDR		615,000,000,000		6.000	January 23, 2020	January 23, 2025		615,000,000,000
IDR		276,000,000,000		6.350	February 28, 2020	February 28, 2021*		276,000,000,000
				Subtotal in Original Currency			IDR	2,241,000,000,000
				Subtotal in Equivalent Amount of Won(10)			W	173,453,400,000
INR		3,200,000,000		6.90	February 20, 2018	February 20, 2023		3,200,000,000
				Subtotal in Original Currency			INR	3,200,000,000
				Subtotal in Equivalent Amount of Won(11)			W	47,552,000,000
NOK		400,000,000		2.905	July 21, 2015	July 21, 2025		400,000,000
				Subtotal in Original Currency			NOK	400,000,000
				Subtotal in Equivalent Amount of Won(12)			W	50,992,000,000
THB		1,500,000,000		1.580	January 14, 2020	January 14, 2025		1,500,000,000
THB		1,500,000,000		1.530	January 15, 2020	January 15, 2025		1,500,000,000

30

Currency	Original Principal Amount		Interest Rate (%)		Issue Date	Maturity Date	Principal Amount Outstanding as of December 31, 2020
THB		1,580,000,000		1.170	March 3, 2020	March 3, 2025		1,580,000,000
				Subtotal in Original Currency			THB	4,580,000,000
				Subtotal in Equivalent Amount of Won(13)			W	166,437,200,000
GBP		250,000,000		1.750	October 31, 2017	December 15, 2022		250,000,000
GBP		35,000,000		1.267	November 21, 2019	November 21, 2022		35,000,000
GBP		35,000,000		1.267	November 21, 2019	November 21, 2022		35,000,000
GBP		35,000,000		1.230	November 22, 2019	November 22, 2022		35,000,000
GBP		35,000,000		1.230	November 22, 2019	November 22, 2022		35,000,000
GBP		30,000,000		1.230	November 22, 2019	November 22, 2022		30,000,000
GBP		36,000,000		1.279	November 26, 2019	November 26, 2022		36,000,000
GBP		36,000,000		1.270	November 26, 2019	November 26, 2022		36,000,000
GBP		30,000,000		0.437	July 16, 2020	July 16, 2022		30,000,000
GBP		25,000,000		3M GBP Libor+0.3	September 1, 2020	September 1, 2021		25,000,000
				Subtotal in Original Currency			GBP	547,000,000
				Subtotal in Equivalent Amount of Won(14)			W	810,872,800,000
SEK		400,000,000		1.83	August 10, 2017	August 10, 2027		400,000,000
SEK		400,000,000		1.815	August 16, 2017	August 16, 2027		400,000,000
SEK		410,000,000		1.74	November 30, 2017	November 30, 2027		410,000,000
SEK		200,000,000		2.01	February 27, 2018	February 27, 2028		200,000,000
				Subtotal in Original Currency			SEK	1,410,000,000
				Subtotal in Equivalent Amount of Won(15)			W	187,205,700,000
MXN		490,000,000		5.620	April 29, 2020	April 29, 2021*		490,000,000
MXN		1,200,000,000		6.000	May 7, 2020	May 7, 2023		1,200,000,000
				Subtotal in Original Currency			MXN	1,690,000,000
				Subtotal in Equivalent Amount of Won(16)			W	92,459,900,000
Total External Bonds of KDB in Equivalent Amount of Won							W	30,328,265,123,600

* Repaid on the respective maturity dates.

(1) U.S. dollar amounts are converted to Won amounts at the rate of US$1.00 to Won 1,088.00, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(2) Singapore dollar amounts are converted to Won amounts at the rate of SGD 1.00 to Won 822.22, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(3) Japanese yen amounts are converted to Won amounts at the rate of JPY 100.00 to Won 1,054.26, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(4) Hong Kong dollar amounts are converted to Won amounts at the rate of HKD 1.00 to Won 140.35, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(5) Chinese offshore renminbi amounts are converted to Won amounts at the rate of CNH 1.00 to Won 166.96, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(6) Euro amounts are converted to Won amounts at the rate of EUR 1.00 to Won 1,338.24, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(7) Swiss franc amounts are converted to Won amounts at the rate of CHF 1.00 to Won 1,234.33, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(8) Brazilian real amounts are converted to Won amounts at the rate of BRL 1.00 to Won 209.47, the prevailing market rate on December 31, 2020.

(9) Australian dollar amounts are converted to Won amounts at the rate of AUD 1.00 to Won 836.56, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(10) Indonesian rupiah amounts are converted to Won amounts at the rate of IDR 100.00 to Won 7.74, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(11) Indian Rupee amounts are converted to Won amounts at the rate of INR 1.00 to Won 14.86, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(12) Norwegian Krone amounts are converted to Won amounts at the rate of NOK 1.00 to Won 127.48, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(13) Thai Baht amounts are converted to Won amounts at the rate of THB 1.00 to Won 36.34, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(14) Great Britain Sterling amounts are converted to Won amounts at the rate of GBP 1.00 to Won 1,482.40, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

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(15) Swedish Krona amounts are converted to Won amounts at the rate of SEK 1.00 to Won 132.77, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(16) Mexican Peso amounts are converted to Won amounts at the rate of MXN 1.00 to Won 54.71, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(2) External Borrowings of KDB

Lender	Classifications	Range of Interest Rates		Range of Years of Issue		Range of Years of Maturity		Principal Amount Outstanding as of December 31, 2020(1)
		(%)						(millions of Won)
Mizuho and others	Borrowings from foreign banks		3M Libor + 0.20 ~ 3M Libor + 0.78		2016~2020		2021		435,200
Ministry of Economy and Finance	Exchange equalization fund borrowings in foreign currencies		3M Libor + 0.22 ~ 3M Libor + 0.74		2014~2015		2022~2024		183,360
Central Bank of the Republic of Uzbekistan and others	Off-shore short-term borrowings		0.25 ~ 2.50		2020		2021		1,487,973
HSBC and others	Off-shore long-term borrowings		3M Libor + 0.36 ~ 3M Libor + 0.50		2018~2020		2021		302,692
Others	Short-term borrowings in foreign currency		0.04 ~ 3.86		2020		2021		8,567,852
	Long-term borrowings in foreign currency		0.09 ~ 2.49		2016~2020		2021~2022		809,796
Total External Borrowings of KDB								W	11,786,873

(1) Converted to Won amounts at the relevant market average exchange rates in effect on December 31, 2020 as announced by Seoul Money Brokerage Services, Ltd.

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B. Internal Debt of KDB

Title	Range of Interest Rates		Range of Years of Issue		Range of Years of Original Maturity		Principal Amounts Outstanding as of December 31, 2020
	(%)						(millions of Won)
1. Bonds
Short-term Industrial Finance Bonds		0.69~0.98		2020		2021		2,200,000
Long-term Industrial Finance Bonds		0.55~6.6		2006~2020		2021~2050		106,674,745
Total Bonds		1.22~6.6		2005~2019		2020~2046		108,874,745
2. Borrowings
Borrowings from the Ministry of Economy and Finance		0.37~0.87		2001~2012		2020~2032	W	125,101
Borrowings from Small & Medium Business Corp.		0.55~2.76		2011~2020		2021~2032		64,892
Borrowings from the Ministry of Culture and Tourism		0.05~2.00		2010~2020		2021~2032		2,934,681
Borrowings from Korea Energy Management Corporation		0.25~2.80		2006~2020		2021~2035		295,088
Others(1)		0.00~3.15		2003~2020		2019~2044		796,897
Total Borrowings(2)								4,216,659
3. Other Debt(3)								1,875,504
Total Internal Floating Debt(4)								2,573,881
Total Internal Funded Debt(5)								110,517,523
Total Internal Debt							W	113,091,404

(1) Includes borrowings from local governments, The Bank of Korea, the petroleum enterprises support fund and others.

(2) Consist of short term borrowings in the amount of W373,881 million and long term borrowings in the amount of W3,842,778 million.

(3) Other debt includes bonds sold under repurchase agreements and call money.

(4) Floating debt is debt that has a maturity at issuance of less than one year.

(5) Funded debt is debt that has a maturity at issuance of one year or more.

Financial Statements and the Auditors

The Government elects our Auditor who is responsible for examining our financial operations and auditing our financial statements and records. The present Auditor is Tae Hyun Joo, who was appointed by the Financial Services Commission for a three-year term on March 15, 2021.

We prepare our financial statements annually for submission to the Financial Services Commission, accompanied by an opinion of the Auditor. Although we are not legally required to have financial statements audited by external independent auditors, an independent public accounting firm has audited our separate and consolidated financial statements commencing with such financial statements as of and for the year ended December 31, 1998. As of the date of this prospectus, our external independent auditor is Nexia Samduk, located at 12F, S&S Building, 48 Ujeongguk-ro, Jongno-gu, Seoul 03145, Korea, which has audited our separate financial statements as of and for the years ended December 31, 2020 and 2019 included in this prospectus.

Our separate financial statements appearing in this prospectus were prepared in conformity with Korean IFRS, as summarized in “—Financial Statements and the Auditors—Notes to Separate Financial Statements of

33

December 31, 2020 and 2019—Note 2.” These principles and procedures differ in certain material respects from generally accepted accounting principles in the United States.

K-IFRS 1109, Financial Instruments, which is aimed at improving and simplifying the accounting treatment of financial instruments, is effective for annual periods beginning on or after January 1, 2018 and replaces K-IFRS 1039, Financial Instruments: Recognition and Measurement. We have applied the new accounting standard, K-IFRS 1109, which 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, in our separate financial statements as of and for the years ended December 31, 2020 and 2019 included in this prospectus.

K-IFRS 1116, Leases, is aimed at facilitating a more faithful representation of, and improving the transparency of information relating to, lease-related assets and liabilities, and is effective for annual periods beginning on or after January 1, 2019. K-IFRS 1116, which replaces K-IFRS 1017, Leases, requires a lessee to recognize a right-of-use asset representing the lessee’s right to use the underlying leased asset and a lease liability representing the present value of the lessee’s obligation to make future lease payments. We have applied K-IFRS 1116 in our separate financial statements beginning with the year ended December 31, 2019. For additional information relating to K-IFRS 1116, see “—Notes to Separate Financial Statements of December 31, 2020 and 2019—Note 2(2).”

We generally record our debt securities investments, except for our trading portfolio of marketable debt securities, at the cost of acquisition (including incidental expenses related to purchase), computed on the specific identification method. We record our trading portfolio of marketable debt securities at market value. Starting in April 1999, we record all our debt securities investments at market value except for debt securities invested with the intention of holding until maturity, which we record at the cost of acquisition or amortized cost.

We record the value of our premises and equipment on our statements of financial position on the basis of a revaluation conducted as of July 1, 1998. The Minister of Economy and Finance approved the revaluation in accordance with applicable Korean law. We value additions to premises and equipment since such date at cost.

34

12th Floor S&S Bldg. 48 Ujeongguk-ro, Jongno-gu, Seoul, 03145, Korea T: +82 2 397 6700 F : +82 2 730 9559 www.samdukcpa.co.kr

Independent Auditors’ Report

Based on a report originally issued in Korean

The Board of Directors and Shareholders

Korea Development Bank

Opinion

We have audited the accompanying separate financial statements of Korea Development Bank (the “Bank”), which comprise the separate statements of financial position as of December 31 , 2020 and 2019 and the separate statements of comprehensive income, the separate statements of changes in equity and the separate statements of cash flows for the years then ended, and notes to the separate financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Bank as of December 31 , 2020 and 2019, and its separate financial performance and its separate cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”).

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the separate financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matters

We draw attention to Note 2. (5) of the separate financial statements. As described in Note 2. (5), the pandemic of COVID-19 in 2020 has a negative impact on the global economy and may have negative impacts on the financial position and financial performance of the Bank. Our opinion is not modified in respect of this matter.

Other Matter

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with Korean IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the separate financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

35

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Seoul, Korea

March 29, 2021

This report is effective as of March 29, 2021, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

A member of Nexia International

Nexia International is a leading worldwide network of independent accounting and consulting firms, providing comprehensive portfolio of audit, accountancy, tax and advisory services.

36

Korea Development Bank Separate

Statements of Financial Position

December 31, 2020 and 2019

(In millions of won)	Notes		December 31, 2020		December 31, 2019
Assets
Cash and due from banks		4,45,46,49	W	10,528,978		6,592,174
Securities measured at FVTPL		5,45,46,49		8,320,631		7,822,359
Securities measured at FVOCI		6,39,45,46,49		34,141,325		24,249,160
Securities measured at amortized cost		7,39,45,46,49		785,264		1,501,947
Loans measured at FVTPL		8,45,46,49		1,434,514		604,380
Loans measured at amortized cost		9,45,46,49		155,300,178		139,871,642
Derivative financial assets		10,45,46,47,49		8,329,376		5,432,807
Investments in subsidiaries and associates		11,48		25,553,561		24,190,102
Property and equipment, net		12,48		811,382		832,851
Investment property, net		13,48		81,065		66,409
Intangible assets, net		14,48		188,417		230,929
Current tax assets				3,722		5,107
Assets held for sale		16		1,713,347		1,655,406
Other assets		15,45,46,49		4,660,285		4,780,051
Total assets			W	251,852,045		217,835,324
Liabilities
Financial liabilities measured at FVTPL		17,45,46,49	W	1,694,957		2,465,541
Deposits		18,45,46,49		45,879,419		34,663,952
Borrowings		19,45,46,49		18,887,611		20,170,513
Debentures		20,45,46,49		138,318,728		120,623,388
Derivative financial liabilities		10,45,46,47,49		6,305,287		4,171,668
Defined benefit liabilities		21		50,546		53,141
Provisions		22		1,515,170		1,519,864
Deferred tax liabilities		37		1,719,100		931,368
Current tax liabilities				29,691		150,435
Other liabilities		23,45,46,49		7,069,006		7,282,623
Total liabilities				221,469,515		192,032,493
Equity
Issued capital		1,24		20,765,729		18,663,099
Capital surplus		24		2,484,398		2,494,504
Accumulated other comprehensive income		24		2,064,371		(88,092	)
Retained earnings		24		5,068,032		4,733,320
(Regulatory reserve for credit losses of W1,146,038 million and W1,227,700 million as of December 31, 2020 and 2019, respectively)
(Required reversal of regulatory reserve for credit losses of W663,153 million and W81,662 million as of December 31, 2020 and 2019, respectively)
(Planned reversal of regulatory reserve for credit losses of W663,153 million and W81,662 million as of December 31, 2020 and 2019, respectively)
Total equity				30,382,530		25,802,831
Total liabilities and equity			W	251,852,045		217,835,324

See accompanying notes to the separate financial statements.

37

Korea Development Bank

Separate Statements of Comprehensive Income

Years ended December 31, 2020 and 2019

(In millions of won, except earnings per share information)	Notes		2020			2019
Interest income		25	W	4,441,554			5,101,244
Interest expense		25		(3,161,981	)		(4,038,922	)
Net interest income		48		1,279,573			1,062,322
Net fees and commission income		26		333,104			378,200
Dividend income		27		670,595			678,092
Net gain on securities measured at FVTPL		28		54,757			175,168
Net gain (loss) on financial liabilities measured at FVTPL		29		29,185			(7,466	)
Net gain on securities measured at FVOCI		30		80,112			86,679
Net gain (loss) on derivatives		31		397,150			(8,344	)
Net foreign currency transaction loss		32		(172,368	)		(23,744	)
Other operating income (expense), net		33		227,047			(341,699	)
Non-interest income, net				1,619,582			936,886
Provision for credit losses		34		1,215,306			83,641
General and administrative expenses		35,48		789,337			746,930
Operating income		48		894,512			1,168,637
Impairment loss on investments in subsidiaries and associates				(239,492	)		(542,890	)
Other non-operating income		36		12,475			11,184
Other non-operating expense		36		(46,635	)		(34,876	)
Non-operating expense, net				(273,652	)		(566,582	)
Profit before income taxes				620,860			602,055
Income tax expense		37		133,330			156,327
Profit for the year		24		487,530			445,728
(Profit for the year adjusted for regulatory reserve for credit losses: W1,150,683 million and W527,390 million for the years ended December 31, 2020 and 2019, respectively)
Other comprehensive income for the year, net of tax Items that are or may be reclassified subsequently to profit or loss:		24
Net gain (loss) on securities measured at FVOCI				21,056			(65,843	)
Exchange differences on translation of foreign operations				(53,754	)		25,859
Valuation gain on cash flow hedge				326			1,578
Net gain on hedges of net investments in foreign operations				31,492			4,015
				(880	)		(34,391	)
Items that will not be reclassified to profit or loss:
Net gain (loss) on securities measured at FVOCI				2,117,388			(1,290	)
Fair value changes on financial liabilities designated at fair value due to credit risk				(1,188	)		(7,760	)
Remeasurements of defined benefit liabilities				(3,697	)		7,855
				2,112,503			(1,195	)
				2,111,623			(35,586	)
Total comprehensive income for the year			W	2,599,153			410,142
Earnings per share
Basic and diluted earnings per share (in won)		38	W	124			120

See accompanying notes to the separate financial statements.

38

Korea Development Bank

Separate Statements of Changes in Equity

Years ended December 31, 2020 and 2019

(In millions of won)	Issued capital		Capital surplus			Accumulated other comprehensive income			Retained earnings			Total equity
Balance at January 1, 2019	W	18,108,099		2,497,177			(32,698	)		4,412,649			24,985,227
Profit for the year		—		—			—			445,728			445,728
Net gain on securities measured at FVOCI		—		—			(86,941	)		19,808			(67,133	)
Exchange differences on translation of foreign operations		—		—			25,859			—			25,859
Valuation gain on cash flow hedge		—		—			1,578			—			1,578
Net gain on hedges of net investments in foreign operations		—		—			4,015			—			4,015
Fair value changes on financial liabilities designated at fair value due to credit risk		—		—			(7,760	)		—			(7,760	)
Remeasurements of defined benefit liabilities		—		—			7,855			—			7,855
Total comprehensive income for the year		—		—			(55,394	)		465,536			410,142
Dividends		—		—			—			(144,865	)		(144,865	)
Paid in capital increase		555,000		(2,673	)		—			—			552,327
Transaction with owners		555,000		(2,673	)		—			(144,865	)		407,462
Balance at December 31, 2019	W	18,663,099		2,494,504			(88,092	)		4,733,320			25,802,831
Balance at January 1, 2020	W	18,663,099		2,494,504			(88,092	)		4,733,320			25,802,831
Profit for the year		—		—			—			487,530			487,530
Net gain on securities measured at FVOCI		—		—			2,179,284			(40,840	)		2,138,444
Exchange differences on translation of foreign operations		—		—			(53,754	)		—			(53,754	)
Valuation gain on cash flow hedge		—		—			326			—			326
Net gain on hedges of net investments in foreign operations		—		—			31,492			—			31,492
Fair value changes on financial liabilities designated at fair value due to credit risk		—		—			(1,188	)		—			(1,188	)
Remeasurements of defined benefit liabilities		—		—			(3,697	)		—			(3,697	)
Total comprehensive income for the year		—		—			2,152,463			446,690			2,599,153
Dividends		—		—			—			(111,978	)		(111,978	)
Paid in capital increase		2,102,630		(10,106	)		—			—			2,092,524
Transaction with owners		2,102,630		(10,106	)		—			(111,978	)		1,980,546
Balance at December 31, 2020	W	20,765,729		2,484,398			2,064,371			5,068,032			30,382,530

See accompanying notes to the separate financial statements.

39

Korea Development Bank

Separate Statements of Cash Flows

Years ended December 31, 2020 and 2019

(In millions of won)	Notes		2020			2019
Cash flows from operating activities
Profit for the year			W	487,530			445,728
Adjustments for:
Income tax expense		37		133,330			156,327
Interest income		25		(4,441,554	)		(5,101,244	)
Interest expense		25		3,161,981			4,038,922
Dividend income		27		(670,595	)		(678,092	)
Loss (gain) on valuation of securities measured at FVTPL		28		(12,973	)		48,438
Gain on disposal of securities measured at FVTPL				(19,987	)		(166,941	)
Loss (gain) on valuation of financial liabilities measured at FVTPL		29		(29,185	)		7,466
Gain on disposal of securities measured at FVOCI		30		(80,112	)		(86,679	)
Impairment loss on securities measured at amortized cost				7			2
Gain on valuation of loans measured at FVTPL		33		(649,267	)		(42,921	)
Gain on valuation of derivatives				(867,763	)		(533,539	)
Net loss on fair value hedged items		31		39,559			659,546
Loss on foreign exchange translations		32		159,598			26,965
Gain on disposal of investments in subsidiaries and associates		33		(13,220	)		(2,806	)
Impairment loss on investments in subsidiaries and associates				239,492			542,890
Provision for loan loss allowance		34		1,177,027			59,805
Increase (reversal) of provision for other assets		34		19,722			(22,915	)
Reversal of provision for payment guarantees		22		(75,930	)		(140,830	)
Increase of provision for unused commitments		22		52,881			263,930
Increase (reversal) of financial guarantee provision		22		41,606			(76,349	)
Increase of provision for possible losses from lawsuits		22		441			—
Increase (reversal) of provision for restoration		22		(839	)		1,154
Increase of other provisions		22		8,475			31,250
Defined benefit costs		21		38,483			41,007
Depreciation of property and equipment		35		69,403			69,628
Impairment loss on assets held for sale		36		25,926			5,914
Gain on disposal of property and equipment		36		(1,049	)		(1,591	)
Depreciation of investment property		36		1,381			1,446
Amortization of intangible assets		35		53,977			27,935
Loss (gain) on redemption of debentures				9			(11	)
				(1,639,176	)		(871,293	)
Changes in operating assets and liabilities:
Due from banks				(2,257,845	)		1,225,021
Securities measured at FVTPL				925,821			391,410
Loans measured at FVTPL				(180,867	)		217,425
Loans measured at amortized cost				(17,695,562	)		(8,039,681	)
Derivative financial instruments				148,700			(76,607	)
Other assets				(29,447	)		(461,439	)
Financial liabilities measured at FVTPL				76,378			—
Deposits				11,234,111			2,181,026
Defined benefit liabilities				(46,178	)		(39,183	)
Other liabilities				(359,241	)		2,286,962
				(8,184,130	)		(2,315,066	)

(Continued)

40

Korea Development Bank

Separate Statements of Cash Flows, Continued

Years ended December 31, 2020 and 2019

(In millions of won)	Notes		2020			2019
Income taxes paid				(286,306	)		(186,610	)
Interest received				4,572,014			5,136,893
Interest paid				(2,935,043	)		(4,309,752	)
Dividends received				671,102			684,214
Net cash used in operating activities			W	(7,314,009	)		(1,415,886	)
Cash flows from investing activities
Net decrease (increase) of securities measured at FVTPL			W	(1,389,326	)		197,029
Disposal of securities measured at FVOCI				50,645,599			22,804,618
Acquisition of securities measured at FVOCI		6		(57,798,921	)		(24,034,431	)
Redemption of securities measured at amortized cost		7		1,370,003			745,101
Acquisition of securities measured at amortized cost		7		(657,701	)		(552,563	)
Disposal of property and equipment				7,268			4,896
Acquisition of property and equipment		12		(43,114	)		(121,594	)
Disposal of intangible assets		14		764			460
Acquisition of intangible assets		14		(11,947	)		(85,401	)
Disposal of investments in subsidiaries and associates				630,112			1,559,944
Acquisition of investments in subsidiaries and associates				(2,298,120	)		(2,385,510	)
Net cash used in investing activities				(9,545,383	)		(1,867,451	)
Cash flows from financing activities
Increase of financial liabilities measured at FVTPL				170,000			282,834
Decrease of financial liabilities measured at FVTPL				(989,416	)		—
Proceeds from borrowings				41,461,011			32,064,820
Repayment of borrowings				(42,701,208	)		(31,758,031	)
Proceeds from issuance of debentures				116,103,507			99,401,077
Repayment of debentures				(98,467,465	)		(98,922,905	)
Decrease in lease liabilities				(25,329	)		(23,737	)
Dividends				(111,978	)		(144,865	)
Paid in capital increase				2,092,524			552,327
Net cash provided by financing activities				17,531,646			1,451,520
Effects from changes in foreign currency exchange rate for cash and cash equivalents held				(195,885	)		235,307
Net increase (decrease) in cash and cash equivalents				476,369			(1,596,510	)
Cash and cash equivalents at beginning of the year				5,252,825			6,849,335
Cash and cash equivalents at end of the year		43	W	5,729,194			5,252,825

See accompanying notes to the separate financial statements.

41

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

1. Reporting Entity

Korea Development Bank (the “Bank”) was established on April 1, 1954, in accordance with The Korea Development Bank Act to finance and manage major industrial projects.

The Bank is engaged in the banking industry under The Korea Development Bank Act and other applicable statutes, and in the fiduciary in accordance with the Financial Investment Services and Capital Markets Act.

Korea Finance Corporation (KoFC), the former ultimate parent company, and KDB Financial Group Inc. (KDBFG), the former immediate parent company, were established by spin-offs of divisions of the Bank as of October 28, 2009. KoFC and KDBFG were merged into the Bank, effective as of December 31, 2014. Issued capital is W20,765,729 million with 4,153,145,768 shares of issued and outstanding as of December 31, 2020 and 100% of the Bank’s shares are owned by the government of the Republic of Korea.

The Bank’s head office is located in 14, Eunhaeng-ro (Yeouido-dong), Yeongdeungpo-gu, Seoul and its service network as of December 31, 2020 is as follows:

	Domestic				Overseas
	Head Office		Branches		Branches		Subsidiaries		Representative offices		Total
KDB		1		69		9		6		9		94

2. Basis of Preparation

(1) Application of accounting standards

These separate financial statements have been prepared in accordance with the Korean International Financial Reporting Standards (“K-IFRS”) enacted by the Act on External Audit of Stock Companies.

(2) Changes and disclosures of accounting policies

(i) New and amended standards adopted

The Bank newly applied the following amended and enacted standards for the annual period beginning on January 1, 2020. The nature and the impact of each new standard or amendment are described below:

Amendments to K- IFRS 1001 ‘Presentation of Financial Statements’ and K-IFRS 1008 ‘Accounting Policies, Changes in Accounting Estimates and Errors’—Definition of Materiality

The amendments clarify the explanation of the definition of material and amended K-IFRS 1001 and K-IFRS 1008 in accordance with the clarified definitions. Materiality is assessed by reference to omission or misstatement of material information as well as effects of immaterial information, and to the nature of the users when determining the information to be disclosed by the Bank. The amendment does not have a significant impact on the separate financial statements.

42

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

2. Basis of Preparation, Continued

Amendments to K- IFRS 1103 ‘Business Combination’—Definition of a Business

To consider the integration of the required activities and assets as a business, the amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs and excludes economic benefits from the lower costs. An entity can apply a concentration test, an optional test, where substantially all of the fair value of gross assets acquired is concentrated in a single asset or a group of similar assets, the assets required would not represent a business. The amendment does not have a significant impact on the separate financial statements.

Amendments to K-IFRS 1109 ‘Financial Instruments’, K-IFRS 1039 ‘Financial Instruments: Recognition and Measurement’ and K-IFRS 1107 ‘Financial instruments: Disclosure’—Interest Rate Benchmark Reform

The amendments allow to apply the exceptions when forward-looking analysis is performed in relation the application of hedge accounting while uncertainties arising from interest rate benchmark reform exist. The exceptions require the Bank assumes that the interest rate benchmark on which the hedged items and the hedging instruments are based on is not altered as a result of interest rate benchmark reform, when determining whether the expected cash flows are highly probable, whether an economic relationship between the hedged item and the hedging instrument exists, and when assessing the hedging relationship is highly effective. The new disclosure requirements of the amendments are presented in Note 10.(9).

Amendments to K-IFRS 1116 ‘Leases’—Practical expedient for COVID-19-Related Rent Exemption, Concessions, Suspension

The practical expedient permits a lessee to elect not to assess whether a COVID19-related rent concession is a lease modification. A lessee that makes this election shall account for any change in lease payments resulting from the COVID-19-related rent concession the same way it would account for the change applying this standard if the change were not a lease modification. The amendments should be applied for annual periods beginning on or after June 1, 2020, and earlier application is permitted. The amendment does not have a significant impact on the separate financial statements.

(ii) New standards and interpretations issued but not effective

The following new standards, interpretations and amendments to existing standards have been issued but not effective for annual periods beginning after January 1, 2020, and the Bank has not early adopted them. The nature and the impact of each new standard, amendment and enactments are described below:

Amendments to K-IFRS 1103 ‘Business Combination’—Reference to the Conceptual Framework

The amendments update a reference of definition of assets and liabilities to qualify for recognition in revised Conceptual Framework for Financial Reporting. However, the amendments add an exception for the recognition of liabilities and contingent liabilities within the scope of K-IFRS 1037 ‘Provisions, Contingent Liabilities and Contingent Assets’, and K-IFRS 2121 ‘Levies’. The amendments also confirm that contingent assets should not be recognized at the acquisition date. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

43

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

2. Basis of Preparation, Continued

Amendments to K-IFRS 1109 ‘Financial Instruments’, K-IFRS 1039 ‘Financial Instruments: Recognition and Measurement’, K-IFRS 1107 ‘Financial Instruments: Disclosure’, K-IFRS 1104 ‘Insurance Contracts’ and K-IFRS 1116 ‘Lease’—Interest Rate Benchmark Reform

In relation to interest rate benchmark reform, the amendments provide a practical expedient allowing entities to change the effective interest rate instead of changing the carrying amount and apply hedge accounting without discontinuance although the interest rate benchmark is replaced in hedging relationship. The amendments should be applied for annual periods beginning on or after January 1, 2021, and earlier application is permitted. The Bank is currently in progress of analyzing the potential impact on the financial statements resulting from the application of these amendments.

Amendments to K-IFRS 1016 ‘Property, Plant and Equipment’—Proceeds before intended use

The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use. Instead, the entity will recognize and disclose the proceeds from selling such items, and the costs of producing those items, as profit or loss. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

Amendments to K-IFRS ‘Provisions, Contingent Liabilities and Contingent Assets’—Onerous Contracts: Cost of Fulfilling a Contract

The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts when assessing whether the contract is onerous. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

Amendments to K-IFRS 1001 ‘Presentation of Financial Statements’—Classification of Liabilities as Current or Non-current

The amendments clarify that liabilities are classified as either current or non-current, depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise right to defer settlement of the liability or the management’s expectations thereof. Also, the settlement of liability includes the transfer of the entity’s own equity instruments; however, it would be excluded if an option to settle the liability by the transfer of the entity’s own equity instruments is recognized separately from the liability as an equity component of a compound financial instrument. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

Annual improvements to K-IFRS 2018-2020

Annual improvements of K-IFRS 2018-2020 Cycle should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Bank does not expect that these amendments have a significant impact on the separate financial statements.

44

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

2. Basis of Preparation, Continued

• K-IFRS 1109 ‘Financial Instruments’—Fees related to the 10% test for derecognition of financial liabilities The amendment clarifies that in applying the ‘10 per cent’ test to assess whether to derecognise a financial liability, an entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf.

• K-IFRS 1101 ‘First time Adoption of Korean International Financial Reporting Standards’—Subsidiaries that are first-time adopters

• Korean IFRS No. 1116 Leases—Lease incentives

• Korean IFRS No. 1041 Agriculture—Measuring fair value

(3) Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:

• Derivative financial instruments measured at fair value

• Financial instruments measured at fair value through profit or loss

• Financial instruments measured at fair value through other comprehensive income

• Fair value hedged financial instruments with changes in fair value, due to hedged risks, recognized in profit or loss

• Liabilities for defined benefit plans, which are recognized as net of the total present value of defined benefit obligations less the fair value of plan assets.

(4) Functional and presentation currency

These financial statements are presented in Korean won (“W”), which is the Bank’s functional currency and the currency of the primary economic environment in which the Bank operates.

(5) Use of estimates and judgments

The preparation of the financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and 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.

45

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

2. Basis of Preparation, Continued

The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

(i) Fair value of financial instruments

Financial instruments measured at fair value through profit or loss and other comprehensive income, and derivative instruments are recognized and measured at fair value. 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.

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.

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.

(ii) Credit losses allowance

The Bank tests impairment and recognizes loss allowances on financial assets classified at amortized cost, debt instruments measured at fair value through other comprehensive income and recognizes provisions for payment guarantee, financial guarantee and unused commitments. Accuracy of allowances and 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.

The pandemic of COVID-19 in 2020 has a negative impact on the global economy despite of the Korean government’s financial and economic stabilization packages. It may have a negative impact on the financial position and financial performance of the Bank due to the increase of the expected credit losses on specific portfolios and the potential losses on financial assets. The detail of credit risk exposures by industry affected by the pandemic of COVID-19 as of December 31, 2020 is disclosed in Note 49. (2) and the exposures by industries could be changed according to economic fluctuations.

Taking these circumstances into account comprehensively, the Bank recalculated the forward-looking information used to estimate the expected credit loss in accordance with K-IFRS 1109 ‘Financial Instruments’ as of December 31, 2020. During the twelve-month period since the end of the previous year, there have been changes in the forward-looking information that affects expected credit losses, and it is predicted that major economic factors such as the 2020 unemployment rate and economic growth rate will deteriorate due to the impact of COVID-19. To reflect these changes, the Bank recalculated the forward-looking information by means of increasing the probability of recession used in generating future economic scenarios and will continue to monitor the forward-looking information on a quarterly basis.

46

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

2. Basis of Preparation, Continued

(iii) Deferred taxes

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred income tax assets are recognised to the extent that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Actual income taxes in the future may not be identical to the recognised deferred tax assets and liabilities.

(iv) Defined benefit liabilities

The Bank operates a defined benefit plan. Defined benefit liability is calculated by annual actuarial valuations as of the reporting date. To perform the actuarial valuations, assumptions for discount rates, future salary increases and others are required to be estimated. Defined benefit plans contain significant uncertainties in estimations due to its long-term nature.

(6) Approval date for the separate financial statements

The separate financial statements were authorized for issue by the Board of Directors on March 25, 2021, which will be submitted for approval to the shareholders’ meeting to be held on March 30, 2021.

3. Significant Accounting Policies

The significant accounting policies applied by the Bank in preparation of its separate financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in these separate financial statements.

(1) Investments in subsidiaries and associates

The accompanying financial statements are separate financial statements in accordance with K-IFRS 1027 ‘Separate Financial Statements’ and investments in subsidiaries and associates are accounted for at cost, not by performance and net asset reported by the investee. Dividends received from subsidiaries and associates are recognised as income as of the time the right to receive the dividends is established.

(2) Business combination of entities under common control

The assets and liabilities acquired under business combinations under common control are recognised at the carrying amounts recognised previously in the consolidated financial statements of the ultimate parent. The difference between consideration transferred and carrying amounts of net assets acquired is recognised as part of share premium.

(3) Operating segments

The Bank makes decisions regarding allocation of resources to segments and categorizes segments, based on internal reports reviewed periodically by the chief operating decision maker, to assess performance. Information on segments reported to the chief operating decision maker includes items directly attributable to segments as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise corporate assets (such as the Bank Headquarters), head office expenses, and income tax assets and liabilities. The Bank recognises the CEO as the chief operating decision maker.

47

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

(4) Foreign exchange

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the functional currency of the Bank, at exchange rates of the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on transactions and translations of monetary items are recognised in profit or loss, except for differences arising on the translation of a financial instruments designated as hedges of the net investment in foreign operations, or cash flow hedge, which are recognised in other comprehensive income.

When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss is recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss shall be recognised in profit or loss.

(ii) Foreign operations

If the presentation currency of the Bank is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

Unless the functional currency of foreign operations is in a state of hyperinflation, assets and liabilities of foreign operations are translated at the closing exchange rate at the end of the reporting period. Revenues and expenses on the statement of comprehensive income are translated at the exchange rates of the date of transaction. Foreign currency differences that arise from translation are recognized as other comprehensive income, and the disposal of a foreign operation is re-categorized as profit or loss as of the moment of the disposal profit or loss is recognized.

Any goodwill arising on the acquisition of a foreign operation, and any adjustments in fair value to the carrying amounts of assets and liabilities due to such acquisition, are treated as assets and liabilities of the foreign operation. Therefore, such are expressed in the functional currency of the foreign operations and, alongside other assets and liabilities of the foreign operation, translated at the closing exchange rate.

In the case of the disposal of a foreign operation, cumulative amounts of exchange difference regarding the foreign operation, recognized separately from other comprehensive income, are re-categorized from assets to profit or loss as of the disposal profit or loss is recognized.

48

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

(iii) Foreign exchange of net investment in foreign operations

Monetary items receivable from or payable to a foreign operation, with none or little possibility of being settled in the foreseeable future, are considered a part of the net investment in the foreign operation. Therefore, the exchange difference is recognised as comprehensive income or loss in the financial statement and re-categorized to profit or loss as of the disposal of the related net investment.

(5) Recognition and measurement of financial instruments

(i) Initial recognition

The Bank recognizes a financial asset or a financial liability in its separate statement of financial position when the Bank becomes a party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets is recognized and derecognized using trade date accounting.

The Bank 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 on the basis of the Bank’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. The Bank classifies financial liabilities as financial liabilities at fair value through profit or loss, or financial liabilities at amortized cost.

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.

(ii) 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 is the amount at which the financial asset or financial liability is measured at 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 and, for financial assets, adjusted for any loss allowance.

Fair value

Fair values, which the Bank 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.

49

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

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 Bank uses valuation models that are commonly used by market participants and customized for the Bank 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 Bank 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.

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 Bank 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.

(iii) Derecognition

Derecognition is the removal of a previously recognized financial asset or financial liability from the statement of financial position. The Bank 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 Bank has not retained control. If the Bank neither transfers nor disposes of substantially all the risks and rewards of ownership of the financial assets, the Bank continues to recognize the financial asset to the extent of its continuing involvement in the financial asset.

If the Bank 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 Bank continues to recognize the transferred asset in its entirety and recognize a financial liability for the consideration received.

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.

50

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

(iv) Offsetting

Financial assets and liabilities are offset and the net amount reported in the separate 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.

(6) Cash and cash equivalents

Cash and cash equivalents comprise balances with original maturities of three months or less from the date of acquisition that are subject to an insignificant risk of changes in their fair value, including cash on hand, deposits held at call with banks and other highly liquid short-term investments with original maturities of three months or less.

(7) Non-derivative financial assets

(i) Financial assets at fair value through profit or loss

Any non-derivative financial asset classified as held for trading or not classified as financial assets at fair value through other comprehensive income or financial assets measured at amortized cost is categorized under financial assets at fair value through profit or loss.

The Bank 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 profit or loss.

(ii) Financial assets at fair value through other comprehensive income

The Bank classifies financial assets as financial assets at fair value through other comprehensive income if they meet the following conditions: 1) 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 2) 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 profit or loss, 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.

51

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

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.

(iii) 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.

(8) Expected credit loss of financial assets

The Bank 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.

The expected credit loss (“ECL”) is the weighted average amount of possible outcomes within a certain range, reflecting the time value of money, estimates on the past, current and future situations, and information accessible without excessive cost of effort.

The Bank uses the following three measurement techniques in accordance with K-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

The general approach is applied differently depending on the significance of the increase of the credit risk. If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, an entity shall measure the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses. If the credit risk on that financial instrument has increased significantly since initial recognition, an entity shall measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses at each reporting date.

The Bank applies the simplified approach to 1) trade receivables and contract assets that do not have a significant financing component or 2) trade receivables, contract assets and lease receivables upon determining the Bank’s accounting policies as the application of the simplified approach. The approach requires expected lifetime losses to be recognized from initial recognition of the financial assets. Under credit-impaired approach, the Bank 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.

The following non-exhaustive list of information may be relevant in assessing changes in credit risk:

• Significant changes in internal price indicators of credit risk as a result of a change in credit risk since inception

52

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

• Other changes in the rates or terms of an existing financial instrument that would be significantly different if the instrument was newly originated or issued at the reporting date

• An actual or expected significant change in the financial instrument’s external credit rating

• An actual or expected internal credit rating downgrade for the borrower or decrease in behavioural scoring used to assess credit risk internally

• An actual or expected significant change in the operating results of the borrower

• Past due information

(i) Forward-looking information

The Bank uses forward-looking information, when it determines whether the credit risk has increased significantly since initial recognition and measures expected credit losses.

The Bank 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.

Forward looking information used in calculation of expected credit loss is derived after comprehensive consideration of a variety of factors including scenario in management planning, worst-case scenario used for stress testing, third party forecast, and others.

(ii) 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 Bank estimates expected future cash flows for financial assets that are individually significant (individual assessment of impairment).

For financial assets that are not individually significant, the Bank 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 is calculated using management’s best estimate on present value of expected future cashflows. The Bank 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 on a group of assets and loss given default 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.

53

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

The expected credit loss for financial assets measured at amortized cost is recognized as the loss allowance, and when the financial asset is determined to be irrecoverable, the carrying amount and loss allowance are decreased. If financial assets previously written off are recovered, the loss allowance is increased and the difference is recognized in the current profit or loss.

(iii) 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 changes in 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.

(9) Derivative financial instruments including hedge accounting

Derivative financial instruments are initially recognised at fair value at the inception of the contract and re-estimated at fair value subsequently. The recognition of profit or loss due to changes in fair value of derivative instruments is as described below:

(i) Hedge accounting

Derivative financial instruments are accounted differently depending on whether hedge accounting is applied, and therefore, are classified into trading purpose derivatives and hedging purpose derivatives.

Upon the transaction of hedging purpose derivatives, two different types of hedge accounting are applied; a fair value hedge, and a cash flow hedge. A fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. A cash flow hedge is a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss.

At the inception of the hedge relationship, the Bank formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge, and the method that will be used to assess the effectiveness of the hedging relationship.

Fair value hedge

For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognised in profit or loss in the statement of comprehensive income. Meanwhile, the change in the fair value of the hedged item, attributable to the risk hedged, is recorded as part of the carrying value of the hedged item and is also recognised in profit or loss in the statement of comprehensive income. When the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged item recorded at amortized cost, the difference between the carrying value of the hedged item on termination and the face value is amortized over the remaining term of the original hedge using the EIR.

54

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

Cash flow hedge

For designated and qualifying cash flow hedges, the effective portion of gain or loss on the hedging instruments is initially recognised directly in equity. The ineffective portion of the gain or loss on the hedging instrument is recognised immediately in the statement of comprehensive income. When the hedged cash flow affects the profit or loss in statement of comprehensive income, the gain or loss on the hedging instrument is recorded in the corresponding income or expense line in profit or loss in the statement of comprehensive income. When a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the hedged forecasted transaction is ultimately recognised in the statement of comprehensive income. When a forecasted transaction is no longer expected to occur, the cumulative gain and loss that was reported in equity is immediately transferred to profit or loss in the statement of comprehensive income.

Hedges of net investments in foreign operations

The Bank designates non-derivative financial instruments as hedging instruments for foreign currency risk arising from net investments in foreign operations and recognises the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge in other comprehensive income. The cumulative amounts recognised in other comprehensive income relating to both the foreign exchange differences arising on translation of the results and financial position of the foreign operation and the gain or loss on the hedging instrument that is determined to be an effective hedge of the net investment are reclassed from equity to profit or loss as a reclassification adjustment when the Bank disposes of the foreign operation.

(ii) Trading purpose derivatives

For trading purpose derivatives transaction, changes in the fair value of derivatives are recognised in net income.

(10) Day one profit or loss recognition

For financial instruments classified as level 3 on the fair value level hierarchy measured using assess variables not observable in the market, the difference between the fair value at initial recognition and the transaction price, which is equivalent to Day one profit or loss, is amortized by using the straight-line method over time.

(11) Property and equipment

The Bank’s property and equipment are recognised at the carrying amount at historical costs less accumulated depreciation and accumulated impairment in value. Historical costs include the expenditures directly related to the acquisition of assets.

Subsequent costs are recognised in the carrying amount of assets or, if appropriate, as separate assets if the probabilities future economic benefits associated with the assets will flow into the Bank and the costs can be measured reliably; the carrying amount of the replaced part is derecognised. Furthermore, any other repairs or maintenances are charged to profit or loss as incurred.

55

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to the amount of residual value less acquisition cost over the following estimated useful lives:

Type	Useful lives (years)
Buildings	20 ~ 50
Structure	10 ~ 40
Movable property	4

Property and equipment are impaired when the carrying amount exceeds the recoverable amount. The Bank assesses residual value and economic life of its assets at each reporting date and adjusts useful lives when necessary. Any gain or loss arising from the disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in non-operating income (expense) in the statement of comprehensive income.

(12) Investment property

The Bank classifies property held for rental income or benefits from capital appreciation as investment property. Investment property is measured initially at cost, including transaction costs. Subsequent to initial recognition, the cost model is applied. Subsequent to initial recognition, an item of investment property is carried at its cost less any accumulated depreciation and any accumulated impairment loss.

Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the statement of comprehensive income in the period of de-recognition. Reclassification to other account is made if there is a change in use of corresponding investment property.

Depreciation of investment property is calculated using the straight-line method over its estimated useful lives as follows:

Type	Useful lives (years)
Buildings		20 ~ 50
Structure		10 ~ 40

(13) Intangible assets

An intangible asset is recognised only when its cost can be measured reliably, and the probabilities future economic benefits from the asset will flow into the Bank are high. Separately acquired intangible assets are recognised at the acquisition cost, and subsequently, the cost less accumulated depreciation and accumulated impairment is recognised as the carrying amount.

Intangible assets with finite lives are amortized over the four-year to 30-year period of useful economic lives using the straight-line method. At the end of each reporting period, the Bank reviews intangible assets for any evidence that indicate impairment, and upon the presence of such evidence, the Bank estimates the amount recoverable and recognises the loss accordingly.

56

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

Intangible assets with indefinite useful lives are not amortized but are tested for impairment annually. Furthermore, the Bank reviews such intangible assets to determine whether it is appropriate to consider these assets to have indefinite useful lives. If in the case the Bank concludes an asset is not qualified to be classified as non-finite, prospective measures are taken to consider such an asset as finite.

(14) Leases

The Bank recognizes 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 at the commencement date of the lease. The Bank elected not to apply the requirements to the short-term leases and leases of low value assets.

Right-of-use asset

The right-of-use asset is measured at its cost less subsequent accumulated depreciation and accumulated impairment loss with adjustments reflected arising from remeasurements of the lease liability. The cost of the right-of-use asset comprise the amount of the initial measurement of the lease liability, any initial direct costs incurred by the lessee and any lease payments made at or before the commencement date, less any lease incentive received. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis from the commencement date of the lease.

Lease liabilities

At the commencement date, the lease liability is measured at present value of the lease payments that are not paid at that date. Lease payments include fixed payments (including in-substance fixed payments), less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. The variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers those payments occurs.

When measuring the present value, the lease payments are discounted using the interest rate implicit in the lease. If such implicit rate cannot be readily determined, the Bank uses the Bank’s incremental borrowing rate. The lease liability is subsequently increased by the amount of interest expenses recognized on the lease liability and reduced by the lease payments made.

Short-term lease and lease of low-value assets

The Bank does not apply the requirements of lessee accounting to short-term leases and leases of low-value assets. The Bank recognizes the lease payments associated with these leases as expenses on a straight-line basis over the lease term.

(15) Impairment of non-financial assets

The Bank tests for any evidence of impairment in assets and reviews whether the impairment has taken place by estimating the recoverable amount, at the end of each reporting period. The recoverable amount is the higher of the fair value less cost and value in use of an asset.

57

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.

(16) Assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. To be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell.

The Bank recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized.

Non-current assets that are classified as held for sale or part of a disposal group classified as held for sale are not depreciated (or amortized).

(17) Non-derivative financial liabilities

The Bank 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 liability. The Bank recognizes these financial liabilities in the statement of financial position when the Bank becomes a party to the contractual provisions of the financial liability.

(i) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated at FVTPL upon initial recognition. Financial liabilities and derivatives are classified as financial instruments held for trading if they are acquired for repurchasing soon. Financial liabilities are classified as financial liabilities at FVTPL upon initial recognition, if the profit or loss from the liabilities indicates to be more purpose-appropriate to be recognised as profit or loss. Financial liabilities at FVTPL are designated at fair value in subsequent measurements, and any related un-realized profit or loss is recognised as profit or loss. 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 Bank present this change in other comprehensive income, and does not recycle this other comprehensive income to profit or loss, subsequently.

(ii) Financial liabilities measured at amortized cost

Financial liabilities measured at amortized cost are recognised at fair value less cost less transaction cost upon initial recognition, and subsequently at amortized costs. The difference between the proceeds (net of transaction cost) and the redemption value is recognised in the statement of comprehensive income over the periods of the liabilities using the effective interest method.

58

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

Fees paid on the establishment of a loan facility are recognised as transaction costs of the loan, if the probability that some or all the facility will be drawn down is high. If, however, there is not enough evidence to conclude a draw-down of some or all the facility will occur, the fee is capitalized as a prepayment for liquidity services and amortized over the period of the facility to which it relates.

(18) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled wholly before 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Bank during an accounting period, the Bank recognises the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(ii) Retirement benefits: defined contribution plans

A defined contribution plan is a pension plan under which the Bank pays fixed contributions into a separate fund. The Bank is no longer responsible for any foreseeable future liability after a certain amount or percentage of money is set aside for defined contribution plans. If the pension plan allows for early retirement, payments are recognised as employee benefits. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Bank recognises that excess as an asset to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(iii) Retirement benefits: defined benefit plans

The Bank classifies all the pensions as defined benefit plans except defined contribution plans. The Bank’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and have terms to maturity like the terms of the related pension liability.

Remeasurements of the net defined benefit liabilities (assets), which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income.

(19) Provisions

Provisions are recognized when the Bank has a present legal or constructive obligation because of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

(20) Financial guarantees

Financial guarantee contracts are contracts that require the issuer (the Bank) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in

59

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

accordance with the original or changed terms of a debt instrument. Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the Bank’s liabilities under such guarantees are measured at the higher of:

• The amount determined in accordance with K-IFRS 1109 ‘Financial Instruments’ and

• The initial amount recognized, less, when appropriate, cumulative amortization recognized in accordance with K-IFRS 1115 ‘Revenue from Contracts with Customers’.

(21) Securities under resale or repurchase agreements

Securities purchased under agreements to resell are recorded as other loans and receivables and the related interest from these securities is recorded as interest income; securities sold under agreements to repurchase are recorded as other borrowings, and the related interest from these securities is recorded as interest expense.

(22) Interest income and expense

Interest income and expense are recognized in profit or loss using the effective interest method. The effective interest method measures the amortized costs of financial instruments and allocates the interest income or expense during the related period.

Upon the calculation of the effective interest rate, the Bank estimates future cash flows by taking into consideration all contractual terms of the financial instrument, but not future credit loss. The calculation also reflects any fees or points paid or received, transaction costs and any related premiums or discounts. In the case that the cash flow and expected duration of a financial instrument cannot be estimated reliably, the effective interest rate is calculated by the contractual cash flow during the contract period.

Once an impairment loss has been recognized on a financial asset or a group of similar assets, subsequent interest income is recognized on the interest rate that was used to discount future cash flow for measuring the impairment loss.

(23) Fees and commission income

Fees and commission income and expense are classified as follows according to related regulations:

(i) Fees and commission from financial instruments

Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. It includes those related to evaluation of the borrowers’ financial status, guarantee, collateral, other agreements and related evaluation as well as business transaction, rewards for activities, such as document preparation and recording and setup fees incurred during issuance of financial liabilities. However, when financial instruments are classified as financial instruments at fair value through profit or loss, fees and commission are recognized as revenue upon initial recognition.

60

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

(ii) Fees and commission from services

Fees and commission income charged in exchange for services to be performed during a certain period of time such as asset management fees, consignment fees and assurance service fees are recognized as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan and K-IFRS 1039 ‘Financial Instrument: Recognition and Measurement’ is not applied for the commitment, the related loan commitment fees are recognized as revenue proportionally to time over the commitment period.

(iii) Fees and commission from significant transaction

Fees and commission from significant transactions, such as trading stocks and other securities, negotiation and mediation activities for third parties, for instance business transfer and takeover, are recognized when transactions are completed.

(24) Dividend income

Dividend income is recognized upon the establishment of the Bank’s right to receive the payment.

(25) Income tax expense

Income tax expense comprises current and deferred income tax. Current income tax and deferred income tax are recognized in profit or loss except to the extent that the tax arises from a transaction or event, which is recognized in other comprehensive income or directly in equity, or a business combination.

The Bank recognizes deferred income tax liabilities for all taxable temporary differences associated with investments in subsidiaries, associates, except to the extent that the Bank can control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Bank recognizes deferred income tax assets for all deductible temporary differences arising from investments in associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the reporting period when the assets are realized, or the liabilities 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 assets and liabilities reflects the income tax effects that would follow from the manner in which the Bank expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period and reduced 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 off-set only if the Bank has a legally enforceable right to off-set the related current income tax assets and liabilities, and the assets and liabilities relate to income tax levied by the same tax authority and are intended to be settled on a net basis.

61

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

3. Significant Accounting Policies, Continued

(26) Accounting for trust accounts

The Bank, for financial reporting, differentiates trust assets from identifiable assets according to the Financial Investment Services and Capital Markets Act. Furthermore, the Bank receives trust fees from the application, management and disposal of trust assets, and appropriates such amounts for fees from trust accounts.

Meanwhile, in the case the fee from an unspecified principal or interests guaranteed money in trust does not meet the principal or interest amount, even after appropriating deficit with trust fees and special reserve, the Bank fills in the remaining deficit in the trust account and appropriates such amounts for losses on trust accounts.

(27) Regulatory reserve for credit losses

When the total sum of allowance for possible credit losses is lower than the amount prescribed in Article 29(1) of the Regulations on Supervision of Banking Business, the Bank records the difference as regulatory reserve for credit losses at the end of each reporting period.

In the case that the existing regulatory reserve for credit losses exceeds the amount needed to be set aside at the reporting date, the surplus may be reversed. Furthermore, in the case that undisposed deficit exists, regulatory reserve for credit losses is saved from the time the undisposed deficit is disposed.

(28) Earnings per share

The Bank represents its diluted and basic earnings per common share in the separate statement of comprehensive income. Basic earnings per share (EPS) is calculated by dividing net profit attributable to shareholders of the Bank by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is calculated by adjusting net profit attributable to common shareholders of the Bank, considering dilution effects from all potential common shares, and the weighted average number of common shares outstanding.

(29) Corrections of errors

Prior period errors shall be corrected by retrospective restatement in the first set of financial statements authorised for issue after their discovery except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error.

62

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

4. Cash and Due from Banks

(1) Cash and due from banks as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Cash	W	52,240		53,529
Due from banks in Korean won:
Due from Bank of Korea		4,140,277		1,824,440
Other due from banks in Korean won		347,074		132,311
		4,487,351		1,956,751
Due from banks in foreign currencies / off-shores		5,989,387		4,581,894
	W	10,528,978		6,592,174

(2) Restricted due from banks as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Reserve deposit	W	3,052,883		1,885,915
Deposit of monetary stabilization account		1,300,000		150,000
Others		216,549		239,788
	W	4,569,432		2,275,703

5. Securities Measured at FVTPL

(1) Details of securities in financial assets at fair value through profit or loss as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Face value		Acquisition cost		Fair value (Carrying amounts)
Securities denominated in Korean won:
Stocks	W	—		745,860		622,918
Equity investments		—		233,467		291,984
Beneficiary certificates		—		5,726,787		5,841,059
Government and public bonds		1,024,950		1,031,165		1,023,738
Financial bonds		—		—		—
		1,024,950		7,737,279		7,779,699
Securities denominated in foreign currencies/off-shores:
Stocks		—		—		—
Equity investments		—		21,177		19,800
Beneficiary certificates		—		555,149		507,518
Debt securities		13,600		14,532		13,614
		13,600		590,858		540,932
	W	1,038,550		8,328,137		8,320,631

63

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

5. Securities Measured at FVTPL, Continued

	December 31, 2019
	Face value		Acquisition cost		Fair value (Carrying amounts)
Securities denominated in Korean won:
Stocks	W	—		534,558		422,297
Equity investments		—		192,546		235,946
Beneficiary certificates		—		3,738,987		3,760,541
Government and public bonds		1,408,000		1,405,998		1,405,368
Financial bonds		1,470,000		1,464,593		1,462,557
		2,878,000		7,336,682		7,286,709
Securities denominated in foreign currencies/off-shores:
Stocks		—		3,885		3,957
Equity investments		—		12,301		13,293
Beneficiary certificates		—		391,190		412,457
Debt securities		105,500		106,556		105,943
		105,500		513,932		535,650
	W	2,983,500		7,850,614		7,822,359

(2) Equity securities with disposal restrictions in financial assets at fair value through profit or loss as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
Company	Number of shares		Carrying amount		Restricted period
National Happiness Fund Co., Ltd.		34,066	W	66,934		Undecided
Shinhan Metal Co., Ltd.		7,692		—		Until December 31, 2021
		41,758	W	66,934
	December 31, 2019
Company	Number of shares		Carrying amount		Restricted period
National Happiness Fund Co., Ltd.		34,066	W	73,320		Undecided
Shinhan Metal Co., Ltd.		7,692		—		Undecided
		41,758	W	73,320

64

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

6. Securities Measured at FVOCI

(1) Details of securities measured at FVOCI as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Face value		Acquisition cost		Fair value (Carrying amounts)
Securities denominated in Korean won:
Stocks and equity investments	W	—		9,964,039		10,060,520
Government and public bonds		1,900,000		1,923,926		1,918,765
Financial bonds		4,230,000		4,236,741		4,237,990
Corporate bonds		7,570,541		7,570,748		7,558,145
Others		2,141,115		2,137,849		4,803,611
		15,841,656		25,833,303		28,579,031
Securities denominated in foreign currencies/off-shores:
Equity securities		—		1,640		984
Debt securities		5,104,050		5,206,146		5,271,504
		5,104,050		5,207,786		5,272,488
Loaned securities:
Debt securities		290,000		289,641		289,806
	W	21,235,706		31,330,730		34,141,325

	December 31, 2019
	Face value		Acquisition cost		Fair value (Carrying amounts)
Securities denominated in Korean won:
Stocks and equity investments	W	—		9,990,765		10,094,512
Government and public bonds		919,000		925,392		924,846
Financial bonds		2,760,000		2,765,502		2,765,703
Corporate bonds		5,164,006		5,163,926		5,141,941
Others		1,342,650		1,342,649		1,024,299
		10,185,656		20,188,234		19,951,301
Securities denominated in foreign currencies/off-shores:
Equity securities		—		2,670		976
Debt securities		4,165,446		4,225,374		4,256,824
		4,165,446		4,228,044		4,257,800
Loaned securities:
Debt securities		40,000		40,005		40,059
	W	14,391,102		24,456,283		24,249,160

65

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

6. Securities Measured at FVOCI, Continued

Equity instruments that are held by acquisition due to conversion from debt instruments, investment in kind and investment in ventures and SMEs are designated as measured at FVOCI. The realized pre-tax income and loss on disposal of equity securities for the years ended December 31, 2020 and 2019 are the amount of W56,331 million of loss and W27,322 million of gain, respectively, which is directly recognized in retained earnings.

(2) Changes in securities measured at FVOCI for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Beginning balance	W	24,249,160			22,805,676
Acquisition		57,798,921			24,034,431
Disposal		(50,600,127	)		(22,683,403	)
Change due to amortization		(47,692	)		(9,846	)
Change in fair value		3,046,042			(82,713	)
Reclassification		—			(4,846	)
Foreign exchange differences		(318,693	)		147,463
Others (*)		13,714			42,398
Ending balance	W	34,141,325			24,249,160

(*) For the year ended December 31, 2020, others represent the increase in securities measured at FVOCI including shares of SOLUM CO., LTD. acquired through exercise of conversion rights of the convertible bonds, shares of POSCO PLANTEC CO., LTD. and High Gain Antenna Co., Ltd. acquired pursuant to decision of the Council of Financial Creditors under the Corporate Restructuring Promotion Act, and shares of Barun Electronics Co., Ltd., STEELLIFE Co., C-PRO ELECTRONICS CO., LTD., Dong-A Tanker Co., SEOKJIN E&T CO., LTD., Sung Chang Inter Fashion Co., Ltd. and others acquired in accordance with the rehabilitation plan under the Debtor Rehabilitation and Bankruptcy Act. For the year ended December 31, 2019, others represent the increase in securities measured at FVOCI including shares of Ecopro BM Co., Ltd., Kuk-Il Paper MFG Co., Ltd., TRUWIN Co., Ltd., Solid Inc. and others acquired through exercise of conversion rights of the convertible bonds.

66

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

6. Securities Measured at FVOCI, Continued

(3) Equity securities with disposal restrictions in securities measured at FVOCI as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
Company	Number of shares		Carrying amount		Restricted period
UAMCO., Ltd.		113,050	W	150,244		Undecided
High Gain Antenna Co., Ltd.		18,138		—		Undecided
Engine Tech Co., Ltd.		500,000		1		Undecided
Taihan Electric Wire Co., Ltd.		15,892,055		21,772		Undecided
POSCO Plantec Co., Ltd.		1,838,744		2,468		Until June 9, 2021
CREA IN Co., Ltd.		14,383		140		Until December 21, 2021
Kumho Tire Co., Inc.		21,339,320		80,769		Until July 6, 2023(*)
		39,715,690	W	255,394

Company	December 31, 2019
	Number of shares		Carrying amount		Restricted period
UAMCO., Ltd.		85,050	W	122,850		Undecided
Engine Tech Co., Ltd.		500,000		77		Undecided
Taihan Electric Wire Co., Ltd.		15,892,055		9,790		Undecided
CREA IN Co., Ltd.		14,383		56		Until December 21, 2021
Kumho Tire Co., Inc.		21,339,320		89,518		Until July 6, 2023(*)
		37,830,808	W	222,291

(*) From July 6, 2021, 50% of the shares may be sold every year.

(4) Changes in the loss allowance in relation to securities measured at FVOCI for the years ended December 31, 2020 and 2019 are as follows:

	2020
	Lifetime expected credit loss
	12-month expected credit loss			Non credit- Impaired			Credit- impaired			Total
Beginning balance	W	2,354			116			71,336			73,806
Transfer to 12-month expected credit loss		3			(3	)		—			—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired debt securities		(361	)		361			—			—
Transfer to credit-impaired debt securities		—			—			—			—
Increase (reversal) of loss allowance		8,177			300			60			8,537
Disposal		(130	)		—			—			(130	)
Foreign currency translation, etc.		(372	)		435			(998	)		(935	)
Ending balance	W	9,671			1,209			70,398			81,278

67

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

6. Securities Measured at FVOCI, Continued

	2019
	Lifetime expected credit loss
	12-month expected credit loss			Non credit- impaired			Credit- impaired			Total
Beginning balance	W	3,479			2,169			70,846			76,494
Transfer to 12-month expected credit loss		25			(25	)		—			—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired debt securities		(116	)		116			—			—
Transfer to credit-impaired debt securities		—			—			—			—
Reversal of loss allowance		(238	)		(42	)		(1,805	)		(2,085	)
Disposal		(915	)		(2,125	)		—			(3,040	)
Foreign currency translation, etc.		119			23			2,295			2,437
Ending balance	W	2,354			116			71,336			73,806

7. Securities Measured at Amortized Cost

(1) Securities measured at amortized cost as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Amortized cost			Fair value
Securities denominated in Korean won:
Government and public bonds	W	665,183			665,183
Financial bonds		120,090			120,081
		785,273			785,264
Less: loss allowance		(9	)		—
	W	785,264			785,264

	December 31, 2019
	Amortized cost			Fair value
Securities denominated in Korean won:
Government and public bonds	W	291,338			291,339
Financial bonds		1,210,611			1,210,608
		1,501,949			1,501,947
Less: loss allowance		(2	)		—
	W	1,501,947			1,501,947

(2) Changes in securities measured at amortized cost for the years ended December 31, 2020 and 2019 are as follows:

68

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

	2020			2019
Beginning balance	W	1,501,947			1,695,927
Acquisition		657,701			552,563
Redemption		(1,370,003	)		(745,101	)
Change due to amortization		(4,374	)		(1,440	)
Impairment loss		(7	)		(2	)
Ending balance	W	785,264			1,501,947

8. Loans Measured at FVTPL

(1) Loans measured at FVTPL as of December 31, 2020 and 2019 are as follows:

	December 31, 2020				December 31, 2019
	Amortized cost		Fair value (Carrying amounts)		Amortized cost		Fair value (Carrying amounts)
Loans in Korean won:
Privately placed corporate bonds	W	795,871		1,429,258		600,845		604,380
Loans in foreign currencies/off-shores:
Privately placed corporate bonds		5,440		5,256		—		—
	W	801,311		1,434,514		600,845		604,380

(2) Gains (losses) related to loans measured at FVTPL for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Transaction gains (losses) on loans measured at FVTPL
Transaction gains	W	4,568			23,456
Transaction losses		(29,155	)		(27,231	)
		(24,587	)		(3,775	)
Valuation gains (losses) on loans measured at FVTPL
Valuation gains		676,776			59,719
Valuation losses		(27,509	)		(16,798	)
		649,267			42,921
	W	624,680			39,146

69

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

9. Loans Measured at Amortized Cost

(1) Loans measured at amortized cost and loss allowance for loan as of December 31, 2020 and 2019 are as follows:

	December 31, 2020					December 31, 2019
	Amortized cost			Fair value		Amortized cost			Fair value
Loans in Korean won:
Loans for working capital	W	63,711,135			62,132,170		53,197,392			51,817,885
Loans for facility development		51,237,311			50,692,553		45,905,137			45,694,511
Loans for households		238,011			240,468		320,911			323,902
Inter-bank loans		2,710,868			2,589,344		2,340,737			2,209,054
		117,897,325			115,654,535		101,764,177			100,045,352
Loans in foreign currencies:
Loans		17,196,875			16,860,390		15,902,373			16,262,859
Inter-bank loans		1,636,589			1,636,166		2,607,758			2,603,090
Off-shore loans		14,697,580			14,387,438		14,509,257			14,427,037
		33,531,044			32,883,994		33,019,388			33,292,986
Other loans:
Bills bought in foreign currency		2,198,964			2,198,079		1,908,750			1,903,395
Advances for customers on acceptances and guarantees		49,908			10,776		181,219			21,865
Privately placed corporate bonds		1,182,436			969,648		560,909			343,314
Others		4,223,895			4,102,454		5,551,613			5,497,315
		7,655,203			7,280,957		8,202,491			7,765,889
		159,083,572			155,819,486		142,986,056			141,104,227
Less:
Loss allowance for loan		(3,776,491	)				(3,105,782	)
Present value discount		(15,906	)				(15,820	)
Deferred loan origination costs and fees		9,003					7,188
	W	155,300,178					139,871,642

70

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

9. Loans Measured at Amortized Cost, Continued

(2) Changes in loss allowance for loan for the years ended December 31, 2020 and 2019 are as follows:

	2020
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired			Total
Beginning balance	W	169,293			1,045,942			1,890,547			3,105,782
Transfer to 12-month expected credit loss		60,305			(60,305	)		—			—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired loans		(256,809	)		279,451			(22,642	)		—
Transfer to credit-impaired loans		(90,489	)		(124,895	)		215,384			—
Provision for (reversal of) loss allowance		775,958			116,607			284,462			1,177,027
Write-offs		—			—			(158,616	)		(158,616	)
Recovery		—			—			54,239			54,239
Sale		—			—			(272,431	)		(272,431	)
Debt-to-equity swap		—			—			(415,141	)		(415,141	)
Foreign currency translation		(2,105	)		(11,221	)		(5,862	)		(19,188	)
Other		(16,059	)		152,882			167,996			304,819
Ending balance	W	640,094			1,398,461			1,737,936			3,776,491

	2019
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired			Total
Beginning balance	W	169,303			1,756,622			1,613,149			3,539,074
Transfer to 12-month expected credit loss		14,989			(14,868	)		(121	)		—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired loans		(53,755	)		56,706			(2,951	)		—
Transfer to credit-impaired loans		(135,492	)		(293,151	)		428,643			—
Provision for loss allowance		173,638			(516,153	)		402,320			59,805
Write-offs		—			—			(149,932	)		(149,932	)
Recovery		—			—			23,960			23,960
Sale		—			—			(238,518	)		(238,518	)
Debt-to-equity swap		—			—			(231,880	)		(231,880	)
Foreign currency translation		1,083			13,513			10,376			24,972
Other		(473	)		43,273			35,501			78,301
Ending balance	W	169,293			1,045,942			1,890,547			3,105,782

71

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

9. Loans Measured at Amortized Cost, Continued

(3) Gains (losses) related to loans measured at amortized cost for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Provision for allowance for loan losses	W	(1,177,027	)		(59,805	)
Losses on disposal of loan		(109,719	)		(99,525	)
	W	(1,286,746	)		(159,330	)

(4) Changes in net deferred loan origination costs and fees for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Beginning balance	W	7,188			15,314
New deferrals		14,609			6,937
Amortization		(12,794	)		(15,063	)
Ending balance	W	9,003			7,188

10. Derivative Financial Instruments

The Bank’s derivative financial instruments consist of trading derivatives and hedging derivatives, depending on the nature of each transaction. The Bank enters into hedging derivative transactions mainly for the purpose of hedging risk related to changes in fair values of the underlying assets and liabilities and future cash flows.

The Bank enters into trading derivative transactions such as futures, forwards, swaps and options for arbitrage transactions by speculating on the future value of the underlying asset. Derivatives held-for trading transactions include contracts with the Bank’s clients and its liquidation position.

For the purpose of hedging the exposure to the variability of fair values and cash flows of funds in Korean won by changes in interest rate, the Bank mainly uses interest swaps or currency swaps. The main counterparties are foreign financial institutions and local banks. In addition, to hedge the exposure to the variability of fair values of bonds in foreign currencies by changes in interest rate or foreign exchange rate, the Bank mainly uses interest swaps or currency swaps.

The Bank applies net investment hedge accounting by designating non-derivative financial instruments as hedging instruments and any gain or loss on the hedging instruments relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated in the foreign currency translation reserve.

Gains and losses on the hedging instrument accumulated in the foreign currency translation reserve are reclassified to profit or loss on the disposal or partial disposal of the foreign operation.

72

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

10. Derivative Financial Instruments, Continued

(1) The notional amounts outstanding for derivative contracts and the carrying amounts of the derivative financial instruments as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Notional amounts				Carrying amounts
	Buy		Sell		Asset			Liability
Trading purpose derivative financial instruments:
Interest rate
Futures	W	55,000		151,200		—			—
Swaps		187,095,329		187,096,172		1,493,796			811,643
Options		9,055,649		12,890,976		291,068			329,946
		196,205,978		200,138,348		1,784,864			1,141,589
Currency
Futures		16,320		—		—			—
Forwards		58,129,120		49,012,225		1,807,677			2,251,316
Swaps		50,228,615		56,919,490		3,285,228			2,808,945
Options		422,146		403,029		2,909			5,299
		108,796,201		106,334,744		5,095,814			5,065,560
Stock
Futures		—		—		—			—
Options		53,571		7,315		8,214			661
		53,571		7,315		8,214			661
Allowance and other adjustments		—		—		(7,921	)		(908	)
		305,055,750		306,480,407		6,880,971			6,206,902
Hedging purpose derivative financial instruments:
Interest rate (*)
Swaps		18,877,120		18,877,120		885,364			19,567
Currency
Swaps		8,308,800		7,985,902		563,558			83,201
Allowance and other adjustments		—		—		(517	)		(4,383	)
		27,185,920		26,863,022		1,448,405			98,385
	W	332,241,670		333,343,429		8,329,376			6,305,287

(*) The expected maximum period for which derivative contracts, applied the cash flow hedge accounting, are exposed to risk of cash flow fluctuation is until April 29, 2025.

73

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

10. Derivative Financial Instruments, Continued

	December 31, 2019
	Notional amounts				Carrying amounts
	Buy		Sell		Asset			Liability
Trading purpose derivative financial instruments:
Interest rate
Futures	W	—		1,885,190		—			—
Swaps		221,240,309		221,240,869		1,210,141			704,385
Options		7,480,126		12,736,326		246,636			312,188
		228,720,435		235,862,385		1,456,777			1,016,573
Currency
Futures		17,367		—		—			—
Forwards		91,778,527		85,052,344		1,743,010			1,519,732
Swaps		50,446,341		56,239,865		1,347,902			1,444,421
Options		214,646		171,284		1,134			2,813
		142,456,881		141,463,493		3,092,046			2,966,966
Stock
Forwards		—		3,564		—			—
Options		59,964		89,672		10,054			641
		59,964		93,236		10,054			641
Allowance and other adjustments		—		—		(32,691	)		(628	)
		371,237,280		377,419,114		4,526,186			3,983,552
Hedging purpose derivative financial instruments:
Interest rate (*)
Swaps		21,931,900		21,931,900		827,596			17,071
Currency
Swaps		7,681,686		7,869,665		79,333			175,833
Allowance and other adjustments		—		—		(308	)		(4,788	)
		29,613,586		29,801,565		906,621			188,116
	W	400,850,866		407,220,679		5,432,807			4,171,668

(*) The expected maximum period for which derivative contracts, applied the cash flow hedge accounting, are exposed to risk of cash flow fluctuation is until September 11, 2020.

74

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

10. Derivative Financial Instruments, Continued

(2) The notional amounts outstanding for the hedging instruments by period as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Interest rate:
Notional amounts outstanding	W	47,200		154,043		3,015,053		10,843,135		4,817,689		18,877,120
Currency:
Notional amounts outstanding	W	77,504		290,040		1,851,289		5,711,249		378,718		8,308,800

	December 31, 2019
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Interest rate:
Notional amounts outstanding	W	30,103		1,059,731		3,562,271		10,354,523		6,925,272		21,931,900
Currency:
Notional amounts outstanding	W	60,099		58,009		1,734,965		5,410,430		418,183		7,681,686

(3) Details of the balances of the hedging instruments by risk type as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Notional amounts				Balances				Changes in fair value for 2020
	Buy		Sell		Assets		Liabilities
Cash flow hedge accounting:
Interest rate risk Swaps	W	76,160		76,160		—		—		23
Fair value hedge accounting:
Interest rate risk Swaps		18,800,960		18,800,960		885,364		19,567		358,347
Currency risk Swaps		8,308,800		7,985,902		563,558		83,201		502,957
		27,109,760		26,786,862		1,448,922		102,768		861,304
	W	27,185,920		26,863,022		1,448,922		102,768		861,327

75

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

10. Derivative Financial Instruments, Continued

	December 31, 2019
	Notional amounts				Balances				Changes in fair value for 2019
	Buy		Sell		Assets		Liabilities
Cash flow hedge accounting:
Interest rate risk Swaps	W	340,000		340,000		—		508		302
Fair value hedge accounting:
Interest rate risk Swaps		21,591,900		21,591,900		827,596		16,563		493,545
Currency risk Swaps		7,681,686		7,869,665		79,333		175,833		(19,778	)
		29,273,586		29,461,565		906,929		192,396		473,767
	W	29,613,586		29,801,565		906,929		192,904		474,069

(4) Details of the balances of the hedged items by risk type as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Carrying amounts				Change in value of the hedged item				Changes in fair value for 2020			Cash flow hedge reserve
	Assets		Liabilities		Assets		Liabilities
Cash flow hedge accounting:
Interest rate risk Debt debentures	W	—		76,160		—		—		—			47
Fair value hedge accounting:
Interest rate risk Securities measured at FVOCI		1,922,565		—		18,217		—		47,606			—
Debt debentures		—		18,549,949		—		628,869		(396,922	)		—
Other liabilities (Deposits, etc.)		—		120,394		—		11,594		(8,770	)		—
		1,922,565		18,670,343		18,217		640,463		(358,086	)		—
Currency risk
Debt debentures		—		8,413,087		—		24,675		(503,895	)		—
		1,922,565		27,083,430		18,217		665,138		(861,981	)		—
	W	1,922,565		27,159,590		18,217		665,138		(861,981	)		47

76

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

10. Derivative Financial Instruments, Continued

	December 31, 2019
	Carrying amounts				Change in value of the hedged item				Changes in fair value for 2019			Cash flow hedge reserve
	Assets		Liabilities		Assets		Liabilities
Cash flow hedge accounting:
Interest rate risk Debt debentures	W	—		340,000		—		—		—			(403	)
Fair value hedge accounting:
Interest rate risk Securities measured at FVOCI		1,775,986		—		7,089		—		34,518			—
Debt debentures		—		21,557,631		—		288,378		(513,063	)		—
Other liabilities (Deposits, etc.)		—		118,785		—		3,005		(9,424	)		—
		1,775,986		21,676,416		7,089		291,383		(487,969	)		—
Currency risk
Debt debentures		—		9,384,387		—		43,847		15,932			—
		1,775,986		31,060,803		7,089		335,230		(472,037	)		—
	W	1,775,986		31,400,803		7,089		335,230		(472,037	)		(403	)

(5) Details of hedge ineffectiveness recognized in profit or loss from derivatives for the years ended December 31, 2020 and 2019 is as follows:

	2020			2019
Interest rate risk	W	261			5,576
Currency risk		(938	)		(3,846	)
	W	(677	)		1,730

(6) The summary of the amounts that have affected the statement of comprehensive income as a result of applying cash flow hedge accounting for the years ended December 31, 2020 and 2019 is as follows:

	2020
	Change in the value of the hedging instrument recognized in other comprehensive income		Hedge ineffectiveness recognized in profit or loss (*)			Amount reclassified from other comprehensive income to profit or loss(*)
Interest rate risk	W	47		(24	)		403

(*) Recognized in gains or losses related to hedging purpose derivatives.

	2019
	Change in the value of the hedging instrument recognized in other comprehensive income		Hedge ineffectiveness recognized in profit or loss (*)		Amount reclassified from other comprehensive income to profit or loss (*)
Interest rate risk	W	300		2		1,876

(*) Recognized in gains or losses related to hedging purpose derivatives.

77

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

10. Derivative Financial Instruments, Continued

(7) Details of net investments in foreign operations for the years ended December 31, 2020 and 2019 are as follows:

	2020
	Changes in fair value			Other comprehensive income for hedges of net investments in foreign operations
Currency (foreign exchange risk)	W	(43,437	)		(48,975	)

	2019
	Changes in fair value			Other comprehensive income for hedges of net investments in foreign operations
Currency (foreign exchange risk)	W	(5,538	)		5,538

(8) Details of hedging instruments in hedge of net investments in foreign operations as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Carrying amount		Changes in fair value for 2020		Change in the value of the hedging instrument recognized in other comprehensive income for 2020		Hedge ineffectiveness recognized in profit or loss for 2020
Debentures in foreign currencies	W	732,566		43,437		43,437		—

	December 31, 2019
	Carrying amount		Changes in fair value for 2019		Change in the value of the hedging instrument recognized in other comprehensive income for 2019		Hedge ineffectiveness recognized in profit or loss for 2019
Debentures in foreign currencies	W	734,718		5,538		5,538		—

(9) In relation to interest rate benchmark reform, the amendments provide a practical expedient allowing entities to change the effective interest rate instead of changing the carrying amount and apply hedge accounting without discontinuance although the interest rate benchmark is replaced in hedging relationship. The notional amounts outstanding for hedging derivative instruments affected by Interest Rate Benchmark Reform as of December 31, 2020 are as follows:

	Notional amounts
USD 3M LIBOR	W	17,393,414
KRW 3M CD		2,635,000
EUR 3M EURIBOR		537,149
EUR 6M EURIBOR		669,120
GBP 6M LIBOR		205,904
JPY 3M LIBOR		23,194

78

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

11. Investments in Subsidiaries and Associates

(1) Investments in subsidiaries and associates as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Subsidiaries:(*1)
KDB Asia Ltd.	W	332,907		332,907
KDB Bank Europe Ltd.(*2)		144,659		151,952
KDB Ireland Ltd.		62,389		62,389
KDB Bank Uzbekistan Ltd.		47,937		47,937
Banco KDB Do Brazil S.A.(*3)		31,270		45,548
KDB Indonesia Ltd.		40,233		—
KDB Investment Co., Ltd.		70,000		70,000
KDB Biz Co., Ltd.		1,500		1,500
KDB Capital Corporation		597,290		597,290
Korea BTL Financing 1		156,109		169,106
Korea Railroad Financing 1		90,316		96,015
Korea Education Financing		50,274		54,759
KDB Infrastructure Investment Asset Management Co., Ltd.		16,843		16,843
Korea Infrastructure Financing Co.(*4)		2,313		4,584
KDB Investment PEF No.1(*5)		977,570		948,758
KDB Consus Value PEF(*6)		157,759		334,086
KDB Sigma PEF II		18,468		116,445
KDB Value PEF VII		9,231		16,031
KDB-IAP OBOR PEF(*7)		6,086		34,140
KDB Asia PEF		26,326		15,157
KDB Small Medium Mezzanine PEF		81,740		47,741
Corporate Liquidity Assistance Agency Co., Ltd.		1,000,000		—
		3,921,220		3,163,188
Associates:
Korea Electric Power Co., Ltd.		16,921,067		16,921,067
Korea Tourism Organization		337,286		337,286
Korea Infrastructure Financing 2 Co.		219,902		220,394
Korea Ocean Business Corporation		631,777		631,777
Korea Real Estate Board		58,492		58,492
HMM Co., Ltd.		78,835		78,835
GM Korea Company(*8)		436,930		401,512
Hanjin Heavy Industries & Construction Co., Ltd.(*9)		—		66,665
HANJIN KAL		500,000		—
Multi Asset Electronic Power PEF		19,464		20,749
Shinbundang Railroad Co., Ltd.(*10)		30,999		9,422
Troika Resources Investment PEF(*11)		2,336		3,558
Others(*12)		2,395,253		2,277,157
		21,632,341		21,026,914
	W	25,553,561		24,190,102

79

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

(*1) The Bank acquired an additional 172,732 of common shares of Daehan Shipbuilding Co., Ltd. and recognized W1,727 million of impairment losses for the year ended December 31, 2020, considering the impaired capital of Daehan Shipbuilding Co., Ltd. as objective evidence of impairment.

(*2) The Bank recognized W58,965 million of impairment losses for the year ended December 31, 2020, considering decrease in value in use due to deterioration of expected cash flows from the shares held by the Bank.

(*3) The Bank recognized W14,279 million of impairment losses for year ended December 31, 2020, considering decrease in value in use due to deterioration of expected cash flows from the shares held by the Bank and W1,907 million of reversal of impairment losses for year ended December 31, 2019.

(*4) The Bank recognized W175 million and W177 million of impairment losses for years December 31, 2020 and 2019, respectively, considering the decline in net asset values due to the decrease in fair value of assets held as objective evidence of impairment.

(*5) For the year ended December 31, 2019, KDB Value PEF VI was liquidated and KDB Investment PEF NO.1 is acquired. Through this transaction, the shares of Daewoo Engineering & Construction Co., Ltd. held by KDB Value PEF VI as sub-subsidiary were transferred to KDB Investment PEF NO.1 whereby the Bank maintained its control over Daewoo Engineering & Construction Co., Ltd. The Bank considered the transfer as a transaction between subsidiaries under common control and does not recognized gain or loss on the transfer in the separate financial statements. Additionally, the Bank recognized W2,153 million and W38,124 million of reversal of impairment losses for the years ended December 31, 2020 and 2019, respectively, considering the change in the value in use of cash-generating units based on its estimation of expected cash flows.

(*6) The Bank signed a stock purchase agreement with JC Partners on the December 31, 2020 to sell the Bank’s shares of KDB Life Insurance Co., Ltd., the Bank’s sub-subsidiary. The Bank recognized W176,327 million of impairment losses for the year ended December 31, 2020 based on the expected cash flows distributed to the Bank through the disposal of KDB Life Insurance Co., Ltd. and recognized W77,067 million of impairment losses for the year ended December 31, 2019.

(*7) The Bank recognized W28,054 million of impairment losses for year December 31, 2020, considering the decline in net asset values due to the decrease in fair value of assets held as objective evidence of impairment.

(*8) The Bank recognized W35,417 million of reversal of impairment losses for year ended December 31, 2020, considering increase in value in use due to improvement of operating cash flows and W48,991 million of impairment losses for year ended December 31, 2019.

(*9) The Bank picked Dongbu-led consortium as the preferred bidder for Hanjin Heavy Industries & Construction Co., LTD. on December 22, 2020, which was reclassified as assets held for sale for the year ended December 31, 2020 (Note 16). The Bank recognized W11,613 million of reversal of impairment losses for the year ended December 31, 2020 based on the expected cash flows distributed to the Bank through the disposal of Hanjin Heavy Industries & Construction Co., LTD. and recognized W72,445 million of impairment losses for the year ended December 31, 2019.

(*10) The Bank recognized W21,577 million and W601 million of reversal of impairment losses for the years ended December 31, 2020 and 2019, respectively, considering increase in fair value due to improvement of expected dividend cash flows from the shares held by the Bank.

(*11) The Bank recognized W1,222 million and W5,292 million of impairment losses for years December 31, 2020 and 2019, respectively, considering the decline in net asset values due to the decrease in fair value of assets held as objective evidence of impairment.

80

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

(*12) The Bank recognized W29,503 million of impairment losses for KBS KDB PEF and 19 other companies for the year ended December 31, 2020. The Bank recognized W11,025 million of impairment losses for KBS KDB PEF and 18 other companies for the year ended December 31, 2019.

(2) The market value of marketable investments in subsidiaries and associates as of December 31, 2020 and 2019 are as follows:

	Market value				Carrying amounts
	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
Korea Electric Power Co., Ltd.	W	5,787,846		5,872,340		16,921,067		16,921,067
HMM Co., Ltd.		574,730		146,258		78,835		78,835
Hanjin Heavy Industries & Construction Co., Ltd.(*)		—		67,001		—		66,665
HANJIN KAL		445,621		—		500,000		—
KG Dongbu Steel Co., Ltd.		127,359		103,622		67,599		81,746

(*) The Bank reclassified the shares to assets held for sale.

81

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

(3) The key financial information of subsidiaries and associates invested and ownership ratios as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Country		Fiscal year end		Industry		Assets		Liabilities		Equity			Operating revenue		Net income (loss)			Total compre- hensive income (loss)			Owner- ship (%)
Subsidiaries:
KDB Asia Ltd.		Hong Kong		December		Finance	W	2,693,398		2,222,031		471,367			132,319		12,603			(18,151	)		100.00
KDB Bank Europe Ltd.		Hungary		December		Finance		1,191,023		1,079,628		111,395			55,804		(15,780	)		(26,355	)		100.00
KDB Ireland Ltd.		Ireland		December		Finance		468,754		369,654		99,100			23,062		4,572			(1,828	)		100.00
KDB Bank Uzbekistan Ltd.		Uzbekistan		December		Finance		628,874		562,988		65,886			24,028		8,401			(4,776	)		86.32
Banco KDB Do Brazil S.A.		Brazil		December		Finance		315,666		257,100		58,566			96,007		1,917			(19,812	)		100.00
KDB Indonesia Ltd.		Indonesia		December		Finance		87,891		57,455		30,436			12,345		1,831			1,831			84.65
Daewoo Shipbuilding & Marine Engineering Co., Ltd.		Korea		December		Manufacturing		10,320,775		6,451,804		3,868,971			7,030,175		86,573			114,107			55.68
Sam Woo Heavy Industries Co., Ltd. (*1)		Korea		December		Manufacturing		253,735		231,394		22,341			135,932		1,037			1,104			100.00
Daehan Shipbuilding Co., Ltd. (*1)		Korea		December		Manufacturing		636,255		790,594		(154,339	)		765,204		(5,518	)		(5,704	)		70.04
KDB Capital Corporation		Korea		December		Specialized Credit Finance		6,607,724		5,518,888		1,088,836			431,722		173,681			171,657			99.92
Korea BTL Financing 1 (*2)		Korea		Semi- annually		Financial investment		395,038		259		394,779			14,120		6,822			6,822			41.67
Korea Railroad Financing 1 (*2)		Korea		Semi- annually		Financial investment		190,706		9		190,697			9,681		9,201			9,201			50.00
Korea Education Financing (*2)		Korea		Semi- annually		Financial investment		108,656		7		108,649			7,275		6,994			6,994			50.00
KDB Infrastructure Investment Asset Management Co., Ltd.		Korea		December		Asset management		59,818		10,715		49,103			35,072		17,972			17,951			84.16
KDB Investment Co., Ltd.		Korea		December		Finance		77,601		2,997		74,604			9,420		3,042			3,054			100.00
KDB Biz Co., Ltd.		Korea		December		Services		8,207		5,907		2,300			25,468		1,149			603			100.00
Korea Infrastructure Financing Co.		Korea		December		Financial investment		2,777		12		2,765			191		(22	)		(22	)		85.00
KDB Investment PEF No.1		Korea		December		Financial investment		9,701,074		7,233,393		2,467,681			8,361,795		58,745			23,799			99.46
KDB Consus Value PEF		Korea		December		Financial investment		19,548,528		19,015,550		532,978			8		(140,754	)		(172,013	)		68.20
KDB Sigma PEF II		Korea		December		Financial investment		39,432		1		39,431			51,694		51,465			52,715			60.00
KDB Value PEF VII (*3)		Korea		December		Financial investment		27,294		82		27,212			763		(154	)		(154	)		50.00
KDB-IAP OBOR PEF (*3)		Korea		December		Financial investment		119,687		49,307		70,380			—		(23,969	)		(28,026	)		33.52
KDB Asia PEF (*3)		Korea		December		Financial investment		46,847		175		46,672			—		4,910			(5,606	)		50.00
KDB Small Medium Mezzanine PEF		Korea		December		Financial investment		120,692		377		120,315			9,416		(4,740	)		(5,655	)		66.67
Corporate Liquidity Assistance Agency Co., Ltd.		Korea		December		Financial investment		2,992,986		1,990,277		1,002,709			20,419		2,709			2,709			100.00
Components and Materials M&A PEF		Korea		December		Financial investment		1,076		1,827		(751	)		2		(13	)		(13	)		83.33

82

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

	December 31, 2020
	Country	Fiscal year end	Industry	Assets		Liabilities		Equity			Operating revenue		Net income (loss)			Total compre- hensive income (loss)			Owner- ship (%)
Associates:
Korea Electric Power Co., Ltd.	Korea	December	Electricity Generation		203,142,111		132,475,265		70,666,846			58,569,314		1,991,347			1,802,824			32.90
Korea Tourism Organization	Korea	December	Culture and Tourism administration		1,351,779		388,854		962,925			488,285		(56,712	)		(60,819	)		43.58
Korea Infrastructure Financing 2 Co.	Korea	December	Financial investment		874,470		31,518		842,952			68,022		47,318			47,318			26.67
Korea Ocean Business Corporation	Korea	December	Finance		8,826,068		3,842,127		4,983,941			3,597,982		2,689,659			2,690,496			22.33
Korea Real Estate Board (formerly known as Korea Appraisal Board)	Korea	December	Appraisal		263,852		52,438		211,414			177,955		5,540			3,093			30.60
GM Korea Company (*4)	Korea	December	Manufacturing		5,415,322		3,739,509		1,675,813			8,504,588		(302,847	)		(302,847	)		17.02
HMM Co., Ltd. (*5)	Korea	December	Foreign cargo transportation		9,373,360		7,684,812		1,688,548			6,413,270		123,889			(33,766	)		12.61
HANJIN KAL (*4)	Korea	December	Holding compnay		3,488,569		1,824,304		1,664,265			408,827		(269,846	)		(222,157	)		10.66
Multi Asset Electronic Power PEF	Korea	December	Financial investment		70,913		213		70,700			36,330		36,218			36,218			50.00
Shinbundang Railroad Co., Ltd. (*6)	Korea	December	Other		679,176		999,986		(320,810	)		76,427		(50,329	)		(50,329	)		10.98
Troika Resources Investment PEF (*7)	Korea	December	Financial investment		5,496		1,286		4,210			312		(131	)		(131	)		54.94

83

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

	December 31, 2019
	Country		Fiscal year end		Industry		Assets		Liabilities		Equity			Operating revenue		Net income (loss)			Total compre- hensive income (loss)			Owner- ship (%)
Subsidiaries:
KDB Asia Ltd.		Hong Kong		December		Finance	W	2,777,476		2,287,958		489,518			123,138		18,871			30,694			100.00
KDB Bank Europe Ltd.		Hungary		December		Finance		1,274,243		1,188,166		86,077			68,749		7,584			4,532			100.00
KDB Ireland Ltd.		Ireland		December		Finance		436,368		335,440		100,928			31,404		6,818			14,164			100.00
KDB Bank Uzbekistan Ltd.		Uzbekistan		December		Finance		466,389		395,726		70,663			29,555		11,291			5,403			86.32
Banco KDB Do Brazil S.A.		Brazil		December		Finance		304,220		225,841		78,379			76,423		6,099			5,933			100.00
Daewoo Shipbuilding & Marine Engineering Co., Ltd.		Korea		December		Manufacturing		11,276,079		7,521,182		3,754,897			8,358,745		(46,485	)		(85,325	)		55.72
Shinhan Heavy Industries Co., Ltd.		Korea		December		Manufacturing		310,463		328,024		(17,561	)		235,832		(59,495	)		(58,749	)		89.22
Sam Woo Heavy Industries Co., Ltd. (*1)		Korea		December		Manufacturing		270,365		249,128		21,237			155,997		(11,542	)		(12,036	)		100.00
Daehan Shipbuilding Co., Ltd. (*1)		Korea		December		Manufacturing		637,978		786,612		(148,634	)		642,586		(31,747	)		(32,901	)		70.04
KDB Capital Corporation		Korea		December		Specialized Credit Finance		5,884,821		4,924,781		960,040			454,281		104,141			104,287			99.92
Korea BTL Financing 1 (*2)		Korea		Semi- annually		Financial investment		433,060		284		432,776			40,240		38,966			38,966			41.67
Korea Railroad Financing 1 (*2)		Korea		Semi- annually		Financial investment		197,732		9		197,723			10,965		10,459			10,459			50.00
Korea Education Financing (*2)		Korea		Semi- annually		Financial investment		114,228		6		114,222			7,173		6,871			6,871			50.00
KDB Infrastructure Investment Asset Management Co., Ltd.		Korea		December		Asset management		57,428		11,676		45,752			35,291		19,478			19,422			84.16
KDB Investment Co., Ltd.		Korea		December		Finance		74,223		2,673		71,550			4,556		1,737			1,675			100.00
KDB Biz Co., Ltd.		Korea		December		Services		5,135		3,438		1,697			12,966		197			197			100.00
Korea Infrastructure Financing Co.		Korea		December		Financial investment		5,526		5		5,521			663		595			595			85.00
KDB Investment PEF No.1		Korea		December		Financial investment		10,246,043		7,849,961		2,396,082			8,847,952		47,432			31,369			99.46
KDB Consus Value PEF		Korea		December		Financial investment		19,192,695		18,449,320		743,375			3,653,764		(157,839	)		(33,496	)		68.20
KDB Sigma PEF II		Korea		December		Financial investment		197,849		497		197,352			3,228		8,008			7,980			60.00
KDB Value PEF VII		Korea		December		Financial investment		41,729		163		41,566			32,913		21,502			21,502			50.00
KDB-IAP OBOR PEF		Korea		December		Financial investment		151,973		51,756		100,217			—		7,371			10,749			33.52
KDB Asia PEF		Korea		December		Financial investment		30,112		191		29,921			—		(3,986	)		2,401			50.00
KDB Small Medium Mezzanine PEF		Korea		December		Financial investment		75,726		756		74,970			5,018		4,754			4,880			66.67
Components and Materials M&A PEF		Korea		December		Financial investment		1,081		1,819		(738	)		5		(62	)		(62	)		83.33
KDB Venture M&A PEF		Korea		December		Financial investment		120		7,910		(7,790	)		—		—			—			57.56

84

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

11. Investments in Subsidiaries and Associates, Continued

	December 31, 2019
	Country	Fiscal year end	Industry	Assets		Liabilities		Equity			Operating revenue		Net income (loss)			Total compre- hensive income (loss)			Owner- ship (%)
Associates:
Korea Electric Power Co., Ltd.	Korea	December	Electricity Generation		197,597,792		128,708,143		68,889,649			59,172,890		(2,345,517	)		(2,239,147	)		32.90
Korea Tourism Organization	Korea	December	Culture and Tourism administration		1,569,185		497,038		1,072,147			787,216		6,803			5,430			43.58
Korea Infrastructure Financing 2 Co.	Korea	December	Financial investment		929,296		70,245		859,051			106,095		99,085			99,085			26.67
Korea Ocean Business Corporation	Korea	December	Finance		4,358,100		2,069,521		2,288,579			205,269		(167,419	)		(167,181	)		22.33
Korea Appraisal Board	Korea	December	Appraisal		261,541		50,658		210,883			162,458		6,210			4,420			30.60
GM Korea Company (*4)	Korea	December	Manufacturing		5,492,399		3,550,438		1,941,961			8,438,789		(356,831	)		(356,831	)		17.02
HMM Co., Ltd. (*5)	Korea	December	Foreign cargo transportation		7,160,187		6,069,878		1,090,309			5,513,089		(589,927	)		(612,482	)		12.94
Hanjin Heavy Industries & Construction Co., Ltd. (*5)	Korea	December	Construction		2,470,222		2,225,228		244,994			1,628,751		305,753			267,121			16.14
Multi Asset Electronic Power PEF	Korea	December	Financial investment		64,187		256		63,931			28,674		28,489			28,489			50.00
Shinbundang Railroad Co., Ltd. (*6)	Korea	December	Other		704,546		975,027		(270,481	)		103,015		(18,938	)		(18,938	)		10.98
Troika Resources Investment PEF (*7)	Korea	December	Financial investment		5,687		1,345		4,342			135		3,458			3,458			54.94

(*1) The Bank consolidates the investees which were subsidiaries of Daewoo Shipbuilding & Marine Engineering Co., Ltd. as the Bank has control over the investees through the commencement of the administrative proceeding for the year ended December 31, 2017.

(*2) The investees are financed by the Bank and managed by KDB Infrastructure Investments Asset Management Co., Ltd. They were included in the scope of consolidation even though the Bank holds less than half of the voting rights because the Bank is exposed to variable returns and has the ability to affect those returns through its power over the investee.

(*3) Although the Bank’s shareholding in the investee is less than 50%, it controls the investee since it is exposed, or has right to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

(*4) Although the Bank’s shareholding in GM Korea Company is less than 20%, the equity method is applied as the Bank is considered to have significant influence over GM Korea Company by exercising rights to elect board of directors.

(*5) Although the Bank’s shareholding is less than 20%, the Bank is considered to have significant influence as the principal creditor bank.

(*6) The shareholding is above 20% upon the consideration of shares owned by the Bank’s subsidiaries. Therefore, the Bank exercises significant influence over the associate.

(*7) Although the Bank’s shareholding in Troika Resources Investment PEF is above 50%, the Bank as joint managing member does not have the ability to direct the relevant activities unilaterally.

85

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

12. Property and Equipment

Changes in property and equipment for the years ended December 31, 2020 and 2019 are as follows:

	2020
	January 1, 2020		Acquisition/ depreciation		Disposal			Reclassifi- cation			Foreign exchange differences			December 31, 2020
Acquisition cost:
Land	W	318,940		537		(186	)		(13,455	)		—			305,836
Buildings and structures		607,036		5,739		(1,052	)		(11,096	)		—			600,627
Leasehold improvements		43,058		2,336		(4,151	)		—			937			42,180
Vehicles		740		—		(126	)		—			120			734
Equipment		53,170		3,779		(2,607	)		—			186			54,528
Construction in progress		1,588		16,546		—			(4,519	)		—			13,615
Right-of-use assets (Real estate)		74,792		28,162		(19,954	)		—			(1,797	)		81,203
Right-of-use assets (Vehicles)		5,007		3,337		(2,624	)		—			269			5,989
Right-of-use assets (Others)		29		—		—			—			(2	)		27
Others		165,032		14,447		(890	)		—			520			179,109
		1,269,392		74,883		(31,590	)		(29,070	)		233			1,283,848
Accumulated depreciation:
Buildings and structures(*)		191,473		16,590		(271	)		(7,443	)		—			200,349
Leasehold improvements		36,078		2,930		(3,124	)		—			141			36,025
Vehicles		596		58		(113	)		—			(8	)		533
Equipment(*)		43,348		2,954		(2,006	)		—			(99	)		44,197
Right-of-use assets (Real estate)		29,059		29,153		(18,139	)		—			(540	)		39,533
Right-of-use assets (Vehicles)		1,997		2,033		(1,462	)		—			36			2,604
Right-of-use assets (Others)		13		13		—			—			(2	)		24
Others		128,593		15,942		(256	)		—			(462	)		143,817
		431,157		69,673		(25,371	)		(7,443	)		(934	)		467,082
Accumulated impairment losses:
Land		3,023		—		—			—			—			3,023
Buildings and structures		2,361		—		—			—			—			2,361
		5,384		—		—			—			—			5,384
	W	832,851		5,210		(6,219	)		(21,627	)		1,167			811,382

(*) The amounts include government grants.

86

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

12. Property and Equipment, Continued

	2019
	January 1, 2019		Changes in accounting policy		January 1, 2019 (Restated)		Acquisition/ depreciation		Disposal			Reclassifi- cation			Foreign exchange differences			December 31, 2019
Acquisition cost:
Land	W	312,925		—		312,925		5,134		(2,128	)		3,009			—			318,940
Buildings and structures		398,567		—		398,567		7,988		(1,241	)		201,720			2			607,036
Leasehold improvements		40,892		—		40,892		2,267		—			—			(101	)		43,058
Vehicles		831		—		831		162		(258	)		—			5			740
Equipment		52,680		—		52,680		4,635		(4,456	)		—			311			53,170
Construction in progress		108,587		—		108,587		93,393		—			(200,392	)		—			1,588
Right-of-use assets (Real estate)		—		52,619		52,619		24,106		(1,931	)		—			(2	)		74,792
Right-of-use assets (Vehicles)		—		3,829		3,829		1,288		(110	)		—			—			5,007
Right-of-use assets (Others)		—		29		29		—		—			—			—			29
Others		172,478		—		172,478		8,015		(15,489	)		—			28			165,032
		1,086,960		56,477		1,143,437		146,988		(25,613	)		4,337			243			1,269,392
Accumulated depreciation:
Buildings and structures(*)		178,467		—		178,467		12,783		(852	)		1,073			2			191,473
Leasehold improvements		32,501		—		32,501		3,746		—			—			(169	)		36,078
Vehicles		809		—		809		14		(246	)		—			19			596
Equipment(*)		44,747		—		44,747		2,684		(4,363	)		—			280			43,348
Right-of-use assets (Real estate)		—		—		—		30,777		(1,721	)		—			3			29,059
Right-of-use assets (Vehicles)		—		—		—		2,107		(110	)		—			—			1,997
Right-of-use assets (Others)		—		—		—		13		—			—			—			13
Others		126,450		—		126,450		17,504		(15,016	)		—			(345	)		128,593
		382,974		—		382,974		69,628		(22,308	)		1,073			(210	)		431,157
Accumulated impairment losses:
Land		3,023		—		3,023		—		—			—			—			3,023
Buildings and structures		2,361		—		2,361		—		—			—			—			2,361
		5,384		—		5,384		—		—			—			—			5,384
	W	698,602		56,477		755,079		77,360		(3,305	)		3,264			453			832,851

(*) The amounts include government grants.

87

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

13. Investment Property

Changes in investment property for the years ended December 31, 2020 and 2019 are as follows:

	2020
	January 1, 2020		Acquisition/ depreciation			Reclassification		December 31, 2020
Acquisition cost:
Land	W	49,913		—			7,865		57,778
Buildings and structures		40,474		—			15,615		56,089
		90,387		—			23,480		113,867
Accumulated depreciation:
Buildings and structures		21,003		1,381			7,443		29,827
Accumulated impairment losses:
Land		1,197		—			—		1,197
Buildings and structures		1,778		—			—		1,778
		2,975		—			—		2,975
	W	66,409		(1,381	)		16,037		81,065

	2019
	January 1, 2019		Acquisition/ depreciation			Reclassification			December 31, 2019
Acquisition cost:
Land	W	52,922		—			(3,009	)		49,913
Buildings and structures		41,802		—			(1,328	)		40,474
		94,724		—			(4,337	)		90,387
Accumulated depreciation:
Buildings and structures		20,630		1,446			(1,073	)		21,003
Accumulated impairment losses:
Land		1,197		—			—			1,197
Buildings and structures		1,778		—			—			1,778
		2,975		—			—			2,975
	W	71,119		(1,446	)		(3,264	)		66,409

The fair value of the Bank’s investment property, as determined based on valuation by an independent appraiser, amounts to W96,959 million and W75,498 million as of December 31, 2020 and 2019, respectively. Additionally, fair value of investment in property is classified as level 3 according to the fair value hierarchy in Note 45.

88

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

14. Intangible Assets

Changes in intangible assets for the years ended December 31, 2020 and 2019 are as follows:

	2020
	January 1, 2020		Acquisition		Disposal			Amortization			Foreign exchange differences			December 31, 2020
Development expense	W	194,680		4,893		—			(44,213	)		119			155,479
Equipment usage right		553		—		—			(46	)		(25	)		482
Other deposits provided		10,984		1,728		(764	)		—			(8	)		11,940
Others		24,712		5,326		—			(9,718	)		196			20,516
	W	230,929		11,947		(764	)		(53,977	)		282			188,417

	2019
	January 1, 2019		Acquisition		Disposal			Amortization			Foreign exchange differences		December 31, 2019
Development expense	W	150,600		64,702		—			(20,622	)		—		194,680
Equipment usage right		593		—		—			(57	)		17		553
Other deposits provided		11,435		—		(460	)		—			9		10,984
Others		11,258		20,699		—			(7,256	)		11		24,712
	W	173,886		85,401		(460	)		(27,935	)		37		230,929

15. Other Assets

Other assets as of December 31, 2020 and 2019 are as follows:

	December 31, 2020			December 31, 2019
Accounts receivable	W	2,662,879			2,719,266
Unsettled domestic exchange receivables		1,313,958			1,623,482
Accrued income		343,901			405,113
Guarantee deposits		193,003			173,489
Financial guarantee asset		22,982			30,078
Prepaid expenses		14,121			12,429
Advance payments		7,953			8,386
Others		182,484			29,689
		4,741,281			5,001,932
Allowance for credit losses		(79,474	)		(219,960	)
Present value discount		(1,522	)		(1,921	)
	W	4,660,285			4,780,051

The carrying amounts of financial assets included in other assets above amounted to W4,463,726 million and W4,735,372 million as of December 31, 2020 and 2019, respectively, and their fair value amounted to W4,461,117 million and W4,736,042 million as of December 31, 2020 and 2019, respectively.

89

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

16. Assets Held for Sale

Assets held for sale as of December 31, 2020 and 2019 are as follows:

	2020
	Acquisition cost		Fair value less costs to sell		Carrying amount		Impairment loss
Assets held for sale:
Investments in subsidiaries(*1)	W	2,244,664		1,629,479		1,629,479		25,926
Investments in associates(*2)		78,278		78,278		78,278		—
Property and equipment		5,590		5,590		5,590		—
	W	2,328,532		1,713,347		1,713,347		25,926

	2019
	Acquisition cost		Fair value less costs to sell		Carrying amount		Impairment loss
Assets held for sale:
Investments in subsidiaries and associates(*3)	W	2,244,664		1,655,406		1,655,406		5,914

(*1) For attracting investment in Daewoo Shipbuilding & Marine Engineering Co., Ltd. (“Daewoo Shipbuilding & Marine Engineering”), the Bank’s subsidiary, the Bank and Hyundai Heavy Industries Co., Ltd. (“Hyundai Heavy Industries”) made the basic agreement on January 31, 2019 and the contract on investment on March 8, 2019. According to the contract, Hyundai Heavy Industries will make shipbuilding segment, special ship segment, industrial plant segment and engine & machinery segment into each new company and surviving company, Korea Shipbuilding & Offshore Engineering Co., Ltd. (“Korea Shipbuilding & Offshore Engineering”), into holding company defined in the Monopoly Regulation and Fair Trade Act. The Bank will invest the common shares of Daewoo Shipbuilding & Marine Engineering into the common shares and redeemable convertible preference shares of Korea Shipbuilding & Offshore Engineering. Also, Korea Shipbuilding & Offshore Engineering will finance new common shares of Daewoo Shipbuilding & Marine Engineering and be obliged to fund Daewoo Shipbuilding & Marine Engineering.

The Bank made the adjusted contract on investment with Korea Shipbuilding & Offshore Engineering Co., Ltd. on March 6, 2020, reflecting some adjustments to the previous contract on investment made between the Bank and Hyundai Heavy Industries on January 22, 2021.

The contract will be completed after the satisfaction of the contract’s precondition including governmental permission of different countries.

(*2) The Bank picked Dongbu-led consortium as the preferred bidder for Hanjin Heavy Industries & Construction Co., LTD. on December 22, 2020 and the relevant investments in associates were reclassified as assets held for sale.

(*3) W583,344 million of accumulated impairment losses was included upon classified as assets held for sale.

90

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

17. Financial Liabilities Measured at FVTPL

(1) Financial liabilities designated at fair value through profit or loss as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Debentures	W	1,510,793		2,465,541
Deposits		184,164		—
	W	1,694,957		2,465,541

Changes in fair value of structured debentures and deposits which hedge accounting are applied, are recognized in profit or loss, but structured debentures with no hedge accounting applied to, are measured at amortized costs. Therefore, such structured debentures and deposits, not applied to hedge accounting, have been designated at FVTPL to eliminate mismatch in measurements of accounting profit and loss.

(2) 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, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Carrying amount	W	1,694,957		2,465,541
Contractual cash flow amounts		1,580,800		2,323,560
Difference	W	114,157		141,981

18. Deposits

Deposits as of December 31, 2020 and 2019 are as follows:

	December 31, 2020				December 31, 2019
	Amortized cost		Fair value		Amortized cost		Fair value
Deposits in Korean won:
Demand deposits	W	109,570		109,570		111,588		111,588
Time and savings deposits		37,097,869		37,110,866		26,977,874		26,983,467
Certificates of deposit		467,329		467,342		188,375		188,310
		37,674,768		37,687,778		27,277,837		27,283,365
Deposits in foreign currencies:
Demand deposits		1,534,717		1,534,717		1,583,184		1,583,184
Time and savings deposits		2,775,150		2,774,425		2,202,739		2,202,737
Certificates of deposit		3,289,651		3,271,530		2,839,700		2,836,162
		7,599,518		7,580,672		6,625,623		6,622,083
Off-shore deposits in foreign currencies:
Demand deposits		605,133		605,133		760,492		760,492
	W	45,879,419		45,873,583		34,663,952		34,665,940

91

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

19. Borrowings

(1) Borrowings as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Borrowings in Korean won		—		3.15	W	4,216,659			4,210,221
Borrowings in foreign currencies		—		3.86		9,996,208			9,988,337
Off-shore borrowings in foreign currencies		—		2.50		1,790,665			1,791,294
Others		0.01		2.55		2,884,139			2,884,301
						18,887,671			18,874,153
Deferred borrowing costs						(60	)
					W	18,887,611

	December 31, 2019
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Borrowings in Korean won		—		3.28	W	3,824,699			3,816,554
Borrowings in foreign currencies		—		5.49		12,094,102			12,074,960
Off-shore borrowings in foreign currencies		1.79		4.32		1,713,683			1,707,303
Others		0.01		3.66		2,538,134			2,537,824
						20,170,618			20,136,641
Deferred borrowing costs						(105	)
					W	20,170,513

92

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

19. Borrowings, Continued

(2) Borrowings in Korean won before adjusting for gains and losses on deferred borrowing costs as of December 31, 2020 and 2019 are as follows:

Lender	Classification	Annual interest rate (%)		December 31, 2020		December 31, 2019
Ministry of Strategy and Finance	Borrowings from government fund (*1)		0.37 ~ 0.87	W	125,101		154,667
Industrial Bank of Korea	Borrowings from IT industry promotion fund		1.00		—		190
Small & Medium Business Corp.	Borrowings from small and medium enterprise promotion fund		0.55 ~ 2.76		64,892		73,709
Ministry of Culture and Tourism	Borrowings from tourism promotion fund		0.50 ~ 2.00		2,934,681		2,578,317
Korea Energy Management Corporation	Borrowings from fund for rational use of energy		0.25 ~ 2.80		295,088		387,943
Local governments	Borrowings from local small and medium enterprise promotion fund		0.00 ~ 2.95		37,198		47,834
The Bank of Korea	Borrowings from Bank of Korea		0.25 ~ 0.75		373,881		224,356
Others	Borrowings from petroleum enterprise fund and others		0.00 ~ 3.15		385,818		357,683
				W	4,216,659		3,824,699

(*1) Borrowings from government fund are subordinated borrowings.

93

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

19. Borrowings, Continued

(3) Borrowings and off-shore borrowings in foreign currencies before adjusting for gains and losses on deferred borrowing costs as of December 31, 2020 and 2019 are as follows:

Lender	Classification	Annual interest rate (%)		December 31, 2020		December 31, 2019
Mizuho and others	Bank loans from foreign funds		3M Libor + 0.20 ~ 3M Libor + 0.78	W	435,200		694,680
Ministry of Strategy and Finance	Exchange equalization fund borrowings in foreign currencies		3M Libor + 0.22 ~ 3M Libor + 0.74		183,360		653,613
Central Bank of the Republic Uzbekistan and others	Off-shore short term borrowings		0.25 ~ 2.50		1,487,973		1,487,621
HSBC and others	Off-shore long term borrowings		3M Libor + 0.36 ~ 3M Libor + 0.50		302,692		226,062
Others	Short-term borrowings in foreign currencies		0.04 ~ 3.86		8,567,852		9,465,368
	Long term borrowings in foreign currencies		0.09 ~ 2.49		809,796		1,280,441
				W	11,786,873		13,807,785

94

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

20. Debentures

Debentures as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Debentures in Korean won:
Debentures		0.55		6.60	W	107,480,364			108,542,792
Discount on debentures						(57,255	)
Valuation adjustment for fair value hedges						49,070
						107,472,179
Debentures in foreign currencies:
Debentures		—		6.90		15,799,118			16,883,195
Discount on debentures						(31,438	)
Premium on debentures						1,677
Valuation adjustment for fair value hedges						452,330
						16,221,687
Off-shore debentures:
Debentures		—		7.00		14,496,508			14,662,046
Discount on debentures						(23,869	)
Premium on debentures						79
Valuation adjustment for fair value hedges						152,144
						14,624,862
					W	138,318,728			140,088,033

95

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

20. Debentures, Continued

	December 31, 2019
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Debentures in Korean won:
Debentures		1.22		6.60	W	92,789,345			93,864,631
Discount on debentures						(64,439	)
Premium on debentures						24
Valuation adjustment for fair value hedges						100,969
						92,825,899
Debentures in foreign currencies:
Debentures		—		6.97		14,872,187			15,765,324
Discount on debentures						(34,587	)
Premium on debentures						221
Valuation adjustment for fair value hedges						203,466
						15,041,287
Off-shore debentures:
Debentures		—		7.20		12,751,332			12,820,673
Discount on debentures						(23,075	)
Premium on debentures						155
Valuation adjustment for fair value hedges						27,790
						12,756,202
					W	120,623,388			122,450,628

21. Defined Benefit Liabilities

The Bank implements a defined benefit retirement pension plan based on employee compensation benefits and service periods. The plan assets are in trusts with Kookmin Bank, Samsung Life Insurance Co., Ltd., etc.

(1) Details of defined benefit liabilities as of December 31, 2020 and 2019 are as follows:

	December 31, 2020			December 31, 2019
Present value of defined benefit liabilities	W	415,529			379,728
Fair value of plan assets		(364,983	)		(326,587	)
	W	50,546			53,141

96

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

21. Defined Benefit Liabilities, Continued

(2) Changes in defined benefit liabilities for the years ended December 31, 2020 and 2019 are as follows:

	2020
	Present value of defined benefit obligation			Fair value of plan assets			Defined benefit liabilities
Beginning balance	W	379,728			(326,587	)		53,141
Current service costs		37,564			—			37,564
Interest expense (income)		8,786			(7,867	)		919
Remeasurements of defined benefit liabilities:
Demographic assumption		3,840			—			3,840
Financial assumption		(1,011	)		2,646			1,635
Experience adjustment		(375	)		—			(375	)
		2,454			2,646			5,100
Payments from the plan		(13,003	)		12,825			(178	)
Contributions to the plan		—			(46,000	)		(46,000	)
Ending balance	W	415,529			(364,983	)		50,546

	2019
	Present value of defined benefit obligation			Fair value of plan assets			Defined benefit liabilities
Beginning balance	W	377,361			(315,210	)		62,151
Current service costs		39,747			—			39,747
Interest expense (income)		9,832			(8,572	)		1,260
Remeasurements of defined benefit liabilities:
Demographic assumption		33			—			33
Financial assumption		3,410			3,789			7,199
Experience adjustment		(18,066	)		—			(18,066	)
		(14,623	)		3,789			(10,834	)
Payments from the plan		(32,589	)		32,407			(182	)
Contributions to the plan		—			(39,001	)		(39,001	)
Ending balance	W	379,728			(326,587	)		53,141

(3) Fair value of plan assets for each type as of December 31, 2020 and 2019 are as follows:

	December 31, 2020				December 31, 2019
	Quoted market prices		Unquoted market prices		Quoted market prices		Unquoted market Prices
Due from banks	W	—		364,983		—		326,587

97

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

21. Defined Benefit Liabilities, Continued

(4) Defined benefit costs recognized in profit or loss for the years ended December 31, 2020 and 2019 are as follows:

	2020		2019
Current service costs	W	37,564		39,747
Interest expense, net		919		1,260
	W	38,483		41,007

(5) The principal actuarial assumptions used as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Discount rate (%)		2.54		2.44
Future salary increasing rate (%)		6.08		6.00

(6) The present value sensitivity of defined benefit liabilities as changes in principal actuarial assumptions as of December 31, 2020 is as follows:

	Sensitivity
	1% increase in assumption		1% decrease in assumption
Discount rate		10.16% decrease		12.06% increase
Future salary increasing rate		11.51% increase		9.94% decrease

(7) The weighted average duration of defined benefit liabilities is 12.15 years and 11.82 years as of December 31, 2020 and 2019, respectively. The expected contributions to the plan for the next annual reporting period amount to W52,203 million and W54,438 million as of December 31, 2020 and 2019, respectively.

22. Provisions

(1) Details of provisions as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Provision for unused commitments	W	770,760		742,592
Provision for financial guarantee		77,498		35,892
Provision for payment guarantees		603,648		674,928
Provision for possible losses from lawsuits		441		12,302
Provision for restoration		15,365		15,167
Other provision		47,458		38,983
	W	1,515,170		1,519,864

98

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

22. Provisions, Continued

(2) Changes in provision for unused commitments for the years ended December 31, 2020 and 2019 are as follows:

	2020
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired			Total
Beginning balance	W	428,388			314,204			—			742,592
Transfer to 12-month expected credit loss		287,107			(287,057	)		(50	)		—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired exposures		(15,148	)		15,148			—			—
Provision for (reversal of) unused commitments		(196,824	)		249,655			50			52,881
Foreign currency translation		(23,590	)		(1,123	)		—			(24,713	)
Ending balance	W	479,933			290,827			—			770,760

	2019
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired		Total
Beginning balance	W	288,778			180,906			—		469,684
Transfer to 12-month expected credit loss		349,455			(349,455	)		—		—
Transfer to lifetime expected credit losses:
Transfer to non credit-impaired exposures		(3,265	)		3,265			—		—
Provision for (reversal of) unused commitments		(214,326	)		478,256			—		263,930
Foreign currency translation		7,746			1,232			—		8,978
Ending balance	W	428,388			314,204			—		742,592

(3) Changes of financial guarantee provision for the years ended December 31, 2020 and 2019 are as follows:

	2020
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired			Total
Beginning balance	W	1,123			23,121			11,648			35,892
Transfer to 12-month expected credit loss		23,874			(1,051	)		(22,823	)		—
Transfer to lifetime expected credit losses:											—
Transfer to non credit-impaired exposures		(2,240	)		2,348			(108	)		—
Transfer to credit-impaired exposures		(179	)		(49	)		228			—
Provision for unused commitments		22,989			1,638			16,979			41,606
Foreign currency translation		—			—			—			—
Ending balance	W	45,567			26,007			5,924			77,498

99

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

22. Provisions, Continued

	2019
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired			Total
Beginning balance	W	1,400			71,546			38,235			111,181
Transfer to 12-month expected credit loss		27			(27	)		—			—
Transfer to lifetime expected credit losses:											—
Transfer to non credit-impaired exposures		(7	)		7			—			—
Transfer to credit-impaired exposures		(909	)		(633	)		1,542			—
Provision for (reversal of) unused commitments		602			(48,822	)		(28,129	)		(76,349	)
Foreign currency translation		10			1,050			—			1,060
Ending balance	W	1,123			23,121			11,648			35,892

(4) Changes in provision for payment guarantees for the years ended December 31, 2020 and 2019 are as follows:

	2020
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired			Total
Beginning balance	W	170,320			167,939			336,669			674,928
Transfer to 12-month expected credit loss		44,036			(44,036	)		—			—
Transfer to lifetime expected credit losses:											—
Transfer to non credit-impaired exposures		(9,487	)		9,487			—			—
Transfer to credit-impaired exposures		(5,988	)		—			5,988			—
Provision for (reversal of) unused commitments		(15,616	)		20,642			(80,956	)		(75,930	)
Foreign currency translation		698			1,614			2,338			4,650
Ending balance	W	183,963			155,646			264,039			603,648

	2019
				Lifetime expected credit losses
	12-month expected credit loss			Non credit- impaired			Credit- impaired			Total
Beginning balance	W	292,946			247,521			247,298			787,765
Transfer to 12-month expected credit loss		41,125			(41,119	)		(6	)		—
Transfer to lifetime expected credit losses:											—
Transfer to non credit-impaired exposures		(59,838	)		59,838			—			—
Transfer to credit-impaired exposures		(181,313	)		(10,120	)		191,433			—
Provision for (reversal of) unused commitments		74,589			(96,983	)		(118,436	)		(140,830	)
Foreign currency translation		2,811			8,802			16,380			27,993
Ending balance	W	170,320			167,939			336,669			674,928

100

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

22. Provisions, Continued

(5) Changes of lawsuit provision and other provision for the years ended December 31, 2020 and 2019 are as follows:

	2020
	Lawsuit provision			Provision for restoration			Other provision
Beginning balance	W	12,302			15,167			38,983
Increase (reversal) of provision		441			(839	)		8,475
Provision used and others		(12,302	)		1,037			—
Ending balance	W	441			15,365			47,458

			2019
	Lawsuit provision		Provision for restoration		Other provision
Beginning balance	W	12,302		14,013		7,786
Increase (reversal) of provision		—		1,154		31,250
Provision used and others		—		—		(53	)
Ending balance	W	12,302		15,167		38,983

(6) Provision for payment guarantees and financial guarantee provision

Confirmed acceptances and guarantees, unconfirmed acceptances and guarantees and bills endorsed are not recognized on the statement of financial position, but are disclosed as off-statement of financial position items in the notes to the financial statements. The Bank provides a provision for such off-statement of financial position items, applying a Credit Conversion Factor (“CCF”) and provision rates under the Bank’s expected credit loss model, and records the provision as a reserve for expected credit losses on acceptances and guarantees.

In the case of financial guarantee contracts, when the amount calculated using the same method as above is greater than the initial amount less amortization of fees recognized, the difference is recorded as a financial guarantee provision.

(7) Provision for unused commitments

The Bank records a provision for a certain portion of unused credit lines which is calculated using a CCF as provision for unused commitments applying provision rates under the Bank’s expected credit loss model.

(8) Provision for possible losses from lawsuits

As of December 31, 2020, the Bank is involved in 21 lawsuits as a plaintiff and 38 lawsuits as a defendant. The aggregate amounts of claims as a plaintiff and a defendant amounted to W191,672 million and W228,294 million, respectively. The Bank provided a provision against contingent loss from pending lawsuits as of December 31, 2020 and additional losses may be incurred depending on the result of pending lawsuits.

101

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

22. Provisions, Continued

Major lawsuits in progress as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Contents	Amounts		Status of lawsuit
Plaintiff:
Korea Trade Insurance Corporation and one other	Claim for guarantee insurance	W	136,538	1st trial ruled against the Bank; 2nd trial in progress
KAMCO 1st JV Securitization Specialty Co., Ltd.	Transfer of claim		8,792	1st trial in progress
Dadae Construction Co., Ltd.	Absence of liens		2,900	1st trial ruled in favor of the Bank; 2nd trial in progress
Korea Technology Finance Corporation	Claim for guarantee		872	1st trial ruled partially in favor of the Bank; 2nd trial in progress
Defendant:
Shinhan Bank and one other	Claim for damages		58,474	1st trial in progress
Defense Acquisition Program Administration	Claim for guaranteed debt		56,977	1st, 2nd trial ruled partially against the Bank; 3rd trial in progress
Dongbu Corporation	Claim for nullity of table of rehabilitation creditor		33,997	1st trial ruled in favor of the Bank; 2nd trial ruled against the Bank; 3rd trial in progress
Dongbu Corporation	Claim for objection of request (participation to support)		19,658	1st trial in progress
Woori Bank	Claim for disposal of debt		12,470	1st, 2nd trial ruled in favor of the Bank; 3rd trial in progress

102

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

22. Provisions, Continued

	December 31, 2019
	Contents	Amounts		Status of lawsuit
Plaintiff:
Korea Trade Insurance Corporation and one other	Claim for guarantee insurance	W	136,538	1st trial ruled against the Bank; 2nd trial in progress
Gyeonggi Urban Innovation Corp.	Claim for refund of investments		19,100	1st, 2nd trial ruled partially in favor of the Bank; 3rd trial in progress
KAMCO 1st JV Securitization Specialty Co., Ltd.	Transfer of claim		8,792	1st trial in progress
STX Offshore and shipbuilding Co., Ltd.	Objection for trial for determination of investigation		4,800	1st trial in progress
Korea Land and Housing Corporation	Claim for guaranteed debt		3,533	1st trial ruled against the Bank; 2nd trial ruled partially in favor of the Bank; 3rd trial in progress
Defendant:
Shinhan Bank and one other	Claim for damages		58,474	1st trial in progress
Defense Acquisition Program Administration	Claim for guaranteed debt		56,977	1st, 2nd trial ruled partially against the Bank; 3rd trial in progress
Dongbu Corporation	Claim for nullity of table of rehabilitation creditor		33,997	1st trial ruled in favor of the Bank; 2nd trial ruled against the Bank; 3rd trial in progress
Dongbu Corporation	Claim for objection of request (participation to support)		19,658	1st trial in progress
Woori Bank	Claim for disposal of debt		12,470	1st trial ruled in favor of the Bank; 2nd trial in progress

(9) Other provision

The Bank recognised other provision as a reserve for other miscellaneous purpose.

103

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

23. Other Liabilities

(1) Other liabilities as of December 31, 2020 and 2019 are as follows:

	December 31, 2020			December 31, 2019
Accounts payable	W	2,623,207			2,524,985
Lease liabilities		75,523			43,362
Accrued expense		1,657,438			2,003,532
Advance received		920			42
Unearned income		45,344			48,484
Deposits withholding tax		22,019			24,414
Guarantee money received		720,932			557,385
Foreign exchanges payable		307,935			80,621
Domestic exchanges payable		587,194			363,546
Borrowing from trust accounts		973,885			1,535,048
Financial guarantee liability		25,347			31,426
Others		64,153			72,262
		7,103,897			7,285,107
Present value discount		(34,891	)		(2,484	)
	W	7,069,006			7,282,623

The carrying amount of financial liabilities included in other liabilities above amounted to W6,896,581 million and W7,089,686 million as of December 31, 2020 and 2019, respectively, and their fair value amounted to W6,889,375 million and W7,085,427 million as of December 31, 2020 and 2019, respectively.

(2) Details of lease liabilities as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Face value		Discount			Carrying amounts
Real estate	W	71,207		(31,964	)		39,243
Vehicles		3,923		(639	)		3,284
Others		393		(197	)		196
	W	75,523		(32,800	)		42,723

	December 31, 2019
	Face value		Discount			Carrying amounts
Real estate	W	40,381		(2,169	)		38,212
Vehicles		2,964		(56	)		2,908
Others		17		(1	)		16
	W	43,362		(2,226	)		41,136

104

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

23. Other Liabilities, Continued

(3) The amount related to lease recognized in the separate statement of comprehensive income for the years ended December 31, 2020 and 2019 are as follows:

	2020		2019
Depreciation of right-of-use assets	W
Real estate		29,153		30,777
Vehicles		2,033		2,107
Others		13		13
		31,199		32,897
Interest expenses on the lease liabilities		818		746
Expense relating to short-term leases		66		121
Expense relating to leases of low-value assets		312		292
	W	32,395		34,056

(4) Cash flows used in lease liabilities for the years ended December 31, 2020 and 2019 are as follows:

	2020		2019
Decrease in lease liabilities	W	25,329		23,737
Lease payments relating to short-term leases		66		121
Lease payments relating to leases of low-value assets		312		292
	W	25,707		24,150

(5) Maturity analysis of undiscounted lease payments relating to lease liabilities as of December 31, 2020 is as follows:

	December 31, 2020
	Within 3 months		3 months ~ 1 year		1 year ~ 5 years		Over 5 years		Total
Lease payments	W	10,659		26,225		38,639		—		75,523
	December 31, 2019
	Within 3 months		3 months ~ 1 year		1 year ~ 5 years		Over 5 years		Total
Lease payments	W	5,529		13,538		24,295		—		43,362

24. Equity

(1) Issued capital

The Bank is authorized to issue up to 6,000 million shares of common stock and has 4,153,145,768 shares issued and 3,732,619,768 shares issued as of December 31, 2020 and 2019, respectively, and outstanding with a total par value (W5,000 of par value per share) of W20,765,729 million and W18,663,099 million as of December 31, 2020 and 2019, respectively.

105

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

24. Equity, Continued

(2) Capital surplus

Capital surplus as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Paid-in capital in excess of par value	W	49,530		59,636
Surplus from capital reduction(*1)		44,373		44,373
Other capital surplus(*2)		2,390,495		2,390,495
	W	2,484,398		2,494,504

(*1) The Bank reduced W5,178,600 million of its issued capital in 1998 and 2000 to offset its accumulated deficit amounting to W5,134,227 million. As the result of the capital reduction, W44,373 million of surplus exceeding accumulated deficit was recorded in capital surplus in equity.

(*2) The difference in the amount of shares issued and the carrying value of net asset acquired occurring from the merger of the Bank with KDB Financial Group Inc. and Korea Finance Corporation are recognized as other capital surplus.

(3) Accumulated other comprehensive income

(i) Accumulated other comprehensive income as of December 31, 2020 and 2019 are as follows:

	December 31, 2020			December 31, 2019
Net gain (loss) on securities measured at FVOCI
Valuation gain (loss) on securities measured at FVOCI (before tax)	W	2,787,519			(210,918	)
Loss allowance for securities measured at FVOCI (before tax)		81,278			73,806
Income tax effect		(788,919	)		37,706
		2,079,878			(99,406	)
Exchange differences on translation of foreign operations:
Exchange differences on translation of foreign operations (before tax)		(60,912	)		(7,158	)
Income tax effect		—			—
		(60,912	)		(7,158	)
Valuation gain (loss) on cash flow hedge:
Valuation gain (loss) on cash flow hedge (before tax)		47			(403	)
Income tax effect		(13	)		111
		34			(292	)
Net gain on hedges of net investments in foreign operations:
Net gain on hedges of net investments in foreign operations (before tax)		48,975			5,538
Income tax effect		(13,468	)		(1,523	)
		35,507			4,015
Remeasurements of defined benefit liabilities:
Remeasurements of defined benefit liabilities (before tax)		21,562			26,662
Income tax effect		(5,928	)		(7,331	)
		15,634			19,331
Fair value changes on financial liabilities designated at fair value due to credit risk:
Valuation loss on financial liabilities designated at fair value due to credit risk (before tax)		(7,959	)		(6,320	)
Income tax effect		2,189			1,738
		(5,770	)		(4,582	)
	W	2,064,371			(88,092	)

106

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

24. Equity, Continued

(ii) Changes in accumulated other comprehensive income for the years ended December 31, 2020 and 2019 are as follows:

	2020
	January 1, 2020			Increase (Decrease)			Tax Effect			December 31, 2020
Gain on Securities Measured at FVOCI	W	(99,406	)		3,005,909			(826,625	)		2,079,878
Exchange differences on translation of foreign operations		(7,158	)		(53,754	)		—			(60,912	)
Valuation gain (loss) on cash flow hedge		(292	)		450			(124	)		34
Net gain on hedges of net investments in foreign operations		4,015			43,437			(11,945	)		35,507
Remeasurements of defined benefit liabilities		19,331			(5,100	)		1,403			15,634
Valuation loss on financial liabilities designated at fair value due to credit risk		(4,582	)		(1,639	)		451			(5,770	)
	W	(88,092	)		2,989,303			(836,840	)		2,064,371
	2019
	January 1, 2019			Increase (Decrease)			Tax Effect			December 31, 2019
Gain on Securities Measured at FVOCI	W	(12,465	)		(119,919	)		32,978			(99,406	)
Exchange differences on translation of foreign operations		(33,017	)		25,859			—			(7,158	)
Valuation loss on cash flow hedge		(1,870	)		2,176			(598	)		(292	)
Net gain on hedges of net investments in foreign operations		—			5,538			(1,523	)		4,015
Remeasurements of defined benefit liabilities		11,476			10,834			(2,979	)		19,331
Valuation gain (loss) on financial liabilities designated at fair value due to credit risk		3,178			(10,704	)		2,944			(4,582	)
	W	(32,698	)		(86,216	)		30,822			(88,092	)

(4) Retained earnings

In accordance with the Korea Development Bank Act, the Bank is required to appropriate at least 40% of net income as a legal reserve. This reserve can be transferred to paid-in capital or offset an accumulated deficit.

In accordance with the Korea Development Bank Act, the Bank offsets an accumulated deficit with reserves. If the reserve is insufficient to offset the accumulated deficit, the Korean government is responsible for the deficit.

107

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

24. Equity, Continued

(i) Retained earnings as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Legal reserve	W	1,356,142		1,177,851
Voluntary reserve
Regulatory reserve for loan losses		1,146,038		1,227,700
Unappropriated retained earnings		2,565,852		2,327,769
	W	5,068,032		4,733,320

(ii) Changes in legal reserve for the years ended December 31, 2020 and 2019 are as follows:

	2020		2019
Beginning balance	W	1,177,851		173,913
Transfer from retained earnings		178,291		1,003,938
Ending balance	W	1,356,142		1,177,851

(iii) Changes in unappropriated retained earnings for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Beginning balance	W	2,327,769			2,866,706
Transfer from (contribution to) legal reserve		(178,291	)		(1,003,938	)
Transfer from (contribution to) regulatory reserve for credit losses		81,662			144,330
Dividends		(111,978	)		(144,865	)
Reclassification of gain or loss on equity securities measured at FVOCI		(40,840	)		19,808
Profit for the year		487,530			445,728
Ending balance	W	2,565,852			2,327,769

(iv) Statements of appropriation of retained earnings for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
I. Unappropriated retained earnings:
Unappropriated retained earning carried forward from the prior year	W	2,119,162			1,862,233
Gain on disposal of securities measured at FVOCI		(40,840	)		19,808
Profit for the year		487,530			445,728
		2,565,852			2,327,769
II. Transfers such as discretionary reserves
Contribution to regulatory reserve for credit losses		663,153			81,662
		663,153			81,662
II. Appropriation of retained earnings:
Contribution to legal reserve		195,012			178,291
Dividends (W50 for 2020 and W30 for 2019 per share)		209,638			111,978
		404,650			290,269
III. Unappropriated retained earnings to be carried over to subsequent year	W	2,824,355			2,119,162

108

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

24. Equity, Continued

(5) Regulatory reserve for credit losses

The Bank is required to provide a regulatory reserve for credit losses in accordance with Regulations on Supervision of Banking Business 29(1) and (2). The details of regulatory reserve for credit losses are as follows:

(i) Regulatory reserve for credit losses as of December 31, 2020 and 2019 are as follows:

	December 31, 2020			December 31, 2019
Beginning balance	W	1,146,038			1,227,700
Planned reversal of reserve for credit losses		(663,153	)		(81,662	)
Ending balance	W	482,885			1,146,038

(ii) Required reversal of regulatory reserve for credit losses and profit after adjusting regulatory reserve for loan losses for the years ended December 31, 2020 and 2019 are as follows:

	2020		2019
Profit for the year	W	487,530		445,728
Obligated amount of reversal of regulatory reserve for credit losses		663,153		81,662
Profit after adjusting regulatory reserve for credit losses	W	1,150,683		527,390
Earnings per share after adjusting regulatory reserve for credit losses (in won)	W	292		142

25. Net Interest Income

Net interest income for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Interest income:
Due from banks	W	57,984			104,586
Securities measured at FVTPL		26,615			58,860
Securities measured at FVOCI		394,410			371,777
Loans measured at amortized cost		14,394			40,903
Loans measured at FVTPL		21,939			17,291
Loans measured at amortized cost		3,926,212			4,507,827
		4,441,554			5,101,244
Interest expense:
Financial liabilities measured at FVTPL		(79,318	)		(90,883	)
Deposits		(497,910	)		(606,671	)
Borrowings		(266,728	)		(442,679	)
Debentures		(2,318,025	)		(2,898,689	)
		(3,161,981	)		(4,038,922	)
	W	1,279,573			1,062,322

109

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

26. Net Fees and Commission Income

Net fees and commission income for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Fees and commission income:
Loan commissions	W	128,701			145,612
Underwriting and investment consulting commissions		101,889			125,653
Brokerage and agency commissions		7,357			5,873
Trust and retirement pension plan commissions		32,961			31,660
Fees on asset management		1,725			3,370
Other fees		95,143			103,074
		367,776			415,242
Fees and commission expenses:
Brokerage and agency fees		(9,010	)		(11,014	)
Other fees		(25,662	)		(26,028	)
		(34,672	)		(37,042	)
	W	333,104			378,200

27. Dividend Income

Dividend income for the years ended December 31, 2020 and 2019 are as follows:

	2020		2019
Securities measured at FVTPL	W	178,905		277,726
Securities measured at FVOCI		122,994		110,137
Investments in subsidiaries and associates		368,696		290,229
	W	670,595		678,092

28. Net Gain (Loss) on Securities Measured at FVTPL

Net gain (loss) related to securities measured at FVTPL for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Gains on securities measured at FVTPL:
Gains on sale	W	86,491			253,588
Gains on valuation		139,442			127,147
		225,933			380,735
Losses on securities measured at FVTPL:
Losses on sale		(44,658	)		(29,888	)
Losses on valuation		(126,469	)		(175,585	)
Purchase related expense		(49	)		(94	)
		(171,176	)		(205,567	)
	W	54,757			175,168

110

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

29. Net Gain (Loss) on Financial Liabilities Measured at FVTPL

Net gain (loss) related to financial liabilities designated at fair value through profit or loss for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Gains on financial liabilities measured at FVTPL:
Gains on redemption	W	477			799
Gains on valuation		44,720			15,927
		45,197			16,726
Losses on financial liabilities measured at FVTPL:
Losses on redemption		(14,230	)		(2,986	)
Losses on valuation		(1,782	)		(21,206	)
		(16,012	)		(24,192	)
	W	29,185			(7,466	)

30. Net Gain on Securities Measured at FVOCI

Net gain related to securities measured at FVOCI for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Gains on securities measured at FVTPL:
Gains on sale	W	102,432			106,220
Reversal of impairment losses		—			2,085
		102,432			108,305
Losses on securities measured at FVTPL:
Losses on sale		(13,783	)		(21,626	)
Impairment losses		(8,537	)		—
		(22,320	)		(21,626	)
	W	80,112			86,679

111

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

31. Net Gain (Loss) on Derivatives

Net gain (loss) on derivatives for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Net gain (loss) on trading purpose derivatives:
Gains on trading purpose derivatives:
Interest	W	2,205,066			2,348,820
Currency		13,435,618			9,712,251
Stock		13,372			21,844
Embedded derivatives		—			32
Gains on adjustment of derivatives		13,493			1,498
		15,667,549			12,084,445
Losses on trading purpose derivatives:
Interest		(2,274,718	)		(2,221,935	)
Currency		(13,551,073	)		(9,422,188	)
Stock		(18,329	)		(150,531	)
Losses on adjustment of derivatives		(5,953	)		(28,811	)
		(15,850,073	)		(11,823,465	)
		(182,524	)		260,980
Net gain (loss) on hedging purpose derivatives:
Gains on hedging purpose derivatives:
Interest		449,971			550,056
Currency		666,696			239,540
Gains on adjustment of derivatives		23			22
		1,116,690			789,618
Losses on hedging purpose derivatives:
Interest		(107,767	)		(63,906	)
Currency		(388,944	)		(334,901	)
Losses on adjustment of derivatives		(746	)		(589	)
		(497,457	)		(399,396	)
		619,233			390,222
Net gain (loss) on fair value hedged items:
Gains on fair value hedged items:
Gains on valuation		294,219			105,168
Gains on redemption		356,886			155,601
		651,105			260,769
Losses on fair value hedged items:
Losses on valuation		(598,107	)		(741,191	)
Losses on redemption		(92,557	)		(179,124	)
		(690,664	)		(920,315	)
		(39,559	)		(659,546	)
	W	397,150			(8,344	)

112

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

31. Net Gain (Loss) on Derivatives, Continued

Related with cash flow hedge, the Bank recognized W24 million of loss and W2 million of gain in the statements of comprehensive income as the ineffective portion for the years ended December 31, 2020 and 2019, respectively.

32. Net Foreign Currency Transaction Gain (Loss)

Net foreign currency transaction gain (loss) for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Net gain (loss) on foreign exchange transactions:
Gains on foreign exchange transactions	W	604,366			487,002
Losses on foreign exchange transactions		(617,136	)		(483,781	)
		(12,770	)		3,221
Net gain (loss) on foreign currency translations:
Gains on foreign currency translations		8,385,283			4,005,597
Losses on foreign currency translations		(8,544,881	)		(4,032,562	)
		(159,598	)		(26,965	)
	W	(172,368	)		(23,744	)

33. Other Operating Expense, net

Other operating income and expense for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Other operating income:
Gains on sale of loans	W	15,820			78,523
Gains on disposal of loans measured at FVTPL		4,568			23,456
Gains on valuation of loans measured at FVTPL		676,776			59,719
Gains on disposal of investments in subsidiaries and associates		14,095			3,350
Reversal of provisions		1,015			—
Others		18,149			11,107
		730,423			176,155
Other operating expenses:
Losses on sale of loans		(125,539	)		(178,048	)
Losses on disposal of loans measured at FVTPL		(29,155	)		(27,231	)
Losses on valuation of loans measured at FVTPL		(27,509	)		(16,798	)
Losses on disposal of investments in subsidiaries and associates		(875	)		(544	)
Increase in provisions		(9,092	)		(31,508	)
Insurance expenses		(66,988	)		(49,618	)
Credit guarantee fund salary		(178,196	)		(146,440	)
Educational taxes		(32,231	)		(30,223	)
Foreign security contributions		(8,928	)		(10,888	)
Others		(24,863	)		(26,556	)
		(503,376	)		(517,854	)
	W	227,047			(341,699	)

113

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

34. Provision for Credit Losses

Provision for credit losses for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Provision for loan loss allowance	W	1,177,027			59,805
Provision for (reversal of) other assets		19,722			(22,915	)
Provision for unused commitments		52,881			263,930
Provision for (reversal of) financial guarantee provision		41,606			(76,349	)
Reversal of payment guarantees		(75,930	)		(140,830	)
	W	1,215,306			83,641

35. General and Administrative Expenses

General and administrative expenses for the years ended December 31, 2020 and 2019 are as follows:

	2020		2019
Payroll costs:
Short-term employee benefits	W	376,582		363,231
Defined benefit costs		38,483		41,007
Defined contribution costs		7,393		6,829
		422,458		411,067
Depreciation and amortization:
Depreciation of property and equipment		69,403		69,628
Amortization of intangible assets		53,977		27,935
		123,380		97,563
Other:
Employee welfare benefits		32,203		31,123
Rent expenses		6,388		7,450
Taxes and dues		32,595		29,352
Advertising expenses		16,752		18,010
Electronic data processing expenses		72,214		68,016
Fees and charges		36,029		30,748
Others		47,318		53,601
		243,499		238,300
	W	789,337		746,930

114

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

36. Other Non-Operating Income and Expense

Other non-operating income and expense for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Other non-operating income:
Gain on disposal of property and equipment	W	1,254			1,596
Rental income on investment property		2,216			1,862
Others		9,005			7,726
		12,475			11,184
Other non-operating expense:
Impairment loss on assets held for sale		(25,926	)		(5,914	)
Losses on disposal of property and equipment		(205	)		(5	)
Depreciation of investment property		(1,381	)		(1,446	)
Donations		(15,142	)		(18,458	)
Others		(3,981	)		(9,053	)
		(46,635	)		(34,876	)
	W	(34,160	)		(23,692	)

37. Income Tax Expense

(1) Income tax expense for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Current income tax(*)	W	166,947			289,822
Changes in deferred income taxes on temporary differences		787,732			(156,803	)
Deferred income tax recognized directly to equity
Other comprehensive income		(836,840	)		30,822
Retained earnings		15,491			(7,514	)
Income tax expense	W	133,330			156,327

(*) Includes changes such as those that arise from final tax returns.

(2) Profit before income taxes and income tax expense for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Profit before income taxes	W	620,860			602,055
Income taxes calculated using enacted tax rates		170,736			165,565
Adjustments:
Non-deductible losses and tax-free gains		(12,508	)		(13,197	)
Non-recognition effect of deferred income taxes		(21,653	)		(3,590	)
Net adjustments for prior years		(9,423	)		(7,298	)
Others		6,178			14,847
		(37,406	)		(9,238	)
Income tax expense	W	133,330			156,327
Effective tax rate (%)		21.48			25.97

115

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

37. Income Tax Expense, Continued

(3) Changes in temporary differences and deferred tax assets (liabilities) for the years ended December 31, 2020 and 2019 are as follows:

	2020
	January 1, 2020(*)			Decrease			Increase			December 31, 2020			Deferred tax assets (liabilities)
Derivatives	W	(777,801	)		(777,801	)		(1,478,054	)		(1,478,054	)		(406,465	)
Investments in subsidiaries and associates		(7,130,082	)		3,970			265,418			(6,868,634	)		(2,196,801	)
Losses on fair value hedged items valuation		268,983			268,983			680,195			680,195			187,054
Losses on foreign exchange translation for hedged liabilities		45,211			45,211			73,159			73,159			20,119
Impairment losses on debt securities		65,933			—			—			65,933			18,132
Impairment losses on equity securities		65,372			7,669			2,647			60,350			16,596
Defined benefit obligation		349,443			12,987			48,787			385,243			105,942
Plan assets		(306,175	)		(12,987	)		(12,987	)		(306,175	)		(84,198	)
Financial assets held for trading		(58,070	)		2,742			17,178			(43,634	)		(11,999	)
Available-for-sale financial assets		(145,452	)		912			—			(146,364	)		185
Write-off		3,135,237			72,950			381,290			3,443,577			791,472
Provisions		994,450			1,501,151			1,429,831			923,130			253,861
Property impairment losses		6,630			173			—			6,457			1,776
Dividends Receivable		—			—			8,365			8,365			2,300
Loan origination fees		(7,293	)		(7,293	)		(9,063	)		(9,063	)		(2,492	)
Gains on sales of loans		(63,554	)		(318	)		(75	)		(63,311	)		(17,411	)
Others		2,086,454			3,802,202			620,561			(1,095,187	)		(397,171	)
		(1,470,714	)		4,920,551			2,027,252			(4,364,013	)		(1,719,100	)
Temporary differences from unrecognized deferred tax assets and liabilities:
Investments in subsidiaries and associates, etc.		1,912,607			(25,887	)		—			1,886,720			—
	W	441,893			4,894,664			2,027,252			(2,477,293	)		(1,719,100	)

(*) Temporary differences as of January 1, 2020 reflected previous year’s additional tax adjustment after the financial statements were issued.

116

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

37. Income Tax Expense, Continued

	2019
	January 1, 2019			Decrease			Increase			December 31, 2019			Deferred tax assets (liabilities)
Derivatives	W	(304,011	)		(304,011	)		(773,504	)		(773,504	)		(212,714	)
Investments in subsidiaries and associates		(7,669,849	)		7,837			548,804			(7,128,882	)		(2,278,811	)
Losses (gains) on fair value hedged items valuation		(429,827	)		(429,827	)		268,983			268,983			73,970
Losses on foreign exchange translation for hedged liabilities		264,036			264,036			45,211			45,211			12,433
Impairment losses on debt securities		65,933			—			—			65,933			18,132
Impairment losses on equity securities		64,528			(1,271	)		—			65,799			18,095
Defined benefit obligation		346,904			32,407			49,579			364,076			100,121
Plan assets		(309,822	)		(32,407	)		(49,172	)		(326,587	)		(89,811	)
Financial assets held for trading		60,931			121,743			2,742			(58,070	)		(15,969	)
Available-for-sale financial assets		(157,234	)		(11,782	)		—			(145,452	)		436
Write-off		3,020,839			100,875			215,274			3,135,238			687,997
Provisions		783,999			1,278,398			1,488,848			994,449			273,473
Property impairment losses		6,803			173			—			6,630			1,823
Loan origination fees		(15,814	)		(15,814	)		(7,293	)		(7,293	)		(2,006	)
Gains on sales of loans		(52,812	)		10,478			(264	)		(63,554	)		(17,477	)
Others		2,432,162			1,191,885			842,559			2,082,836			498,940
		(1,893,234	)		2,212,720			2,631,767			(1,474,187	)		(931,368	)
Temporary differences from unrecognized deferred tax assets and liabilities:
Investments in subsidiaries and associates, etc.		1,957,997			45,390			—			1,912,607			—
	W	64,763			2,258,110			2,631,767			438,420			(931,368	)

117

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

37. Income Tax Expense, Continued

(4) Changes in income tax expense recognized directly to equity for the years ended December 31, 2020 and 2019 are as follows:

	2020
	December 31,2020						January 1, 2020
	Amounts before tax			Tax effect			Amounts before tax			Tax effect			Changes in tax effect
Net gain (loss) on securities measured at FVOCI	W	2,079,878			(788,919	)		(99,406	)		37,706			(826,625	)
Exchange differences on translation of foreign operations		(60,912	)		—			(7,158	)		—			—
Net gain (loss) on valuation of cash flow hedge		34			(13	)		(292	)		111			(124	)
Net gain on hedges of net investments in foreign operations		35,507			(13,468	)		4,015			(1,523	)		(11,945	)
Remeasurements of defined benefit liabilities		15,634			(5,928	)		19,331			(7,331	)		1,403
Fair value changes on financial liabilities designated at fair value due to credit risk		(5,770	)		2,189			(4,582	)		1,738			451
	W	2,064,371			(806,139	)		(88,092	)		30,701			(836,840	)

Income tax expense recognized direct to retained earnings amounting to W15,491 million is the tax effect of realized loss amounting to W56,331 million from disposal of equity securities measured at FVOCI.

	2019
	December 31, 2019						January 1, 2019
	Amounts before tax			Tax effect			Amounts before tax			Tax effect			Changes in tax effect
Net gain (loss) on securities measured at FVOCI	W	(99,406	)		37,706			(12,465	)		4,728			32,978
Exchange differences on translation of foreign operations		(7,158	)		—			(33,017	)		—			—
Losses on valuation of cash flow hedge		(292	)		111			(1,870	)		709			(598	)
Net gain on hedges of net investments in foreign operations		4,015			(1,523	)		—			—			(1,523	)
Remeasurements of defined benefit liabilities		19,331			(7,331	)		11,476			(4,352	)		(2,979	)
Fair value changes on financial liabilities designated at fair value due to credit risk		(4,582	)		1,738			3,178			(1,206	)		2,944
	W	(88,092	)		30,701			(32,698	)		(121	)		30,822

Income tax benefit recognized direct to retained earnings amounting to W7,514 million is the tax effect of realized income amounting to W27,322 million from disposal of equity securities measured at FVOCI.

118

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

38. Earnings per Share

(1) Basic earnings per share

The Bank’s basic earnings per share for the years ended December 31, 2020 and 2019 are computed as follows:

(i) Basic earnings per share

	2020		2019
Profit attributable to ordinary shareholders of the Bank (A) (in won)	W	487,529,927,945		445,728,174,656
Weighted-average number of ordinary shares outstanding (B)		3,938,857,211		3,703,721,138
Basic earnings per share (A/B) (in won)	W	124		120

(ii) Weighted-average number of ordinary shares outstanding

	2020
	Number of ordinary shares		Days		Cumulative shares
Number of ordinary shares outstanding at the beginning of the year (A)		3,732,619,768		366		1,366,138,835,088
Increased paid-in capital (B)		90,100,000		273		24,597,300,000
Increased paid-in capital (C)		330,426,000		154		50,885,604,000
Cumulative shares (D = A+B+C)						1,441,621,739,088
Weighted-average number of ordinary shares outstanding (D/366)						3,938,857,211

	2019
	Number of ordinary shares		Days		Cumulative shares
Number of ordinary shares outstanding at the beginning of the year (A)		3,621,619,768		365		1,321,891,215,320
Increased paid-in capital (B)		100,000,000		289		28,900,000,000
Increased paid-in capital (C)		11,000,000		97		1,067,000,000
Cumulative shares (D = A+B+C)						1,351,858,215,320
Weighted-average number of ordinary shares outstanding (D/365)						3,703,721,138

(2) Diluted earnings per share

Diluted and basic earnings per share for the years ended December 31, 2020 and 2019 are equal because there is no potential dilutive instrument.

119

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

39. Pledged Assets

Assets pledged by the Bank as collateral as of December 31, 2020 and 2019 are as follows:

	December 31, 2020				December 31, 2019
	Pledged assets		Related liabilities		Pledged assets		Related liabilities
Securities measured at FVOCI(*)	W	5,701,903		2,249,385		4,886,371		2,294,640
Securities measured at amortized cost(*)		313,631				1,108,791
	W	6,015,534		2,249,385		5,995,162		2,294,640

(*) Pledged as collateral related to bonds sold under repurchase agreements and borrowings.

40. Guarantees and Commitments

Guarantees and commitments as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Confirmed acceptances and guarantees:
Acceptances in foreign currency	W	408,155		325,218
Guarantees for bond issuance		2,281,329		2,427,525
Guarantees for loans		485,483		355,619
Letter of guarantee		42,965		51,461
Guarantees for on-lending debt		11,127		11,908
Others		3,734,283		4,456,862
		6,963,342		7,628,593
Unconfirmed acceptances and guarantees:
Letter of credit		1,252,411		1,662,658
Others		1,882,381		1,707,426
		3,134,792		3,370,084
Commitments:
Commitments on loans		42,787,113		30,936,286
Others		2,075,621		2,100,258
		44,862,734		33,036,544
Bills endorsed:
With recourse		971		515
	W	54,961,839		44,035,736

120

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

41. Trust Accounts

(1) Trust accounts as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Accrued trust fee	W	8,010		7,037
Deposits		—		665
Borrowings from trust accounts		906,843		1,498,878
Accrued interest on deposits		909		1,612

(2) Transactions with trust accounts for the years ended December 31, 2020 and 2019 are as follows:

	2020		2019
Trust management fee	W	30,356		29,250
Interest expenses on deposits		3		198
Interest expenses of borrowings from trust accounts		8,103		22,491

(3) The carrying amounts of principals guaranteed money trust and principals and interest guaranteed money trust as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Principals guaranteed money trust	W	251,006		257,268
Principals and interest guaranteed money trust		238,320		238,097
	W	489,326		495,365
Principal of money and property trust	W	450,445		456,890
Accrued trust profit		38,881		38,475

121

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

42. Related Party Transactions

(1) The Bank’s related parties as of December 31, 2020 are as follows:

Classification	Corporate name
Subsidiaries	KDB Capital Corporation, Daewoo Shipbuilding & Marine Engineering Co., Ltd., KDB Infrastructure Investment Asset Management Co., Ltd., KDB Asia Ltd., KDB Ireland Ltd., KDB Bank Europe Ltd., Banco KDB Do Brazil S.A., KDB Bank Uzbekistan, KDB Indonesia, Korea Infrastructure Financing Co. and 7 others, KDB Investment PEF No. 1, KDB Value PEF VII, KDB Consus Value PEF, Components and Materials M&A PEF and 4 others, Principals guaranteed trust accounts of KDB, Principals and interests guaranteed interest trust accounts of KDB, UBest 5th Securitization Specialty Co., Ltd. and 6 others, KIAMCO Road Investment Private Fund Special Asset Trust 2 and 25 others
Associates	Korea Electric Power Co., Ltd., Korea Tourism Organization, KOREA REAL ESTATE BOARD, GM Korea Company, HMM Co., Ltd., Hanjin Heavy Industries & Construction Co., Ltd., HANJIN KAL, Korea Ocean Business Corporation and 76 others, Troika Resources Investment PEF and 96 others, KIP Overseas Expansion Platform Fund and 117 others
Others	Key management personnel

(2) Significant balances with related parties as of December 31, 2020 and 2019 are as follows:

	Account	December 31, 2020			December 31, 2019
Subsidiaries:
KDB Capital Corporation	Loans	W	7,188			36,427
	Allowance for loan losses		(3	)		(5	)
	Derivative financial assets		293			1,008
	Other assets		7			8
	Deposits		2,762			82
	Derivative financial liabilities		3,756			2,516
	Other liabilities		35,513			528
KDB Infrastructure Investment Asset Management Co., Ltd.	Deposits		17,767			40,038
	Other liabilities		162			338
KDB Ireland Ltd.	Loans		358,393			326,968
	Allowance for loan losses		(94	)		(33	)
	Derivative financial assets		9,673			5,841
	Other assets		179			685
	Derivative financial liabilities		—			40

122

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

42. Related Party Transactions, Continued

	Account	December 31, 2020			December 31, 2019
KDB Bank Europe Ltd.	Cash and due from banks	W	264,697			440,762
	Loans		—			96,813
	Allowance for loan losses		—			(12	)
	Derivative financial assets		552			731
	Other assets		47			404
	Derivative financial liabilities		278			—
	Other liabilities		762			—
Banco KDB Do Brazil S.A.	Cash and due from banks		48,960			75,257
	Loans		60,384			115,780
	Allowance for loan losses		(30	)		(24	)
	Other assets		85			2,074
KDB Indonesia Ltd.	Loans		21,760			—
	Allowance for loan losses		(6	)		—
	Other assets		12			—
KDB Asia Ltd.	Cash and due from banks		783,360			567,322
	Loans		261,120			312,606
	Allowance for loan losses		(68	)		(24	)
	Derivative financial assets		1,051			849
	Other assets		825			1,888
	Deposits		2			2
	Borrowings		10,736			—
	Derivative financial liabilities		370			144
	Other liabilities		23			—
KDB Investment PEF No.1	Loans		732,640			749,207
	Allowance for loan losses		(3,443	)		(1,226	)
	Derivative financial assets		3,109			—
	Other assets		8,985			9,001
	Allowance of other assets		(35	)		(13	)
	Deposits		4,553			45,870
	Derivative financial liabilities		585			4,810
	Other liabilities		31			105
	Other provisions		1,003			362
KDB Consus Value PEF	Securities		40,857			40,431
	Derivative financial assets		243			1,477
	Other assets		345			345
	Deposits		104			66
	Derivative financial liabilities		9,923			2,459
	Other liabilities		703			1,057

123

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

42. Related Party Transactions, Continued

	Account	December 31, 2020			December 31, 2019
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	Loans	W	1,322,265			1,422,406
	Allowance for loan losses		(437,867	)		(475,992	)
	Derivative financial assets		6,533			105,017
	Other assets		3,406			4,200
	Deposits		593,439			627,963
	Derivative financial liabilities		153,516			5,814
	Other liabilities		238,642			65,790
	Other provisions		769,944			827,258
Corporate Liquidity Assistance Agency Co., Ltd.	Loans		220,000			—
	Allowance for loan losses		(64	)		—
	Other assets		4,452			—
	Allowance of other assets		(1	)		—
	Deposits		696,350			—
	Other liabilities		90			—
	Other provisions		168			—
Others	Loans		1,032,466			1,157,368
	Allowance for loan losses		(368,449	)		(347,970	)
	Derivative financial assets		738			8,369
	Other assets		13,142			18,307
	Allowance of other assets		(5,190	)		(4,907	)
	Deposits		86,364			90,729
	Borrowings		42,527			64,767
	Derivative financial liabilities		25,090			3,960
	Other liabilities		15,675			866
	Other provisions		170,380			177,474
Associates:
Korea Electric Power Co., Ltd.	Securities		5,779			26,263
	Loans		197,539			138,845
	Allowances for loan losses		(1,778	)		(844	)
	Derivative financial assets		80,203			10,719
	Other assets		20,631			11,777
	Deposits		135,837			82,202
	Borrowings		53,107			63,680
	Derivative financial liabilities		41,212			96,504
	Other liabilities		10,599			1,773
	Other provisions		10			3

124

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

42. Related Party Transactions, Continued

	Account	December 31, 2020			December 31, 2019
KG Dongbu Steel Co., Ltd.	Loans	W	614,062			625,249
	Allowances for loan losses		(55,321	)		(117,356	)
	Other assets		622			369
	Deposits		3,871			—
	Other liabilities		129			415
	Other provisions		15,320			34,592
HMM Co., Ltd.	Securities		3,866,467			694,832
	Loans		1,040,638			513,801
	Allowances for loan losses		(93,017	)		(97,777	)
	Other assets		7,302			5,308
	Deposits		440,127			371,965
	Other liabilities		2,536			1,965
	Other provisions		8,200			—
Hanjin Heavy Industries & Construction Co., Ltd.	Loans		213,052			217,764
	Other assets		—			522
	Deposits		110,914			88,240
	Other liabilities		1,464			1,802
	Other provisions		128,819			119,882
HANJIN KAL	Securities		20,098			—
	Loans		390,902			—
	Other assets		616			—
Korea Ocean Business Corporation	Loans		15,464			18,031
	Allowances for loan losses		(1	)		—
	Other assets		17			45
	Other liabilities		4			—
Others	Securities		—			5,665
	Loans		803,266			1,006,600
	Allowances for loan losses		(355,141	)		(734,729	)
	Other assets		6,390			161,575
	Deposits		439,113			632,700
	Other liabilities		2,169			2,183
	Other provisions		60,070			105,880

125

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

42. Related Party Transactions, Continued

(3) Significant profit or loss with related parties for the years ended December 31, 2020 and 2019 are as follows:

	Account	2020			2019
Subsidiaries:
KDB Capital Corporation	Interest income	W	137			205
	Dividend income		42,866			45,351
	Reversal of allowance for loan losses		1			—
	Fees and commission income, other income		4,165			6,889
	Interest expenses		(148	)		(6	)
	Provision for loan losses		—			(4	)
	Other operating expenses		(7,786	)		(3,399	)
KDB Infrastructure Investments Asset Management Co., Ltd.	Dividend income		12,287			10,436
	Interest expenses		(331	)		(473	)
KDB Ireland Ltd.	Interest income		3,506			7,763
	Reversal of allowance for loan losses		—			6
	Fees and commission income, other income		9,662			9,220
	Interest expenses		(4	)		(6	)
	Provision for loan losses		(61	)		—
	Other operating expenses		(2,868	)		(3,776	)
KDB Bank Europe Ltd.	Interest income		5,003			8,233
	Reversal of allowance for loan losses		12			—
	Fees and commission income, other income		495			1,174
	Provision for loan losses		—			(6	)
	Other operating expenses		(2,281	)		(443	)
Banco KDB Do Brazil S.A.	Interest income		2,509			5,518
	Reversal of allowance for loan losses		—			6
	Provision for loan losses		(7	)		—
KDB Indonesia Ltd.	Interest income		12			—
	Provision for loan losses		(6	)		—
KDB Asia Ltd.	Interest income		11,910			12,841
	Fees and commission income, other income		3,933			1,574
	Interest expenses		(50	)		—
	Provision for loan losses		(43	)		(6	)
	Other operating expenses		(760	)		(1,628	)
KDB Investment PEF No.1	Interest income		28,533			38,884
	Fees and commission income, other income		12,201			1,294
	Interest expenses		(386	)		(668	)
	Other operating expenses		(3,496	)		(12,995	)

126

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

42. Related Party Transactions, Continued

	Account	2020			2019
KDB Consus Value PEF	Interest income	W	1,600			4,350
	Fees and commission income, other income		8,005			32,306
	Interest expenses		(10	)		(14	)
	Other operating expenses		(15,887	)		(4,262	)
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	Interest income		30,033			43,674
	Reversal of allowance for loan losses		47,914			—
	Fees and commission income, other income		320,474			704,956
	Interest expenses		(5,939	)		(8,612	)
	Provision for loan losses		—			(92,819	)
	Other operating expenses		(380,139	)		(619,249	)
Corporate Liquidity Assistance Agency Co., Ltd.	Interest income		4,452			—
	Interest expenses		(2,847	)		—
	Provision for loan losses		(64	)		—
	Other operating expenses		(169	)		—
Others	Interest income		23,280			50,009
	Dividend income		103,474			128,453
	Reversal of allowance for loan losses		28,870			353,511
	Fees and commission income, other income		148,144			230,540
	Interest expenses		(914	)		(897	)
	Provision for loan losses		(80,030	)		(126,431	)
	Other operating expenses		(153,704	)		(285,324	)
Associates:
Korea Electric Power Co., Ltd.	Interest income		4,125			4,830
	Reversal of allowance for loan losses		—			1,925
	Fees and commission income, other income		178,140			15,479
	Interest expenses		(2,180	)		(2,152	)
	Provision for loan losses		(934	)		—
	Other operating expenses		(46,166	)		(146,873	)
KG Dongbu Steel Co., Ltd.	Interest income		12,687			39,387
	Reversal of allowance for loan losses		62,035			337,370
	Fees and commission income, other income		33,704			50,879
	Interest expenses		(41	)		(345	)
	Other operating expenses		(14,044	)		(32,610	)

127

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

42. Related Party Transactions, Continued

	Account	2020			2019
HMM Co., Ltd.	Interest income	W	41,080			28,822
	Reversal of allowance for loan losses		4,761			—
	Fees and commission income, other income		558,057			188,357
	Interest expenses		(2,107	)		(4,529	)
	Provision for loan losses		—			(62,354	)
	Other operating expenses		(11,334	)		(1,118	)
Hanjin Heavy Industries & Construction Co., Ltd.	Interest income		5,704			6,181
	Reversal of allowance for loan losses		—			62,892
	Fees and commission income, other income		12,226			121,534
	Interest expenses		(346	)		(588	)
	Other operating expenses		(22,460	)		(993	)
Korea Ocean Business Corporation	Interest income		380			419
	Fees and commission income, other income		3			45
	Interest expenses		(19	)		—
	Provision for loan losses		(1	)		—
	Other operating expenses		(969	)		(297	)
Others	Interest income		13,853			12,228
	Dividend income		243,044			217,290
	Reversal of allowance for loan losses		380,524			38,194
	Fees and commission income, other income		73,290			31,434
	Interest expenses		(3,481	)		(6,442	)
	Provision for loan losses		(3,320	)		(3,719	)
	Other operating expenses		(17,095	)		(4,934	)

(4) Details of guarantees and commitments to the related parties as of December 31, 2020 and 2019 are as follows:

	Account	December 31, 2020		December 31, 2019
Subsidiaries:
KDB Capital Corporation	Commitments	W	320,000		290,000
KDB Investment PEF No.1	Unconfirmed acceptances and guarantees		7,854		19,976
	Commitments		298,706		176,000
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	Confirmed acceptances and guarantees		1,226,351		1,692,241
	Unconfirmed acceptances and guarantees		557,377		566,566
	Commitments		5,084,798		1,453,763

128

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

42. Related Party Transactions, Continued

	Account	December 31, 2020		December 31, 2019
Corporate Liquidity Assistance Agency Co., Ltd.	Commitments	W	780,000		—
Others	Confirmed acceptances and guarantees		337,604		357,473
	Unconfirmed acceptances and guarantees		175,716		232,989
	Commitments		178,200		244,448
Associates:
KG Dongbu Steel Co., Ltd.	Confirmed acceptances and guarantees		—		37,111
	Unconfirmed acceptances and guarantees		20,265		11,285
	Commitments		339,823		117,765
HMM Co., Ltd.	Confirmed acceptances and guarantees		13,056		—
Hanjin Heavy Industries & Construction Co., Ltd.	Confirmed acceptances and guarantees		414,630		358,785
	Unconfirmed acceptances and guarantees		3,337		3,062
	Commitments		22,614		—
Others	Confirmed acceptances and guarantees		76,628		113,256
	Unconfirmed acceptances and guarantees		28,431		106,422
	Commitments		244,384		347,391
		W	10,129,774		6,128,533

(5) Details of compensation to key management personnel for the years ended December 31, 2020 and 2019 are as follows:

	2020		2019
Short-term employee benefits	W	1,130		1,234
Post-employment benefits		42		81
	W	1,172		1,315

(6) The Bank are not pledged any assets as collaterals to the related parties and from the related parties as of December 31, 2020 and 2019.

129

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

43. Statements of Cash Flows

(1) Cash and cash equivalents in the statements of cash flows as of December 31, 2020 and 2019 are as follows:

	December 31, 2020			December 31, 2019
Cash and due from banks:
Cash and foreign currencies	W	52,240			53,529
Due from banks in Korean won		4,487,351			1,956,751
Due from banks in foreign currencies / off-shores		5,989,387			4,581,894
		10,528,978			6,592,174
Less: Restricted due from banks, others		(5,624,394	)		(3,366,549	)
Add: Financial instruments reaching maturity within three months from date of acquisition
Call-loans		465,485			1,423,090
Inter-bank loans		359,125			604,110
		824,610			2,027,200
	W	5,729,194			5,252,825

(2) Significant transactions not involving cash flows for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Decrease in loans due to write-offs	W	158,616			149,932
Increase in securities measured at FVOCI due to debt-to-equity swap, etc		13,714			42,398
Increase in investments in subsidiaries and associates due to debt-to-equity swap, etc.		—			134,264
Increase(decrease) in accumulated other comprehensive income due to securities valuation		3,005,909			(119,919	)
Deferred income tax effect due to securities valuation		(826,625	)		32,978
Reclassification of investments in subsidiaries and associates to assets held for sale		78,278			1,661,320
Reclassification of investments in subsidiaries and associates to securities measured at FVTPL		—			4,100
Transfer from investment property to property and equipment		(16,037	)		3,264
Transfer from property and equipment to investment property		5,590			—
Recognition of right-of-use assets and lease liabilities		31,499			25,394
Initial adoption of K-IFRS 1116		—			56,477

130

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

44. Transfers of Financial Instruments

Details of financial assets and liabilities related to repurchase agreements and loaned securities sold and loaned debt securities that do not qualify for derecognition as of December 31, 2020 and 2019 are as follows:

	December 31, 2020				December 31, 2019
Characteristics of transactions	Carrying amounts for transferred assets		Carrying amounts for related liabilities		Carrying amounts for transferred assets		Carrying amounts for related liabilities
Repurchase agreements	W	2,762,065		1,875,504		3,273,273		2,070,284
Loaned securities		289,806		—		40,059		—
	W	3,051,871		1,875,504		3,313,332		2,070,284

45. Fair Value of Financial Assets and Liabilities

The Bank classifies and discloses fair value of the financial instruments into the following three-level hierarchy:

• Level 1: Financial instruments measured at quoted prices from active markets are classified as level 1.

• Level 2: Financial instruments measured using valuation techniques where all significant inputs are observable market data are classified as level 2.

• Level 3: Financial instruments measured using valuation techniques where one or more significant inputs are not based on observable market data are classified as level 3.

(1) Fair value hierarchy of financial instruments measured at fair value

(i) The fair value hierarchy of financial instruments measured at fair value as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Financial assets:
Securities measured at FVTPL	W	1,023,738		1,064,829		6,232,064		8,320,631
Securities measured at FVOCI		2,439,145		17,067,639		14,634,541		34,141,325
Loans measured at FVTPL		—		—		1,434,514		1,434,514
Derivative financial assets		—		8,321,162		8,214		8,329,376
	W	3,462,883		26,453,630		22,309,333		52,225,846
Financial liabilities:
Financial liabilities designated at FVTPL	W	—		1,694,957		—		1,694,957
Derivative financial liabilities		—		6,298,836		6,451		6,305,287
	W	—		7,993,793		6,451		8,000,244

131

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Financial assets:
Securities measured at FVTPL	W	1,409,326		1,608,875		4,804,158		7,822,359
Securities measured at FVOCI		1,219,680		12,164,468		10,865,012		24,249,160
Loans measured at FVTPL		—		—		604,380		604,380
Derivative financial assets		47		5,422,753		10,007		5,432,807
	W	2,629,053		19,196,096		16,283,557		38,108,706
Financial liabilities:
Financial liabilities designated at FVTPL	W	—		2,465,541		—		2,465,541
Derivative financial liabilities		342		4,171,251		75		4,171,668
	W	342		6,636,792		75		6,637,209

(ii) Changes in the fair value of level 3 financial instruments for the years ended December 31, 2020 and 2019 are as follows:

	2020
	Financial assets															Financial liabilities
	Securities measured at FVTPL			Securities measured at FVOCI			Loans measured at FVTPL			Derivative financial assets			Total			Derivative financial liabilities
January 1, 2020	W	4,804,158			10,865,012			604,380			10,007			16,283,557			75
Profit or loss		(10,627	)		—			649,450			(1,793	)		637,030			6,376
Other comprehensive income		—			2,944,874			—			—			2,944,874			—
Acquisition / Issue		1,899,130			990,310			349,940			—			3,239,380			—
Sale / Settlement		(476,894	)		(168,778	)		(169,256	)		—			(814,928	)		—
Transfer out(*)		—			(24,556	)		—			—			(24,556	)		—
Transfer in(*)		16,297			27,679			—			—			43,976			—
December 31, 2020	W	6,232,064			14,634,541			1,434,514			8,214			22,309,333			6,451

132

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

	2019
	Financial assets															Financial liabilities
	Securities measured at FVTPL			Securities measured at FVOCI			Loans measured at FVTPL			Derivative financial assets			Total			Derivative financial liabilities
January 1, 2019	W	5,037,128			10,191,950			778,884			139,377			16,147,339			66
Profit or loss		(38,761	)		—			42,921			(1,307	)		2,853			9
Other comprehensive income		—			(215,862	)		—			—			(215,862	)		—
Acquisition / Issue		727,192			1,017,490			33,500			—			1,778,182			—
Sale / Settlement		(910,575	)		(261,613	)		(250,925	)		(128,063	)		(1,551,176	)		—
Transfer out(*)		(10,826	)		(201,053	)		—			—			(211,879	)		—
Transfer in(*)		—			334,100			—			—			334,100			—
December 31, 2019	W	4,804,158			10,865,012			604,380			10,007			16,283,557			75

(*) When significant inputs become observable market data, the financial instruments are transferred to (from) other levels.

(iii) Changes in deferred day one profit or loss for the years ended December 31, 2020 and 2019 are as follows:

	2020			2019
Beginning balance	W	4,763			5,149
Amortization		(388	)		(386	)
Ending balance	W	4,375			4,763

(iv) Details of valuation technique and inputs used in the fair value measurement categorized within level 2 of the fair value hierarchy of financial instruments measured at fair value as of December 31, 2020 and 2019 are as follows:

	Valuation technique	Input
Securities measured at FVTPL and financial assets held for trading:
Equity securities	Net asset value approach	Underlying asset price
Debt securities	Discounted cash flow method	Discount rate
Securities measured at FVOCI and available-for-sale financial assets:
Equity securities	Net asset value approach	Underlying asset price
Debt securities	Discounted cash flow method	Discount rate
Derivatives financial assets:
Interest rate swaps	Discounted cash flow method,	Discount rate, exchange rate,
Currency forwards and swaps	Black-Scholes model, Modified	volatility, commodity index,
Currency options	Black model, Formula model	etc.
Commodities options
Financial liabilities measured at FVTPL:
Debentures	Discounted cash flow method	Discount rate

133

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

(v) Details of valuation technique and quantitative information about unobservable inputs used in the fair value measurement categorized within level 3 of the fair value hierarchy of financial instruments measured at fair value as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Valuation technique	Unobservable input	Range (%)
Securities measured at FVTPL
Equity securities	Discounted cash flow	Discount rate	0.72 ~ 19.05
	method, Relative value	Rate of increase in	—
	approach, Net asset	liquidation value
	value approach	Rate of increase in	—
		property disposal price
		Volatility	17.53 ~ 33.00
Securities measured at FVOCI
Equity securities	Discounted cash flow	Discount rate	0.195 ~19.05
	method, Relative value	Growth rate	—
	approach, Net asset	Volatility	18.49 ~ 26.45
	value approach
Loans measured at FVTPL
Convertible bonds, etc.	Binomial model, LSMC	Volatility	17.53 ~ 32.59
Derivatives financial assets
Interest rate swaps	Discounted cash flow	Volatility	36.02 ~ 44.87
		Correlation coefficient	0.83 ~ 0.91
Interest rate options	Modified Black model	Volatility	36.02 ~ 44.87
Stock index options	Black-Scholes model	Volatility	17.20 ~ 27.30
Equity options	Discounted cash flow	Volatility	18.49 ~ 33.00
	method and others

134

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

	December 31, 2019
	Valuation technique	Unobservable input	Range (%)
Securities measured at FVTPL
Equity securities	Discounted cash flow	Discount rate	3.91 ~ 9.69
	method, Relative value	Rate of increase in	—
	approach, Net asset	liquidation value
	value approach	Rate of increase in	—
		property disposal price
		Volatility	16.02 ~ 34.72
Securities measured at FVOCI
Equity securities	Discounted cash flow	Discount rate	3.04 ~ 16.59
	method, Relative value	Growth rate	—
	approach, Net asset	Volatility	14.51 ~ 26.98
	value approach
Loans measured at FVTPL
Convertible bonds, etc.	Binomial model	Volatility	12.70 ~ 36.32
Derivatives financial assets
Interest rate swaps	Discounted cash flow	Volatility	20.41 ~ 34.21
		Correlation coefficient	0.89 ~ 0.97
Interest rate options	Modified Black model	Volatility	20.41 ~ 34.21
Stock index options	Black-Scholes model	Volatility	12.77 ~ 21.80
Equity options	Discounted cash flow	Volatility	14.51 ~ 21.85
	method and others

(vi) The sensitivity analysis on changes in unobservable inputs for financial instruments categorized within level 3 of the fair value hierarchy of financial instruments measured at fair value as of December 31, 2020 and 2019 is as follows:

	December 31, 2020
	Profit(loss) for the year					Other comprehensive income(loss)
	Favorable change		Unfavorable change			Favorable change		Unfavorable change
Securities measured at FVTPL(*1)	W	8,478		(7,355	)		—		—
Securities measured at FVOCI(*1)		—		—			45,231		(75,780	)
Loans measured at FVTPL(*2)		64,022		(28,054	)		—		—
Derivative financial assets(*2)		4,364		(1,846	)		—		—
	W	76,864		(37,255	)		45,231		(75,780	)

135

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

	December 31, 2019
	Profit(loss) for the year					Other comprehensive income(loss)
	Favorable change		Unfavorable change			Favorable change		Unfavorable change
Securities measured at FVTPL(*1)	W	11,703		(9,400	)		—		—
Securities measured at FVOCI(*1)		—		—			3,041,744		(425,615	)
Loans measured at FVTPL		6,521		(5,924	)		—		—
Derivative financial assets(*2)		1,259		(940	)		—		—
	W	19,483		(16,264	)		3,041,744		(425,615	)

(*1) Sensitivity amounts of equity securities are calculated by increasing and decreasing the correlations between the discount rates and the growth rates (0~1%) or the rate of increase in liquidation value (-1~1%) which are significant unobservable inputs. Sensitivity amounts for beneficiary certificates are calculated by increasing and decreasing the correlations between the discount rate of rent cash flow (-1~1%) and the rate of increase in property disposal price (-1~1%), only when they consist of real properties. Other than that, it is difficult to measure the sensitivity amounts of beneficiary certificates for practical reasons. Also, for financial instruments categorized within level 3 in 2020 and 2019, W20,500,366 million and W12,555,495 million, respectively, are excluded from the sensitivity disclosure because it is impossible to calculate the sensitivity due to changes in unobservable variables for practical reasons.

(*2) Sensitivity amounts of loans measured at FVTPL and derivatives financial instruments are calculated by increasing and decreasing the correlation coefficient and volatility (-10~10%) which are significant unobservable inputs.

(2) Fair value hierarchy of financial instruments measured at amortized cost

(i) The Bank’s policies for measuring fair value of financial instruments at amortized costs are as follows:

- Cash and due from banks: Fair value of cash is considered equivalent to the carrying amount. In the case of due from banks on demand, which do not have a set maturity and can be realized instantly, the carrying amount is a close estimate of the fair value and is assumed so. In the case of other ordinary due from banks, the cash flow discount method is used to estimate the fair value.

- Securities measured at amortized cost: The fair value of securities measured at amortized cost is computed by widely-accepted appraisal agencies upon request.

- Loans measured at amortized cost: The fair value of loans measured at amortized cost is the expected future cash flows, reflecting premature redemption ratio, discounted by the market interest rate, adjusted by a spread sheet considering the probability of default. Exceptions to this method include loans with credit line facilities, loans with a maturity of three months or less left and impaired loans, which the Bank assumes the carrying amount as the fair value.

- Deposits: The fair value of deposits is computed using the discounted cash flow method. However, for deposits, whose cash flows cannot be estimated reasonably, the Bank assumes the carrying amount as the fair value.

- Borrowings: The fair value of industrial financial debentures is computed using the discounted cash flow method by the Bank’s Fair Value Evaluation System. However, for borrowings including call money whose contractual maturity is three months or less, the Bank assumes the carrying amount as the fair value.

136

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

- Debentures: The fair value of industrial financial debentures is computed using the discounted cash flow method by the Bank’s Fair Value Evaluation System.

- Other financial assets and liabilities: The fair value of other financial assets and liabilities is computed using the discounted cash flow method. However, in cases cash flow cannot be estimated reasonably, the Bank assumes the carrying amount as the fair value.

(ii) The fair value hierarchy of financial instruments measured at amortized cost as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks(*)	W	4,904,584		5,624,394		—		10,528,978
Securities measured at amortized cost		665,183		120,081		—		785,264
Loans measured at amortized cost(*)		—		465,485		155,354,001		155,819,486
Other financial assets(*)		—		3,831,087		630,030		4,461,117
	W	5,569,767		10,041,047		155,984,031		171,594,845
Financial liabilities:
Deposits(*)	W	—		2,249,420		43,624,163		45,873,583
Borrowings(*)		—		1,008,635		17,865,518		18,874,153
Debentures		—		140,088,033		—		140,088,033
Other financial liabilities(*)		—		3,104,887		3,784,488		6,889,375
	W	—		146,450,975		65,274,169		211,725,144

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks(*)	W	3,225,625		3,366,549		—		6,592,174
Securities measured at amortized cost		291,339		1,210,608		—		1,501,947
Loans measured at amortized cost(*)		—		1,423,090		139,681,137		141,104,227
Other financial assets(*)		—		4,042,106		913,542		4,955,648
	W	3,516,964		10,042,353		140,594,679		154,153,996
Financial liabilities:
Deposits(*)	W	—		2,455,470		32,210,470		34,665,940
Borrowings(*)		—		467,850		19,668,791		20,136,641
Debentures		—		122,450,628		—		122,450,628
Other financial liabilities(*)		—		2,781,527		4,303,900		7,085,427
	W	—		128,155,475		56,183,161		184,338,636

(*) For financial instruments categorized as level 2, the carrying amount is considered as a reasonable approximation of the fair value and is thus, disclosed by fair value.

137

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

45. Fair Value of Financial Assets and Liabilities, Continued

(iii) Details of valuation technique and inputs used in the fair value measurement categorized within level 2 and level 3 of the fair value hierarchy of financial instruments measured at amortized cost as of December 31, 2020 and 2019 are as follows:

	Valuation technique	Input
Level 2
Financial assets:
Securities measured at amortized cost	Discounted cash flow method	Discount rate
Financial liabilities:
Debentures	Discounted cash flow method	Discount rate
Level 3
Financial assets:
Loans measured at amortized cost	Discounted cash flow method	Credit spread, Other spread, Prepayment rate
Other financial assets	Discounted cash flow method	Other spread
Financial liabilities:
Deposits	Discounted cash flow method	Other spread, Prepayment rate
Borrowings	Discounted cash flow method	Other spread
Other financial liabilities	Discounted cash flow method	Other spread

138

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

46. Categories of Financial Assets and Liabilities

Categories of financial assets and liabilities as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Cash and cash equivalents		Financial instruments measured at FVTPL		Financial instruments designated at FVTPL		Financial instruments measured at FVOCI		Financial instruments designated at FVOCI		Financial instruments measured at amortized cost		Hedging purpose derivative instruments		Total
Financial assets:
Cash and due from banks	W	4,904,584		—		—		—		—		5,624,394		—		10,528,978
Securities measured at FVTPL		—		8,320,631		—		—		—		—		—		8,320,631
Securities measured at FVOCI		—		—		—		19,276,210		14,865,115		—		—		34,141,325
Securities measured at amortized cost		—		—		—		—		—		785,264		—		785,264
Loans measured at FVTPL		—		1,434,514		—		—		—		—		—		1,434,514
Loans measured at amortized cost		824,610		—		—		—		—		154,475,568		—		155,300,178
Derivative financial assets		—		6,880,971		—		—		—		—		1,448,405		8,329,376
Other financial assets		—		—		—		—		—		4,463,726		—		4,463,726
	W	5,729,194		16,636,116		—		19,276,210		14,865,115		165,348,952		1,448,405		223,303,992
Financial liabilities:
Financial liabilities measured at FVTPL	W	—		—		1,694,957		—		—		—		—		1,694,957
Deposits		—		—		—		—		—		45,879,419		—		45,879,419
Borrowings		—		—		—		—		—		18,887,611		—		18,887,611
Debentures		—		—		—		—		—		138,318,728		—		138,318,728
Derivative financial liabilities		—		6,206,902		—		—		—		—		98,385		6,305,287
Other financial liabilities		—		—		—		—		—		6,896,581		—		6,896,581
	W	—		6,206,902		1,694,957		—		—		209,982,339		98,385		217,982,583

139

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

46. Categories of Financial Assets and Liabilities, Continued

	December 31, 2019
	Cash and cash equivalents		Financial instruments measured at FVTPL		Financial instruments designated at FVTPL		Financial instruments measured at FVOCI		Financial instruments designated at FVOCI		Financial instruments measured at amortized cost		Hedging purpose derivative instruments		Total
Financial assets:
Cash and due from banks	W	3,225,625		—		—		—		—		3,366,549		—		6,592,174
Securities measured at FVTPL		—		7,822,359		—		—		—		—		—		7,822,359
Securities measured at FVOCI		—		—		—		13,129,373		11,119,787		—		—		24,249,160
Securities measured at amortized cost		—		—		—		—		—		1,501,947		—		1,501,947
Loans measured at FVTPL		—		604,380		—		—		—		—		—		604,380
Loans measured at amortized cost		2,027,200		—		—		—		—		137,844,442		—		139,871,642
Derivative financial assets		—		4,526,186		—		—		—		—		906,621		5,432,807
Other financial assets		—		—		—		—		—		4,735,372		—		4,735,372
	W	5,252,825		12,952,925		—		13,129,373		11,119,787		147,448,310		906,621		190,809,841
Financial liabilities:
Financial liabilities measured at FVTPL	W	—		—		2,465,541		—		—		—		—		2,465,541
Deposits		—		—		—		—		—		34,663,952		—		34,663,952
Borrowings		—		—		—		—		—		20,170,513		—		20,170,513
Debentures		—		—		—		—		—		120,623,388		—		120,623,388
Derivative financial liabilities		—		3,983,552		—		—		—		—		188,116		4,171,668
Other financial liabilities		—		—		—		—		—		7,089,686		—		7,089,686
	W	—		3,983,552		2,465,541		—		—		182,547,539		188,116		189,184,748

140

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

47. Offsetting of Financial Assets and Liabilities

Details of financial instruments subject to offsetting, enforceable master netting agreements or similar agreements as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Gross amounts of recognized financial asset		Gross amounts of recognized financial liabilities set off in the statement of financial position		Net amounts of financial assets presented in the statement of financial position		Related amounts not set off in the statement of financial position
							Financial instruments		Cash collateral received		Net amounts
Derivative financial assets(*)	W	8,329,376		—		8,329,376		5,414,190		526,608		2,388,578
Unsettled spot exchange receivables(*)		2,517,129		—		2,517,129		2,516,540		—		589
Unsettled domestic exchange receivables		2,731,336		1,417,378		1,313,958		—		—		1,313,958
Security pledged as collateral for repurchase agreements		2,762,065		—		2,762,065		1,875,504		—		886,561
Reverse repurchase agreements		1,440,000		—		1,440,000		1,440,000		—		—
Loaned securities		289,806		—		289,806		289,806		—		—
Receivables from securities transaction		18,519		—		18,519		18,519		—		—
	W	18,088,231		1,417,378		16,670,853		11,554,559		526,608		4,589,686

	December 31, 2020
	Gross amounts of recognized financial liabilities		Gross amounts of recognized financial assets set off in the statement of financial position		Net amounts of financial liabilities presented in the statement of financial position		Related amounts not set off in the statement of financial position				Net amounts
							Financial instruments		Cash collateral pledged
Derivative financial liabilities(*)	W	6,305,287		—		6,305,287		4,261,659		40,158		2,003,470
Unsettled spot exchange payables(*)		2,517,693		—		2,517,693		2,516,540		—		1,153
Unsettled domestic exchange payables		2,004,572		1,417,378		587,194		—		—		587,194
Repurchase agreements		1,875,504		—		1,875,504		1,875,504		—		—
Payables from securities transaction		14,766		—		14,766		14,766		—		—
	W	12,717,822		1,417,378		11,300,444		8,668,469		40,158		2,591,817

141

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

47. Offsetting of Financial Assets and Liabilities, Continued

	December 31, 2019
	Gross amounts of recognized financial asset		Gross amounts of recognized financial liabilities set off in the statement of financial position		Net amounts of financial assets presented in the statement of financial position		Related amounts not set off in the statement of financial position				Net amounts
							Financial instruments		Cash collateral received
Derivative financial assets(*)	W	5,432,807		—		5,432,807		3,580,419		232,372		1,620,016
Unsettled spot exchange receivables(*)		2,418,623		—		2,418,623		2,417,633		—		990
Unsettled domestic exchange receivables		2,971,680		1,348,198		1,623,482		—		—		1,623,482
Security pledged as collateral for repurchase agreements		3,273,273		—		3,273,273		2,070,284		—		1,202,989
Reverse repurchase agreements		940,000		—		940,000		940,000		—		—
Loaned securities		40,059		—		40,059		40,059		—		—
Receivables from securities transaction		19,520		—		19,520		19,520		—		—
	W	15,095,962		1,348,198		13,747,764		9,067,915		232,372		4,447,477

	December 31, 2019
	Gross amounts of recognized financial liabilities		Gross amounts of recognized financial assets set off in the statement of financial position		Net amounts of financial liabilities presented in the statement of financial position		Related amounts not set off in the statement of financial position				Net amounts
							Financial instruments		Cash collateral pledged
Derivative financial liabilities(*)	W	4,171,668		—		4,171,668		3,158,950		48,392		964,326
Unsettled spot exchange payables(*)		2,417,981		—		2,417,981		2,417,633		—		348
Unsettled domestic exchange payables		1,711,744		1,348,198		363,546		—		—		363,546
Repurchase agreements		2,070,284		—		2,070,284		2,070,284		—		—
Payables from securities transaction		31,023		—		31,023		31,023		—		—
	W	10,402,700		1,348,198		9,054,502		7,677,890		48,392		1,328,220

(*) For the derivatives covered by the ISDA derivative contracts, all contracts are settled and the net amount of derivative contracts is measured and paid based on the liquidation value if the counterparty files for bankruptcy or has any credit issues.

142

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

48. Operating Segments

(1) The Bank has four reportable segments, as described below, which are the Bank’s strategic business units. They are managed separately because each business requires different technology and marketing strategies. The following summary describes general information about each of the Bank’s reportable segments:

Segments	General information
Corporate finance	Provides trade finance and loans to corporate customers
Investment finance	Provides consulting services to corporate such as capital finance, restructuring, etc.
Asset management	Provides asset management services to individual and corporate customers
Others	Any other segment not mentioned above

(2) Operating income (loss) from external customers and among operating segments for the years ended December 31, 2020 and 2019 are as follows:

	2020
	Corporate finance			Investment finance			Asset management		Others			Total
Operating income (loss) from external customers	W	(103,776)			1,276,401			20,683		(298,796	)		894,512
Operating income (loss) from intersegment sales		(91,113	)		(350,835	)		—		441,948			—
	W	(194,889	)		925,566			20,683		143,152			894,512
	2019
	Corporate finance			Investment finance			Asset management		Others			Total
Operating income (loss) from external customers	W	1,090,563			602,962			28,028		(552,916	)		1,168,637
Operating income (loss) from intersegment sales		(57,654	)		(512,936	)		—		570,590			—
	W	1,032,909			90,026			28,028		17,674			1,168,637

143

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

48. Operating Segments, Continued

(3) Details of segment results for the Bank’s reportable segments for the years ended December 31, 2020 and 2019 are as follows:

	2020
	Corporate finance			Investment finance			Asset management			Others			Total
Net interest income	W	1,215,271			45,289			(825	)		19,838			1,279,573
Non-interest income Income related to securities(*1)		(9,932	)		116,096			—			28,705			134,869
Other non-interest income		352,061			439,910			34,534			111,843			938,348
		342,129			556,006			34,534			140,548			1,073,217
Provision for loan losses and others(*2)		(1,095,754	)		431,878			—			(5,065	)		(668,941	)
General and administrative expenses		(656,535	)		(107,607	)		(13,026	)		(12,169	)		(789,337	)
Operating income	W	(194,889	)		925,566			20,683			143,152			894,512
	2019
	Corporate finance			Investment finance			Asset management			Others			Total
Net interest income	W	1,496,342			(518,643	)		6,407			78,216			1,062,322
Non-interest income Income related to securities(*1)		10,629			244,021			—			7,197			261,847
Other non-interest income		329,547			451,904			33,832			(55,760	)		759,523
		340,176			695,925			33,832			(48,563	)		1,021,370
Provision for loan losses and others(*2)		(188,465	)		20,239			—			101			(168,125	)
General and administrative expenses		(615,144	)		(107,495	)		(12,211	)		(12,080	)		(746,930	)
Operating income	W	1,032,909			90,026			28,028			17,674			1,168,637

(*1) Income related to securities is composed of net gain (loss) on securities measured at FVTPL, securities measured at FVOCI and securities measured at amortized cost.

(*2) Provision for loan losses and others comprises of provision for loan losses, provision for derivative credit risks, gains (losses) on sales of loans, and increase (reversal) of provision.

144

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

48. Operating Segments, Continued

(4) Geographical revenue information about the Bank’s operating segments for the years ended December 31, 2020 and 2019 and the geographical non-current asset information as of December 31, 2020 and 2019 are as follows:

	Revenues(*1)				Non-current assets(*2)
	2020		2019		December 31, 2020		December 31, 2019
Domestic	W	31,206,147		23,768,565		26,606,309		25,292,696
Overseas		739,560		915,673		28,116		27,595
	W	31,945,707		24,684,238		26,634,425		25,320,291

(*1) Revenues consist of interest income, fees and commission income, dividend income, income related to securities, foreign currency transaction gain, gain on derivatives, other operating income and provision for loan losses.

(*2) Non-current assets consist of investments in subsidiaries and associates, property and equipment, investment property and intangible assets.

49. Risk Management

(1) Introduction

(i) Objectives and principles

The Bank’s risk management aims to maintain financial soundness and effectively manage various risks pertinent to the nature of the Bank’s business. The Bank has set up and fulfilled policies to manage risks timely and effectively. Pursuant to the policies, the Bank’s risks shall be

• managed comprehensively and independently,

• recognized timely, evaluated exactly and managed effectively,

• maintained to the extent that the risks balance with profit,

• diversified appropriately to avoid concentration on specific segments,

• managed to prevent excessive exposure by the setting up and managing of tolerance limits and guidelines.

(ii) Risk management strategy and process

The Bank’s risk management business is separated into two different stages; the ‘metrification stage,’ in which risks are estimated and monitored, and the ‘integration stage,’ in which information gained during the risk management process is integrated and used in management strategies. Risk management is recognized as a key component of the Bank’s management and seeks to change from its previously adaptive and limited role to more leading and comprehensive role.

Furthermore, the Bank focuses on consistent communication among different departments to establish a progressive consensus on risk management.

145

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

(iii) Risk management governance

Risk Management Committee

The Bank’s Risk Management Committee (the “Committee”) is composed of the President of the committee (an outside director), and three other commissioners. The Committee functions to establish policies of risk management, evaluate the capital adequacy of the Bank, discuss material issues relating to risk management, and present preliminary decisions on such matters.

The CEO of the Bank and the head of Risk Management Segment

The CEO of the Bank, according to the policies of risk management, performs his or her role to manage and direct risk management to sustain efficiency and internal control. The head of the Risk Management Segment is responsible for supervising the overall administration of the Bank’s risk management business and providing risk-related information to members of the board of directors and the Bank’s management.

Risk Management Policy Committee and Risk Management Practice Committee

The Bank’s Risk Management Policy Committee is composed of the leaders of all business segments. and exercises its role to decide important matters relating to the Bank’s portfolio including allocating internal capital limits by segment and setting exposure limits by industry within the scope that Risk Management Committee regulated.

The Bank’s Risk Management Practice Committee is composed of the planning department’s leaders of main business segments. The Risk Management Practice Committee exercises its role to preliminarily review matters for main decision of the Risk Management Committee.

(iv) Performance of risk management committee

The Risk Management Committee performs comprehensive reviews of all the affairs related to risk management and deliberates the decisions of the board of directors. For the year ended December 31, 2020, the key activities of the Risk Management Committee are as follows:

• Major decision

• Risk management plan for 2020

• Setting and managing exposure limits by country for 2020

• Contingency funding plan for 2020

• Major reporting

• Improvement of credit portfolio management in 2020

• Result of operation of corporate credit rating system in 2020

• Verification of risk-weighted assets for BIS ratio as of December 31, 2019

• Result of integrated crisis analysis for the second half of 2019

146

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

• Result of assessment of suitability for internal capital for 2019

• Result of integrated crisis analysis against COVID-19

• Setting major limit of credit portfolios

• Allocation of internal capital limits

• Result of BCP training against COVID-19

• Resolution of Credit Committee

(v) Improvement of risk management system

For the continuous improvement of risk management, financial soundness and capital adequacy, the Bank performs the following:

• Continuous improvement of Basel

• Improvements in the internal capital adequacy assessment system, in line with the guidelines set by the Financial Supervisory Service (FSS) in 2008, to manage capital adequacy more effectively

• Improvements in the credit assessment system on Low Default Portfolio (LDP)

• Elaboration of risk measuring criteria including credit risk parameters and measurement logics

• Development of the application system for timely calculation of LCR and NSFR

• Rebuilding the Corporate Credit Rating System (approved by Financial Supervisory Services on October 26, 2017)

• Establishment of the system to calculate Basel Interest Rate Risk in the Banking Book coming to domestic in September 2018

• Expansion of risk management infrastructure

• Establishment of the RAPM system to reflect risks to the Bank’s business and support decision-making upon management, and application of performance assessment at the branch level since 2010

• Enforcement of risk management related to irregular compound derivatives and validation of the derivative pricing model developed by the Bank’s Front Office

• Establishment of IFRS 9 accounting system to calculate a loan loss allowances under IFRS 9 in March 2017 and, since then, run of IFRS 9 accounting system in January 2018

147

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

(vi) Risk management reporting and measuring system

The Bank endeavours consistently to objectively and rationally measure and manage all significant risks considering the characteristics of operational areas, assets and risks. In relation to reporting and measurement, the Bank has developed application systems as follows:

Application system	Approach	Completion date	Major function
Corporate Credit Rating System	Logit Model	Oct. 2017	Rebuilding the Corporate Credit Rating System
Market Risk Management System	Risk Watch	Jun. 2002 Feb. 2019	Summarize position, manage exposure limits and calculate Market VaR
	RS Model	Sep. 2012	Calculate regulatory capital by Standardized Approach
	Murex M/O	Apr. 2013	Supplement of RiskWatch to calculate VaR
Interest/Liquidity Risk Management System	In-house	May. 2019	Calculation of interest risk, liquidity risk, etc.
Operational Risk Management System	Standardized Approach	May. 2006	Manage process and calculate CSA, KRI and OP VaR, etc.
	AMA	May. 2009	Measure by Advanced Measurement Approach
BIS Capital Ratio Calculation/Credit Risk Measurement System	Fermat RaY	Sep. 2006 Dec. 2013	Calculate equity, credit risk-weighted assets and credit risk, etc.
Loan Loss Allowance	IFRS	Jan. 2011	Incurred loss model
Calculation System	IFRS 9	Mar. 2017	Expected loss model

(*) Systems not used as of December 31, 2020 are excluded.

(vii) Response to Basel

The Korean financial authorities have implemented Basel II since January 2008, and the Standardized Approach and the Foundation Internal Ratings-Based Approach for calculating credit risk are applicable.

In conformity with the implementation roadmap of Basel II, the Bank obtained the approval to use the Foundation Internal Ratings-Based Approach on credit risk from the FSS in July 2008 and has applied the approach since late June 2008. The Bank applies the Standardized Approach on market risks and operational risks.

The Bank completed the Basel III standard risk management system in preparation of the adoption of the Basel III regulations announced on December 1, 2013. Starting from 2013 year-end, the BIS capital adequacy ratio has been measured in accordance to the Basel III regulations.

148

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

Responding to the requirements of the financial authorities, the Bank recognizes interest rate risk, liquidity risk, credit bias risk and reputation risk besides Pillar I risks (credit risk, market risk and operational risk). The Bank has actively responded to the Pillar 2 regulation, including additional capital requirements based on comprehensive assessment of risk management levels since 2015. In addition, from the end of 2015, the Bank has applied the uniform standards for the public announcement of financial business for Basel compliance.

The Bank completed revised standards such as capital requirements for banks’ investments in funds in 2017, capital requirements for securitization in 2018, and the Standardised Approach for measuring counterparty credit risk (SA-CCR) in 2019.

To comply with the amended regulation relating to risk-weighted assets under Basel III, the Bank is receiving the consultation and establishing the relevant systems.

(viii) Internal capital adequacy assessment process

Internal capital adequacy assessment process is defined as the process that the Bank aggregates significant risks, calculates its internal capital, compares the internal capital with the available capital and assesses its internal capital adequacy. The internal capital adequacy report including the assessment results at the end of the year is prepared and reported to the Risk Management Policy Committee.

• Internal capital adequacy assessment

For the internal capital adequacy assessment, the Bank calculates its aggregated internal capital by evaluating all significant risks and available capital considering the quality and components of capital, and then assesses the internal capital adequacy by comparing the aggregated internal capital with the available capital.

In addition, the Bank conducts periodic stress tests more than once every six months to assess potential weakness in crisis situations and uses its results to assess the internal capital adequacy. The Bank assumes the macroeconomic situation as three stages of ‘normal- pessimistic-serious’ and is preparing countermeasures such as checking the adequacy of capital by each stage.

• Goal setting of internal capital management

The Bank sets up and manages an internal capital limit on an annual basis, through the approval of the Risk Management Committee, to maintain internal capital adequacy by managing internal capital (integrated risks) within the extent of available capital.

The prior year’s internal capital, analysis of domestic and foreign environment changes in the current year, and the direction and size of operations are all reflected in the goal setting of internal capital management to calculate the integrated internal capital scale. Moreover, Bank for International Settlements(BIS) capital adequacy ratio and risk appetite are taken into consideration in the goal setting of internal capital management.

• Allocation of internal capital

The Bank’s Risk Management Committee approves entire internal capital and the Risk Management Policy Committee allocates the capital to each segment and department, considering the extent of possible risk faced and size of operations. The allocated internal capital is monitored regularly and

149

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

managed using various management methods. The results of monitoring and managing the allocated internal capital are reported to the Risk Management Committee. In case of any material changes in the Bank’s business plan or risk operation strategy, the Bank adjusts the allocations elastically.

• Composition of internal capital

Internal capital comprises all the significant risks of the Bank and is composed of quantifiable and non-quantifiable risks. Quantifiable risks are composed of credit risk, market risk, interest rate risk, operational risk and credit concentration risk, foreign currency settlement risk, and are risks measured quantitatively by applying reasonable methodology using objective data. Non-quantifiable risks are composed of strategy risk, reputation risk, residual risk on asset securitization and furthermore. Non-quantifiable risks are those risks that cannot be measured quantitatively because of lack of data or the absence of appropriate measuring methodologies.

(2) Credit Risk

(i) Concept

Credit risk can be defined as potential loss resulting from the refusal to perform obligations or default of counterparties. More generally, it is used to refer to the possibility of loss from engaged bonds that cannot be redeemed properly or from substitute payments.

(ii) Approach to credit risk management

Summary of credit risk management

The Bank regards credit risk as the most significant risk area in its business operations, and accordingly, closely monitors its credit risk exposure. The Bank manages both credit risks at portfolio level and at individual credit level. At portfolio level, the Bank reduces credit concentration and restructures the portfolio in such a way to maximize profitability considering the risk level. To avoid credit concentration on a particular sector, the Bank manages credit limits by client, group, and industry. The Bank also resets exposure management directives for each industry by conducting an industry credit evaluation twice a year.

At the individual credit level, the relationship manager (RM), the credit officer (CO) and the Credit Review Committee manage each borrower’s credit risk.

Post management and insolvent borrower management

The Bank monitors the borrower’s credit rating from the date of the loan to the date of the final collection of debt consistently and inspects the borrower’s status regularly and frequently to prevent the generation of new bad debts and to stabilize the number of debt recoveries.

In addition, an early warning system is operated to spot borrowers that are highly likely to be insolvent. The early warning system provides financial information, financial transaction information, public information and market information of the borrower, and such information is used by the RM and the CO to monitor and manage changes in the borrower’s credit rating.

A borrower that is likely to be insolvent is classified as an early warning borrower or a precautionary borrower, depending on the level of insolvency risk. The Bank sets up a specific and applicable stabilization plan

150

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

for such a borrower considering the borrower’s characteristics. Furthermore, sub-standard borrowers are classified as insolvent borrowers, and are managed intensively by the Bank, which takes legal proceedings, disposals or corporate turnaround measures if necessary.

Classification of asset soundness and provision of allowance for loss

Classification of asset soundness is fulfilled by the analysis and assessment of credit risk. The classification is used to provide an appropriate allowance, prevent further occurrences of insolvent assets and promote the normalization of existing insolvent assets to enhance the stabilization of asset operations.

Based on the Financial Supervisory Regulations of the Republic of Korea, the Bank has established standards and guidelines on the classification of asset soundness, according to the Forward-Looking Criteria, which reflects not only the borrower’s past records of repayment but also their future debt repayment capability.

In conformity with these standards, the Bank classifies the soundness of its assets as “normal”, “precautionary”, “substandard”, “doubtful”, or “estimated loss” and differentiates the coverage ratio by the level of classification.

Details of loans by credit rating as of December 31, 2020 and 2019 are as follows:

< Corporate >
	December 31, 2020
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
AAA ~ BBB1	W	119,275,121		116,563,480		2,711,641		—
BBB2 ~ CCC		36,638,249		22,365,102		14,262,908		10,239
Below CC		2,932,191		—		85,070		2,847,121
	W	158,845,561		138,928,582		17,059,619		2,857,360

	December 31, 2019
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
AAA ~ BBB1	W	110,616,343		108,584,384		2,027,955		4,004
BBB2 ~ CCC		29,080,587		17,954,042		11,022,602		103,943
Below CC		2,968,215		—		81,603		2,886,612
	W	142,665,145		126,538,426		13,132,160		2,994,559

151

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

< Retail >
	December 31, 2020
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Grade 1 ~ Grade 6	W	234,096		223,180		10,623		293
Grade 7 ~ Grade 8		3,561		—		3,444		117
Grade 9 ~ Grade 10		354		—		—		354
	W	238,011		223,180		14,067		764

	December 31, 2019
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Grade 1 ~ Grade 6	W	314,643		297,795		16,848		—
Grade 7 ~ Grade 8		4,952		—		4,680		272
Grade 9 ~ Grade 10		1,316		—		—		1,316
	W	320,911		297,795		21,528		1,588

Details of payment guarantees (including financial guarantees) and unused commitments by credit rating as of December 31, 2020 and 2019 are as follows:

< Corporate >

	December 31, 2020
	Exposures		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Unused commitments:
AAA ~ BBB1	W	32,811,121		32,391,593		419,528		—
BBB2 ~ CCC		9,970,279		6,922,824		3,047,455		—
Below CC		97		—		97		—
	W	42,781,497		39,314,417		3,467,080		—
Payment guarantees (including financial guarantees):
AAA ~ BBB1	W	4,743,686		4,412,348		331,338		—
BBB2 ~ CCC		4,665,561		2,814,897		1,846,293		4,371
Below CC		689,858		—		1,351		688,507
	W	10,099,105		7,227,245		2,178,982		692,878

152

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

	December 31, 2019
	Exposures		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Unused commitments:
AAA ~ BBB1	W	26,612,525		26,400,729		211,796		—
BBB2 ~ CCC		4,349,843		1,891,393		2,458,450		—
Below CC		985		—		—		985
	W	30,963,353		28,292,122		2,670,246		985
Payment guarantees (including financial guarantees):
AAA ~ BBB1	W	5,742,384		5,706,379		36,005		—
BBB2 ~ CCC		4,339,343		1,993,030		2,340,173		6,140
Below CC		917,465		—		—		917,465
	W	10,999,192		7,699,409		2,376,178		923,605

< Retail >
	December 31, 2020
	Exposures		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Unused commitments:
Grade 1 ~ Grade 6	W	60,583		59,203		1,380		—
Grade 7 ~ Grade 8		59		—		59		—
Grade 9 ~ Grade 10		—		—		—		—
	W	60,642		59,203		1,439		—

	December 31, 2019
	Exposures		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
Unused commitments:
Grade 1 ~ Grade 6	W	52,585		52,252		333		—
Grade 7 ~ Grade 8		11		—		11		—
Grade 9 ~ Grade 10		—		—		—		—
	W	52,596		52,252		344		—

153

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

(iii) Measurement methodology of credit risk

Pursuant to Basel III, the Bank selects the measurement methodology of credit risk considering the complexity of measurement, measurement factors, estimating methods and others. Measurement approaches are divided into Standardized Approach and Internal Ratings-Based Approach.

Standardized Approach (“SA”)

In the case of the Standardized Approach, the risk weights are applied according to the credit rating assessed by External Credit Assessment Institution (“ECAI”). Risk weights in each credit rating are as follows:

Credit rating	Corporate	Country	Bank
AAA ~ AA-	20.00%	0.00%	20.00%
A+ ~ A-	50.00%	20.00%	50.00%
BBB+ ~ BBB-	100.00%	50.00%	100.00%
BB+ ~ BB-	100.00%	100.00%	100.00%
B+ ~ B-	150.00%	100.00%	100.00%
Below B-	150.00%	150.00%	150.00%
Unrated	100.00%	100.00%	100.00%

The OECD is designated as foreign ECAI and Korea Investrors Service Co., Ltd., NICE Investors Services Co., Ltd. and the Korea Ratings Co., Ltd. are designated as domestic ECAI.

The Bank applies the credit rating based on the corresponding loan and same borrower’s unsecured senior loans. In the case the borrower’s risk weight is higher than the unrated exposure’s risk weight (100%), the higher weight is applied. In the case the borrower has more than one rating, the higher weight of the two lowest weights (Second Best Criteria) is applied.

Internal Ratings-Based Approach (IRB)

To use the Internal Ratings-Based Approach, a bank must be approved by the FSS and should also meet the requirement pre-set by the FSS.

In relation to Basel II that has been adopted domestically as of January 2008, the Bank gained approval from the FSS to use the Foundation Internal Ratings-Based Approach in July 2008. The Bank has calculated credit risk-weighted assets using the approach since late June 2008.

Measurement method of credit risk-weighted asset

The Bank calculates credit risk-weighted assets of corporate exposures and asset securitization exposures using the Foundation Internal Ratings-Based Approach as of December 31, 2020.

154

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

The Standardized Approach is applied to country exposures, public institution exposures and bank exposures permanently and applied to overseas subsidiary and the Bank’s branch pursuant to prior consultation with the FSS.

<Approved measurement method>
Measurement method		Exposure
Standardized Approach	Permanent SA	—Countries, public institutions and banks
	SA	—Overseas subsidiaries and branches, and other assets
Foundation Internal Ratings-Based Approach		—Corporate, small and medium enterprises, asset securitization (at each credit level) and equity
Application of IRB by phase		—Special lending, non-residence, non-bank financial institutions

The mitigated effect of credit risks reflects the related policies which consider eligible collateral and guarantees. The Bank calculates the credit risk-weighted assets using the capital adequacy ratio.

Upon the calculation of credit risk-weighted assets for derivatives, the Bank takes into consideration the set-off effects of transactions under legally enforceable rights to set-off to calculate exposures.

Credit rating model

The results of credit rating are presented as grades through an assessment of the debt repayment capacity that the principal and interest of debt securities or loans are redeemed while complying with contractual redemption schedule.

Using the Bank’s internal credit rating model, the Bank classifies debtors’ credit rating into 14 grades (AAA~D). To distinguish the difference between credits in the same grade, the Bank uses 20 stages as auxiliaries to 14 grades.

The Bank’s regular credit rating process is carried out once a year and in the case of the change of debtor’s credit condition, the credit rating is frequently adjusted as necessary to retain the adequacy of credit rating.

The results of credit rating are applied to various areas such as discrimination of loan processes, loan limit, loan interest rate, post loan management standard process, credit risk measurement, and allowance for loan losses assessment.

Credit process control structure

According to the Principle of Checks and Balances, the Bank has established the credit process control structure by which the credit rating system operates appropriately.

• Independent assessment of credit rating: The Bank’s business segment (RM) and credit rating assessment segment (Credit Rating Officer) are independently operated.

• Independent control of credit rating system: The control of credit rating system including the development of credit rating model is independently implemented by the Bank’s Risk Management Department.

155

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

• Independent verification of credit rating system: Credit rating system is independently verified by Risk Validation Team of the Financial Planning Department.

• Internal audit of credit rating process: Credit rating process is audited by the Bank’s internal audit department.

• Role of the Board of Directors and the Bank’s management: Major issues relating to credit process are approved by the Board of Directors and are regularly monitored by the Bank’s top management.

The Bank reviews debt serviceability based on a credit analysis when handling loans. Depending on the results, credit loan preservation is adjusted as necessary using such methods as interest rate preservation due to credit risk.

The Bank evaluates the value of the collateral, performing ability and legal validity of the guarantee at the initial acquisition. The Bank re-evaluates the provided collateral and guarantees regularly for them to be reasonably preserved.

For guarantees, the Bank demands a corresponding written guarantee according to loan handling standards and the guarantor’s credit rating is independently calculated when in conformance with the credit rating endowment method.

The quantification of the extent to which collateral and other credit enhancements mitigate credit risk of impaired financial assets as of December 31, 2020 and 2019 are as follows:

	December 31, 2020		December 31, 2019
Securities measured at FVOCI	W	70,397		71,336
Loans measured at amortized cost		3,009,118		3,035,401
Other assets		21,817		174,418

156

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

(iv) Credit exposure

Geographical information of credit exposure as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Korea		UK		USA		Others		Total
Due from banks (excluding due from BOK)	W	5,468,189		238,108		129,309		465,850		6,301,456
Securities measured at FVOCI:
Bonds (excluding government bonds)		9,821,122		1,082,184		628,370		1,322,310		12,853,986
Loans		144,418,267		1,530,962		1,167,894		10,506,187		157,623,310
Derivative financial assets		1,432,559		—		—		16,347		1,448,906
Other assets		4,436,564		72,082		7,943		60,769		4,577,358
		165,576,701		2,923,336		1,933,516		12,371,463		182,805,016
Guarantees		9,977,111		—		82,408		39,586		10,099,105
Commitments		41,901,283		287,840		128,131		524,886		42,842,140
		51,878,394		287,840		210,539		564,472		52,941,245
	W	217,455,095		3,211,176		2,144,055		12,935,935		235,746,261

	December 31, 2019
	Korea		UK		USA		Others		Total
Due from banks (excluding due from BOK)	W	3,863,113		229,164		182,661		484,564		4,759,502
Securities measured at FVOCI:
Bonds (excluding government bonds)		6,984,720		823,813		651,947		1,634,971		10,095,451
Loans		130,256,488		1,371,473		1,099,845		9,025,911		141,753,717
Derivative financial assets		899,141		103		—		7,977		907,221
Other assets		4,826,675		64,086		18,819		77,013		4,986,593
		146,830,137		2,488,639		1,953,272		11,230,436		162,502,484
Guarantees		10,874,769		—		88,031		36,392		10,999,192
Commitments		31,235,187		251,884		186,714		1,362,759		33,036,544
		42,109,956		251,884		274,745		1,399,151		44,035,736
	W	188,940,093		2,740,523		2,228,017		12,629,587		206,538,220

157

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

Industry information of credit exposure as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Manufacturing		Service		Others		Total
Due from banks (excluding due from BOK)	W	—		5,909,550		391,906		6,301,456
Securities measured at FVOCI:
Bonds (excluding government bonds)		2,570,583		7,762,090		2,521,313		12,853,986
Loans		70,089,916		75,782,918		11,750,476		157,623,310
Derivative financial assets		—		1,448,906		—		1,448,906
Other assets		115,348		176,753		4,285,257		4,577,358
		72,775,847		91,080,217		18,948,952		182,805,016
Guarantees		7,622,494		2,197,060		279,551		10,099,105
Commitments		16,211,814		15,785,658		10,844,668		42,842,140
		23,834,308		17,982,718		11,124,219		52,941,245
	W	96,610,155		109,062,935		30,073,171		235,746,261

	December 31, 2019
	Manufacturing		Service		Others		Total
Due from banks (excluding due from BOK)	W	—		4,343,929		415,573		4,759,502
Securities measured at FVOCI:
Bonds (excluding government bonds)		2,475,329		6,110,639		1,509,483		10,095,451
Loans		63,704,865		67,711,892		10,336,960		141,753,717
Derivative financial assets		—		907,221		—		907,221
Other assets		129,268		201,700		4,655,625		4,986,593
		66,309,462		79,275,381		16,917,641		162,502,484
Guarantees		8,310,671		2,147,739		540,782		10,999,192
Commitments		28,183,356		4,572,876		280,312		33,036,544
		36,494,027		6,720,615		821,094		44,035,736
	W	102,803,489		85,995,996		17,738,735		206,538,220

158

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

The detail of credit exposures by industry affected by the pandemic of COVID-19 as of December 31, 2020 is as follows and the exposures by industries could be changed according to economic fluctuations.

	December 31, 2020
	Due from banks (excluding due from BOK)		Securities measured at FVOCI
			Bonds (excluding Government bonds)		Loans		Derivative financial assets		Other assets		Subtotal		Guarantees		Commit- ments		Subtotal		Total
Manufacturing:
Display	W	—		—		739,944		—		3,016		742,960		168,168		236,421		404,589		1,147,549
Semiconductor /Mobile phone		—		146,790		4,403,204		—		8,850		4,558,844		104,489		399,119		503,608		5,062,452
Automotive		—		176,401		10,602,271		—		13,778		10,792,450		314,583		1,363,455		1,678,038		12,470,488
Refinery/Chemical /Energy		—		623,842		11,147,364		—		20,666		11,791,872		158,665		4,010,584		4,169,249		15,961,121
Steel/Metal		—		182,011		10,269,067		—		14,946		10,466,024		684,582		1,905,452		2,590,034		13,056,058
Others		—		1,441,539		32,928,066		—		54,092		34,423,697		6,192,007		8,296,783		14,488,790		48,912,487
		—		2,570,583		70,089,916		—		115,348		72,775,847		7,622,494		16,211,814		23,834,308		96,610,155
Service:
Air transportation		—		3,156		3,437,648		—		7,991		3,448,795		287,309		28,000		315,309		3,764,104
Sea transportation		—		—		2,331,411		—		16,875		2,348,286		28,297		327,689		355,986		2,704,272
Other transportation		—		90,643		5,543,443		—		9,307		5,643,393		32,136		2,269,016		2,301,152		7,944,545
Leisure/Travel industry		—		—		177,498		—		403		177,901		—		3,315		3,315		181,216
Food/Accommodation		—		104,057		2,093,370		—		3,917		2,201,344		48,226		281,437		329,663		2,531,007
Automotive- related		—		—		475,921		—		669		476,590		18,174		35,615		53,789		530,379
Finance/Insurance		2,013		139,662		8,948		—		944		151,567		—		300		300		151,867
Others		5,907,537		7,424,572		61,714,679		1,448,906		136,647		76,632,341		1,782,918		12,840,286		14,623,204		91,255,545
		5,909,550		7,762,090		75,782,918		1,448,906		176,753		91,080,217		2,197,060		15,785,658		17,982,718		109,062,935
Other:
Construction		—		210,744		2,505,959		—		3,806		2,720,509		160,829		1,110,573		1,271,402		3,991,911
Others		391,906		2,310,569		9,244,517		—		4,281,451		16,228,443		118,722		9,734,095		9,852,817		26,081,260
		391,906		2,521,313		11,750,476		—		4,285,257		18,948,952		279,551		10,844,668		11,124,219		30,073,171
	W	6,301,456		12,853,986		157,623,310		1,448,906		4,577,358		182,805,016		10,099,105		42,842,140		52,941,245		235,746,261

Responding to the COVID-19 pandemic, the Bank recalculates the forward-looking information and recognises additional allowance for loan losses and provisions amounting to W948,225 million.

159

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

Credit exposures of debt securities by credit rating as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
AAA ~ BBB1	W	20,015,223		19,837,158		178,065		—
BBB2 ~ CCC		46,251		36,205		10,046		—
Below CC		—		—		—		—
	W	20,061,474		19,873,363		188,111		—

	December 31, 2019
	Carrying amounts		12-month expected credit loss		Lifetime expected credit losses
					Non credit- impaired		Credit- impaired
AAA ~ BBB1	W	14,582,903		14,550,867		32,036		—
BBB2 ~ CCC		48,417		48,417		—		—
Below CC		—		—		—		—
	W	14,631,320		14,599,284		32,036		—

(3) Capital management activities

(i) Capital adequacy

The FSS approved the Bank’s use of the Foundation Internal Ratings-Based Approach in July 2008. The Bank has been using the same approach when calculating credit risk-weighted assets since the end of June 2008. The equity capital ratio and equity capital according to the standards of the Bank for International Settlements are calculated for such disclosure. The equity capital ratio and equity capital are calculated on a consolidated basis. In conformity with the Banking Act, which is based on the implementation of Basel III on December 1, 2013, the regulatory capital is divided into the following two categories.

Tier 1 capital

- Common Equity Tier 1

Regulatory capital that represents the most subordinated claim in liquidation of the Bank, takes the first and proportionately greatest share of any losses as they occur, and which principal is never repaid outside of liquidation meets the criteria for classification as common equity, including capital stock, capital surplus, retained earnings and accumulated other comprehensive income as common equity Tier 1.

- Additional Tier 1 capital

Capital stock and capital surplus related to issuance of capital securities that are subordinated, have non-cumulative and conditional dividends or interests, and have no maturity or step-up conditions.

160

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

Tier 2 capital (Supplementary Tier 2 capital)

Regulatory capital that fulfills supplementary capital adequacy requirements, and includes subordinated debt with maturities over 5 years and allowance for loan losses in conformity with external regulatory standards and internal standards.

The BIS capital adequacy ratio and capital in accordance to Basel III standards as of December 31, 2020 and 2019 are as follows:

BIS capital adequacy ratio

	December 31, 2020			December 31, 2019
Equity capital based on BIS (A):
Tier 1 capital:
Common Equity Tier 1	W	36,021,786			30,215,602
Additional Tier 1 capital		—			—
		36,021,786			30,215,602
Tier 2 capital		4,312,476			4,785,803
	W	40,334,262			35,001,405
Risk-weighted assets (B):
Credit risk-weighted assets	W	246,279,611			242,573,920
Market risk-weighted assets		1,490,013			1,933,641
Operational risk-weighted assets		4,880,008			4,574,554
	W	252,649,632			249,082,115
BIS capital adequacy ratio (A/B):		15.96	%		14.05	%
Tier 1 capital ratio:		14.26	%		12.13	%
Common Equity Tier 1 ratio		14.26	%		12.13	%
Additional Tier 1 capital ratio		—			—
Tier 2 capital ratio		1.71	%		1.92	%

161

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

Equity capital based on BIS

	December 31, 2020			December 31, 2019
Tier 1 capital (A):
Common Equity Tier 1
Capital stock	W	20,765,729			18,663,099
Capital surplus, etc.		1,036,196			979,359
Retained earnings		12,326,526			10,642,865
Accumulated other comprehensive income		2,324,417			310,138
Common stock deductibles		(431,082	)		(379,859	)
		36,021,786			30,215,602
Tier 2 capital (B):
Allowance for doubtful accounts, etc.		1,057,559			951,624
Qualified capital securities		2,780,000			3,060,000
Non-qualified capital securities		516,119			774,179
Additional stock deductibles		(41,202	)		—
		4,312,476			4,785,803
Equity capital (A+B)	W	40,334,262			35,001,405

(4) Market risk

(i) Concept

Market risk is defined as the possibility of potential loss resulting from fluctuations in interest rates, foreign exchange rates and the price of stocks and commodities. Trading position is exposed to risks, such as interest rate, stock price, and foreign exchange rate, etc. Non-trading position is mostly exposed to interest rates. Accordingly, the Bank classifies market risks into those exposed from trading position or those exposed from non-trading position.

(ii) Market risks of trading positions

Management method on market risks arising from trading positions

In estimating market risk, the Standardized Approach and the internal model are used. The Standardized Approach is used to calculate the required capital from market risk and the internal model is used to manage risks internally. Since July 2007, the Bank has measured one-day VaR through the historical simulation method using the time series data of past 250 days under a 99% confidence level. The calculated VaR is monitored daily.

The Bank sets total limit of market risk based on annual business plan, risk appetite and others and monitors VaR limit of each department on a daily basis.

162

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

Capital Requirements for Market risk

The Bank’s Capital Requirements for Market risk as of December 31, 2020 and December 31, 2019 are as follows:

	December 31, 2020		December 31, 2019
Interest rate risk	W	45,739		69,317
Equity risk		—		848
Foreign exchange (FX) risk		32,118		14,184
Option risk		30,055		61,742
	W	107,912		146,091

(iii) Market risks of non-trading positions

Management method on market risks arising from non-trading positions

The most critical market risk that arises in non-trading position is the interest rate risk. Interest rate risk is defined as the likely loss resulting from the unfavorable fluctuation of interest rate in the Bank’s financial condition and is measured by interest rate VaR and interest rate EaR.

Interest rate VaR is the maximum amount of decrease in net asset value resulting from the unfavorable fluctuation of interest rate. Interest rate EaR is the maximum amount of decrease in net interest income resulting from the unfavorable fluctuation of interest rate for a year.

The Bank’s interest rate VaR and interest rate EaR are measured through the simulation of conclusive interest rate scenario and are periodically reported to the Risk Management Policy Committee and the head of Risk Management Segment. The Risk Management Committee’s target of interest rate VaR and interest rate EaR are approved at the beginning of the year. To disclose the Bank’s interest risk, interest rate VaR and interest rate EaR are disclosed calculating change in economic value of equity (“DEVE”) and in net interest income (“DNII”) based on the application of IRRBB (“Interest Rate Risk in Banking Book”) method.

DEVE and DNII of the Bank’s non-trading positions as of December 31, 2020 and 2019 are as follows:

	December 31, 2020	December 31, 2019
DEVE	W461,158		1,154,413
DNII	90,081		91,538

163

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

(iv) Foreign currency risk

Outstanding balances by currency with significant exposure as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	KRW		USD		EUR		JPY			GBP			Others			Total
Financial assets:
Cash and due from banks	W	4,523,911		5,783,607		34,968		71,912			17,964			96,616			10,528,978
Securities measured at FVTPL		7,779,699		488,359		—		316			—			52,257			8,320,631
Securities measured at FVOCI		28,868,837		5,018,056		25		206,249			—			48,158			34,141,325
Securities measured at amortized cost		785,264		—		—		—			—			—			785,264
Loans measured at FVTPL		1,429,258		5,256		—		—			—			—			1,434,514
Loans measured at amortized cost		117,661,851		32,590,755		1,977,320		1,281,467			434,845			1,353,940			155,300,178
Derivative financial assets		6,395,927		1,736,642		86,654		353			72,523			37,277			8,329,376
Other financial assets		3,034,997		877,574		230,329		12,274			32,848			275,704			4,463,726
		170,479,744		46,500,249		2,329,296		1,572,571			558,180			1,863,952			223,303,992
Financial liabilities:
Financial liabilities measured at FVTPL		1,578,544		116,413		—		—			—			—			1,694,957
Deposits		37,674,768		7,870,846		26,068		305,890			85			1,762			45,879,419
Borrowings		6,092,647		11,794,352		160,347		679,535			—			160,730			18,887,611
Debentures		107,496,854		21,485,451		1,923,888		674,748			818,290			5,919,497			138,318,728
Derivative financial liabilities		5,103,794		1,122,091		10,475		6,639			32,574			29,714			6,305,287
Other financial liabilities		3,831,466		2,630,783		73,055		13,336			26,678			321,263			6,896,581
		161,778,073		45,019,936		2,193,833		1,680,148			877,627			6,432,966			217,982,583
Net financial position	W	8,701,671		1,480,313		135,463		(107,577	)		(319,447	)		(4,569,014	)		5,321,409

164

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

	December 31, 2019
	KRW		USD		EUR			JPY			GBP			Others			Total
Financial assets:
Cash and due from banks	W	1,992,662		4,428,131		16,091			27,901			14,060			113,329			6,592,174
Securities measured at FVTPL		7,286,709		468,477		3,836			391			—			62,946			7,822,359
Securities measured at FVOCI		19,991,360		4,057,585		24			200,191			—			—			24,249,160
Securities measured at amortized cost		1,501,947		—		—			—			—			—			1,501,947
Loans measured at FVTPL		604,380		—		—			—			—			—			604,380
Loans measured at amortized cost		101,349,420		34,594,315		1,479,850			1,128,442			496,257			823,358			139,871,642
Derivative financial assets		4,522,100		807,276		62,777			558			26,090			14,006			5,432,807
Other financial assets		2,818,075		1,833,030		45,636			28,173			21			10,437			4,735,372
		140,066,653		46,188,814		1,608,214			1,385,656			536,428			1,024,076			190,809,841
Financial liabilities:
Financial liabilities measured at FVTPL		2,228,158		237,383		—			—			—			—			2,465,541
Deposits		27,277,837		7,086,072		8,978			288,531			58			2,476			34,663,952
Borrowings		5,895,462		13,098,074		268,544			745,687			155,984			6,762			20,170,513
Debentures		92,869,745		19,589,528		1,954,226			499,506			737,037			4,973,346			120,623,388
Derivative financial liabilities		3,573,527		568,059		12,604			3,296			1,436			12,746			4,171,668
Other financial liabilities		5,114,505		1,853,159		15,052			34,318			2,746			69,906			7,089,686
		136,959,234		42,432,275		2,259,404			1,571,338			897,261			5,065,236			189,184,748
Net financial position	W	3,107,419		3,756,539		(651,190	)		(185,682	)		(360,833	)		(4,041,160	)		1,625,093

(5) Liquidity risk management

(i) Concept

Liquidity risk is defined as the possibility of potential loss due to a temporary shortage in funds caused by a maturity mismatch or an unexpected capital outlay. Liquidity risk soars when funding rates rise, assets are sold below a normal price, or a good investment opportunity is missed.

(ii) Approach to liquidity risk management

The Bank manages its liquidity risks as follows:

Allowable limit for liquidity risk

• The allowable limit for liquidity risk sets LCR, NSFR and Mid- to long-term foreign currency fund management ratio

• The management standards with regards to the allowable limit for liquidity risk should be set using separate and stringent set ratios in accordance with the FSS guidelines.

<Measurement Methodology>

• LCR: (High quality liquid assets / Total net cash outflows over the next 30 calendar days) X 100

165

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

• NSFR: Available Stable Funding / Required Stable Funding X 100

• Mid- to long-term foreign currency fund management ratio: Foreign currency funding being repaid after 1 year / Foreign currency lending being collected after 1 year X 100

Early warning indicator

To identify prematurely and cope with worsening liquidity risk trends, the Bank has set up 15 indexes such as the “Foreign Exchange Stabilization Bond CDS Premium,” and measures the trend monthly as a means for establishing the allowable liquidity risk limit complementary measures.

Stress-Test analysis and contingency plan

• The Bank evaluates the effects on the liquidity risk and identifies the inherent flaws. In the case where an unpredictable and significant liquidity crisis occurs, the Bank executes risk situation analysis quarterly based on crisis specific to the Bank, market risk and complex emergency, and reports to the Risk Management Committee for the Bank’s solvency securitization.

• The Bank established detailed contingency plan to manage the liquidity risks at every risk situations.

(iii) Analysis on remaining contractual maturity of financial instruments

Remaining contractual maturity risks of non-derivative financial instruments including interest payment as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Financial assets:
Cash and due from banks	W	9,137,776		91,051		464,395		760,273		21,263		10,474,758
Securities measured at FVTPL		136,016		124,287		915,490		1,883,117		8,107,999		11,166,909
Securities measured at FVOCI		553,784		1,025,117		4,845,370		11,070,430		13,737,878		31,232,579
Securities measured at amortized cost		—		—		210,000		570,000		—		780,000
Loans		9,232,537		13,540,396		56,829,822		60,814,868		14,671,105		155,088,728
Other financial assets		3,831,145		—		—		—		705,630		4,536,775
	W	22,891,258		14,780,851		63,265,077		75,098,688		37,243,875		213,279,749
Financial liabilities:
Financial liabilities measured at FVTPL	W	49,541		—		500,167		605,760		238,914		1,394,382
Deposits		22,271,587		6,814,661		12,791,098		3,881,550		109,333		45,868,229
Borrowings		3,873,926		3,441,014		7,757,486		2,688,791		1,125,536		18,886,753
Debentures		4,822,104		10,036,440		45,530,833		70,427,784		7,428,100		138,245,261
Other financial liabilities		4,110,621		1,766,297		—		—		1,074,478		6,951,396
	W	35,127,779		22,058,412		66,579,584		77,603,885		9,976,361		211,346,021

166

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

	December 31, 2019
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Financial assets:
Cash and due from banks	W	5,065,652		282,897		329,130		803,600		40,959		6,522,238
Securities measured at FVTPL		484,770		661,617		504,044		1,385,041		7,448,954		10,484,426
Securities measured at FVOCI		277,092		725,605		4,061,877		6,515,165		12,845,290		24,425,029
Securities measured at amortized cost		40,000		430,002		900,000		130,000		—		1,500,002
Loans		9,282,526		12,642,049		47,936,243		52,723,675		16,477,990		139,062,483
Other financial assets		4,043,265		—		—		—		698,865		4,742,130
	W	19,193,305		14,742,170		53,731,294		61,557,481		37,512,058		186,736,308
Financial liabilities:
Financial liabilities measured at FVTPL	W	70,044		318,570		617,318		935,081		287,145		2,228,158
Deposits		16,302,374		4,719,336		10,402,593		3,112,615		122,435		34,659,353
Borrowings		2,761,940		5,156,150		8,125,070		2,923,577		1,197,682		20,164,419
Debentures		3,996,137		9,589,472		35,032,030		63,490,945		8,493,328		120,601,912
Other financial liabilities		4,335,854		2,128,782		—		—		634,148		7,098,784
	W	27,466,349		21,912,310		54,177,011		70,462,218		10,734,738		184,752,626

Remaining contractual maturity risks of derivative financial instruments as of December 31, 2020 and 2019 are as follows:

Net settlement of derivative financial instruments

	December 31, 2020
	Within 1 month			1~3 months			3~12 months			1~5 years			Over 5 years		Total
Trading purpose derivatives:
Currency	W	(2,240	)		259			—			—			—		(1,981	)
Interest rate		(12,099	)		(8,965	)		(21,956	)		(154,170	)		311,267		114,077
Hedging purpose derivatives:
Interest rate		60,484			118,050			397,587			679,232			596,098		1,851,451
	W	46,145			109,344			375,631			525,062			907,365		1,963,547

167

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

	December 31, 2019
	Within 1 month			1~3 months		3~12 months			1~5 years		Over 5 years		Total
Trading purpose derivatives:
Currency	W	37			256		566			—		—		859
Interest rate		(5,662	)		9,583		(66,977	)		48,194		145,096		130,234
Stock		49			—		—			—		—		49
Hedging purpose derivatives:
Interest rate		16,579			26,520		256,124			1,147,552		1,530,039		2,976,814
	W	11,003			36,359		189,713			1,195,746		1,675,135		3,107,956

Gross settlement of derivative financial instruments

	December 31, 2020
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Trading purpose derivatives:
Currency
Inflow	W	41,628,937		28,120,676		70,926,683		68,814,581		7,423,977		216,914,854
Outflow		41,747,705		28,165,683		71,251,634		68,700,868		7,415,793		217,281,683
Hedging purpose derivatives:
Currency
Inflow		126,703		743,865		5,321,106		15,865,301		1,175,969		23,232,944
Outflow		235,842		868,872		5,398,633		16,129,256		1,162,943		23,795,546
Total inflow	W	41,755,640		28,864,541		76,247,789		84,679,882		8,599,946		240,147,798
Total outflow	W	41,983,547		29,034,555		76,650,267		84,830,124		8,578,736		241,077,229

168

Korea Development Bank

Notes to the Separate Financial Statements

December 31, 2020 and 2019

(In millions of won)

49. Risk Management, Continued

	December 31, 2019
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Trading purpose derivatives:
Currency
Inflow	W	47,982,985		54,605,599		90,905,007		66,553,775		6,892,477		266,939,843
Outflow		48,107,220		54,610,094		90,954,368		66,361,083		6,944,885		266,977,650
Hedging purpose derivatives:
Currency
Inflow		206,431		239,439		3,909,213		16,077,393		1,357,557		21,790,033
Outflow		219,403		248,463		4,726,407		16,379,043		1,376,508		22,949,824
Total inflow	W	48,189,416		54,845,038		94,814,220		82,631,168		8,250,034		288,729,876
Total outflow	W	48,326,623		54,858,557		95,680,775		82,740,126		8,321,393		289,927,474

Remaining contractual maturity risks of guarantees and commitments as of December 31, 2020 and 2019 are as follows:

	December 31, 2020
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Guarantees	W	1,289,198		981,555		2,624,952		4,693,645		509,755		10,099,105
Commitments		73,583		79,569		762,853		1,751,963		42,194,766		44,862,734
	W	1,362,781		1,061,124		3,387,805		6,445,608		42,704,521		54,961,839
	December 31, 2019
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Guarantees	W	1,040,240		1,140,660		3,757,118		4,514,337		546,837		10,999,192
Commitments		70,984		80,021		839,470		2,293,423		29,752,646		33,036,544
	W	1,111,224		1,220,681		4,596,588		6,807,760		30,299,483		44,035,736

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THE REPUBLIC OF KOREA

Land and History

Territory and Population

Located generally south of the 38th parallel on the Korean peninsula, The Republic of Korea covers about 38,000 square miles, approximately one-fourth of which is arable. The Republic has a population of approximately 51 million people. The country’s largest city and capital, Seoul, has a population of about 10 million people.

Map of the Republic of Korea

Political History

Dr. Rhee Seungman, who was elected President in each of 1948, 1952, 1956 and 1960, dominated the years after the Republic’s founding in 1948. Shortly after President Rhee’s resignation in 1960 in response to student-led demonstrations, a group of military leaders headed by Park Chung Hee assumed power by coup. The military leaders established a civilian government, and the country elected Mr. Park as President in October 1963. President Park served as President until his assassination in 1979 following a period of increasing strife between the Government and its critics. The Government declared martial law and formed an interim

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government under Prime Minister Choi Kyu Hah, who became the next President. After clashes between the Government and its critics, President Choi resigned, and General Chun Doo Hwan, who took control of the Korean army, became President in 1980.

In late 1980, the country approved, by national referendum, a new Constitution, providing for indirect election of the President by an electoral college and for certain democratic reforms, and shortly thereafter, in early 1981, re-elected President Chun.

Responding to public demonstrations in 1987, the legislature revised the Constitution to provide for direct election of the President. In December 1987, Roh Tae Woo won the presidency by a narrow plurality, after opposition parties led by Kim Young Sam and Kim Dae Jung failed to unite behind a single candidate. In February 1990, two opposition political parties, including the one led by Kim Young Sam, merged into President Roh’s ruling Democratic Liberal Party.

In December 1992, the country elected Kim Young Sam as President. The election of a civilian and former opposition party leader considerably lessened the controversy concerning the legitimacy of the political regime. President Kim’s administration reformed the political sector and deregulated and internationalized the Korean economy.

In December 1997, the country elected Kim Dae Jung as President. President Kim’s party, the Millennium Democratic Party (formerly known as the National Congress for New Politics), formed a coalition with the United Liberal Democrats led by Kim Jong Pil, with Kim Jong Pil becoming the first prime minister in President Kim’s administration. The coalition, which temporarily ended before the election held in April 2000, continued with the appointment of Lee Han Dong of the United Liberal Democrats as the Prime Minister in June 2000. The coalition again ended in September 2001.

In December 2002, the country elected Roh Moo Hyun as President. President Roh and his supporters left the Millennium Democratic Party in 2003 and formed a new party, the Uri Party, in November 2003. On August 15, 2007, 85 members of the National Assembly, previously belonging to the Uri Party, or the Democratic Party, formed the United New Democratic Party, or the UNDP. The Uri Party merged into the UNDP on August 20, 2007. In February 2008, the UNDP merged back into the Democratic Party. In December 2011, the Democratic Party merged with the Citizens Unity Party to form the Democratic United Party, which changed its name to the Democratic Party in May 2013.

In December 2007, the country elected Lee Myung-Bak as President. He commenced his term on February 25, 2008. On April 9, 2018, the Korean prosecutor’s office indicted former President Lee on 16 counts of corruption, including bribery, abuse of power, embezzlement and other irregularities.

In December 2012, the country elected Park Geun-hye as President. She commenced her term on February 25, 2013. On March 10, 2017, the Constitutional Court unanimously upheld a parliamentary vote to impeach President Park, triggering her immediate dismissal, for a number of constitutional and criminal violations, including violation of the Constitution and abuse of power by allowing her confidant to exert influence on state affairs and allowing senior presidential aides to aid in her extortion from companies. On April 17, 2017, the Korean prosecutor’s office indicted former President Park on charges of bribery, abuse of power and coercion, among others. In November 2018, the Seoul High Court sentenced former President Park to two years of prison term for illegally meddling in her party’s candidate nominations ahead of parliamentary elections in 2016. Subsequently, after a series of trials, on January 14, 2021, the Supreme Court upheld the Seoul High Court’s decision on July 10, 2020 to sentence her to 15 years in prison and assess a fine of W18 billion for her bribery charges, and five years in prison and W3.5 billion in forfeiture for her other charges.

A special election to elect a new President was held on May 9, 2017 and the country elected Moon Jae-in as President. He commenced his term on May 10, 2017. The Moon administration’s key policy priorities include:

• investigating corruption involving high-ranking government officials, anti-corruption and reform of chaebol (Korean conglomerates);

171

• denuclearization of and establishing peace on the Korean Peninsula and enhancing Korea’s core military strength in response to North Korea’s nuclear capabilities;

• reducing fine dust emissions, closing old nuclear power plants and reexamining the construction of new nuclear power plants;

• creating new jobs, resolving youth unemployment and enacting laws prohibiting discrimination against non-regular workers;

• creating jobs for senior citizens, increasing basic pension and providing government subsidies for Alzheimer’s disease treatment; and

• protecting small business owners and restricting establishment of large-scale stores and multi-complex shopping malls.

Government and Politics

Government and Administrative Structure

Governmental authority in the Republic is centralized and concentrated in a strong presidency. The President is elected by popular vote and can only serve one term of five years. The President chairs the State Council, which consists of the President, the prime minister, the deputy prime ministers, the respective heads of Government ministries and the ministers of state. The President can select the members of the State Council and appoint or remove all other Government officials, except for elected local officials.

The President can veto new legislation and take emergency measures in cases of natural disaster, serious fiscal or economic crisis, state of war or other similar circumstances. The President must promptly seek the concurrence of the National Assembly for any emergency measures taken and failing to do so automatically invalidates the emergency measures. In the case of martial law, the President may declare martial law without the consent of the National Assembly; provided, however, that the National Assembly may request the President to rescind such martial law.

The National Assembly exercises the country’s legislative power. The Constitution and the Election for Public Offices Act provide for the direct election of about 84% of the members of the National Assembly and the distribution of the remaining seats proportionately among parties winning more than five seats in the direct election or receiving over 3% of the popular vote. National Assembly members serve four-year terms. The National Assembly enacts laws, ratifies treaties and approves the national budget. The executive branch drafts most legislation and submits it to the National Assembly for approval.

The country’s judicial branch comprises the Supreme Court, the Constitutional Court and lower courts of various levels. The President appoints the Chief Justice of the Supreme Court and appoints the other Justices of the Supreme Court upon the recommendation of the Chief Justice. All appointments to the Supreme Court require the consent of the National Assembly. The Chief Justice, with the consent of the conference of Supreme Court Justices, appoints all the other judges in Korea. Supreme Court Justices serve for six years and all other judges serve for ten years. Other than the Chief Justice, justices and judges may be reappointed to successive terms.

The President formally appoints all nine judges of the Constitutional Court, but three judges must be designated by the National Assembly and three by the Chief Justice of the Supreme Court. Constitutional Court judges serve for six years and may be reappointed to successive terms.

Administratively, the Republic comprises eight provinces, one special autonomous province (Jeju), one special city (Seoul), six metropolitan cities (Busan, Daegu, Incheon, Gwangju, Daejeon and Ulsan) and one special autonomous city (Sejong). From 1961 to 1995, the national government controlled the provinces and the President appointed provincial officials. Local autonomy, including the election of provincial officials, was reintroduced in June 1995.

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Political Parties

The 21st legislative general election was held on April 15, 2020 and the term of the National Assembly members elected in the 21st legislative general election commenced on May 30, 2020. Currently, there are three major political parties: The Democratic Party of Korea, or the DPK, the People Power Party, or the PPP and the Justice Party, or the JP.

As of June 23, 2021, the parties control the following number of seats in the National Assembly:

	DPK		PPP		JP		Others		Total
Number of seats		174		102		6		18		300

Relations with North Korea

Relations between the Republic and North Korea have been tense over most of the Republic’s history. The Korean War began with the invasion of the Republic by communist forces from the north in 1950, which was repelled by the Republic and the United Nations forces led by the United States. Following a military stalemate, an armistice was reached establishing a demilitarized zone monitored by the United Nations in the vicinity of the 38th parallel in 1953.

North Korea maintains a military force estimated at more than a million regular troops, mostly concentrated near the northern side of the demilitarized zone, and approximately 7.6 million reserves. The Republic’s military forces, composed of approximately 599,000 regular troops and 2.8 million reserves, maintain a state of military preparedness along the southern side of the demilitarized zone. In addition, the United States has maintained its military presence in the Republic since the signing of the armistice and currently has approximately 28,500 troops stationed in the Republic. The Republic and the United States share a joint command structure over their military forces in Korea. In October 2014, the United States and the Republic agreed to implement a conditions-based approach to the dissolution of their joint command structure at an appropriate future date, which would allow the Republic to assume the command of its own armed forces in the event of war on the Korean peninsula. Over the years, the Republic and the United States have entered into a series of Special Measures Agreements, or SMAs, which cover the Republic’s contribution to the cost of maintaining the U.S. military presence in the Republic. In March 2021, the Republic and the United States entered into a new six-year SMA under which the Republic would increase its share of the cost of the American military presence in the Republic, subject to legislative approval.

The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In particular, since the death of Kim Jong-il in December 2011, there has been increased uncertainty with respect to the future of North Korea’s political leadership and concern regarding its implications for political and economic stability in the region. Kim Jong-il’s third son, Kim Jong-eun, has assumed power as his father’s designated successor.

In addition, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapons and ballistic missile programs as well as its hostile military and other actions against Korea. Some of the significant incidents in recent years include the following:

• From time to time, North Korea has conducted ballistic missile tests. In February 2016, North Korea launched a long-range rocket in violation of its agreement with the United States as well as United Nations sanctions barring it from conducting launches that use ballistic missile technology. Despite international condemnation, North Korea released a statement that it intends to continue its rocket launch program and it conducted a series of ballistic missile tests in 2016 and 2017. In response, the United Nations Security Council issued unanimous statements condemning North Korea and agreeing to continue to closely monitor the situation and to take further significant measures, and in December 2017, unanimously passed a resolution extending existing sanctions that were imposed on North Korea.

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• North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted three rounds of nuclear tests between October 2006 and February 2013. In January 2016, North Korea conducted a fourth nuclear test, claiming that the test involved its first hydrogen bomb. In September 2016, North Korea conducted a fifth nuclear test, claiming to have successfully detonated a nuclear warhead that could be mounted on ballistic missiles. In September 2017, North Korea announced that it successfully conducted its sixth nuclear test by detonating a hydrogen bomb designed to be mounted on an intercontinental ballistic missile, which resulted in increased tensions in the region and elicited strong objections worldwide. In response to such tests (as well as North Korea’s long-range ballistic missile program), the United Nations Security Council unanimously passed several rounds of resolutions condemning North Korea’s actions and significantly expanding the scope of the sanctions applicable to North Korea, while the United States and the European Union also imposed additional sanctions on North Korea.

• In August 2015, two Korean soldiers were injured in a landmine explosion near the Korean demilitarized zone. Claiming the landmines were set by North Koreans, the Korean army re-initiated its propaganda program toward North Korea utilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the highest level of military readiness for both Koreas.

• In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The 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 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 Korea and North Korea in April and May 2018 and between the United States and North Korea in June 2018, February 2019 and June 2019, there can be no assurance that the level of tension on the Korean peninsula will not escalate in the future or that such escalation will not have a material adverse impact on the Republic’s economy and us. Any further increase in tension, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between the Republic and North Korea break down or further military hostilities occur, could have a material adverse effect on the Republic’s economy and us. Over the longer term, reunification of the two Koreas could occur. Reunification may entail a significant economic commitment by the Republic.

Foreign Relations and International Organizations

The Republic maintains diplomatic relations with most nations of the world, most importantly with the United States with which it entered into a mutual defense treaty and several economic agreements. The Republic also has important relationships with Japan and China, its largest trading partners together with the United States.

The Republic belongs to a number of supranational organizations, including:

• United Nations;

• the International Monetary Fund, or the IMF;

• the World Bank;

• the Asian Development Bank, or the ADB;

• the Multilateral Investment Guarantee Agency;

• the International Finance Corporation;

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• the International Development Association;

• the African Development Bank;

• the European Bank for Reconstruction and Development;

• the Bank for International Settlements;

• the World Health Organization, or the WHO;

• the World Trade Organization, or the WTO;

• the International Atomic Energy Agency;

• the Inter-American Development Bank, or the IDB;

• the Organization for Economic Cooperation and Development, or the OECD; and

• the Asian Infrastructure Investment Bank.

The Economy

The following table sets forth information regarding certain of the Republic’s key economic indicators for the periods indicated.

	As of or for the year ended December 31,
	2016			2017			2018			2019			2020
	(billions of dollars and trillions of Won, except percentages)
GDP Growth (at current prices)		5.0	%		5.5	%		3.1	%		1.3	%		0.3	%(6)
GDP Growth (at chained 2015 year prices)		2.9	%		3.2	%		2.7	%		2.3	%		(1.0	)%(6)
Inflation		1.0	%		1.9	%		1.5	%		0.4	%		0.5	%
Unemployment(1)		3.7	%		3.7	%		3.8	%		3.8	%		4.0	%
Trade Surplus(2)	$	89.2		$	95.2		$	69.7		$	38.9		$	45.2
Foreign Currency Reserves	$	371.1		$	389.3		$	403.7		$	408.8		$	443.1
External Liabilities(3)	$	382.2		$	412.0		$	441.2		$	467.0		$	542.4	(6)
Fiscal Balance	W	16.9		W	24.0		W	31.2		W	12.0		W	(71.2	)(6)
Direct Internal Debt of the Government(4) (as % of GDP(5))		34.2	%		35.2	%		35.6	%		37.4	%		44.2	%(6)
Direct External Debt of the Government(4) (as % of GDP(5))		0.4	%		0.4	%		0.4	%		0.4	%		0.5	%(6)

(1) Average for year.

(2) Derived from customs clearance statistics on a C.I.F. basis, meaning that the price of goods include insurance and freight cost.

(3) Calculated under the criteria based on the sixth edition of the Balance of Payment Manual published by the International Monetary Fund in December 2010.

(4) Does not include guarantees by the Government. See “—Debt—External and Internal Debt of the Government—Guarantees by the Government” for information on outstanding guarantees by the Government.

(5) At chained 2015 year prices.

(6) Preliminary.

Source: The Bank of Korea

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Worldwide Economic and Financial Difficulties

In recent years, the global financial markets have experienced significant volatility as a result of, among other things:

• the ongoing outbreak of the COVID-19 pandemic caused by a new strain of coronavirus, as further described below;

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

• increased uncertainties resulting from the United Kingdom’s exit from the European Union;

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

• escalations in trade protectionism globally and geopolitical tensions in East Asia and the Middle East;

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

• interest rate fluctuations as well as perceived or actual changes in policy rates by, or other monetary and fiscal policies set forth by, the U.S. Federal Reserve and other central banks;

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

• fluctuations in oil and commodity prices.

COVID-19, an infectious disease caused by severe acute respiratory syndrome coronavirus 2, has spread globally and was declared a “pandemic” by the WHO in March 2020. The global outbreak of the COVID-19 pandemic has led to significant global economic and financial disruptions, including an adverse impact on international trade and business activities. Although there have been mixed signs of recovery in the global economy resulting from the availability of COVID-19 vaccinations and gradual normalization of business activities, the extent to which the COVID-19 pandemic continues to impact the global economy will depend on future developments, including the scope and duration of the ongoing outbreak of the COVID-19 pandemic as well as the timeliness and effectiveness of actions taken by governmental authorities, central banks, healthcare providers and other third parties around the world in order to contain and mitigate the effects of COVID-19. The possibility of a global recession in major markets due to the impact of COVID-19, including discrepancies in vaccine rollout rates, continued decline in consumer confidence and weakened demand for face-to-face services, could cause significant volatility in the global economic and financial systems.

There has been significant volatility in global financial markets due to the COVID-19 pandemic in 2020 and in recent months. See “—The Financial System—Securities Markets”. Declines in the index 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 and banks to raise capital. Moreover, the value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has fluctuated widely throughout 2020 and 2021. A depreciation of the Won generally increases the cost of imported goods and services and the required amount of the Won revenue for Korean companies to service foreign currency-denominated debt.

In light of the high level of interdependence of the global economy, any of the foregoing developments could have a material adverse effect on the Korean economy and financial markets. In addition, in the event of difficult conditions in the global credit markets or a deterioration of the global economy in the future, the Korean economy could be adversely affected and Korean banks may be forced to fund their operations at a higher cost or may be unable to raise as much funding as they need to support their lending and other activities.

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In addition to the global developments, domestic developments that could lead to or contribute to a material adverse effect on the Korean economy include, among other things, the following:

• a slowdown in consumer spending and depressed consumer sentiment due to the outbreak of infectious diseases, such as the ongoing outbreak of the COVID-19 pandemic discussed above and the outbreak of the Middle East Respiratory Syndrome, or MERS, in May 2015, and national tragedies, such as the sinking of the Sewol passenger ferry in April 2014, which led to the death of hundreds of passengers;

• increasing delinquencies and credit defaults by consumer and small- and medium-sized enterprise borrowers, which may occur due to, among others, the impact of the ongoing global outbreak of the COVID-19 pandemic;

• steadily rising household debt consisting of housing loans and merchandise credit, which increased to approximately Won 1,726.1 trillion as of December 31, 2020 from Won 843.2 trillion as of December 31, 2010, primarily due to increases in mortgage loans and purchases with credit cards;

• deterioration in economic or diplomatic relations between Korea and other countries resulting from territorial or trade disputes or disagreements in foreign policy (such as the ongoing trade disputes between Korea and Japan);

• a substantial increase in the Government’s expenditures for (i) fiscal stimulus measures to provide emergency relief payments to households and emergency loans to corporations in need of funding due to the COVID-19 pandemic and (ii) pension and social welfare programs, due in part to an aging population (defined as the population of people aged 65 years or older) that accounts for approximately 15.7% of the Republic’s total population as of December 31, 2020, an increase from 7.2% as of December 31, 2000, and is expected to surpass 20.3% in 2025 that, together, would lead to the Government’s budget deficit;

• decreases in the market prices of Korean real estate; and

• the occurrence of severe health epidemics that affect the livestock industry.

The first confirmed case of the COVID-19 disease in Korea was announced in January 2020 and the subsequent spread of the disease has since resulted in more than 150,000 confirmed cases and the death of more than 2,000 people in Korea as of June 23, 2021. The Government has been implementing a number of measures in order to contain the spread of the COVID-19 disease, including, among others, a nationwide order for social distancing, implementation of strict self-isolation and quarantine measures for those who may be infected, or have a higher chance of being infected, and the closure of public facilities until the possibility of further contamination has subsided sufficiently. In addition, the Government has implemented the following measures, among others, in order to alleviate the adverse impact of the COVID-19 pandemic on the Korean economy and stabilize the financial markets:

• lowering of The Bank of Korea’s policy rate from 1.25% to 0.75% in March 2020 and subsequently to 0.5% in May 2020 (See “—Monetary Policy—Interest Rates”);

• execution of a bilateral currency swap agreement with the U.S. Federal Reserve for the provision of US$60 billion in exchange for the Republic’s Won-denominated treasury bonds in March 2020, which agreement was renewed in July and December 2020;

• injection of cash into corporate and financial markets in the form of loans, guarantees and maturity extensions to eligible banks and financial institutions, small- and medium business enterprises, small merchants and self-employed business owners facing liquidity crises; and

• offer of emergency relief payments and expansion of social security contribution reliefs for those impacted by the COVID-19 pandemic, including underserved communities and the unemployed.

In February 2021, the Government began its COVID-19 vaccination campaign, and as of June 21, 2021, more than 15 million people, or approximately 29.0 per cent. of the Korean population, with priority given to

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frontline health care professionals and eligible senior citizens, received at least one shot of the COVID-19 vaccine. The Government is continuing its efforts to secure enough COVID-19 vaccines to achieve herd immunity by the end of 2021.

In addition, as part of its efforts to prepare for the post-COVID-19 era, the Government officially announced its plans to pursue a “Korean New Deal” in July 2020. Under such initiative, the Government aims to expedite the Republic’s recovery from the COVID-19 pandemic and pursue a digital and green transformation of the Korean economy and to strengthen employment and social safety nets through a total investment of W160 trillion and the creation of 1.9 million new jobs by 2025. In order to contain further spread of COVID-19 and to prevent the outbreak of similar epidemics in the future, the Government continues to cooperate actively with regional and international efforts to develop and implement various measures to combat such outbreaks.

As a result of the ongoing impact of the COVID-19 pandemic on the Korean and global economies and financial markets, as well as factors such as fluctuations in oil and commodity prices, interest rates and exchange rates, higher unemployment, lower consumer confidence, stock market volatility, changes in fiscal and monetary policies and continued tensions with North Korea, the outlook for the Republic’s economy and its financial services sector in 2021 and for the foreseeable future remains highly uncertain.

Gross Domestic Product

GDP measures the market value of all final goods and services produced within a country for a given period and reveals whether a country’s productive output rises or falls over time. Economists present GDP in both current market prices and “real” or “inflation-adjusted” terms. In March 2009, the Republic adopted a method known as the “chain-linked” measure of GDP, replacing the previous fixed-base, or “constant” measure of GDP, to show the real growth of the aggregate economic activity, as recommended by the System of National Accounts 1993. GDP at current market prices values a country’s output using the actual prices of each year, whereas the “chain-linked” measure of GDP is compiled by using “chained indices” linking volume growth between consecutive time periods. In March 2014, the Republic published a revised GDP calculation method by implementing the System of National Accounts 2008 and updating the reference year from 2005 to 2010 to align Korean national accounts statistics with the recommendations of the new international standards for compiling national economic accounts and to maintain comparability with other nations’ accounts. The main components of these revisions include, among other things, (i) recognizing expenditures for research and development and creative activity for the products of entertainment, literary and artistic originals as fixed investment, (ii) incorporating a wide array of new and revised source data such as the economic census, the population and housing census and 2010 benchmark input-output tables, which provide thorough and detailed information on the structure of the Korean economy, (iii) developing supply-use tables, which provide a statistical tool for ensuring consistency among the production, expenditure and income approaches to measuring GDP and (iv) recording merchandise trade transactions based on ownership changes rather than movements of goods across the national border. The Republic has updated the reference year from 2010 to 2015 in July 2019 to better align Korean national accounts statistics with the recommendations of the previously implemented System of National Accounts 2008 and to maintain comparability with other countries’ accounts.

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The following table sets out the composition of the Republic’s GDP at current market and chained 2015 year prices and the annual average increase in the Republic’s GDP.

Gross Domestic Product

	2016			2017			2018			2019(1)			2020(1)			As % of GDP 2020(1)
	(billions of Won)
Gross Domestic Product at Current Market Prices:
Private		834,804.8			872,791.4			908,273.7			931,669.5			894,057.1			46.5
Government		265,295.2			283,045.8			305,513.0			329,295.5			349,705.1			18.2
Gross Capital Formation		524,717.6			592,711.4			592,858.4			601,581.4			608,938.7			31.6
Exports of Goods and Services		698,621.0			751,428.5			788,279.0			766,602.0			710,073.6			36.9
Less Imports of Goods and Services		(582,659.1	)		(664,278.8	)		(701,150.7	)		(710,990.2	)		(638,551.8	)		(33.2	)
Statistical Discrepancy		0.0			0.0			(276.4	)		881.5			230.2			0.0
Expenditures on Gross Domestic Product		1,740,779.6			1,835,698.2			1,893,497.0			1,919,039.9			1,924,452.9			100.0
Net Factor Income from the Rest of the World		6,363.9			7,482.6			4,955.7			16,675.3			15,895.2			0.8
Gross National Income(2)		1,747,143.5			1,843,180.9			1,898,452.7			1,935,715.2			1,940,348.1			100.8
Gross Domestic Product at Chained 2015 Year Prices:
Private		825,676.2			848,589.3			872,304.4			890,167.7			846,311.9			46.2
Government		261,162.3			271,428.7			286,644.8			304,760.3			319,816.1			17.5
Gross Capital Formation		520,296.3			576,996.7			566,376.1			555,494.6			557,762.5			30.5
Exports of Goods and Services		729,684.8			747,783.5			773,752.6			790,874.0			771,424.2			42.1
Less Imports of Goods and Services		(630,266.6	)		(686,089.2	)		(691,374.1	)		(693,412.8	)		(667,263.1	)		(36.4	)
Statistical Discrepancy		327.1			(1,130.3	)		(2,511.7	)		(1,429.8	)		(600.8	)		0.0
Expenditures on Gross Domestic Product(3)		1,706,880.3			1,760,811.5			1,807,735.9			1,848,958.5			1,831,249.8			100.0
Net Factor Income from the Rest of the World in the Terms of Trade		6,177.2			7,084.6			4,519.5			15,335.4			14,716.2			0.8
Trading Gains and Losses from Changes in the Terms of Trade		23,569.7			25,915.5			3,272.8			(40,224.9	)		(26,921.1	)		(1.5	)
Gross National Income(4)		1,736,627.2			1,793,818.4			1,815,558.4			1,824,136.5			1,819,051.7			99.3
Percentage Increase (Decrease) of GDP over Previous Year:
At Current Prices		5.0			5.5			3.1			1.3			0.3
At Chained 2015 Year Prices		2.9			3.2			2.7			2.3			(1.0	)

(1) Preliminary.

(2) GDP plus net factor income from the rest of the world is equal to the Republic’s gross national income.

(3) Under the “chain-linked” measure of GDP, the components of GDP will not necessarily add up to the total GDP.

(4) Under the “chain-linked” measure of Gross National Income, the components of Gross National Income will not necessarily add up to the total Gross National Income.

Source: The Bank of Korea

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The following table sets out the Republic’s GDP by economic sector at current market prices:

Gross Domestic Product by Economic Sector

(at current market prices)

	2016		2017		2018		2019(1)		2020(1)		As % of GDP 2020(1)
	(billions of Won)
Industrial Sectors:		629,410.8		672,178.8		680,553.1		661,196.9		665,076.9		34.6
Agriculture, Forestry and Fishing		32,361.7		33,974.3		34,528.9		31,134.9		33,833.2		1.8
Manufacturing, Mining and Quarrying		461,198.3		496,993.7		506,854.7		487,889.2		481,935.0		25.0
Mining and Quarrying		2,367.7		2,348.8		2,247.7		1,943.6		1,855.1		0.1
Manufacturing		458,830.6		494,644.9		504,607.0		485,945.6		480,079.9		24.9
Electricity, Gas and Water Supply		44,307.8		40,014.2		36,813.2		36,580.7		42,698.9		2.2
Construction		91,543.0		101,196.6		102,356.3		105,592.1		106,609.8		5.5
Services:		963,671.9		1,006,839.9		1,049,864.7		1,095,424.2		1,097,300.8		57.0
Wholesale and Retail Trade, Accommodation and Food Services		169,240.8		175,124.9		180,661.0		180,358.0		168,030.4		8.7
Transportation and Storage		58,803.1		58,283.7		57,088.1		59,949.6		55,081.9		2.9
Finance and Insurance		89,593.7		96,983.7		104,336.2		104,718.6		109,715.2		5.7
Real Estate		128,539.4		133,152.6		135,890.3		142,735.8		146,737.3		7.6
Information and Communication		74,469.7		76,712.2		79,242.9		82,602.9		85,664.1		4.5
Business Activities		147,218.4		154,495.4		161,832.1		175,225.1		179,329.0		9.3
Public Administration, Defense and Social Security		100,787.1		107,325.6		115,086.1		122,162.4		129,769.1		6.7
Education		84,528.3		87,880.4		90,933.2		93,717.9		92,017.9		4.8
Human Health and Social Work		68,704.8		74,706.8		80,937.0		88,588.1		92,372.2		4.8
Cultural and Other Services		41,786.5		42,174.6		43,857.8		45,365.8		38,583.7		2.0
Taxes Less Subsidies on Products		147,696.8		156,679.6		163,079.3		162,418.6		162,075.2		8.4
Gross Domestic Product at Current Market Prices		1,740,779.6		1,835,698.2		1,893,497.0		1,919,039.9		1,924,452.9		100.0
Net Factor Income from the Rest of the World		6,363.9		7,482.6		4,955.7		16,675.3		15,895.2		0.8
Gross National Income at Current Market Price		1,747,143.5		1,843,180.9		1,898,452.7		1,935,715.1		1,940,348.1		100.8

(1) Preliminary.

Source: The Bank of Korea

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The following table sets out the Republic’s GDP per capita:

Gross Domestic Product per capita

(at current market prices)

	2016		2017		2018		2019(1)		2020(1)
GDP per capita (thousands of Won)		33,988		35,740		36,782		37,112		37,166
GDP per capita (U.S. dollar)		29,287		31,605		33,429		31,838		31,495
Average Exchange Rate (in Won per U.S. dollar)		1,160.5		1,130.8		1,100.3		1,165.7		1,180.1

(1) Preliminary.

Source: The Bank of Korea

The following table sets out the Republic’s Gross National Income, or GNI, per capita:

Gross National Income per capita

(at current market prices)

	2016		2017		2018		2019(1)		2020(1)
GNI per capita (thousands of Won)		34,112		35,886		36,930		37,435		37,473
GNI per capita (U.S. dollar)		29,394		31,734		33,564		32,115		31,755
Average Exchange Rate (in Won per U.S. dollar)		1,160.5		1,130.8		1,100.3		1,165.7		1,180.1

(1) Preliminary.

Source: The Bank of Korea

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The following table sets out the Republic’s GDP by economic sector:

Gross Domestic Product by Economic Sector

(at chained 2015 year prices)

	2016		2017		2018		2019(1)		2020(1)		As % of GDP 2020(1)
	(billions of Won)
Industrial Sectors:		615,346.0		640,516.9		654,072.8		658,741.5		654,911.0		35.8
Agriculture, Forestry and Fishing		31,353.2		32,059.8		32,540.4		32,859.2		31,736.3		1.7
Manufacturing, Mining and Quarrying		453,590.20		470,274.80		485,854.0		491,476.4		486,950.5		26.6
Mining and Quarrying		2,296.0		2,204.5		2,030.9		1,863.6		1,844.4		0.1
Manufacturing		451,294.2		468,070.3		483,823.1		489,612.8		485,106.1		26.5
Electricity, Gas and Water Supply		41,262.6		43,813.8		45,116.2		44,921.8		47,527.2		2.6
Construction		89,140.0		94,368.5		90,562.2		89,484.1		88,697.0		4.8
Services:		948,419.20		973,106.40		1,003,834.7		1,039,879.8		1,027,498.5		56.1
Wholesale and Retail Trade, Accommodation and Food Services		164,704.5		167,746.5		171,599.5		174,419.9		164,427.5		9.0
Transportation and Storage		58,713.7		60,289.1		61,888.5		62,746.9		52,879.1		2.9
Finance and Insurance		89,948.0		93,709.2		98,999.7		103,386.2		111,858.4		6.1
Real Estate		126,461.1		129,307.2		132,057.6		136,593.8		138,777.0		7.6
Information and Communication		73,517.0		75,814.3		78,941.7		82,473.3		83,786.7		4.6
Business Activities		145,077.1		147,949.8		150,522.3		157,790.8		156,895.7		8.6
Public Administration, Defense and Social Security		98,023.2		100,722.8		104,100.3		108,219.5		112,664.5		6.2
Education		83,160.6		84,806.1		86,440.9		87,493.6		85,356.6		4.7
Human Health and Social Work		67,974.6		72,330.1		78,160.0		85,046.7		86,055.3		4.7
Cultural and Other Services		40,839.4		40,495.8		41,218.1		41,709.1		34,797.7		1.9
Taxes Less Subsidies on Products		143,115.2		147,105.4		149,966.5		150,812.7		149,232.4		8.1
Gross Domestic Product(2)		1,706,880.3		1,760,811.5		1,807,735.9		1,848,958.5		1,831,249.8		100.0

(1) Preliminary.

(2) Under the “chain-linked” measure of GDP, the components of GDP will not necessarily add up to the total GDP.

Source: The Bank of Korea

GDP growth in 2016 was 2.9% at chained 2015 year prices, as aggregate private and general government consumption expenditures increased by 3.0%, gross domestic fixed capital formation increased by 6.6% and exports of goods and services increased by 2.4%, which more than offset an increase in imports of goods and services by 5.2%, each compared with 2015.

GDP growth in 2017 was 3.2% at chained 2015 year prices, as aggregate private and general government consumption expenditures increased by 3.1%, gross domestic fixed capital formation increased by 9.8% and exports of goods and services increased by 2.5%, which more than offset an increase in imports of goods and services by 8.9%, each compared with 2016.

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GDP growth in 2018 was 2.7% at chained 2015 year prices, as aggregate private and general government consumption expenditures increased by 3.5% and exports of goods and services increased by 3.5%, which more than offset a decrease in gross domestic fixed capital formation by 2.4% and an increase in imports of goods and services by 0.8%, each compared with 2017.

GDP growth in 2019 was 2.3% at chained 2015 year prices, as aggregate private and general government consumption expenditures increased by 3.1%, exports of goods and services increased by 2.2% and imports of goods and services decreased by 0.3%, which more than offset a decrease in gross domestic fixed capital formation by 2.9%, each compared with 2018.

Based on preliminary data, GDP in 2020 contracted by 1.0% at chained 2015 year prices, primarily due to a 5.0% decrease in private consumption expenditures and a 2.5% decrease in exports of goods and services, which were offset in part by a 5.0% increase in general government consumption expenditures, a 2.6% increase in gross domestic fixed capital formation and a 3.8% decrease in imports of goods and services, each compared with 2019. The contraction of the Republic’s GDP in 2020 was primarily due to the ongoing global outbreak of the COVID-19 pandemic.

Based on preliminary data, GDP growth in the first quarter of 2021 was 1.9% at chained 2015 year prices, as exports of goods and services increased by 5.1%, gross domestic fixed capital formation increased by 12.4% and aggregate private and general government consumption expenditures increased by 1.5%, which more than offset an increase in imports of goods and services by 4.1%, each compared with the corresponding period of 2020.

If the COVID-19 pandemic is prolonged, the Republic’s GDP may continue to be adversely affected in 2021.

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Principal Sectors of the Economy

Industrial Sectors

The following table sets out production indices for the principal industrial products of the Republic and their relative contribution to total industrial production:

Industrial Production

(2015 = 100)

	Index Weight(1)		2016		2017		2018		2019		2020(2)
Industries		10,000.0		102.2		104.8		106.3		106.7		106.3
Mining and Manufacturing		9,517.1		102.3		104.6		106.1		106.5		106.2
Mining		32.6		103.4		100.2		89.5		85.4		84.1
Manufacturing		9,484.5		102.3		104.7		106.1		106.6		106.3
Food Products		560.0		102.7		102.9		104.1		108.0		109.4
Beverage Products		141.6		103.7		105.7		105.4		103.8		100.3
Tobacco Products		63.2		113.0		122.7		111.1		121.1		126.5
Textiles		135.0		98.5		95.2		88.7		83.5		74.7
Wearing Apparel, Clothing Accessories and Fur Articles		103.9		96.8		95.9		93.6		87.4		70.1
Tanning and Dressing of Leather, Luggage and Footwear		28.6		92.5		82.0		82.8		71.5		49.4
Wood and Products of Wood and Cork (Except Furniture)		36.6		99.3		103.7		95.3		87.0		85.5
Pulp, Paper and Paper Products		162.2		99.4		97.5		97.0		95.6		93.7
Printing and Reproduction of Recorded Media		52.5		101.3		102.0		100.4		95.3		95.4
Coke, hard-coal and lignite fuel briquettes and Refined Petroleum Products		163.1		106.9		114.8		117.0		115.0		107.8
Chemicals and Chemical Products		883.8		105.5		109.1		111.6		110.1		106.8
Pharmaceuticals, Medicinal Chemicals and Botanical Products		273.8		109.8		118.5		128.1		131.6		142.8
Rubber and Plastic Products		504.7		100.6		99.9		95.1		93.3		87.5
Non-metallic Minerals		258.8		109.0		111.2		107.2		104.3		96.7
Basic Metals		621.0		101.9		102.9		100.1		97.8		91.7
Fabricated Metal Products		575.2		102.1		96.6		88.9		87.5		80.3
Electronic Components, Computer, Radio, Television and Communication Equipment and Apparatuses		1,844.5		105.1		112.6		125.9		132.0		147.7
Medical, Precision and Optical Instruments, Watches and Clocks		370.9		101.1		119.5		136.1		121.1		125.8
Electrical Equipment		513.1		103.5		106.6		106.5		109.6		108.7
Other Machinery and Equipment		819.2		101.6		115.4		111.8		105.2		109.0
Motor Vehicles, Trailers and Semitrailers		981.6		97.6		95.1		93.9		93.4		84.1
Other Transport Equipment		283.5		88.8		68.0		61.6		72.3		70.1
Furniture		60.1		106.2		109.5		101.9		99.9		106.8
Other Products		47.6		104.4		108.2		102.7		108.0		101.7
Electricity, Gas		482.9		100.8		106.3		110.3		108.6		106.6
Total Index		10,000.0		102.2		104.8		106.3		106.7		106.3

(1) Index weights were established on the basis of an industrial census in 2015 and reflect the average annual value added by production in each of the classifications shown, expressed as a percentage of total value added in the mining, manufacturing and electricity and gas industries in that year.

(2) Preliminary.

Source: The Bank of Korea; Korea National Statistical Office

Industrial production increased by 2.2% in 2016, primarily due to increased domestic consumption. Industrial production increased by 2.5% in 2017, primarily due to increased domestic consumption and exports.

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Industrial production increased by 1.4% in 2018, primarily due to increased domestic consumption and exports. Industrial production increased by 0.4% in 2019, primarily due to increased domestic consumption. Based on preliminary data, industrial production decreased by 0.4% in 2020, primarily due to decreased domestic consumption and exports resulting from the COVID-19 pandemic.

Manufacturing

The manufacturing sector increased production by 2.3% in 2016 and by 2.3% in 2017, primarily due to increased demand for consumer electronics products, electronic components (including semiconductors), communication equipment and chemical products, which more than offset decreased demand for motor vehicles, trailers and semitrailers. The manufacturing sector increased production by 1.3% in 2018, primarily due to increased demand for consumer electronics products and electronic components (including semiconductors). The manufacturing sector increased production by 0.5% in 2019, primarily due to increased demand for consumer electronics products and electronic components (including semiconductors). Based on preliminary data, the manufacturing sector decreased production by 0.3% in 2020, primarily due to decreased demand for automobiles.

Automobiles. In 2016, automobile production decreased by 7.2% and export sales volume recorded a decrease of 11.8%, compared with 2015, primarily due to the slowdown of the global economy, and domestic sales volume recorded an increase of 1.0%, compared with 2015, primarily due to the reduction of individual consumption tax on cars. In 2017, automobile production decreased by 2.7%, domestic sales volume recorded a decrease of 2.5% and exports sales volume recorded a decrease of 3.5%, compared with 2016, primarily due to decreased domestic production of automobiles resulting mainly from partial strikes by unionized workers of automobile manufacturers, increased overseas production and decreased exports to the United States and China. In 2018, automobile production decreased by 2.1%, domestic sales volume recorded a decrease of 0.5% and exports sales volume recorded a decrease of 3.2%, compared with 2017, primarily due to decreased domestic production of automobiles resulting mainly from partial strikes by unionized workers of automobile manufacturers and the restructuring of GM Korea’s production units and decreased exports to countries in South America and the Middle East. In 2019, automobile production decreased by 1.9%, domestic sales volume recorded a decrease of 1.8% and export sales volume recorded a decrease of 2.0%, compared with 2018, primarily due to decreased domestic production of automobiles resulting mainly from partial strikes by unionized workers of automobile manufacturers, increased overseas production, decreased domestic demand for automobiles and decreased demand for automobiles in China. Based on preliminary data, in 2020, automobile production decreased by 11.2% and export sales volume recorded a decrease of 21.4%, compared with 2019, primarily due to a general decline in global demand for automobiles caused by the COVID-19 pandemic, which outpaced a 4.7% increase in domestic sales volume from 2019 to 2020, primarily due to increased domestic demand for automobiles.

Electronics. In 2016, electronics production amounted to W309,016 billion, a decrease of 2.4% from the previous year, and exports amounted to US$162.5 billion, a decrease of 6.0% from the previous year, primarily due to continued adverse global economic conditions and the expansion of overseas production. In 2016, export sales of semiconductor memory chips constituted approximately 12.6% of the Republic’s total exports. In 2017, electronics production amounted to W342,755 billion, an increase of 10.9% from the previous year, and exports amounted to US$197.6 billion, an increase of 21.6% from the previous year, primarily due to increases in demand for semiconductors, organic light-emitting diode, or OLED, display panels and computers. In 2017, export sales of semiconductor memory chips constituted approximately 17.4% of the Republic’s total exports. In 2018, electronics production amounted to W365,548 billion, an increase of 6.6% from the previous year, and exports amounted to US$220.3 billion, an increase of 11.5% from the previous year, primarily due to increases in demand for semiconductors and lithium-ion batteries. In 2018, export sales of semiconductor memory chips constituted approximately 21.2% of the Republic’s total exports. In 2019, electronics production amounted to W322,729 billion, a decrease of 11.7% from the previous year, and exports amounted to US$176.9 billion, a decrease of 19.7% from the previous year, primarily due to a significant decrease in semiconductor prices. In 2019, export sales of semiconductor memory chips constituted approximately 17.6% of the Republic’s total

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exports. Based on preliminary data, in 2020, electronic production amounted to W332,084 billion, an increase of 2.9% from the previous year, and exports of electronics amounted to US$183.6 billion, an increase of 3.8% from the previous year, primarily due to an increase in demand for semiconductors, computers and other electronic apparatuses. In 2020, export sales of semiconductor memory chips constituted approximately 19.5% of the Republic’s total exports.

Iron and Steel. In 2016, crude steel production totaled 68.6 million tons, a decrease of 1.6% from 2015, and export sales volume of iron and steel products decreased by 1.8%, primarily due to intensified export competition and adverse conditions in the global shipbuilding and construction industries, but domestic sales volume of iron and steel products increased by 2.2%, primarily due to the recovery of the domestic construction industry. In 2017, crude steel production totaled 71.1 million tons, an increase of 3.7% from 2016, and export sales volume of iron and steel products increased by 2.3%, primarily due to an increase in global demand for crude steel products but domestic sales volume of iron and steel products decreased by 1.2%, primarily due to adverse conditions in the domestic shipbuilding and automobile industries. In 2018, crude steel production totaled 72.5 million tons, an increase of 1.9% from 2017, primarily due to the recovery of the domestic shipbuilding industry, but export sales volume of iron and steel products decreased by 3.9%, primarily due to restrictions on imports of steel products imposed by the United States, Canada and the European Union. In 2019, crude steel production totaled 71.4 million tons, a decrease of 1.5% from 2018, primarily due to adverse conditions in the construction and shipbuilding industries, and export sales volume of iron and steel products decreased by 0.2%, primarily due to continued restrictions on imports of steel products imposed by the United States, Canada and the European Union. Based on preliminary data, in 2020, crude steel production totaled 67.1 million tons, a decrease of 6.0% from 2019, primarily due to adverse conditions in the construction and shipbuilding industries in light of the COVID-19 pandemic, and export sales volume of iron and steel products decreased by 4.9%, primarily due to a decrease in global demand for crude steel products resulting from the COVID-19 pandemic.

Shipbuilding. In 2016, the Republic’s shipbuilding orders amounted to approximately 2 million compensated gross tons, a decrease of 81.8% compared to 2015, primarily due to the continued adverse conditions in the domestic and global shipbuilding industry. In 2017, the Republic’s shipbuilding orders amounted to approximately 8 million compensated gross tons, an increase of 300% compared to 2016, primarily due to increased demand for LNG carriers, bulk carriers and container carriers. In 2018, the Republic’s shipbuilding orders amounted to approximately 13 million compensated gross tons, an increase of 62.5% compared to 2017, primarily due to increased demand for LNG carriers, oil tankers and container carriers. In 2019, the Republic’s shipbuilding orders amounted to approximately 9 million compensated gross tons, a decrease of 30.8% compared to 2018, primarily due to decreased demand for container carriers and bulk carriers, which more than offset increased demand for LNG carriers. Based on preliminary data, in 2020, the Republic’s shipbuilding orders amounted to approximately 8 million compensated gross tons, a decrease of 11.1% compared to 2019, primarily due to the adverse conditions in the domestic and global shipbuilding industry resulting from the COVID-19 pandemic.

Agriculture, Forestry and Fisheries

The Government’s agricultural policy has traditionally focused on:

• grain production;

• development of irrigation systems;

• land consolidation and reclamation;

• seed improvement;

• mechanization measures to combat drought and flood damage; and

• increasing agricultural incomes.

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Recently, however, the Government has increased emphasis on cultivating profitable crops and strengthening international competitiveness as a result of the continued opening of the domestic agricultural market.

In 2016, rice production decreased 2.3% from 2015 to 4.2 million tons. In 2017, rice production decreased 5.3% from 2016 to 4.0 million tons. In 2018, rice production decreased 2.5% from 2017 to 3.9 million tons. In 2019, rice production decreased 5.1% from 2018 to 3.7 million tons. In 2020, rice production decreased 5.4% from 2019 to 3.5 million tons. Due to limited crop yields resulting from geographical and physical constraints, the Republic depends on imports for certain basic foodstuffs.

The Government is seeking to develop the fishing industry by encouraging the building of large fishing vessels and modernizing fishing equipment, marketing techniques and distribution outlets.

In 2016, the agriculture, forestry and fisheries industry decreased by 5.6% compared to 2015, primarily due to unfavorable weather conditions and a decrease in fishing catch. In 2017, the agriculture, forestry and fisheries industry increased by 2.3% compared to 2016, primarily due to an increase in aquafarming production. In 2018, the agriculture, forestry and fisheries industry increased by 0.2% compared to 2017, primarily due to an increase in livestock production. In 2019, the agriculture, forestry and fisheries industry increased by 2.3% compared to 2018, primarily due to an increase in farming and livestock production. Based on preliminary data, in 2020, the agriculture, forestry and fisheries industry decreased by 3.4% compared to 2019, primarily due to a decrease in farming and livestock production.

Construction

In 2016, the construction industry increased by 9.8% compared to 2015, primarily due to an increase in the construction of residential and commercial buildings. In 2017, the construction industry increased by 5.9% compared to 2016, primarily due to an increase in the construction of residential and commercial buildings. In 2018, the construction industry decreased by 2.8% compared to 2017, primarily due to a decrease in the construction of residential and commercial buildings. In 2019, the construction industry decreased by 2.5% compared to 2018, primarily due to a continued decrease in the construction of residential buildings. Based on preliminary data, in 2020, the construction industry decreased by 0.9% compared to 2019, primarily due to a decrease in the construction of residential buildings.

Electricity and Gas

The following table sets out the Republic’s dependence on imports for energy consumption:

Dependence on Imports for Energy Consumption

	Total Primary Energy Supply		Imports		Imports Dependence Ratio
	(millions of tons of oil equivalents(1), except ratios)
2016		293.8		277.9		94.6
2017		302.1		284.0		94.0
2018		307.6		288.1		93.7
2019		303.1		283.4		93.5
2020(2)		290.1		273.6		94.3

(1) Conversion to tons of oil equivalents was calculated based on energy conversion factors under the Energy Act Enforcement Decree as amended in July 2017.

(2) Preliminary.

Source: Korea Energy Economics Institute; Korea National Statistical Office

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Korea has almost no domestic oil or gas production and depends on imported oil and gas to meet its energy requirements. Accordingly, the international prices of oil and gas significantly affect the Korean economy. Any significant long-term increase in the prices of oil and gas will increase inflationary pressures in Korea and adversely affect the Republic’s balance of trade.

To reduce its dependence on oil and gas imports, the Government has encouraged energy conservation and energy source diversification emphasizing nuclear energy. The following table sets out the principal primary sources of energy supplied in the Republic, expressed in oil equivalents and as a percentage of total energy consumption.

Primary Energy Supply by Source

	Coal				Petroleum				Nuclear				Others(1)				Total
	Quantity		%		Quantity		%		Quantity		%		Quantity		%		Quantity		%
	(millions of tons of oil equivalents(2), except percentages)
2016		81,499		27.7		117,605		40.0		34,181		11.6		60,493		20.6		293,778		100.0
2017		86,177		28.5		119,400		39.5		31,615		10.5		64,874		21.5		302,066		100.0
2018		86,707		28.2		118,521		38.5		28,437		9.2		73,892		24.0		307,557		100.0
2019		82,147		27.1		117,314		38.7		31,079		10.3		72,553		23.9		303,092		100.0
2020(3)		72,348		24.9		110,322		38.0		34,119		11.8		73,337		25.3		290,126		100.0

(1) Includes natural gas, hydroelectric power and renewable energy.

(2) Conversion to tons of oil equivalents was calculated based on energy conversion factors under the Energy Act Enforcement Decree as amended in July 2017.

(3) Preliminary.

Source: Korea Energy Economics Institute; The Bank of Korea

The Republic’s first nuclear power plant went into full operation in 1978 with a rated generating capacity of 587 megawatts. As of December 31, 2020, the Republic had 24 nuclear plants with a total estimated nuclear power installed generating capacity of 23,250 megawatts and four nuclear plants under construction. In December 2020, the Government released the Ninth Basic Plan which serves as the guideline for stable medium and long-term supply of electric power. The Ninth Basic Plan replaced and superseded the Eighth Basic Plan, which covered the period from 2017 to 2031 and focused on, among other things, (i) increasing efforts to address environmental and safety concerns, including reducing greenhouse gas emission and yellow dust, (ii) decreasing the portion of electricity supplied using nuclear and coal energy sources, (iii) increasing the portion of electricity supplied from renewable energy, in particular solar and wind power and (iv) promoting the replacement of coal with LNG as an energy source by reducing the gap in expenses incurred in using the respective fuel types, for example, by adjusting the consumption tax rates applicable to the respective fuel types. The objectives of the Ninth Basic Plan include, among other things, (i) changing energy policy to a safe and clean energy mix by reducing coal and nuclear power generation and increasing renewable energy, (ii) preparing implementation measures for further reduction of greenhouse gas, (iii) accelerating investments in renewable energy and expanding infrastructure for the transition to a low-carbon economy/society and (iv) improving the electricity market system to promote fair competition and lay the foundation for expansion of eco-friendly energy. Furthermore, the Ninth Basic Plan includes the following implementation measures: (i) six coal-fired generation plants will be retired by 2022, (ii) 24 other coal-fired generation plants will be retired and converted to LNG fuel use by 2034, (iii) domestic renewable energy generation capacity will be expanded to 77.8 gigawatts by 2034 to meet the target set in the Third Basic National Energy Plan and (iv) the extension of life of eleven nuclear generation units will not be granted and such units will be retired by 2034.

Services Sector

In 2016, the service industry increased by 2.9% compared to 2015 as the health and social work sector increased by 7.3%, the wholesale and retail trade, restaurants and hotels sector increased by 2.7% and the finance

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and insurance sector increased by 1.9%, each compared with 2015. In 2017, the service industry increased by 2.6% compared to 2016 as the health and social work sector increased by 6.4%, the finance and insurance sector increased by 4.2% and the public administration and defense sector increased by 2.8%, each compared with 2016. In 2018, the service industry increased by 3.8% compared to 2017 as the health and social work sector increased by 8.2%, the finance and insurance sector increased by 5.6% and the public administration and defense sector increased by 3.4%, each compared with 2017. In 2019, the service industry increased by 2.9% compared to 2018 as the health and social work sector increased by 8.7%, the public administration and defense sector increased by 4.0% and the finance and insurance sector increased by 4.4%, each compared with 2018. Based on preliminary data, in 2020, the service industry decreased by 1.1% compared to 2019 as the wholesale and retail trade, accommodation and food services sector decreased by 5.7%, the transportation and storage sector decreased by 15.7% and the cultural and other services sector decreased by 16.6%, each compared with 2019, primarily due to the COVID-19 pandemic.

Prices, Wages and Employment

The following table shows selected price and wage indices and unemployment rates:

	Producer Price Index(1)		Increase (Decrease) Over Previous Year			Consumer Price Index(1)		Increase (Decrease) Over Previous Year		Wage Index(1)(2)		Increase (Decrease) Over Previous Year			Unemployment Rate(1)(3)
	(2015=100)		(%)			(2015=100)		(%)		(2015=100)		(%)			(%)
2016		98.2		(1.8	)		101.0		1.0		104.2		4.2			3.7
2017		101.6		3.5			102.9		1.9		106.4		2.1			3.7
2018		103.5		1.9			104.5		1.5		113.6		6.8			3.8
2019		103.5		0.0			104.9		0.4		116.2		2.3			3.8
2020		103.0		(0.5	)		105.4		0.5		115.5		(0.6	)		4.0

(1) Average for year.

(2) Nominal wage index of average earnings in the manufacturing industry.

(3) Expressed as a percentage of the economically active population.

Source: The Bank of Korea; Korea National Statistical Office

In 2016, the inflation rate increased to 1.0%, primarily due to increases in agricultural and livestock product prices and private service fees, which more than offset a decrease in oil prices. In 2017, the inflation rate increased to 1.9%, primarily due to increases in the prices of agricultural and livestock products and oil. In 2018, the inflation rate decreased to 1.5%, primarily due to a slowdown in the growth rate of agricultural goods and oil prices. In 2019, the inflation rate decreased to 0.4%, primarily due to decreases in the prices of agricultural and livestock products and oil. In 2020, the inflation rate increased to 0.5%, primarily due to increases in agricultural and livestock product prices. Based on preliminary data, the inflation rate was 1.1% in the first quarter of 2021.

In 2016, the unemployment rate increased to 3.7%, primarily due to the continued sluggishness of the domestic economy. In 2017, the unemployment rate remained unchanged at 3.7%. In 2018, the unemployment rate increased to 3.8%, primarily due to the continued sluggishness of the domestic economy. In 2019, the unemployment rate remained constant at 3.8%. In 2020, the unemployment rate increased to 4.0%, primarily due to the COVID-19 pandemic. Based on preliminary data, the unemployment rate was 5.0% in the first quarter of 2021.

From 1992 to 2009, the economically active population of the Republic increased by approximately 24.8% to 24.3 million, while the number of employees increased by approximately 23.7% to 23.5 million. The economically active population over 15 years old as a percentage of the total over-15 population has remained between 61% and 63% over the past decade. Literacy among workers under 50 is almost universal. As of December 31, 2020, the economically active population of the Republic was 28.0 million and the number of employees was 26.9 million.

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The following table shows selected employment information by industry and by gender:

	2016		2017		2018		2019		2020
	(all figures in percentages, except as indicated)
Labor force (in thousands of persons)		26,409		26,725		26,822		27,123		26,904
Employment by Industry:
Agriculture, Forestry and Fishing		4.9		4.8		5.0		5.1		5.4
Mining and Manufacturing		17.2		17.2		16.9		16.4		16.3
S.O.C & Services		77.9		78.0		78.1		78.5		78.3
Electricity, Transport, Communication and Finance		11.8		11.4		11.8		11.7		11.8
Business, Private & Public Service and Other Services		36.3		36.4		36.5		37.4		38.0
Construction		7.0		7.4		7.6		7.4		7.5
Wholesale & Retail Trade, Hotels and Restaurants		22.9		22.8		22.2		22.0		21.0
Total Employed		100.0		100.0		100.0		100.0		100.0
Employment by Gender:
Male		57.6		57.5		57.3		57.0		57.2
Female		42.4		42.5		42.7		43.0		42.8
Total Employed		100.0		100.0		100.0		100.0		100.0

Source: The Bank of Korea

Pursuant to certain amendments to the Labor Standards Act that became effective on July 1, 2018, the maximum working hours of employees is in the process of being reduced from 68 hours per week to 52 hours per week, and the number of special industries that are exempt from restrictions on maximum working hours will be significantly reduced. This new maximum working hours restriction under the amended Labor Standards Act is in effect for workplaces with 300 or more workers from July 1, 2018, and has been extended to workplaces with 50 or more but fewer than 300 workers from January 1, 2020, and will further be extended to workplaces with five or more but fewer than 50 workers from July 1, 2021.

Approximately 12.5% of the Republic’s workers were unionized as of December 31, 2019. Labor unrest in connection with demands by unionized workers for better wages and working conditions and greater job security occur from time to time in the Republic. Some of the significant incidents in recent years include the following:

• In September 2016, unionized subway and railroad workers launched a joint nationwide strike, the first in 22 years, demanding that the Government scrap its proposed merit pay system for subway and railroad workers.

• In October 2016, unionized workers at Hyundai Motor went on full strike, the first in 12 years, demanding higher wages, while unionized workers at Kia Corporation, or Kia, went on partial strike protesting the wage gap between workers at Kia and workers at Hyundai Motor.

• In September 2017, several thousand unionized workers at KBS and MBC, Korea’s two largest television and radio broadcasters, went on strike, which lasted several months, to protest against alleged management interference in news coverage and unfair labor practices.

• In 2017, unionized workers at Hyundai Motor went on a series of partial strikes demanding higher wages and bonuses.

• In July 2018, unionized workers at Hyundai Heavy Industries went on full strike demanding higher wages.

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• In May 2019, unionized bus drivers launched a nationwide strike seeking higher wages and increased manpower in time for the 52-hour work week that was implemented in July 2019.

• In September 2019, unionized workers at GM Korea went on full strike, the first in more than 20 years, demanding higher wages and protesting against GM Korea’s restructuring plans.

• In October and November 2019, several thousand members of the National Railroad Workers’ Union went on full strike demanding a normalization of wages and requesting the hiring of additional personnel.

• In October, November and December 2020, unionized workers at GM Korea went on partial strikes during wage and collective agreement negotiations.

• In November and December 2020, unionized workers at Kia went on partial strikes demanding higher wages, performance-based incentives and other benefits.

Actions such as these by labor unions may hinder implementation of the labor reform measures and disrupt the Government’s plans to create a more flexible labor market. Although much effort is being expended to resolve labor disputes in a peaceful manner, there can be no assurance that further labor unrest will not occur in the future. Continued labor unrest in key industries of the Republic may have an adverse effect on the economy.

In 1997, the Korean Confederation of Trade Unions organized a political alliance, which led to the formation of the Democratic Labor Party in January 2000. The Democratic Labor Party merged with The New People’s Participation Party and changed its name to The Unified Progressive Party, or the UPP, in December 2011. In October 2012, the UPP split and seven UPP members of the National Assembly and their supporters formed a new party, the Progressive Justice Party, which changed its name to the Justice Party in July 2013. In December 2014, the Constitutional Court ordered the dissolution of the UPP and the removal of the party’s five lawmakers from the National Assembly for violating the Republic’s Constitution after certain of its members were convicted of trying to instigate an armed rebellion and supporting North Korea. In the legislative general election held on April 13, 2016, the Justice Party won six seats in the National Assembly, and the members-elect began their four-year terms on May 30, 2016. As of December 31, 2020, the Justice Party held six seats in the National Assembly.

The Financial System

Structure of the Financial Sector

The Republic’s financial sector includes the following categories of financial institutions:

• The Bank of Korea;

• banking institutions;

• non-bank financial institutions; and

• other financial entities, including:

• financial investment companies;

• credit guarantee institutions;

• venture capital companies; and

• miscellaneous others.

To increase transparency in financial transactions and enhance the integrity and efficiency of the financial markets, Korean law requires that financial institutions confirm that their clients use their real names when transacting business. The Government also strengthened confidentiality protection for private financial transactions.

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In July 2007, the Korean National Assembly passed the Financial Investment Services and Capital Markets Act, or the FSCMA, under which various industry-based capital markets regulatory systems were consolidated into a single regulatory system. The FSCMA, which became effective in February 2009, expands the scope of permitted investment-related financial products and activities through expansive definitions of financial instruments and function-based regulations that allow financial investment companies to offer a wider range of financial services, as well as strengthening investor protection and disclosure requirements.

Prior to the effective date of the FSCMA, separate laws regulated various types of financial institutions depending on the type of the financial institution (for example, securities companies, futures companies, trust business companies and asset management companies) and subjected financial institutions to different licensing and ongoing regulatory requirements (for example, under the Securities and Exchange Act, the Futures Business Act and the Indirect Investment Asset Management Business Act). By applying one uniform set of rules to financial businesses having the same economic function, the FSCMA attempts to improve and address issues caused by the previous regulatory system under which the same economic function relating to capital markets-related business were governed by multiple regulations. To this end, the FSCMA categorizes capital markets-related businesses into six different functions as follows:

• investment dealing (trading and underwriting of financial investment products);

• investment brokerage (brokerage of financial investment products);

• collective investment (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 are 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, irrespective of what type of financial institution it is. For example, under the FSCMA, derivative businesses conducted by securities companies and future companies are subject to the same regulations, at least in principle.

The banking business and the insurance business are not subject to the FSCMA and will continue to be regulated under separate laws; provided, however, that they are subject to the FSCMA if their activities involve any Financial Investment Businesses requiring a license based on the FSCMA.

Banking Industry

The banking industry comprises commercial banks and specialized banks. Commercial banks serve the general public and corporate sectors. They include nationwide banks, regional banks and branches of foreign banks. Regional banks provide services similar to nationwide banks, but operate in a geographically restricted region. Branches of foreign banks have operated in the Republic since 1967 but provide a relatively small proportion of the country’s banking services. As of December 31, 2020, there were six nationwide banks, six regional banks, two internet banks and 36 foreign banks with branches operating in the Republic.

Specialized banks meet the needs of specific sectors of the economy in accordance with Government policy; they are organized under, or chartered by, special laws. Specialized banks include (i) The Korea Development Bank, (ii) The Export-Import Bank of Korea, (iii) The Industrial Bank of Korea, (iv) SuHyup Bank and (v) NongHyup Bank. The Government has made capital contributions to three of these specialized banks as follows:

• The Korea Development Bank: the Government owns directly all of its paid-in capital and has made capital contributions since its establishment in 1954. Recent examples include the Government’s

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contributions to its capital of W308 billion in 2016, W395 billion in 2017, W170 billion in 2018, W555 billion in 2019 and W2,102.6 billion in 2020. Taking into account these capital contributions, its total paid-in capital was W20,766 billion as of December 31, 2020.

• The Export-Import Bank of Korea: the Government owns, directly and indirectly, all of its paid-in capital and has made capital contributions since its establishment in 1976. Recent examples include the Government’s contributions to its capital of W1,620 billion in 2016, W1,417 billion in 2017, W0 billion in 2018, W56 billion in 2019 and W578 billion in 2020. Taking into account these capital contributions, its total paid-in capital was W12,449 billion as of December 31, 2020.

• The Industrial Bank of Korea: the Government owned, directly and indirectly, 66.0% of its common shares and all of its preferred shares as of December 31, 2020. The Government had owned all of the issued share capital of The Industrial Bank of Korea until 1994, but the Government’s minimum share ownership requirement was repealed in 1997, and the Government has since periodically adjusted its ownership percentage in the Industrial Bank of Korea through transactions involving the purchase and sale of its common shares. In 2016, the Industrial Bank of Korea issued an aggregate of 3,576,857 new common shares to the Government for W40 billion in cash. In 2019, the Industrial Bank of Korea issued an aggregate of 17,178,164 new common shares to the Government for a total of W225 billion in cash. In 2020, the Industrial Bank of Korea issued an aggregate of 161,507,381 new common shares to the Government for a total of W1,266 billion in cash. In November 2020, the Industrial Bank of Korea acquired from the Government and cancelled an aggregate of 44,847,038 perpetual preferred shares that it had previously issued to the Government. Taking into account such transactions, its total paid-in capital was W4,183 billion as of December 31, 2020.

The economic difficulties in 1997 and 1998 caused an increase in Korean banks’ non-performing assets and a decline in capital adequacy ratios of Korean banks. From 1998 through 2002, the Financial Services Commission amended banking regulations several times to adopt more stringent criteria for non-performing assets that more closely followed international standards.

The following table sets out the total loans (including loans in Won and loans in foreign currencies) and non-performing assets of Korean banks as of the dates indicated.

	Total Loans		Non-Performing Assets(1)		Percentage of Total
	(trillions of won)				(percentage)
December 31, 2016		1,732.9		24.6		1.4
December 31, 2017		1,775.9		21.1		1.2
December 31, 2018		1,872.6		18.2		1.0
December 31, 2019		1,980.6		15.3		0.8
December 31, 2020(2)		2,171.7		13.9		0.6

(1) Assets classified as substandard or below.

(2) Preliminary.

Source: Financial Supervisory Service

In 2016, these banks posted an aggregate net profit of W3.0 trillion, compared to an aggregate net profit of W4.4 trillion in 2015, primarily due to increased loan loss provisions. In 2017, these banks posted an aggregate net profit of W11.2 trillion, compared to an aggregate net profit of W3.0 trillion in 2016, primarily due to decreased loan loss provisions and increased net interest income. In 2018, these banks posted an aggregate net profit of W15.6 trillion, compared to an aggregate net profit of W11.2 trillion in 2017, primarily due to increased net interest income and decreased loan loss provisions, which more than offset a decrease in net non-interest income. In 2019, these banks posted an aggregate net profit of W13.9 trillion, compared to an aggregate net profit of W15.6 trillion in 2018, primarily due to losses on investments in subsidiaries and associates in 2019 compared to gains on investments in subsidiaries and associates in 2018, which more than offset decreased loan

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loss provisions. Based on preliminary data, in 2020, these banks posted an aggregate net profit of W12.3 trillion, compared to an aggregate net profit of W13.9 trillion in 2019, primarily due to increased loan loss provisions.

Non-Bank Financial Institutions

Non-bank financial institutions include:

• savings institutions, including trust accounts of banks, mutual savings banks, credit unions, mutual credit facilities, community credit cooperatives and postal savings;

• life insurance institutions; and

• credit card companies.

As of December 31, 2020, 79 mutual savings banks, 24 life insurance institutions, which includes joint venture life insurance institutions and wholly-owned subsidiaries of foreign life insurance companies, and eight credit card companies operated in the Republic.

Money Markets

In the Republic, the money markets consist of the call market and markets for a wide range of other short-term financial instruments, including treasury bills, monetary stabilization bonds, negotiable certificates of deposits, repurchase agreements and commercial paper.

Securities Markets

On January 27, 2005, the Korea Exchange was established pursuant to the now repealed Korea Securities and Futures Exchange Act by consolidating the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc., or the KOSDAQ, and the KOSDAQ Committee of the Korea Securities Dealers Association, which had formerly managed the KOSDAQ. There are three major markets operated by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market, and the KRX Derivatives Market. The Korea Exchange has two trading floors located in Seoul, one for the KRX KOSPI Market and one for the KRX KOSDAQ Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a joint stock company with limited liability, the shares of which are held by (i) financial investment companies that were formerly members of the Korea Futures Exchange or the Korea Stock Exchange and (ii) the stockholders of the KOSDAQ. Currently, the Korea Exchange is the only stock exchange in Korea and is operated by membership, having as its members Korean financial investment companies and some Korean branches of foreign financial investment companies.

The Korea Exchange publishes the Korea Composite Stock Price Index every ten seconds, which is an index of all equity securities listed on the Korea Exchange. The Korea Composite Stock Price Index is computed using the aggregate value method, whereby the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.

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The following table shows the value of the Korea Composite Stock Price Index as of the dates indicated:

December 29, 2016	2,026.5
January 31, 2017	2,067.6
February 28, 2017	2,091.6
March 31, 2017	2,160.2
April 28, 2017	2,205.4
May 31, 2017	2,347.4
June 30, 2017	2,391.8
July 31, 2017	2,402.7
August 31, 2017	2,363.2
September 29, 2017	2,394.5
October 31, 2017	2,523.4
November 30, 2017	2,476.4
December 28, 2017	2,467.5
January 31, 2018	2,566.5
February 28, 2018	2,427.4
March 30, 2018	2,445.9
April 30, 2018	2,515.4
May 31, 2018	2,423.0
June 29, 2018	2,326.1
July 31, 2018	2,295.3
August 31, 2018	2,322.9
September 28, 2018	2,343.1
October 31, 2018	2,029.7
November 30, 2018	2,096.9
December 28, 2018	2,041.0
January 31, 2019	2,204.9
February 28, 2019	2,195.4
March 29, 2019	2,140.7
April 30, 2019	2,203.6
May 31, 2019	2,041.7
June 28, 2019	2,130.6
July 31, 2019	2,024.6
August 30, 2019	1,967.8
September 30, 2019	2,063.1
October 31, 2019	2,083.5
November 29, 2019	2,088.0
December 30, 2019	2,197.7
January 31, 2020	2,119.0
February 28, 2020	1,987.0
March 31, 2020	1,754.6
April 29, 2020	1,947.6
May 29, 2020	2,029.6
June 30, 2020	2,108.3
July 31, 2020	2,249.4
August 31, 2020	2,326.2
September 29, 2020	2,327.9
October 30, 2020	2,267.2
November 30, 2020	2,591.3
December 30, 2020	2,873.5
January 29, 2021	2,976.2
February 26, 2021	3,013.0
March 31, 2021	3,061.4
April 30, 2021	3,147.9
May 31, 2021	3,203.9

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As liquidity and credit concerns and volatility in the global financial markets increased significantly since September 2008, there was a significant overall decline in the stock prices of Korean companies during the fourth quarter of 2008 and first half of 2009 and the index has fluctuated since then. In 2020 and in recent months, there was significant volatility in the stock prices of Korean companies due to deteriorating market conditions domestically and abroad due to the global outbreak of the COVID-19 pandemic. The index was 3,286.1 on June 24, 2021.

Supervision System

The Office of Bank Supervision, the Securities Supervisory Board, the Insurance Supervisory Board and all other financial sector regulatory bodies merged in January 1999 to form the Financial Supervisory Service. The Financial Services Commission acts as the executive body over the Financial Supervisory Service. The Financial Services Commission reports to, but operates independently of, the Prime Minister’s office.

The Ministry of Economy and Finance focuses on financial policy and foreign currency regulations. The Bank of Korea manages monetary policy focusing on price stabilization.

Deposit Insurance System

The Republic’s deposit insurance system insures amounts on deposit with banks, non-bank financial institutions, securities companies and life insurance companies.

Since January 2001, deposits at any single financial institution are insured only up to W50 million per person regardless of the amount deposited.

The Government excluded certain deposits, such as repurchase agreements, from the insurance scheme, expanded the definition of unsound financial institutions to which the insurance scheme would apply and gradually increased the insurance premiums payable by insured financial institutions.

Monetary Policy

The Bank of Korea

The Bank of Korea was established in 1950 as Korea’s central bank and the country’s sole currency issuing bank. A seven-member Monetary Policy Committee, chaired by the Governor of The Bank of Korea, formulates and controls monetary and credit policies.

Inflation targeting is the basic system of operation for Korean monetary policy. The consumer price index is used as The Bank of Korea’s target indicator. To achieve its established inflation target, the Monetary Policy Committee of The Bank of Korea determines and announces the “Bank of Korea Base Rate”, the reference rate applied in transactions such as repurchase agreements between The Bank of Korea and its financial institution counterparts. The Bank of Korea uses open market operations as its primary instrument to keep the call rate in line with the Monetary Policy Committee’s target rate. In addition, The Bank of Korea is able to establish policies regarding its lending to banks in Korea and their reserve requirements.

Interest Rates

On July 9, 2010, The Bank of Korea raised the policy rate to 2.25% from 2.0%, which was further raised to 2.5% on November 16, 2010, in response to signs of inflationary pressures and the continued growth of domestic economy. On January 13, 2011, The Bank of Korea raised the policy rate to 2.75%, which was further increased to 3.0% on March 10, 2011 and to 3.25% on June 10, 2011, in response to inflationary pressures driven mainly by rises in the prices of petroleum products and farm products. The Bank of Korea lowered its policy rate to

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3.0% from 3.25% on July 12, 2012, which was further lowered to 2.75% on October 11, 2012, 2.5% on May 9, 2013, 2.25% on August 14, 2014, 2.0% on October 15, 2014, 1.75% on March 12, 2015, 1.5% on June 11, 2015 and 1.25% on June 9, 2016, in order to address the sluggishness of the global and domestic economy. On November 30, 2017, The Bank of Korea raised its policy rate to 1.5% from 1.25%, which was further raised to 1.75% on November 30, 2018, in response to signs of inflationary pressures and the continued growth of the global and domestic economy. The Bank of Korea lowered its policy rate to 1.5% from 1.75% on July 18, 2019 and to 1.25% from 1.5% on October 16, 2019 to address the sluggishness of the global and domestic economy. On March 16, 2020, The Bank of Korea further lowered its policy rate to 0.75% from 1.25%, which was further lowered to 0.5% on May 28, 2020, in response to deteriorating economic conditions resulting from the global outbreak of the COVID-19 pandemic.

With the deregulation of interest rates on banks’ demand deposits on February 2, 2004, The Bank of Korea completed the interest rate deregulation based upon the “Four-Stage Interest Rate Liberalization Plan” announced in 1991. The prohibition on the payment of interest on ordinary checking accounts was, however, maintained.

Money Supply

The following table shows the volume of the Republic’s money supply:

	December 31,
	2016			2017			2018			2019			2020
	(billions of Won)
Money Supply (M1)(1)		795,531.1			849,862.4			865,851.8			952,922.8			1,197,828.9
Quasi-money(2)		1,611,928.0			1,680,491.2			1,834,510.6			1,960,686.8			2,002,006.8
Money Supply (M2)(3)		2,407,459.1			2,530,353.6			2,700,362.4			2,913,609.6			3,199,835.7
Percentage Increase Over Previous Year		7.1	%		5.1	%		6.7	%		7.9	%		9.8	%

(1) Consists of currency in circulation and demand and instant access savings deposits at financial institutions.

(2) Includes time and installment savings deposits, marketable instruments, yield-based dividend instruments and financial debentures, excluding financial instruments with a maturity of more than two years.

(3) Money Supply (M2) is the sum of Money Supply (M1) and quasi-money.

Source: The Bank of Korea

Exchange Controls

Authorized foreign exchange banks, as registered with the Ministry of Economy and Finance, handle foreign exchange transactions. The ministry has designated other types of financial institutions to handle foreign exchange transactions on a limited basis.

Korean laws and regulations generally require a report to either the Ministry of Economy and Finance, The Bank of Korea or authorized foreign exchange banks, as applicable, for issuances of international bonds and other instruments, overseas investments and certain other transactions involving foreign exchange payments.

In 1994 and 1995, the Government relaxed regulations of foreign exchange position ceilings and foreign exchange transaction documentation and created free Won accounts which may be opened by non-residents at Korean foreign exchange banks. The Won funds deposited into the free Won accounts may be converted into foreign currencies and remitted outside Korea without any governmental approval. In December 1996, after joining the OECD, the Republic freed the repatriation of investment funds, dividends and profits, as well as loan repayments and interest payments. The Government continues to reduce exchange controls in response to changes in the world economy, including the new trade regime under the WTO, anticipating that such foreign exchange reform will improve the Republic’s competitiveness and encourage strategic alliances between domestic and foreign entities.

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In September 1998, the National Assembly passed the Foreign Exchange Transactions Act, which became effective in April 1999 and has subsequently been amended numerous times. In principle, most currency and capital transactions, including, among others, the following transactions, have been liberalized:

• the investment in real property located overseas by Korean companies and financial institutions;

• the establishment of overseas branches and subsidiaries by Korean companies and financial institutions;

• the investment by non-residents in deposits and trust products having more than one year maturities; and

• the issuance of debentures by non-residents in the Korean market.

To minimize the adverse effects from further opening of the Korean capital markets, the Ministry of Economy and Finance is authorized to introduce a variable deposit requirement system to restrict the influx of short-term speculative funds.

The Government has also embarked on a second set of liberalization initiatives starting in January 2001, under which ceilings on international payments for Korean residents have been eliminated, including overseas travel expenses, overseas inheritance remittances and emigration expenses. Overseas deposits, trusts, acquisitions of foreign securities and other foreign capital transactions made by residents and the making of deposits in Korean currency by non-residents have also been liberalized. In line with the foregoing liberalization, measures will also be adopted to curb illegal foreign exchange transactions and to stabilize the foreign exchange market.

Effective as of January 1, 2006, the Government liberalized the regulations governing “capital transactions”. The regulations provide that no regulatory approvals are required for any capital transactions. The capital transactions previously subject to approval requirements are now subject only to reporting requirements.

In January 2010, the Financial Supervisory Services released FX Derivative Transactions Risk Management Guideline to prevent over-hedging of foreign exchange risk by corporate investors. According to the guideline as amended in July 2010, if a corporate investor, other than a financial institution or a public enterprise, wishes to enter into a foreign exchange forward, option or swap agreement with a bank, the bank is required to verify whether the corporate investor’s assets, liabilities or contracts face foreign exchange risks that could be mitigated by a foreign exchange forward, option or swap agreement. In addition, the bank is required to ensure that the corporate investor’s risk hedge ratio, which is the ratio of the aggregate notional amount to the aggregate amount of risk, does not exceed 100%.

Foreign Exchange

The following table shows the exchange rate between the Won and the U.S. Dollar (in Won per U.S. Dollar) as announced by the Seoul Money Brokerage Services, Ltd. as of the dates indicated:

	Won/U.S. Dollar Exchange Rate
December 30, 2016		1,208.5
January 31, 2017		1,157.8
February 28, 2017		1,132.1
March 31, 2017		1,116.1
April 28, 2017		1,130.1
May 31, 2017		1,123.9
June 30, 2017		1,139.6
July 31, 2017		1,119.1
August 31, 2017		1,122.8
September 29, 2017		1,146.7
October 31, 2017		1,125.0
November 30, 2017		1,082.4

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	Won/U.S. Dollar Exchange Rate
December 29, 2017		1,071.4
January 31, 2018		1,071.5
February 28, 2018		1,071.0
March 30, 2018		1,066.5
April 30, 2018		1,076.2
May 31, 2018		1,081.3
June 29, 2018		1,121.7
July 31, 2018		1,116.7
August 31, 2018		1,108.8
September 28, 2018		1,112.7
October 31, 2018		1,140.6
November 30, 2018		1,121.8
December 31, 2018		1,118.1
January 31, 2019		1,117.2
February 28, 2019		1,117.8
March 29, 2019		1,137.8
April 30, 2019		1,158.2
May 31, 2019		1,190.0
June 28, 2019		1,156.8
July 31, 2019		1,182.0
August 30, 2019		1,215.2
September 30, 2019		1,201.3
October 31, 2019		1,168.4
November 29, 2019		1,179.3
December 31, 2019		1,157.8
January 31, 2020		1,183.5
February 28, 2020		1,215.9
March 31, 2020		1,222.6
April 29, 2020		1,225.2
May 29, 2020		1,239.4
June 30, 2020		1,200.7
July 31, 2020		1,191.4
August 31, 2020		1,185.1
September 29, 2020		1,173.5
October 30, 2020		1,133.4
November 30, 2020		1,104.4
December 31, 2020		1,088.0
January 29, 2021		1,114.6
February 26, 2021		1,108.4
March 31, 2021		1,133.5
April 30, 2021		1,107.4
May 31, 2021		1,116.0

During the period from January 2, 2008 through April 16, 2009, the value of the Won relative to the U.S. dollar declined by approximately 29.9%, due primarily to adverse economic conditions resulting from liquidity and credit concerns and volatility in the global credit and financial markets and repatriations by foreign investors of their investments in the Korean stock market. The exchange rate between the Won and the U.S. Dollar has fluctuated since then. In 2020 and in recent months, the value of the Won relative to the U.S. dollar fluctuated significantly, due primarily to the impact of the global outbreak of the COVID-19 pandemic. The market average exchange rate was Won 1,135.6 to US$1.00 on June 24, 2021.

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Balance of Payments and Foreign Trade

Balance of Payments

Balance of payments figures measure the relative flow of goods, services and capital into and out of the country as represented in the current balance and the capital balance. The current balance tracks a country’s trade in goods and services and transfer payments and measures whether a country is living within its income from trading and investments. The capital balance covers all transactions involving the transfer of capital into and out of the country, including loans and investments. The overall balance represents the sum of the current and capital balances. An overall balance surplus indicates a net inflow of foreign currencies, thereby increasing demand for and strengthening the local currency. An overall balance deficit indicates a net outflow of foreign currencies, thereby decreasing demand for and weakening the local currency. The financial account mirrors the overall balance. If the overall balance is positive, the surplus, which represents the nation’s savings, finances the overall deficit of the country’s trading partners. Accordingly, the financial account will indicate cash outflows equal to the overall surplus. If, however, the overall balance is negative, the nation has an international deficit which must be financed. Accordingly, the financial account will indicate cash inflows equal to the overall deficit.

The following table sets out certain information with respect to the Republic’s balance of payments:

Balance of Payments⁽¹⁾

Classification	2016			2017			2018			2019			2020(4)
	(millions of dollars)
Current Account		97,923.7			75,230.9			77,466.5			59,676.1			75,275.7
Goods		116,461.7			113,592.9			110,086.8			79,812.1			81,945.2
Exports(2)		511,926.1			580,310.2			626,266.5			556,667.9			516,604.1
Imports(2)		395,464.4			466,717.3			516,179.7			476,855.8			434,658.9
Services		(17,338.4	)		(36,734.1	)		(29,369.4	)		(26,845.3	)		(16,190.1	)
Income		4,567.1			5,336.9			4,901.9			12,856.0			12,050.3
Current Transfers		(5,766.7	)		(6,964.8	)		(8,152.8	)		(6,146.7	)		(2,529.7	)
Capital and Financial Account		99,879.1			84,489.6			76,790.1			58,857.6			76,776.5
Capital Account		(46.2	)		(26.8	)		316.7			(169.3	)		(339.4	)
Financial Account(3)		99,925.3			84,516.4			76,473.4			59,026.9			77,115.9
Net Errors and Omissions		2,047.8			9,312.3			(1,309.8	)		(479.9	)		2,179.6

(1) Figures are prepared based on the sixth edition of the Balance of Payment Manual published by International Monetary Fund in December 2010 and implemented by the Government in December 2013. In December 2018, The Bank of Korea revised the Republic’s balance of payments information to capture new economic activities and reflect the changes in raw data.

(2) These entries are derived from trade statistics and are valued on a free on board basis, meaning that the insurance and freight costs are not included.

(3) Includes borrowings from the IMF, syndicated bank loans and short-term borrowings.

(4) Preliminary.

Source: The Bank of Korea

The current account surplus in 2019 decreased to US$59.7 billion from the current account surplus of US$77.5 billion in 2018, primarily due to a decrease in surplus from the goods account, which more than offset an increase in surplus from the income account and a decrease in deficit from the services account. The current account surplus in 2020 increased to US$75.3 billion from the current account surplus of US$59.7 billion in 2019, primarily due to a decrease in deficit from the services account, and to a lesser extent, a decrease in deficit from the current transfers account and an increase in surplus from the goods account. Based on preliminary data, the current account surplus in the first quarter of 2021 increased to US$22.8 billion from the current account surplus of US$12.9 billion in the corresponding period of 2020, primarily due to a decrease in deficit from the services account, an increase in surplus from the goods account and an increase in surplus from the income account, which more than offset an increase in deficit from the current transfers account.

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Foreign Direct Investment

Since 1960, the Government has adopted a broad range of related laws, administrative rules and regulations that provide a framework for the conduct and regulation of foreign investment activities. In September 1998, the Government promulgated the Foreign Investment Promotion Act, or the FIPA, which replaced previous foreign direct investment related laws, rules and regulations, to promote inbound foreign investments by providing incentives to, and facilitating investment activities in the Republic by, foreign nationals. The FIPA prescribes, among others, procedural requirements for inbound foreign investments, incentives for foreign investments such as tax reductions, and requirements relating to designation and development of foreign investment target regions. The Government believes that providing a stable and receptive environment for foreign direct investment will accelerate the inflow of foreign capital, technology and management techniques.

The following table sets forth information regarding annual foreign direct investment in the Republic for the periods indicated.

Foreign Direct Investment

	2016		2017		2018		2019		2020(2)
	(billions of dollars)
Contracted and Reported Investment
Greenfield Investment(1)		15.0		15.7		20.0		15.9		14.4
Merger & Acquisition		6.3		7.2		6.9		7.4		6.2
Total		21.3		22.9		26.9		23.3		20.6
Actual Investment		10.8		13.8		17.3		13.4		11.4

(1) Includes building new factories and operational facilities.

(2) Preliminary.

Source: Ministry of Trade, Industry and Energy

In 2019, the contracted and reported amount of foreign direct investment in the Republic decreased to US$23.3 billion from US$26.9 billion in 2018, primarily due to a decrease in foreign investment in the manufacturing sector to US$8.2 billion in 2019 from US$10.0 billion in 2018.

Based on preliminary data, in 2020, the contracted and reported amount of foreign direct investment in the Republic decreased to US$20.6 billion from US$23.3 billion in 2019, primarily due to a decrease in foreign investment in the manufacturing sector to US$5.9 billion in 2020 from US$8.2 billion in 2019.

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The following table sets forth information regarding the source of foreign direct investment by region and country for the periods indicated:

Foreign Direct Investment by Region and Country

	2016		2017		2018		2019		2020
	(billions of dollars)
North America
U.S.A.		3.9		4.7		5.9		6.8		5.3
Others		1.4		1.6		1.9		1.7		3.5
		5.3		6.3		7.8		8.6		8.8
Asia
Japan		1.2		1.8		1.3		1.4		0.7
Hong Kong		2.1		1.8		1.5		1.9		1.1
Singapore		2.3		1.8		1.5		1.3		2.3
China		2.0		0.8		2.7		1.0		2.0
Others		0.5		2.0		2.4		1.0		0.4
		8.1		8.2		9.4		6.6		6.5
Europe
Malta		4.1		1.1		2.6		1.5		2.0
Netherlands		1.5		1.7		1.4		1.7		0.6
England		0.4		2.2		1.2		2.1		0.7
Germany		0.3		0.7		0.5		0.4		0.5
France		0.2		0.3		0.7		0.1		0.2
Luxembourg		0.2		0.2		0.2		0.1		0.2
Others		0.8		1.1		2.4		1.4		0.6
		7.5		7.3		9.0		7.4		4.8
Others regions and countries		0.4		1.1		0.6		0.7		0.5
Total		21.3		22.9		26.9		23.3		20.6

Source: Ministry of Trade, Industry and Energy

Trade Balance

Trade balance figures measure the difference between a country’s exports and imports. If exports exceed imports the country has a trade balance surplus while if imports exceed exports the country has a deficit. A deficit, indicating that a country’s receipts from abroad fall short of its payments to foreigners, must be financed, rendering the country a debtor nation. A surplus, indicating that a country’s receipts exceed its payments to foreigners, allows the country to finance its trading partners’ net deficit to the extent of the surplus, rendering the country a creditor nation.

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The following table summarizes the Republic’s trade balance for the periods indicated:

Trade Balance

	Exports(1)		As % of GDP(2)			Imports(1)		As % of GDP(2)			Balance of Trade		Exports as % of Imports
	(billions of dollars, except percentages)
2016		495.4		33.0	%		406.2		27.1	%		89.2		122.0
2017		573.7		35.3	%		478.5		29.5	%		95.2		119.9
2018		604.9		35.2	%		535.2		31.1	%		69.7		113.0
2019		542.2		33.0	%		503.3		30.7	%		38.9		107.7
2020(3)		512.8		31.4	%		467.6		28.7	%		45.2		109.7

(1) These entries are derived from customs clearance statistics on a C.I.F. basis, meaning that the price of goods include insurance and freight cost.

(2) At current market prices.

(3) Preliminary.

Source: The Bank of Korea; Korea Customs Service

The Republic, due to its lack of natural resources, relies on extensive trading activity for growth. The country meets virtually all domestic requirements for petroleum, wood and rubber with imports, as well as much of its coal and iron needs. Exports consistently represent a high percentage of GDP and, accordingly, the international economic environment is of crucial importance to the Republic’s economy. See “—The Economy—Worldwide Economic and Financial Difficulties”.

The following tables give information regarding the Republic’s exports and imports by major commodity groups:

Exports by Major Commodity Groups (C.I.F.)⁽¹⁾

	2016		As % of 2016 Total		2017		As % of 2017 Total		2018		As % of 2018 Total		2019		As % of 2019 Total		2020(2)		As % of 2020 Total(2)
	(billions of dollars, except percentages)
Foods & Consumer Goods		7.4		1.5		7.8		1.4		7.9		1.3		8.2		1.5		8.6		1.7
Raw Materials and Fuels		33.0		6.7		43.1		7.5		55.1		9.1		48.8		9.0		32.1		6.3
Petroleum & Derivatives		26.8		5.4		35.4		6.2		47.0		7.8		41.3		7.6		24.7		4.8
Others		6.2		1.3		7.7		1.3		8.1		1.3		7.5		1.4		7.4		1.4
Light Industrial Products		35.4		7.1		36.0		6.3		35.8		5.9		34.2		6.3		32.4		6.3
Heavy & Chemical Industrial Products		419.7		84.7		486.8		84.9		506.1		83.7		451.0		83.2		439.6		85.7
Electronic & Electronic Products		159.4		32.2		192.0		33.5		214.8		35.5		171.4		31.6		178.5		34.8
Chemicals & Chemical Products		55.3		11.2		65.7		11.5		74.0		12.2		67.4		12.4		66.8		13.0
Metal Goods		39.9		8.1		46.9		8.2		48.1		8.0		44.1		8.1		39.6		7.7
Machinery & Precision Equipment		55.2		11.1		63.3		11.0		69.4		11.5		67.6		12.5		63.4		12.4
Transport Equipment		101.0		20.4		108.8		19.0		87.4		14.4		87.7		16.2		77.6		15.1
Passenger Cars		37.5		7.6		38.8		6.8		38.2		6.3		40.5		7.5		35.6		6.9
Ship & Boat		33.5		6.8		41.4		7.2		20.7		3.4		19.5		3.6		19.2		3.7
Others		30.0		6.1		28.6		5.0		28.4		4.7		27.7		5.1		22.8		4.4
Others		8.9		1.8		10.1		1.8		12.5		2.1		12.7		2.3		13.7		2.7
Total		495.4		100.0		573.7		100.0		604.9		100.0		542.2		100.0		512.8		100.0

(1) These entries are derived from customs clearance statistics. C.I.F. means that the price of goods includes insurance and freight costs.

(2) Preliminary.

Source: The Bank of Korea; Korea Customs Service

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Imports by Major Commodity Groups (C.I.F.)⁽¹⁾

	2016		As % of 2016 Total		2017		As % of 2017 Total		2018		As % of 2018 Total		2019		As % of 2019 Total		2020(2)		As % of 2020 Total(2)
	(billions of dollars, except percentages)
Industrial Materials and Fuels		191.0		47.0		233.1		48.7		279.0		52.1		254.0		50.5		206.3		44.1
Crude Petroleum		44.3		10.9		59.6		12.5		80.4		15.0		70.3		14.0		44.5		9.5
Mineral		15.5		3.8		20.3		4.2		22.0		4.1		21.7		4.3		21.4		4.6
Chemicals		39.1		9.6		44.0		9.2		50.0		9.3		47.0		9.3		46.3		9.9
Iron & Steel Products		18.9		4.7		20.3		4.2		19.7		3.7		19.8		3.9		15.2		3.3
Non-ferrous Metal		10.7		2.6		12.1		2.5		12.8		2.4		12.0		2.4		11.7		2.5
Others		62.5		15.4		76.8		16.1		94.1		17.6		83.2		16.5		67.2		14.4
Capital Goods		147.8		36.4		171.8		35.9		174.6		32.6		164.9		32.8		177.1		37.9
Machinery & Precision Equipment		47.8		11.8		63.1		13.2		60.5		11.3		50.7		10.1		57.9		12.4
Electric & Electronic Machines		84.9		20.9		95.8		20.0		100.4		18.8		100.4		20.0		105.1		22.5
Transport Equipment		13.0		3.2		10.8		2.3		11.5		2.1		11.6		2.3		11.9		2.5
Others		2.1		0.5		2.1		0.4		2.2		0.4		2.1		0.4		2.2		0.5
Consumer Goods		67.4		16.6		73.6		15.4		81.6		15.2		84.5		16.8		84.2		18.0
Cereals		6.2		1.5		6.0		1.3		6.8		1.3		6.9		1.4		7.1		1.5
Goods for Direct Consumption		17.8		4.4		19.7		4.1		22.3		4.2		22.2		4.4		22.3		4.8
Consumer Durable Goods		27.0		6.6		30.0		6.3		32.2		6.0		34.5		6.9		34.9		7.5
Consumer Nondurable Goods		16.4		4.0		17.9		3.7		20.3		3.8		20.9		4.2		20.0		4.3
Total		406.2		100.0		478.5		100.0		535.2		100.0		503.3		100.0		467.6		100.0

(1) These entries are derived from customs clearance statistics. C.I.F. means that the price of goods includes insurance and freight costs.

(2) Preliminary.

Source: The Bank of Korea; Korea Customs Service

In 2016, the Republic recorded a trade surplus of US$89.2 billion. Exports decreased by 6.0% to US$495.4 billion in 2016 from US$526.8 billion in 2015, primarily due to the continued slowdown of the global economy. Imports decreased by 6.9% to US$406.2 billion in 2016 from US$436.5 billion in 2015, primarily due to a continued decrease in oil prices, which also led to decreased unit prices of other major raw materials.

In 2017, the Republic recorded a trade surplus of US$95.2 billion. Exports increased by 15.8% to US$573.7 billion in 2017 from US$495.4 billion in 2016, primarily due to increased demand for semiconductors and steel products. Imports increased by 17.8% to US$478.5 billion in 2017 from US$406.2 billion in 2016, primarily due to an increase in oil prices, which also led to increased unit prices of other major raw materials, and increased imports of machinery, precision equipment and electronic machines.

In 2018, the Republic recorded a trade surplus of US$69.7 billion. Exports increased by 5.4% to US$604.9 billion in 2018 from US$573.7 billion in 2017, primarily due to increased demand for semiconductors and petroleum products. Imports increased by 11.8% to US$535.2 billion in 2018 from US$478.5 billion in 2017, primarily due to an increase in oil prices, which also led to increased unit prices of other major raw materials.

In 2019, the Republic recorded a trade surplus of US$38.9 billion. Exports decreased by 10.4% to US$542.2 billion in 2019 from US$604.9 billion in 2018, primarily due to a significant decrease in semiconductor prices. Imports decreased by 6.0% to US$503.3 billion in 2019 from US$535.2 billion in 2018, primarily due to a decrease in oil prices, which also led to decreased unit prices of other major raw materials.

Based on preliminary data, the Republic recorded a trade surplus of US$45.2 billion in 2020. Exports decreased by 5.4% to US$512.8 billion in 2020 from US$542.2 billion in 2019, primarily due to a slowdown of the global economy resulting from the COVID-19 pandemic. Imports decreased by 7.1% to US$467.6 billion in

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2020 from US$503.3 billion in 2019, primarily due to a decrease in oil prices, which also led to decreased unit prices of other major raw materials, as well as decreased domestic consumption, which were mainly attributed to the ongoing global outbreak of the COVID-19 pandemic.

Based on preliminary data, the Republic recorded a trade surplus of US$10.4 billion in the first quarter of 2021. Exports increased by 12.5% to US$146.4 billion in the first quarter of 2021 from US$130.2 billion in the corresponding period of 2020, primarily due to increased demand for semiconductors, automobiles and bio-health products. Imports increased by 12.0% to US$136.1 billion in the first quarter of 2021 from US$121.5 billion in the corresponding period of 2020, primarily due to an increase in oil prices, which also led to increased unit prices of other major raw materials.

The following table sets forth the Republic’s exports trading partners:

Exports

	2016		As % of 2016 Total		2017		As % of 2017 Total		2018		As % of 2018 Total		2019		As % of 2019 Total		2020(1)		As % of 2020 Total(1)
	(millions of dollars, except percentages)
China		124,432.9		25.1		142,120.0		24.8		162,125.1		26.8		136,202.5		25.1		132,565.4		25.9
United States		66,462.3		13.4		68,609.7		12.0		72,719.9		12.0		73,343.9		13.5		74,115.8		14.5
Japan		24,355.0		4.9		26,816.1		4.7		30,528.6		5.0		28,420.2		5.2		25,097.7		4.9
Hong Kong		32,782.4		6.6		39,112.3		6.8		45,996.4		7.6		31,912.9		5.9		30,653.8		6.0
Singapore		12,458.9		2.5		11,651.9		2.0		11,782.2		1.9		12,768.0		2.4		9,828.4		1.9
Vietnam		32,630.5		6.6		47,753.8		8.3		48,622.1		8.0		48,177.7		8.9		48,510.6		9.5
Taiwan		12,220.5		2.5		14,898.4		2.6		20,783.5		3.4		15,666.3		2.9		16,465.4		3.2
India		11,596.3		2.3		15,055.5		2.6		15,606.2		2.6		15,096.3		2.8		11,937.3		2.3
Indonesia		6,608.5		1.3		8,403.7		1.5		8,833.2		1.5		7,650.1		1.4		6,312.9		1.2
Mexico		9,720.8		2.0		10,932.6		1.9		11,458.2		1.9		10,927.0		2.0		8,241.0		1.6
Australia		7,500.7		1.5		19,861.6		3.5		9,610.4		1.6		7,890.6		1.5		6,188.5		1.2
Russia		4,768.8		1.0		6,906.6		1.2		7,320.9		1.2		7,774.1		1.4		6,900.0		1.3
Germany		6,443.0		1.3		8,483.8		1.5		9,372.7		1.5		8,685.7		1.6		9,576.1		1.9
Others(1)		143,445.3		29.0		153,088.4		26.7		150,100.2		24.8		137,717.3		25.4		126,395.8		24.6
Total		495,425.9		100.0		573,694.4		100.0		604,859.7		100.0		542,232.6		100.0		512,788.7		100.0

(1) Preliminary.

(2) Includes more than 200 countries and regions.

Source: The Bank of Korea; Korea Customs Service

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The following table sets forth the Republic’s imports trading partners:

Imports

	2016		As % of 2016 Total		2017		As % of 2017 Total		2018		As % of 2018 Total		2019		As % of 2019 Total		2020(1)		As % of 2020 Total(1)
	(millions of dollars, except percentages)
China		86,980.1		21.4		97,860.1		20.5		106,488.6		19.9		107,228.7		21.3		108,884.6		23.3
Japan		47,466.6		11.7		55,124.7		11.5		54,603.7		10.2		47,580.9		9.5		46,023.0		9.8
United States		43,215.9		10.6		50,749.4		10.6		58,868.3		11.0		61,878.6		12.3		57,492.2		12.3
Saudi Arabia		15,741.7		3.9		19,590.5		4.1		26,335.8		4.9		21,840.6		4.3		15,979.6		3.4
Qatar		10,081.3		2.5		11,267.1		2.4		16,293.6		3.0		13,036.6		2.6		7,562.1		1.6
Australia		15,175.9		3.7		19,159.7		4.0		20,718.6		3.9		20,608.2		4.1		18,707.1		4.0
Germany		18,917.0		4.7		19,748.7		4.1		20,854.0		3.9		19,936.9		4.0		20,680.9		4.4
Kuwait		7,262.3		1.8		9,594.0		2.0		12,794.3		2.4		10,771.1		2.1		5,827.9		1.2
Taiwan		16,403.1		4.0		18,073.0		3.8		16,738.4		3.1		15,717.7		3.1		17,837.0		3.8
United Arab Emirates		6,941.1		1.7		9,557.1		2.0		9,287.4		1.7		8,991.1		1.8		5,692.7		1.2
Indonesia		8,285.3		2.0		9,571.0		2.0		11,161.2		2.1		8,819.8		1.8		7,594.7		1.6
Malaysia		7,507.8		1.8		8,714.7		1.8		10,205.7		1.9		9,279.9		1.8		8,892.6		1.9
Others(2)		122,214.8		30.1		149,468.3		31.2		170,852.9		31.9		157,652.8		31.3		146,458.4		31.3
Total		406,192.9		100.0		478,478.3		100.0		535,202.4		100.0		503,342.9		100.0		467,632.8		100.0

(1) Preliminary.

(2) Includes more than 200 countries and regions.

Source: The Bank of Korea; Korea Customs Service

The outbreak of severe health epidemics in Korea and various parts of the world, including the ongoing global outbreak of the COVID-19 pandemic, raises significant uncertainty about prospects for international trade and economic growth for affected countries, as well as world economic prospects in general. Global economic uncertainties in relation to COVID-19, including uncertainty due to the extent and effectiveness of extensive control measures and vaccination programs, among others, are expected to continue in 2021. Although there have been mixed signs of recovery in the domestic and global economy resulting from the availability of COVID-19 vaccinations and gradual normalization of business activities, the extent to which the COVID-19 pandemic affects international trade is highly uncertain and difficult to predict. In order to contain further spread of such epidemics and to prevent the outbreak of similar epidemics in the future, the Government continues to cooperate actively with regional and international efforts to develop and implement various measures to combat such outbreaks. See “—The Economy—Worldwide Economic and Financial Difficulties”.

In 2020 and in recent months, the value of the Won relative to the U.S. dollar and Japanese Yen has fluctuated widely, in particular due to the impact of the ongoing global outbreak of the COVID-19 pandemic. See “—The Economy—Worldwide Economic and Financial Difficulties”. An appreciation of the Won against the U.S. dollar and Japanese Yen increases the Won value of the Republic’s export sales and diminishes the price-competitiveness of export goods in foreign markets in U.S. dollar and Japanese Yen terms, respectively. However, it also decreases the cost of imported raw materials in Won terms and the cost in Won of servicing the Republic’s U.S. dollar and Japanese Yen denominated debt. In general, when the Won appreciates, export dependent sectors of the Korean economy, including automobiles, electronics and shipbuilding, suffer from the resulting pressure on the price-competitiveness of export goods, which may lead to reduced profit margins and loss in market share, more than offsetting a decrease in the cost of imported raw materials. If the export dependent sectors of the Korean economy suffer reduced profit margins or a net loss, it could result in a material adverse effect on the Korean economy.

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Since the Government announced its plans to pursue free trade agreements, or FTAs, in 2003, the Republic has entered into FTAs with key trading partners. The Republic has had bilateral FTAs in effect with Chile since 2004, Singapore since 2006, India since 2010, Peru since 2011, the United States since 2012, Turkey since 2013, Australia since 2014, Canada, China, New Zealand and Vietnam since 2015,Colombia since July 2016 and the United Kingdom since January 2021. The Republic is currently in negotiations with a number of other key trading partners. In addition, the Republic has had regional FTAs in effect with the European Free Trade Association since 2006, the Association of Southeast Asian Nations since 2009, the European Union since 2011 and with each of Panama, Costa Rica, Guatemala, Honduras, El Salvador and Nicaragua since 2021, and is currently negotiating additional regional FTAs. The Republic and Turkey have completed revisions to their bilateral FTA, which became effective in August 2018. The Republic and the United States have also recently completed revisions to their bilateral FTA, which became effective in January 2019.

Non-Commodities Trade Balance

The Republic had non-commodities trade deficits of US$18.5 billion in 2016, US$49.0 billion in 2017, US$32.6 billion in 2018 and US$20.1 billion in 2019. Based on preliminary data, the Republic had a non-commodities trade deficit of US$6.7 billion in 2020.

Foreign Currency Reserves

The foreign currency reserves are external assets that are readily available to and controlled by monetary authorities for meeting balance of payments financing needs and for other related purposes. The following table shows the Republic’s total official foreign currency reserves:

Total Official Reserves

	December 31,
	2016		2017		2018		2019		2020
	(millions of dollars)
Gold	$	4,794.8	$	4,794.8	$	4,794.8	$	4,794.8	$	4,794.8
Foreign Exchange(1)		361,701.4		379,476.6		393,332.5		397,876.1		430,117.2
Total Gold and Foreign Exchange		366,496.2		384,271.3		398,127.2		402,670.9		434,912.0
Reserve Position at IMF		1,727.5		1,621.1		2,140.4		2,792.9		4,815.3
Special Drawing Rights		2,878.0		3,374.3		3,426.6		3,352.4		3,370.8
Total Official Reserves	$	371,101.6	$	389,266.7	$	403,694.3	$	408,816.1	$	443,098.1

(1) More than 95% of the Republic’s foreign currency reserves are comprised of convertible foreign currencies.

Source: The Bank of Korea; International Monetary Fund

The Government’s foreign currency reserves increased to US$262.2 billion as of December 31, 2007 from US$8.9 billion as of December 31, 1997, primarily due to continued balance of trade surpluses and capital inflows. In 2008, the Government’s foreign currency reserves decreased, falling to US$201.2 billion as of December 31, 2008, partially as a result of the Government’s use of the foreign currency reserve to provide foreign currency liquidity to Korean financial institutions. The Government’s foreign currency reserves increased to US$371.1 billion as of December 31, 2016, US$389.3 billion as of December 31, 2017, US$403.7 billion as of December 31, 2018, US$408.8 billion as of December 31, 2019 and US$443.1 billion as of December 31, 2020, primarily due to continued trade surpluses and capital inflows. The amount of the Government’s foreign currency reserve was US$456.5 billion as of May 31, 2021.

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Government Finance

The Ministry of Economy and Finance prepares the Government budget and administers the Government’s finances.

The Government’s fiscal year commences on January 1. The Government must submit the budget, which is drafted by the Minister of Economy and Finance and approved by the President of the Republic, to the National Assembly not later than 90 days prior to the start of the fiscal year and may submit supplementary budgets revising the original budget at any time during the fiscal year.

2019 budgeted revenues increased by 7.3% to W446.4 trillion from W416.1 trillion in 2018, led by an increase in budgeted tax revenues (including taxes on income, profits and capital gains). 2019 budgeted expenditures and net lending increased by 10.6% to W439.9 trillion from W397.7 trillion in 2018, led by increases in budgeted expenditures on economic growth (including job creation and research and development), child care and education, welfare services for senior citizens, children, disabled people, unemployed people and temporary workers and military services. The 2019 budget anticipated a W6.5 billion budget surplus.

2020 budgeted revenues increased by 1.0% to W450.9 trillion from W446.4 trillion in 2019, led by an increase in budgeted tax revenues (including social security contributions and tax on property). 2020 budgeted expenditures and net lending increased by 9.4% to W481.4 trillion from W439.9 trillion in 2019, led by increases in budgeted expenditures on economic growth (including job creation, research and development and support for start-ups and small businesses), social security, welfare services for senior citizens, unemployed people and temporary workers, and public housing. The 2020 budget anticipated a W30.5 billion budget deficit.

2021 budgeted revenues remained relatively stable at W450.9 trillion from 2020. 2021 budgeted expenditures and net lending increased by 9.3% to W526.3 trillion from W481.4 trillion in 2020, led by increases in budgeted expenditures on recovery from the COVID-19 pandemic (including support for individuals and businesses adversely impacted by the COVID-19 pandemic, procurement of COVID-19 vaccines and enhancement of medical facilities and other infrastructure, among others) and revitalization of the economy (public housing, job creation, research and development, social security and welfare services, among others). The 2021 budget anticipated a W75.4 trillion budget deficit.

In March 2020, the National Assembly approved a supplementary budget for 2020 in the amount of W11.7 trillion as part of the Government’s efforts to mitigate adverse effects on the Korean economy resulting from the ongoing global outbreak of the COVID-19 pandemic. See “—The Economy—Worldwide Economic and Financial Difficulties”. In April 2020, the National Assembly approved the second supplementary budget in the amount of W7.6 trillion, which amount was subsequently increased to W12.2 trillion, and in July 2020, the National Assembly approved the third supplementary budget in the amount of W35.1 trillion. In September 2020, the National Assembly approved the fourth supplementary budget amounting to W7.8 trillion, and the Government announced its COVID-19 relief package plan amounting to W9.4 trillion in December 2020, following a resurgence of COVID-19 cases in Korea. In March 2021, the National Assembly approved a 2021 supplementary budget in the amount of W14.9 trillion to be spent on initiatives for relief from the COVID-19 pandemic, including support for small businesses, job retention and creation programs and disease control measures. These supplementary budgets (including relief packages), the largest of their kind drawn up in response to an outbreak of an infectious disease in Korea, focus on the provision of financial support for certain industries that are most vulnerable to, or adversely impacted by, the COVID-19 pandemic, such as tourism, aviation, shipping, logistics and food services, among others. The Government has used, and will continue to use, the supplementary budgets for the following purposes: (i) provision of loans and guarantees for small businesses, (ii) household support, including daycare vouchers and emergency livelihood support, (iii) disease prevention and treatment, (iv) various forms of financial support for local communities most affected by the COVID-19 pandemic and (v) measures to revitalize the economy from the impact of the COVID-19 pandemic. The supplementary budgets have been, and will continue to be, funded through the issuance of treasury bonds by the Government, The Bank of Korea’s unappropriated surplus and other surplus funds available to the Government, among others.

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Given the additional spending measures as stipulated by the supplementary budgets (including relief packages), the Government expects a budget deficit for 2021, which would likely result in a deterioration in the Government’s fiscal position and an increase in borrowings. The impact of such effects is highly uncertain and will depend on, among others, the speed and extent of the economic recovery in Korea and internationally, which in turn will likely depend significantly on the scope and duration of the COVID-19 pandemic.

The following table shows consolidated Government revenues and expenditures:

Consolidated Central Government Revenues and Expenditures

	Actual										Budget
	2016		2017		2018		2019		2020(2)		2019		2020		2021(1)
	(billions of Won)
Total Revenues		371,264		403,839		438,262		443,853		446,628		446,398		450,873		450,905
Current Revenues		367,888		400,659		435,558		441,148		443,694		443,271		447,925		447,865
Total Tax Revenues		299,451		325,845		358,424		363,005		360,129		364,539		365,389		359,775
Taxes on income, profits and capital gains		120,612		134,242		155,399		155,736		148,622		159,618		152,837		143,121
Social security contributions		56,889		60,460		64,854		69,550		74,583		69,747		73,392		77,032
Tax on property		11,112		12,945		15,473		15,474		22,735		14,611		16,013		19,300
Taxes on goods and services		89,221		95,535		99,056		98,614		91,047		97,263		98,154		95,658
Taxes on international trade and transaction		8,045		8,529		8,815		7,882		7,059		9,056		8,791		8,347
Other tax		13,571		14,133		14,828		15,748		16,084		14,244		16,202		16,316
Non-Tax Revenues		68,437		74,814		77,134		78,143		83,565		78,732		82,536		88,091
Operating surpluses of departmental enterprise sales and property income		24,489		27,692		28,616		29,345		33,571		28,692		31,026		32,791
Administration fees & charges and non-industrial sales		8,469		9,067		9,004		10,181		9,929		9,940		10,355		10,724
Fines and forfeits		22,266		23,769		24,455		22,554		23,583		23,726		24,643		26,950
Contributions to government employee pension fund		11,289		12,311		13,206		13,523		13,876		13,445		13,944		15,385
Current revenue of non-financial public enterprises		1,924		1,974		1,853		2,540		2,606		2,929		2,568		2,241
Capital Revenues		3,376		3,180		2,703		2,705		2,934		3,127		2,948		3,040
Total Expenditures and Net Lending		354,354		379,809		407,099		455,850		517,781		439,868		481,352		526,292
Total Expenditures		342,612		363,671		389,610		436,698		489,966		425,270		460,064		496,661
Current Expenditures		309,981		332,719		360,176		387,100		455,098		394,567		426,741		459,333
Expenditure on goods and service		65,145		67,536		71,459		60,196		79,460		80,219		85,521		94,636
Interest payment		13,964		13,976		14,287		13,837		14,452		14,362		15,525		17,254
Subsidies and other current transfers		228,349		248,513		272,080		309,575		357,295		295,970		321,672		343,636
Current expenditure of non-financial public enterprises		2,524		2,694		2,350		3,492		3,891		4,016		4,023		3,807
Capital Expenditures		32,631		30,952		29,434		49,598		34,868		30,704		33,323		37,328
Net Lending		11,741		16,138		17,489		19,152		27,815		14,597		21,288		29,631

(1) Preliminary.

Source: Ministry of Economy and Finance; The Bank of Korea; Korea National Statistical Office

The consolidated Government account consists of a General Account, Special Accounts (including a non-financial public enterprise special account) and Public Funds. The Government segregates the accounts of certain functions of the Government into Special Accounts and Public Funds for more effective administration and

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fiscal control. The Special Accounts and Public Funds relate to business type activities, such as economic development, road and railway construction and maintenance, monopolies, and communications developments and the administration of loans received from official international financial organizations and foreign governments.

Revenues derive mainly from national taxes and non-tax revenues. Taxes in Korea can be roughly classified into the following types:

• income tax and capital gains tax,

• property tax,

• value-added tax,

• customs duty tax, and

• other taxes.

Income tax and capital gains tax are imposed on income derived from labor, business operation and ownership of assets and profits derived from capital appreciation. Income tax and capital gains tax, depending on the type of taxpayer, can be further classified into corporate income tax and individual income tax. Property tax is imposed on exchange or ownership of property and includes inheritance tax and gift tax. Value-added tax is imposed on value added to goods and services. Customs duty tax is imposed on imported goods. Other taxes include tax on certain securities transactions and a stamp tax for certain documents.

Expenditures include general administration, national defense, community service, education, health, social security, certain annuities and pensions and local finance, which involves the transfer of tax revenues to local governments.

For 2016, the Republic recorded total revenues of W371.3 trillion and total expenditures and net lending of W354.4 trillion. The Republic had a fiscal surplus of W16.9 trillion in 2016.

For 2017, the Republic recorded total revenues of W403.8 trillion and total expenditures and net lending of W379.8 trillion. The Republic had a fiscal surplus of W24.0 trillion in 2017.

For 2018, the Republic recorded total revenues of W438.3 trillion and total expenditures and net lending of W407.1 trillion. The Republic had a fiscal surplus of W31.2 trillion in 2018.

For 2019, the Republic recorded total revenues of W443.9 trillion and total expenditures and net lending of W455.9 trillion. The Republic had a fiscal deficit of W12.0 trillion in 2019.

Based on preliminary data, the Republic recorded total revenues of W446.6 trillion and total expenditures and net lending of W517.8 trillion in 2020. The Republic had a fiscal deficit of W71.2 trillion in 2020.

The Government expects that the Republic’s fiscal deficit will increase in 2021, primarily due to a significant increase in expenditures and a significant decrease in tax revenues, primarily due to the adverse impact of the ongoing global outbreak of the COVID-19 pandemic on the Korean economy.

Debt

The Government estimates that the total outstanding debt of the Government (including guarantees by the Government) as of December 31, 2019 amounted to approximately W713.8 trillion, an increase of 6.7% over the previous year.

The Government estimates that the total outstanding debt of the Government (including guarantees by the Government) as of December 31, 2020 amounted to approximately W831.7 trillion, an increase of 16.5% over the previous year.

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The Government expects that the amount of the Government’s debt will further increase in 2021 as it continues to execute large stimulus plans to support the Korean economy in light of the ongoing global outbreak of the COVID-19 pandemic. The Ministry of Economy and Finance administers the national debt of the Republic.

External and Internal Debt of the Government

The following table sets out, by currency and the equivalent amount in U.S. dollars, the estimated outstanding direct external debt of the Government as of December 31, 2020:

Direct External Debt of the Government

	Amount in Original Currency		Equivalent Amount in U.S. Dollars(1)
	(millions)
US$		US$6,525.0		US$6,525.0
Euro (EUR)		EUR1,825.0		2,244.8
Total				US$8,769.8

(1) Amounts expressed in currencies other than US$ are converted to US$ at the arbitrage rate announced by the Seoul Money Brokerage Services, Ltd. in effect on December 31, 2020.

The following table summarizes, as of December 31 of the years indicated, the outstanding direct internal debt of the Republic:

Direct Internal Debt of the Government

	(billions of Won)
2016		584,785.0
2017		619,971.9
2018		643,550.9
2019		690,524.1
2020		808,941.0

The following table sets out all guarantees by the Government of indebtedness of others:

Guarantees by the Government

	December 31,
	2016		2017		2018		2019		2020
	(billions of Won)
Domestic		24,241.6		21,130.5		17,016.3		14,760.0		12,490.0
External(1)		—		—		—		—		—
Total		24,241.6		21,130.5		17,016.3		14,760.0		12,490.0

(1) Converted to Won at foreign exchange banks’ telegraphed transfer selling rates to customers or the market average exchange rates in effect on December 31 of each year.

For further information on the outstanding indebtedness, including guarantees, of the Republic, see “—Tables and Supplementary Information”.

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External Liabilities

The following tables set out certain information regarding the Republic’s external liabilities calculated under the criteria based on the sixth edition of the Balance of Payment Manual published by the International Monetary Fund in December 2010 and implemented by the Government in December 2013. Under BPM6, in particular, prepayments received in connection with the construction of ships are excluded from the external liabilities.

	December 31,
	2016		2017		2018		2019		2020(1)
	(billions of dollars)
Long-term Liabilities		277.4		296.1		315.6		332.5		385.0
General Government		64.5		78.0		83.5		91.2		119.4
Monetary Authorities		10.8		14.5		15.2		14.4		15.0
Banks		93.8		91.7		100.1		103.1		112.2
Other Sectors		108.3		111.8		116.8		123.7		138.3
Short-term Liabilities		104.8		116.0		125.6		134.5		157.5
General Government		2.5		2.0		1.0		1.6		2.1
Monetary Authorities		6.9		8.1		12.8		10.9		10.8
Banks		78.4		85.5		90.3		101.9		120.4
Other Sectors		17.0		20.4		21.5		20.1		24.2
Total External Liabilities		382.2		412.0		441.2		467.0		542.4

(1) Preliminary.

Commitments to Assume Treasury Obligations

The Government may, if deemed necessary for recovery from disasters and calamities, make commitments to assume treasury obligations to the extent resolved by the National Assembly each fiscal year. In such cases, such commitments shall be executed in accordance with the procedures for spending reserve funds within general accounts. As of December 31, 2020, such commitments assumed by the Government amounted to W1.3 trillion.

Debt Record

The Government has always paid when due the full amount of principal of, interest on, and amortization of sinking fund requirements of, all of its indebtedness.

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Tables and Supplementary Information

A. External Debt of the Government

(1) External Bonds of the Government

Series	Issue Date		Maturity Date		Interest Rate (%)		Currency		Original Principal Amount		Principal Amount Outstanding as of December 31, 2020
2005-001		November 2, 2005		November 3, 2025		5.625		USD		400,000,000		400,000,000
2006-002		December 7, 2006		December 7, 2021		4.250		EUR		375,000,000		375,000,000
2013-001		September 11, 2013		September 11, 2023		3.875		USD		1,000,000,000		1,000,000,000
2014-001		June 10, 2014		June 10, 2044		4.125		USD		1,000,000,000		1,000,000,000
2014-002		June 10, 2014		June 10, 2024		2.125		EUR		750,000,000		750,000,000
2017-001		January 19, 2017		January 19, 2027		2.750		USD		1,000,000,000		1,000,000,000
2018-001		September 20, 2018		September 20, 2028		3.500		USD		500,000,000		500,000,000
2018-002		September 20, 2018		September 20, 2048		3.875		USD		500,000,000		500,000,000
2019-001		June 19, 2019		June 19, 2029		2.500		USD		1,000,000,000		1,000,000,000
2019-002		June 19, 2019		June 19, 2024		2.000		USD		500,000,000		500,000,000
2020-001		September 16, 2020		September 16, 2030		1.000		USD		625,000,000		625,000,000
2020-002		September 16, 2020		September 16, 2025		0.000		EUR		700,000,000		700,000,000
Total External Bonds in Original Currencies											USD	6,525,000,000
											EUR	1,825,000,000
Total External Bonds in Equivalent Amount of Won(1)											W	9,541,488,000,000

(1) U.S. dollar amounts are converted to Won amounts at the rate of US$1.00 to W1,088.0, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd. Euro amounts are converted to Won amounts at the rate of EUR 1.00 to W1,338.24, the market average exchange rate in effect on December 31, 2020, as announced by Seoul Money Brokerage Services, Ltd.

(2) External Borrowings of the Government

None.

B. External Guaranteed Debt of the Government

None.

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C. Internal Debt of the Government

Title	Range of Interest Rates		Range of Years of Issue		Range of Years of Original Maturity		Principal Amounts Outstanding as of December 31, 2020
	(%)						(billions of Won)
1. Bonds
Interest-Bearing Treasury Bond for Treasury Bond Management Fund		0.875-5.750		2006-2020		2021-2070		726,766.1
Interest-Bearing Treasury Bond for National Housing I		1.00-3.00		2011-2020		2016-2025		78,862.8
Interest-Bearing Treasury Bond for National Housing II		0.0-3.0		1996-2017		2016-2029		34.6
Interest-Bearing Treasury Bond for National Housing III		0		2005		2015		0
Non-interest-Bearing Treasury Bond for Contribution to International Organizations(1)		0		1968-1985		—		9.4
Total Bonds								805,672.9
2. Borrowings
Borrowings from The Bank of Korea		0.712		2020		2021		213.0
Borrowings from the Sports Promotion Fund		0.785-1.575		2019-2020		2021-2022		927.0
Borrowings from The Korea Foundation Fund		0.955-1.825		2019-2020		2021-2022		118.1
Borrowings from the Labor Welfare Promotion Fund		1.07-1.26		2020		2021		50.0
Borrowings from Korea Technology Finance Corporation		0.81-2.34		2018-2020		2022		195.0
Borrowings from the Credit Guarantee Fund for Agriculture, Forestry and Fisheries Suppliers		1.285-1.825		2019		2021		850.0
Borrowings from the Government Employees’ Pension Fund		1.51		2018		2021		10.0
Borrowings from the Film Industry Development Fund		1.43-1.575		2019		2021		75.0
Borrowings from the Korea Credit Guarantee Fund		0.81		2020		2023		250.0
Borrowings from the Housing Finance Credit Guarantee Fund		0.815-1.285		2020		2023		530.0
Borrowings from the Korea Infrastructure Credit Guarantee Fund		0.81		2020		2023		50.0
Total Borrowings								3,268.1
Total Internal Funded Debt								808,941.0

(1) Interest Rates and Years of Original Maturity not applicable.

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D. Internal Guaranteed Debt of the Government

Title	Range of Interest Rates		Range of Years of Issue		Range of Years of Original Maturity		Principal Amounts Outstanding as of December 31, 2020
	(%)						(billions of Won)
1. Bonds of Government-Affiliated Corporations
Korea Deposit Insurance Corporation		2.14-2.52		2018		2021		1,480.0
Korea Student Aid Foundation		0.00-4.79		2011-2020		2021-2040		10,490.0
Key Industry Stabilization Fund		0.73-1.45		2020		2021-2025		520.0
Total Internal Guaranteed Debt								12,490.0

E. Others

Commitments to Assume Treasury Obligations

The Government may, if deemed necessary for recovery from disasters and calamities, make commitments to assume treasury obligations to the extent resolved by the National Assembly each fiscal year. In such cases, such commitments shall be executed in accordance with the procedures for spending reserve funds within general accounts. As of December 31, 2020, such commitments assumed by the Government amounted to W1.3 trillion.

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DESCRIPTION OF THE SECURITIES

Description of Debt Securities

We will issue debt securities under a fiscal agency agreement or agreements. The description below summarizes the material provisions of the debt securities and the fiscal agency agreement. Since it is only a summary, the description may not contain all of the information that may be important to you as a potential investor in the debt securities. Therefore, we urge you to read the form of fiscal agency agreement and the form of global debt security before deciding whether to invest in the debt securities. We have filed a copy of these documents with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part. You should refer to such exhibits for more complete information.

The financial terms and other specific terms of your debt securities will be described in the prospectus supplement relating to your debt securities. The description in the prospectus supplement will supplement this description or, to the extent inconsistent with this description, replace it.

We will appoint a fiscal agent or agents in connection with debt securities whose duties will be governed by the fiscal agency agreement. We may replace the fiscal agent or appoint different fiscal agents for different series of debt securities.

General Terms of the Debt Securities

We may issue debt securities in separate series at various times. The Republic may irrevocably guarantee the payment of principal of, and interest on, one or more series of debt securities. The prospectus supplement that relates to your debt securities will specify some or all of the following terms:

• the aggregate principal amount;

• the currency of denomination and payment;

• any limitation on principal amount and authorized denominations;

• the percentage of their principal amount at which the debt securities will be issued;

• the maturity date or dates;

• the interest rate for the debt securities and, if variable, the method by which the interest rate will be calculated;

• whether any amount payable in respect of the debt securities will be determined based on an index or formula, and how any such amount will be determined;

• the dates from which interest, if any, will accrue for payment of interest and the record dates for any such interest payments;

• where and how we will pay principal and interest;

• whether and in what circumstances the debt securities may be redeemed before maturity;

• any sinking fund or similar provision;

• whether any part or all of the debt securities will be in the form of a global security and the circumstances in which a global security is exchangeable for certificated securities;

• if issued in certificated form, whether the debt securities will be in bearer form with interest coupons, if any, or in registered form without interest coupons, or both forms, and any restrictions on exchanges from one form to the other;

• whether any of the terms set out herein will differ for the debt securities;

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• whether the Republic will irrevocably guarantee the payment of principal of, and interest on, the debt securities; and

• other specific provisions.

Depending on the terms of the debt securities we issue, the prospectus supplement relating to the debt securities may also describe applicable U.S. federal income tax and other considerations additional to the disclosure in this prospectus.

Unless otherwise specified in the applicable prospectus supplement, we will maintain at an office in the Borough of Manhattan, The City of New York, a register for the registration of transfers of debt securities issued in registered form.

Payments of Principal, Premium and Interest

On every payment date specified in the relevant prospectus supplement, we will pay the principal, premium and/or interest due on that date to the registered holder of the relevant debt security at the close of business on the related record date. We will make all payments at the place and in the currency set out in the prospectus supplement. Unless otherwise specified in the relevant prospectus supplement or the debt securities, we will make payments in U.S. dollars at the New York office of the fiscal agent or, outside the United States, at the office of any paying agent. Unless otherwise specified in the applicable prospectus supplement or debt securities, we will pay interest by check, payable to the registered holder.

We will make any payments on debt securities in bearer form at the offices and agencies of the fiscal agent or any other paying agent outside the United States as we may designate. At the option of the holder of the bearer debt securities, we will make such payments by check or by transfer to an account maintained by the holder with a bank located outside of the United States. We will not make payments on bearer debt securities at the corporate trust office of the fiscal agent in the United States or at any other paying agency in the United States. In addition, we will not make any payment by mail to an address in the United States or by transfer to an account maintained by a holder of bearer debt securities with a bank in the United States. Nevertheless, we will make payments on a bearer debt security denominated and payable in U.S. dollars at an office or agency in the United States if:

• payment outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions; and

• the payment is then permitted under United States law, without material adverse consequences to us.

If we issue bearer debt securities, we will designate the offices of at least one paying agent outside the United States as the location for payment.

Repayment of Funds; Prescription

If no one claims money paid by us to the fiscal agent for the payment of principal or interest in respect of any series of debt securities for two years after the payment was due and payable, the fiscal agent or paying agent will repay the money to us. After such repayment, the fiscal agent or paying agent will not be liable with respect to the amounts so repaid, and you may look only to us for any payment under the debt securities.

Under Korean law, you will not be permitted to file a claim against us for payment of principal or interest on any series of debt securities unless you do so within five years, in the case of principal, and two years, in the case of interest, from the date on which payment was due.

Global Securities

The prospectus supplement relating to a series of debt securities will indicate whether any of that series of debt securities will be represented by a global security. The prospectus supplement will also describe any unique

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specific terms of the depositary arrangement with respect to that series. Unless otherwise specified in the prospectus supplement, we anticipate that the following provisions will apply to depositary arrangements.

Registered Ownership of the Global Security

The global security will be registered in the name of a depositary identified in the prospectus supplement, or its nominee, and will be deposited with the depositary, its nominee or a custodian. The depositary, or its nominee, will therefore be considered the sole owner or holder of debt securities represented by the global security for all purposes under the fiscal agency agreement. Except as specified below or in the applicable prospectus supplement, beneficial owners:

• will not be entitled to have any of the debt securities represented by the global security registered in their names;

• will not receive physical delivery of any debt securities in definitive form;

• will not be considered the owners or holders of the debt securities;

• must rely on the procedures of the depositary and, if applicable, any participants (institutions that have accounts with the depositary or a nominee of the depositary, such as securities brokers and dealers) to exercise any rights of a holder; and

• will receive payments of principal and interest from the depositary or its participants rather than directly from us.

We understand that, under existing industry practice, the depositary and participants will allow beneficial owners to take all actions required of, and exercise all rights granted to, the registered holders of the debt securities.

We will register debt securities in the name of a person other than the depositary or its nominee only if:

• the depositary for a series of debt securities is unwilling or unable to continue as depositary; or

• we determine, in our sole discretion, not to have a series of debt securities represented by a global security.

In either such instance, an owner of a beneficial interest in a global security will be entitled to registration of a principal amount of debt securities equal to its beneficial interest in its name and to physical delivery of the debt securities in definitive form.

Beneficial Interests in and Payments on a Global Security

Only participants, and persons that may hold beneficial interests through participants, can own a beneficial interest in the global security. The depositary keeps records of the ownership and transfer of beneficial interests in the global security by its participants. In turn, participants keep records of the ownership and transfer of beneficial interests in the global security by other persons (such as their customers). No other records of the ownership and transfer of beneficial interests in the global security will be kept.

All payments on a global security will be made to the depositary or its nominee. When the depositary receives payment of principal or interest on the global security, we expect the depositary to credit its participants’ accounts with amounts that correspond to their respective beneficial interests in the global security. We also expect that, after the participants’ accounts are credited, the participants will credit the accounts of the owners of beneficial interests in the global security with amounts that correspond to the owners’ respective beneficial interests in the global security.

The depositary and its participants establish policies and procedures governing payments, transfers, exchanges and other important matters that affect owners of beneficial interests in a global security. The

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depositary and its participants may change these policies and procedures from time to time. We have no responsibility or liability for the records of ownership of beneficial interests in the global security, or for payments made or not made to owners of such beneficial interests. We also have no responsibility or liability for any aspect of the relationship between the depositary and its participants or for any aspect of the relationship between participants and owners of beneficial interests in the global security.

Bearer Securities

We may issue debt securities in a series in the form of one or more bearer global debt securities deposited with a common depositary for the Euroclear and Clearstream, or with a nominee identified in the applicable prospectus supplement. The specific terms and procedures, including the specific terms of the depositary arrangement, with respect to any portion of a series of debt securities to be represented by a global security will be described in the applicable prospectus supplement.

Additional Amounts

We will make all payments of principal of, and premium and interest, if any, on the debt securities without withholding or deducting any present or future taxes imposed by the Republic or any of its political subdivisions, unless required by law. If Korean law requires us to deduct or withhold taxes, we will pay additional amounts as necessary to ensure that you receive the same amount as you would have received without such withholding or deduction.

We will not pay, however, any additional amounts if you are liable for Korean tax because:

• you are connected with the Republic other than by merely owning the debt security or receiving income or payments on the debt security;

• you failed to complete and submit a declaration of your status as a non-resident of the Republic after we or the relevant tax authority requested you to do so; or

• you failed to present your debt security for payment within 30 days of when the payment is due or, if the fiscal agent did not receive the money prior to the due date, the date notice is given to holders that the fiscal agent has received the full amount due to holders. Nevertheless, we will pay additional amounts to the extent you would have been entitled to such amounts had you presented your debt security for payment on the last day of the 30-day period.

We will not pay any additional amounts for taxes on the debt securities except for taxes payable through deduction or withholding from payments of principal, premium or interest. Examples of the types of taxes for which we will not pay additional amounts include the following: estate or inheritance taxes, gift taxes, sales or transfer taxes, personal property or related taxes, assessments or other governmental charges. We will also not pay any additional amounts for taxes imposed pursuant to Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, as amended, U.S. Treasury regulations or administrative guidance promulgated thereunder or any law implementing an intergovernmental approach thereto, or FATCA. We will pay stamp or other similar taxes that may be imposed by the Republic, the United States or any political subdivision or taxing authority in one of those two countries on the fiscal agency agreement or be payable in connection with the issuance of the debt securities.

Status of Debt Securities

The debt securities will:

• constitute our direct, unconditional, unsecured and unsubordinated obligations; and

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• rank without any preference among themselves and equally with all of our other unsecured and unsubordinated obligations. It is understood that this provision shall not be construed so as to require us to make payments under the debt securities ratably with payments being made under any of our other debt securities.

Negative Pledge Covenant

If any debt securities are outstanding, we will not create or permit any security interests on our assets as security for any of our indebtedness or guarantees issued by us, unless the security interest also secures our obligations under the debt securities.

We may, however, create or permit a security interest:

• on any promissory debt securities or commercial paper discounted or otherwise provided as security to or issued or held by us created in favor of The Bank of Korea in the normal operation of The Bank of Korea’s discount facilities or facilities for the funding of loans by us to our customers; or

• on any asset (or documents of title to such asset) incurred when the asset was purchased or improved to secure payment of the cost of the activity; or

• of a statutory nature arising in the ordinary course of our business but unrelated to our activities of borrowing or raising money; or

• on any real estate owned by us imposed by a tenant of such real estate as security for repayment of any key money paid by the tenant; or

• arising by operation of Korean law or given preference by law following our failure to meet an obligation, although we will not permit such a security interest to exist for more than 30 days.

Events of Default

Unless otherwise specified in the applicable prospectus supplement in connection with a particular offering of debt securities, each of the following constitutes an event of default with respect to any series of debt securities:

1. Non-Payment: we do not pay principal or interest or premium or deposit any sinking fund payment on any debt securities of the series when due and such failure to pay continues for 30 days.

2. Breach of Other Obligations: we fail to observe or perform any of the covenants in the series of debt securities (other than non-payment) for 60 days after written notice of the default is delivered to us at the corporate trust office of the fiscal agent in New York City by holders representing at least 10% of the aggregate principal amount of the debt securities of the series.

3. Cross Default and Cross Acceleration:

• we default on any External Indebtedness, and, as a result, becomes obligated to pay an amount equal to or greater than US$10,000,000 in aggregate principal amount prior to its due date; or

• we fail to pay when due, including any grace period, any of our External Indebtedness in aggregate principal amount equal to or greater than US$10,000,000 or we fail to pay when requested and required by the terms thereof any guarantee for External Indebtedness of another person equal to or greater than US$10,000,000 in aggregate principal amount.

4. Moratorium/Default:

• the Republic declares a general moratorium on the payment of its External Indebtedness, including obligations under guarantees;

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• the Republic becomes liable to repay prior to maturity any amount of External Indebtedness, including obligations under guarantees, as a result of a default under such External Indebtedness or obligations; or

• the international monetary reserves of the Republic become subject to a security interest or segregation or other preferential arrangement for the benefit of any creditors.

5. Bankruptcy:

• we are declared bankrupt or insolvent by any court or administrative agency with jurisdiction over us;

• we pass a resolution to apply for bankruptcy or to request the appointment of a receiver or trustee or similar official in insolvency;

• a substantial part of our assets are liquidated; or

• we cease to conduct the banking business.

6. Cessation of Government Control or Failure of Support: the Republic ceases to (directly or indirectly) control us or fails to provide financial support for us as required under Article 32 of the KDB Act as of the issue date of the debt securities of such series.

For purposes of the foregoing, “External Indebtedness” means any obligation for the payment or repayment of money borrowed that is denominated in a currency other than the currency of the Republic.

As used in paragraph 6 above, “control” means the acquisition or control of a majority of our voting share capital or the right to appoint and/or remove all or the majority of the members of our board of directors or other governing body, whether obtained directly or indirectly, and whether obtained by ownership of share capital, the possession of voting rights, contract or otherwise.

If an event of default occurs, any holder may declare the principal amount of debt securities that it holds to be immediately due and payable by written notice to us and the fiscal agent.

You should note that:

• despite the procedure described above, no debt securities may be declared due and payable if we cure the applicable event of default before we receive the written notice from the debt security holder;

• we are not required to provide periodic evidence of the absence of defaults; and

• the fiscal agency agreement does not require us to notify holders of the debt securities of an event of default or grant any debt security holder a right to examine the security register.

Modifications and Amendments; Debt Securityholders’ Meetings

Each holder of a series of debt securities must consent to any amendment or modification of the terms of that series of debt securities or the fiscal agency agreement that would, among other things:

• change the stated maturity of the principal of the debt securities or any installment of interest;

• reduce the principal amount of such series of debt securities or the portion of the principal amount payable upon acceleration of such debt securities;

• change the debt security’s interest rate or premium payable;

• change the currency of payment of principal, interest or premium;

• amend either the procedures provided for a redemption event or the definition of a redemption event;

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• shorten the period during which we are not allowed to redeem the debt securities or grant us a right to redeem the debt securities which we previously did not have; or

• reduce the percentage of the outstanding principal amount needed to modify or amend the fiscal agency agreement or the terms of such series of debt securities.

We may, with the exception of the above changes, with the consent of the holders of at least 66 ²/₃% in principal amount of the debt securities of a series that are outstanding, modify and amend other terms of that series of debt securities.

We may at any time call a meeting of the holders of a series of debt securities to seek the holders of the debt securities’ approval of the modification, or amendment, or obtain a waiver, of any provision of that series of debt securities. The meeting will be held at the time and place in the Borough of Manhattan in New York City as determined by the fiscal agent. The notice calling the meeting must be given at least 30 days and not more than 60 days prior to the meeting.

While an event of default with respect to a series of debt securities is continuing, holders of at least 10% of the aggregate principal amount of that series of debt securities may compel the fiscal agent to call a meeting of all holders of debt securities of that series.

Holders of debt securities who hold, in the aggregate, a majority in principal amount of the debt securities of the series that are outstanding at the time will constitute a quorum at a meeting. At the reconvening of any meeting adjourned for a lack of a quorum, the persons entitled to vote 25% in principal amount of the debt securities of the series that are outstanding at the time will constitute a quorum for taking any action set out in the original notice. To vote at a meeting, a person must either hold outstanding debt securities of the relevant series or be duly appointed as a proxy for a debt securityholder. The fiscal agent will make all rules governing the conduct of any meeting.

The fiscal agency agreement and a series of debt securities may be modified or amended, without the consent of the holders of the debt securities, to:

• add covenants made by us that benefit holders of the debt securities;

• surrender any right or power given to us;

• secure the debt securities;

• permit registered securities to be exchanged for bearer securities or relax or eliminate restrictions on the payment of principal, premium or interest on bearer securities to the extent permitted under United States Department of Treasury regulations, provided that holders of the debt securities do not suffer any adverse tax consequences as a result; and

• cure any ambiguity or correct or supplement any defective provision in the fiscal agency agreement or the debt securities, without materially and adversely affecting the interests of the holders of the debt securities.

Fiscal Agent

The fiscal agency agreement governs the duties of each fiscal agent. We may maintain bank accounts and a banking relationship with each fiscal agent. The fiscal agent is our agent and does not act as a trustee for the holders of the debt securities.

Further Issues of Debt Securities

We may, without the consent of the holders of the debt securities, create and issue additional debt securities with the same terms and conditions as any series of debt securities (or that are the same except for the amount of

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the first interest payment and for the interest paid on the series of debt securities prior to the issuance of the additional debt securities). We may consolidate such additional debt securities with the outstanding debt securities to form a single series.

Description of Warrants

The description below summarizes some of the provisions of warrants for the purchase of debt securities that we may issue from time to time and of the warrant agreement. Copies of the forms of warrants and the warrant agreement are or will be filed as exhibits to the registration statement of which this prospectus is a part. Since it is only a summary, the description may not contain all of the information that is important to you as a potential investor in the warrants.

The description of the warrants that will be contained in the prospectus supplement will supplement this description and, to the extent inconsistent with this description, replace it.

General Terms of the Warrants

Each series of warrants will be issued under a warrant agreement to be entered into between us and a bank or trust company, as warrant agent. The prospectus supplement relating to the series of warrants will describe:

• the terms of the debt securities purchasable upon exercise of the warrants, as described above under “—Description of Debt Securities—General Terms of the Debt Securities”;

• the principal amount of debt securities purchasable upon exercise of one warrant and the exercise price;

• the procedures and conditions for the exercise of the warrants;

• the dates on which the right to exercise the warrants begins and expires;

• whether and under what conditions the warrants may be terminated or canceled by us;

• whether and under what conditions the warrants and any debt securities issued with the warrants will be separately transferable;

• whether the warrants will be issued in bearer or registered form;

• whether the warrants will be exchangeable between registered and bearer form, and, if issued in registered form, where they may be transferred and registered; and

• other specific provisions.

Terms Applicable to Debt Securities and Warrants

Governing Law

The fiscal agency agreement, any warrant agreement and the debt securities and any warrants will be governed by the laws of the State of New York without regard to any principles of New York law requiring the application of the laws of another jurisdiction. Nevertheless, all matters governing our authorization, execution and delivery of the debt securities and the fiscal agency agreement and any warrants and warrant agreement by us will be governed by the laws of the Republic.

Jurisdiction and Consent to Service

We are owned by a foreign sovereign government and all of our directors and executive officers and some of the experts named in this prospectus are residents of Korea. In addition, all or most of our assets and the assets of the people named in the preceding sentence are located outside of the United States. For that reason, you may have difficultly serving process on us or the individuals described above in the United States or enforcing in a

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U.S. court a U.S.-court judgment based on the U.S. federal securities laws. Our Korean counsel has informed us that there would be certain conditions to be met under Korean law regarding the enforceability in Korea, either in original actions or in actions for the enforcement of U.S.-court judgments, of civil liabilities based on the U.S. federal securities laws. The enforcement of U.S.-court judgments against KDB may be affected or limited by the general principle of good morals and other social order and the general principle of good faith and fairness provided in the Civil Code of Korea. The courts of Korea will recognize as a valid judgment and enforce any judgment obtained in a U.S. court without re-examination of the merits; provided, that (a) such judgment was finally and conclusively given by a court having valid jurisdiction in accordance with the international jurisdiction principles under Korean law and applicable treaties, (b) KDB was duly served with service of process (otherwise than by publication or similar means) in sufficient time to enable KDB to prepare our defense in conformity with applicable laws or responded to the action without being served with process, (c) in light of the substance of such judgment and the procedures of litigation, recognition of such judgment is not contrary to the public policy of Korea, and (d) judgments of the courts of Korea are accorded reciprocal treatment in the jurisdiction of the court which had issued such judgment or the requirements for the recognition of a foreign judgment in the jurisdiction of the court which had issued such judgment are neither manifestly inequitable nor substantially different in material respects from the requirements for recognition of a foreign judgment in Korea.

We have appointed the General Manager of our New York Branch, Mr. Byung Soo Kim, and the Deputy General Manager of our New York Branch, Mr. Ki Cheon Chang, and each of their successors in the future, as our authorized agents to receive service of process in any suit which a holder of any series of debt securities or warrants may bring in any state or federal court in New York City and we have accepted the jurisdiction of those courts for those actions. Our New York Branch is located at 320 Park Avenue, 32nd Floor, New York, New York 10022. These appointments are irrevocable as long as any amounts of principal, premium or interest remain payable by us to the Fiscal Agent under any series of debt securities or any warrants have not expired or otherwise terminated under their terms. If for any reason either of these two men ceases to act as our authorized agent or ceases to have an address in Manhattan, we shall appoint a replacement. The appointment of agents for receipt of service of process and the acceptance of jurisdiction of state or federal courts in New York City do not, however, apply to actions brought under the United States federal securities laws. We may also be sued in courts having jurisdiction over us located in the Republic.

We will irrevocably consent to any relief and process in connection with a suit against us in relation to the debt securities or warrants, including the enforcement or execution of any order or judgment of the court. To the extent permitted by law, we will waive irrevocably any immunity from jurisdiction to which we might otherwise be entitled in any suit based on any series of debt securities or warrants.

Foreign Exchange Controls

Before we may issue debt securities outside the Republic, the Minister of Economy and Finance of Korea must receive a report with respect to the issuance by us of debt securities in accordance with the Foreign Exchange Transaction Act and the Foreign Exchange Transaction Regulation of Korea. After issuance of debt securities outside the Republic, we are required to notify the Minister of Economy and Finance of such issuance. No further approval or authorization is required for us to pay principal of or interest on the debt securities.

Description of Guarantees to be Issued by Us

The description below summarizes some of the provisions of the guarantees that we may issue from time to time. Copies of the forms of guarantees are or will be filed as exhibits to the registration statement of which this prospectus is a part. Since it is only a summary, the description may not contain all of the information that is important to you as a potential beneficiary of a guarantee.

The description of a guarantee that will be contained in the prospectus supplement will supplement this description and, to the extent inconsistent with this description, replace it.

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General Terms of the Guarantees

Each guarantee will be issued by us as guarantor. The prospectus supplement relating to a guarantee will specify:

• the relevant obligor and the obligations guaranteed under the guarantee;

• the nature and scope of the guarantee, including whether or not it is irrevocable and unconditional;

• the status of the guarantee in relation to our other obligations;

• the governing law of the guarantee; and

• other relevant provisions of the guarantee.

Description of Guarantees to be Issued by The Republic of Korea

The description below summarizes some of the provisions of the guarantees that the Republic may issue from time to time to guarantee our debt securities. Since it is only a summary, the description may not contain all of the information that is important to you as a potential beneficiary of a guarantee.

The prospectus supplement relating to a guarantee to be issued by the Republic will specify other specific provisions. The description of a guarantee to be issued by the Republic that will be contained in the prospectus supplement will supplement this description and, to the extent inconsistent with this description, replace it.

General Terms of the Guarantees

Each guarantee will be issued by the Republic as guarantor. The prospectus supplement relating to a guarantee will specify:

• the relevant obligor and the obligations guaranteed under the guarantee;

• the nature and scope of the guarantee, including whether or not it is irrevocable and unconditional;

• the status of the guarantee in relation to the Republic’s other obligations;

• the governing law of the guarantee; and

• other relevant provisions of the guarantee.

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LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES AND BEARER WARRANTS

Bearer securities will not be offered, sold or delivered in the United States or its possessions or to a United States person; except in certain circumstances permitted by United States tax regulations. Bearer securities will initially be represented by temporary global securities, without interest coupons, deposited with a common depositary in London for Euroclear and Clearstream for credit to designated accounts. Unless otherwise indicated in the prospectus supplement:

• each temporary global security will be exchangeable for definitive bearer securities on or after the date that is 40 days after issuance only upon receipt of certification of non-United States beneficial ownership of the temporary global security as provided for in United States tax regulations, provided that no bearer security will be mailed or otherwise delivered to any location in the United States in connection with the exchange; and

• any interest payable on any portion of a temporary global security with respect to any interest payment date occurring prior to the issuance of definitive bearer securities will be paid only upon receipt of certification of non-United States beneficial ownership of the temporary global security as provided for in United States tax regulations.

Bearer securities, other than temporary global debt securities, and any related coupons will bear the following legend: “Any United States person who holds this obligation will be subject to limitations under the United States federal income tax laws, including the limitations provided in Section 165(j) and 1287(a) of the Internal Revenue Code.” The sections referred to in the legend provide that, with certain exceptions, a United States person who holds a bearer security or coupon will not be allowed to deduct any loss realized on the disposition of the bearer security, and any gain, which might otherwise be characterized as capital gain, recognized on the disposition will be treated as ordinary income.

For purposes of this section, “United States person” means:

• a citizen or resident of the United States;

• a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof; or

• an estate or trust the income of which is subject to United States federal income taxation regardless of its source.

For purposes of this section, “United States” means the United States of America, including each state and the District of Columbia, its territories, possessions and other areas subject to its jurisdiction.

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TAXATION

The following discussion summarizes certain Korean tax and U.S. federal income tax considerations that may be relevant to you if you invest in debt securities. This summary is based on laws, regulations, rulings and decisions in effect as of the date of this Prospectus. These laws, regulations, rulings and/or decisions may change; any such change could apply retroactively and could affect the continued validity of this summary.

This summary does not describe all of the tax considerations that may be relevant to you or your situation, particularly if you are subject to special tax rules. You should consult your tax adviser about the tax consequences of holding the debt securities, including the relevance to your particular situation of the considerations discussed below, as well as of state, local or other tax laws.

Korean Taxation

The following summary of Korean tax considerations applies to you so long as you are not:

• a resident of Korea;

• a corporation with registered head office or main office located in Korea;

• a corporation of which the place of effective management is located 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.

Tax on Interest Payments

Under current Korean tax laws, when we make payments of interest to you (excluding payments to your permanent establishment in Korea) on the debt securities denominated in a foreign currency, no amount will be withheld from such payments for, or on account of, taxes of any kind imposed, levied, withheld or assessed by Korea or any political subdivision or taxing authority thereof or therein, provided that the offering of the debt securities is deemed to be an overseas issuance under Korean tax law.

Tax on Capital Gains

You will not be subject to any Korean income or withholding taxes in connection with the sale, exchange or other disposition of the debt securities, if (i) such sale, exchange or disposition is made to other non-residents or non-Korean corporations (other than their permanent establishments in Korea) or (ii) such sale, exchange or disposition takes place outside Korea, provided that the issuance of the debt securities is deemed to be an overseas issuance under Korean tax law. If you sell, exchange or otherwise dispose of the debt securities to a Korean resident or a Korean corporation (or the Korean permanent establishment of a non-resident or a non-Korean corporation) and such sale, exchange or disposition is made within Korea, any gain realized on the transaction will be taxable at ordinary Korean withholding tax rates (the lower of (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs) 22% (including local income tax) of net gain or 11% (including local income tax) of the gross sale proceeds with respect to such transaction), unless an exemption is available under an applicable income tax treaty. For example, if you are a resident of the United States for the purposes of the income tax treaty currently in force between Korea and the United States, you are generally entitled to an exemption from Korean taxation in respect of any gain realized on a disposition of the debt securities, regardless of whether the disposition is to a Korean resident. For more information regarding tax treaties, please refer to the heading “—Tax Treaties” below.

Inheritance Tax and Gift Tax

If you die while you are the holder of the debt security, the subsequent transfer of the debt security by way of succession will be subject to Korean inheritance tax. Similarly, if you transfer the debt security as a gift, the

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donee will be subject to Korean gift tax and you may be required to pay the gift tax if the donee fails to do so or the donee is a non-resident.

Stamp Duty

You will not be subject to any Korean securities transaction tax, stamp duty, registration tax or similar documentary tax in respect of or in connection with a transfer of any debt securities or in connection with the exercise of exchange rights or conversion rights that may be acquired with the debt securities.

Guarantees

Although there are no Korean tax laws, regulations, rulings or decisions specific to the payment under the guarantee herein, we believe any payments of interest on and principal amount of the debt securities (or the issue price if the debt securities were originally issued at a discount) by the Republic under the Republic’s guarantee on the debt securities denominated in a foreign currency (provided that the offering of the debt securities is deemed to be an overseas issuance under Korean tax law) and issued by us or any payments of interest on and principal amount of the debt securities (or the issue price if the debt securities were originally issued at a discount) by us under our guarantee on the debt securities denominated in a foreign currency (provided that the offering of the debt securities is deemed to be an overseas issuance under Korean tax law) and issued by a third-party Korean issuer are not subject to withholding tax. Further details of the tax consequences of the holders of our debt securities guaranteed by the Republic or third-party debt securities guaranteed by us may be provided in the relevant prospectus supplement.

Tax Treaties

At the date of this prospectus, Korea has tax treaties with, among others, Australia, Austria, Bangladesh, Belgium, Brazil, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, Mongolia, the Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Republic of Fiji, Romania, Singapore, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Tunisia, Turkey, the United Kingdom, the United States of America and Vietnam under which the rate of withholding tax on interest and dividends is reduced, generally to between 5% and 15%, and the tax on capital gains is often eliminated.

With respect to any gains subject to Korean withholding tax, as described under “—Tax on Capital Gains” above, you should inquire for yourself whether you are entitled to the benefit of a tax treaty with Korea. It will be your responsibility to claim the benefits of any tax treaty that may exist between your country and Korea in respect of capital gains, and to provide to the purchaser of the debt securities, or the relevant securities company handling the debt securities, as applicable, a certificate as to your country of tax residence. In the absence of sufficient proof, the purchaser, or the relevant securities company, as the case may be, must withhold tax at the normal rates.

Furthermore, in order to claim the benefit of a tax rate reduction or tax exemption available under the applicable tax treaties, you should submit to the payer of such Korean source income an application (for reduced withholding tax rate, “application for entitlement to reduced tax rate” and in the case of exemption from withholding tax, “application for exemption” under a tax treaty along with a certificate of the non-resident holder’s tax residence issued by a competent authority of the non-resident holder’s residence country) as the beneficial owner, or a BO Application. 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), or an 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

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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.

At present, Korea has not entered into tax treaties regarding inheritance or gift tax.

Warrants

A description of the tax consequences of an investment in warrants will be provided in the applicable prospectus supplement.

U.S. Federal Income Tax Considerations

The following discussion summarizes certain U.S. federal income tax considerations that may be relevant to you if you invest in debt securities and are a U.S. holder, and, to a limited extent, if you are a non-U.S. holder. You will be a U.S. holder if you are a beneficial owner of the debt securities and are an individual who is a citizen or resident of the United States, a U.S. domestic corporation, or any other person that is subject to U.S. federal income tax on a net income basis in respect of its investment in a debt security. This summary deals only with U.S. holders that hold debt securities as capital assets for tax purposes. This summary does not apply to you if you are an investor that is subject to special tax rules, such as:

• a bank or thrift;

• a real estate investment trust;

• a regulated investment company;

• an insurance company;

• a dealer in securities or currencies;

• a trader in securities or commodities that elects mark-to-market treatment;

• a person that will hold debt securities as a hedge against currency risk or as a position in a straddle or conversion transaction for tax purposes, or as part of a “synthetic security” or other integrated financial transaction;

• nonresident alien individuals present in the United States for more than 182 days in a taxable year;

• an entity taxed as a partnership or a partner therein;

• a tax exempt organization; or

• a person whose functional currency for tax purposes is not the U.S. dollar.

A non-U.S. holder is a beneficial owner of a debt security that is not a U.S. holder.

This summary is based on the Internal Revenue Code of 1986, as amended, or the Code, 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 addresses only U.S. federal income tax consequences, and does not address state, local, or non-U.S. tax laws, the alternative minimum tax, or the Medicare tax on net investment income or under special timing rules prescribed under section 451(b) of the Code. This summary does not discuss tax considerations relevant to the ownership and disposal of bearer securities.

This summary deals only with debt securities that are properly treated as indebtedness for U.S. federal income tax purposes. Any special U.S. federal income tax considerations relevant to a particular issuance of debt securities will be discussed in the applicable prospectus supplement. You should consult your tax adviser about the tax consequences of holding debt securities, including the relevance to your particular situation of the considerations discussed below, as well as of state, local or other tax laws.

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Payments or Accruals of Interest

Payments or accruals of “qualified stated interest” (as defined below) on a debt security, but excluding any pre-issuance accrued interest, will be taxable to you as ordinary interest income at the time that you receive or accrue such amounts, in accordance with your regular method of tax accounting. If you use the cash method of tax accounting and you receive payments of interest pursuant to the terms of a debt security in a currency other than U.S. dollars, a “foreign currency”, the amount of interest income you will realize will be the U.S. dollar value of the foreign currency payment based on the exchange rate in effect on the date you receive the payment regardless of whether you convert the payment into U.S. dollars. If you are an accrual-basis U.S. holder, the amount of interest income you will realize will be based on the average exchange rate in effect during the interest accrual period or, with respect to an interest accrual period that spans two taxable years, at the average exchange rate for the partial period within the taxable year. Alternatively, as an accrual-basis U.S. holder you may elect to translate all interest income on foreign currency-denominated debt securities at the spot rate on the last day of the accrual period (or the last day of the taxable year, in the case of an accrual period that spans more than one taxable year), or on the date that you receive the interest payment if that date is within five business days of the end of the accrual period. If you make this election you must apply it consistently to all debt instruments from year to year and you cannot change the election without the consent of the U.S. Internal Revenue Service, or the IRS. If you use the accrual method of accounting for tax purposes you will recognize foreign currency gain or loss on the receipt of a foreign currency interest payment if the exchange rate in effect on the date the payment is received differs from the rate applicable to a previous accrual of that interest income. This foreign currency gain or loss will be treated as ordinary income or loss, but generally will not be treated as an adjustment to interest income received on the debt security.

Purchase, Sale and Retirement of Debt Securities

Initially, your tax basis in a debt security generally will equal the cost of the debt security to you. Your basis will increase by any amounts that you are required to include in income under the rules governing original issue discount and market discount, and will decrease by the amount of any amortized premium and any payments other than qualified stated interest made on the debt security. The rules for determining these amounts are discussed below. If you purchase a debt security that is denominated in a foreign currency, the cost to you, and therefore generally your initial tax basis, will be the U.S. dollar value of the foreign currency purchase price on the date of purchase calculated at the exchange rate in effect on that date. If the foreign currency-denominated debt security is traded on an established securities market and you are a cash-basis taxpayer, or if you are an accrual-basis taxpayer that makes a special election, then you will determine the U.S. dollar value of the cost of the debt security by translating the amount of the foreign currency that you paid for the debt security at the spot rate of exchange on the settlement date of your purchase. The amount of any subsequent adjustments to your tax basis in a foreign currency-denominated debt security in respect of original issue discount, market discount and premium will be determined in the manner described below. If you convert U.S. dollars into a foreign currency and then immediately use that foreign currency to purchase a debt security, you generally will not have any taxable gain or loss as a result of the purchase.

When you sell or exchange a debt security, or if a debt security is retired, you generally will recognize gain or loss equal to the difference between the amount you realize on the transaction, less any accrued qualified stated interest, which will be subject to tax in the manner described above, and your tax basis in the debt security. If you sell or exchange a debt security for a foreign currency, or receive foreign currency on the retirement of a debt security, the amount you will realize for U.S. federal income tax purposes generally will be the U.S. dollar value of the foreign currency that you receive calculated at the exchange rate in effect on the date the foreign currency debt security is disposed of or retired. If you dispose of a foreign currency debt security that is traded on an established securities market and you are a cash-basis U.S. holder, or if you are an accrual-basis holder that makes a special election, then you will determine the U.S. dollar value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale, exchange or retirement. Furthermore, regardless of which of the foregoing methods applies, if Korean tax is withheld on the sale,

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exchange or retirement of a debt security, the amount you realize will include the gross amount of the proceeds of that sale, exchange or retirement before deduction of the Korean tax.

The special election available to you if you are an accrual-basis taxpayer in respect of the purchase and sale of foreign currency debt securities traded on an established securities market, which is discussed in the two preceding paragraphs, must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the IRS.

Except as discussed below with respect to market discount, short-term debt securities and foreign currency gain or loss, the gain or loss that you recognize on the sale, exchange or retirement of a debt security generally will be long-term capital gain or loss if you have held the debt security for more than one year. The Code provides preferential treatment under certain circumstances for net long-term capital gains recognized by individual investors. The ability of U.S. holders to offset capital losses against ordinary income is limited.

Under certain circumstances as described above under “Taxation—Korean Taxation—Tax on Capital Gains” and “Taxation—Korean Taxation—Tax Treaties”, you may be subject to Korean withholding tax upon the sale or other disposition of a debt security. If you are eligible for benefits of the Korea-United States tax treaty, which exempts capital gains from tax in Korea, or if such Korean tax is not otherwise compulsory for you, you would not be eligible to credit against your U.S. federal income tax liability any such Korean tax withheld. In addition, any gain or loss that you recognize on the sale, exchange or retirement of a debt security generally will be treated as U.S. source income. Consequently, even if you are not eligible for an exemption from such taxes under the Korea-United States tax treaty or otherwise, you may not be able to claim a credit for any Korean tax imposed upon the sale, exchange or retirement of a debt security unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. You should consult your own tax advisers with respect to your eligibility for benefits under the Korea-United States tax treaty and, if you are not eligible for treaty benefits, your ability to credit any Korean tax withheld upon sale, exchange or retirement of the debt securities against your U.S. federal income tax liability.

Despite the foregoing, the gain or loss that you recognize on the sale, exchange or retirement of a foreign currency debt security generally will be treated as ordinary income or loss to the extent that the gain or loss is attributable to changes in exchange rates during the period in which you held the debt security. This foreign currency gain or loss will not be treated as an adjustment to interest income that you receive on the debt security.

Original Issue Discount

If we issue debt securities at a discount from their stated redemption price at maturity, and the discount is equal to or more than the product of one-fourth of one percent (0.25%) of the stated redemption price at maturity of the debt securities multiplied by the number of whole years to their maturity (the “de minimis threshold”), the debt securities will be “Original Issue Discount Debt Securities.” The difference between the issue price and their stated redemption price at maturity will be the “original issue discount.” The “issue price” of the debt securities will be the first price at which a substantial amount of the debt securities are sold to the public (i.e., excluding sales of debt securities to underwriters, placement agents, wholesalers, or similar persons). The “stated redemption price at maturity” will include all payments under the debt securities other than payments of qualified stated interest. The term “qualified stated interest” generally means stated interest that is unconditionally payable in cash or property, other than debt instruments issued by the Company, at least annually during the entire term of a debt security at a single fixed interest rate or, subject to certain conditions, based on one or more interest indices.

If you invest in Original Issue Discount Debt Securities you generally will be subject to the special tax accounting rules for original issue discount obligations provided by the Code and certain Treasury regulations, or the OID regulations. You should be aware that, as described in greater detail below, if you invest in an Original Issue Discount Debt Security you generally will be required to include original issue discount in ordinary gross income for U.S. federal income tax purposes as it accrues, before you receive the cash attributable to that income.

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In general, and regardless of whether you use the cash or the accrual method of tax accounting, if you are the holder of an Original Issue Discount Debt Security with a maturity greater than one year, you will be required to include in ordinary gross income the sum of the “daily portions” of original issue discount on that debt security for all days during the taxable year that you own the debt security. The daily portions of original issue discount on an Original Issue Discount Debt Security are determined by allocating to each day in any accrual period a ratable portion of the original issue discount allocable to that accrual period. Accrual periods may be any length and may vary in length over the term of an Original Issue Discount Debt Security, so long as no accrual period is longer than one year and each scheduled payment of principal or interest occurs on the first or last day of an accrual period. If you are the initial holder of the debt security, the amount of original issue discount on an Original Issue Discount Debt Security allocable to each accrual period is determined by:

(i) multiplying the “adjusted issue price” (as defined below) of the debt security at the beginning of the accrual period by a fraction, the numerator of which is the annual yield to maturity of the debt security and the denominator of which is the number of accrual periods in a year; and

(ii) subtracting from that product the amount, if any, payable as qualified stated interest allocable to that accrual period.

In the case of an Original Issue Discount Debt Security that is a floating rate debt security, both the “annual yield to maturity” and the qualified stated interest will be determined for these purposes as though the debt security had borne interest in all periods at a fixed rate generally equal to the rate that would be applicable to interest payments on the debt security on its date of issue or, in the case of some floating rate debt securities, the rate that reflects the yield that is reasonably expected for the debt security. Additional rules may apply if interest on a floating rate debt security is based on more than one interest index. The “adjusted issue price” of an Original Issue Discount Debt Security at the beginning of any accrual period will generally be the sum of its issue price, including any accrued interest, and the amount of original issue discount allocable to all prior accrual periods, reduced by the amount of all payments other than any qualified stated interest payments on the debt security in all prior accrual periods. All payments on an Original Issue Discount Debt Security, other than qualified stated interest, will generally be viewed first as payments of previously accrued original issue discount, to the extent of the previously accrued discount, with payments considered made from the earliest accrual periods first, and then as a payment of principal. The “annual yield to maturity” of a debt security is the discount rate, appropriately adjusted to reflect the length of accrual periods, that causes the present value on the issue date of all payments on the debt security to equal the issue price. As a result of this “constant yield” method of including original issue discount income, the amounts you will be required to include in your gross income if you invest in an Original Issue Discount Debt Security denominated in U.S. dollars will generally be less in the early years and greater in the later years than amounts that would be includible on a straight-line basis.

You generally may make an irrevocable election to include in income your entire return on a debt security (i.e., the excess of all remaining payments to be received on the debt security, including payments of qualified stated interest, over the amount you paid for the debt security) under the constant yield method described above. For debt securities purchased at a premium or bearing market discount in your hands, if you make this election you will also be deemed to have made the election (discussed below under “Premium and Market Discount”) to amortize premium or to accrue market discount in income currently on a constant yield basis.

In the case of an Original Issue Discount Debt Security that is also a foreign currency-denominated debt security, you should determine the U.S. dollar amount includible as original issue discount for each accrual period by (i) calculating the amount of original issue discount allocable to each accrual period in the foreign currency using the constant yield method, and (ii) translating the foreign currency amount so determined at the average exchange rate in effect during that accrual period (or, with respect to an interest accrual period that spans two taxable years, at the average exchange rate for each partial period). Alternatively, you may translate the foreign currency amount so determined at the spot rate of exchange on the last day of the accrual period (or the last day of the taxable year, for an accrual period that spans two taxable years), or at the spot rate of exchange on the date of receipt, if that date is within five business days of the last day of the accrual period, provided that you

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have made the election described under “—Payments or Accruals of Interest” above. Because exchange rates may fluctuate, if you are the holder of an Original Issue Discount Debt Security that is also a foreign currency debt security you may recognize a different amount of original issue discount income in each accrual period than would be the case if you were the holder of an otherwise similar Original Issue Discount Debt Security denominated in U.S. dollars. Upon the receipt of an amount attributable to original issue discount, whether in connection with a payment of an amount that is not qualified stated interest or the sale or retirement of the Original Issue Discount Debt Security, you will recognize ordinary income or loss measured by the difference between the amount received, translated into U.S. dollars at the exchange rate in effect on the date of receipt or on the date of disposition of the Original Issue Discount Debt Security, as the case may be, and the amount accrued, using the exchange rate applicable to such previous accrual.

If you purchase an Original Issue Discount Debt Security outside of the initial offering at a cost less than its “remaining redemption amount”, or if you purchase an Original Issue Discount Debt Security in the initial offering at a price other than the debt security’s issue price, you will also generally be required to include in gross income the daily portions of original issue discount, calculated as described above. However, if you acquire an Original Issue Discount Debt Security at a price greater than its adjusted issue price, you will be required to reduce your periodic inclusions of original issue discount to reflect the premium paid over the adjusted issue price. The remaining redemption amount for an Original Issue Discount Debt Security is the total of all future payments to be made on the debt security other than qualified stated interest.

Floating rate debt securities generally will be treated as “variable rate debt instruments” under the OID regulations. Accordingly, the stated interest on a floating rate debt security generally will be treated as qualified stated interest, and such a debt security will not have original issue discount solely as a result of the fact that it provides for interest at a variable rate. A floating rate debt security that does not qualify as a variable rate debt instrument will be subject to special rules (the “contingent payment regulations”) that govern the tax treatment of debt obligations that provide for contingent payments (“contingent debt obligations”). A detailed description of the tax considerations relevant to U.S. holders of any such debt securities will be provided in the applicable prospectus supplement.

Certain debt securities may be redeemed prior to maturity, either at our option or at the option of the holder, or may have special repayment or interest rate reset features as indicated in the prospectus supplement. Original Issue Discount Debt Securities containing these features may be subject to rules that differ from the general rules discussed above. If you purchase Original Issue Discount Debt Securities with these features, you should carefully examine the prospectus supplement and consult your tax adviser about their treatment since the tax consequences with respect to original issue discount will depend, in part, on the particular terms and features of the debt securities.

If a debt security provides for a scheduled accrual period that is longer than one year (for example, as a result of a long initial period on a debt security with interest that is generally paid on an annual basis), then stated interest on the debt security will not qualify as “qualified stated interest” under the OID Regulations. As a result, the debt security would be an Original Issue Discount Debt Security. In that event, among other things, if you are a cash-method U.S. holder you will be required to accrue stated interest on the debt security under the rules for original issue discount described above, and regardless of your method of accounting for U.S. federal income tax purposes, you will be required to accrue original issue discount that would otherwise fall under the de minimis threshold.

Short-Term Debt Securities

The rules described above will also generally apply to Original Issue Discount Debt Securities with maturities of one year or less (“short-term debt securities”), but with some modifications.

First, the original issue discount rules treat none of the interest on a short-term debt security as qualified stated interest, but treat a short-term debt security as having original issue discount. Thus, all short-term debt

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securities will be Original Issue Discount Debt Securities. Except as noted below, if you are a cash-basis holder of a short-term debt security and are not a bank, securities dealer, regulated investment company or common trust fund and you do not identify the short-term debt security as part of a hedging transaction you will generally not be required to accrue original issue discount currently, but you will be required to treat any gain realized on a sale, exchange or retirement of the debt security as ordinary income to the extent such gain does not exceed the original issue discount accrued with respect to the debt security during the period you held the debt security. You may not be allowed to deduct all of the interest paid or accrued on any indebtedness incurred or maintained to purchase or carry a short-term debt security until the maturity of the debt security or its earlier disposition in a taxable transaction. Notwithstanding the foregoing, if you are a cash-basis U.S. holder of a short-term debt security you may elect to accrue original issue discount on a current basis, in which case the limitation on the deductibility of interest described above will not apply. A U.S. holder using the accrual method of tax accounting and some cash method holders, including banks, securities dealers, regulated investment companies and common trust funds, generally will be required to include original issue discount on a short-term debt security in gross income on a current basis. Original issue discount will be treated as accruing for these purposes on a ratable basis or, at the election of the holder, on a constant yield basis based on daily compounding.

Second, regardless of whether you are a cash- or accrual-basis holder, if you are the holder of a short-term debt security you can elect to accrue any “acquisition discount” with respect to the debt security on a current basis. Acquisition discount is the excess of the debt security’s stated redemption price at maturity (i.e., all amounts payable on the short-term debt security) over the purchase price. Acquisition discount will be treated as accruing ratably or, at the election of the holder, under a constant yield method based on daily compounding. If you elect to accrue acquisition discount, the original issue discount rules will not apply.

Finally, the market discount rules described below will not apply to short-term debt securities.

As described above, certain of the debt securities may be subject to special redemption features. These features may affect the determination of whether a debt security has a maturity of one year or less and thus is a short-term debt security. If you purchase debt securities with these features, you should carefully examine the prospectus supplement and consult your tax adviser about these features.

Premium and Market Discount

If you purchase a debt security at a cost greater than the debt security’s remaining redemption amount, you will be considered to have purchased the debt security at a premium, and you may elect to amortize the premium as an offset to interest income, using a constant yield method, over the remaining term of the debt security. If you make this election, it generally will apply to all debt instruments that you hold at the time of the election, as well as any debt instruments that you subsequently acquire. In addition, you may not revoke the election without the consent of the IRS. If you elect to amortize the premium you will be required to reduce your tax basis in the debt security by the amount of the premium amortized during your holding period. Original Issue Discount Debt Securities purchased at a premium will not be subject to the original issue discount rules described above. In the case of premium on a foreign currency debt security, you should calculate the amortization of the premium in the foreign currency. Amortization deductions attributable to a period reduce interest payments in respect of that period, and therefore are translated into U.S. dollars at the rate that you use for those interest payments. Exchange gain or loss will be realized with respect to amortized premium on a foreign currency debt security based on the difference between the exchange rate computed on the date or dates the premium is amortized against interest payments on the debt security and the exchange rate on the date when the holder acquired the debt security. For a U.S. holder that does not elect to amortize premium, the amount of premium will be included in your tax basis when the debt security matures or is disposed of. Therefore, if you do not elect to amortize premium and you hold the debt security to maturity, you generally will be required to treat the premium as capital loss when the debt security matures.

If you purchase a debt security at a price that is lower than the debt security’s remaining redemption amount, or in the case of an Original Issue Discount Debt Security, the debt security’s adjusted issue price, by

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0.25% or more of the remaining redemption amount, or adjusted issue price, multiplied by the number of remaining whole years to maturity, the debt security will be considered to bear “market discount” in your hands. In this case, any gain that you realize on the disposition of the debt security generally will be treated as ordinary interest income to the extent of the market discount that accrued on the debt security during your holding period. In addition, you could be required to defer the deduction of a portion of the interest paid on any indebtedness that you incurred or continued to purchase or carry the debt security. In general, market discount will be treated as accruing ratably over the term of the debt security, or, at your election, under a constant yield method. You must accrue market discount on a foreign currency debt security in the specified currency. The amount that you will be required to include in income in respect of accrued market discount will be the U.S. dollar value of the accrued amount, generally calculated at the exchange rate in effect on the date that you dispose of the debt security.

You may elect to include market discount in gross income currently as it accrues (on either a ratable or constant yield basis), in lieu of treating a portion of any gain realized on a sale of the debt security as ordinary income. If you elect to include market discount on a current basis, the interest deduction deferral rule described above will not apply. If you do make such an election, it will apply to all market discount debt instruments that you acquire on or after the first day of the first taxable year to which the election applies. The election may not be revoked without the consent of the IRS. Any accrued market discount on a foreign currency debt security that is currently includible in income will be translated into U.S. dollars at the average exchange rate for the accrual period (or portion thereof within your taxable year).

Indexed Debt Securities and Other Debt Securities Providing for Contingent Payments

The contingent payment regulations generally require accrual of interest income on a constant yield basis in respect of contingent debt obligations at a yield determined at the time of issuance of the obligation, and may require adjustments to these accruals when any contingent payments are made. In addition, special rules may apply to floating rate debt securities if the interest payable on the debt securities is based on more than one interest index. We will provide a detailed description of the tax considerations relevant to U.S. holders of any debt securities that are subject to the special rules discussed in this paragraph in the relevant prospectus supplement.

Foreign Currency-Denominated Debt Securities and Reportable Transactions

A U.S. holder that participates in a “reportable transaction” will be required to disclose its participation to the IRS. The scope and application of these rules is not entirely clear. A U.S. holder may be required to treat a foreign currency exchange loss relating to a foreign currency-denominated debt security as a reportable transaction if the loss exceeds $50,000 in a single taxable year if the U.S. holder is an individual or trust, or higher amounts for other U.S. holders. In the event the acquisition, ownership or disposition of a foreign currency-denominated debt security constitutes participation in a “reportable transaction” for purposes of these rules, a U.S. holder will be required to disclose its investment to the Internal Revenue Service, currently on IRS Form 8886. Prospective purchasers should consult their tax advisors regarding the application of these rules to the acquisition, ownership or disposition of foreign currency-denominated debt securities.

Specified Foreign Financial Assets

Individual U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on IRS 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 may include debt securities issued in certificated form) 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

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financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. In addition, the statute of limitations for assessment of tax would be suspended, in whole or part. Prospective investors should consult their own tax advisors concerning the application of these rules to their investment in the debt securities, including the application of the rules to their particular circumstances.

Information Reporting and Backup Withholding

The paying agent must file information returns with the IRS in connection with debt security payments made to certain United States persons. If you are a United States person, you generally will not be subject to U.S. backup withholding tax on such payments if you provide your taxpayer identification number to the paying agent. You may also be subject to information reporting and backup withholding tax requirements with respect to the proceeds from a sale of the debt securities. If you are not a United States person, in order to avoid information reporting and backup withholding tax requirements you may have to comply with certification procedures to establish that you are not a United States person. The amount of any backup withholding from a payment to a United States or non-United States person will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle the holder to a refund, provided that the required information is timely furnished to the IRS.

Foreign Account Tax Compliance Act

We or a non-U.S. financial institution through which payments are made may be required pursuant to FATCA to collect and provide to the IRS or another tax authority substantial information regarding investors in debt securities. As such, holders may be required to provide information and tax documentation regarding their tax identities as well as that of their direct and indirect owners. Moreover, we, any paying agents, and other financial institutions through which payments are made, may be required to withhold U.S. tax at a 30% rate on “foreign passthru payments” (a term not yet defined) paid to an investor who does not provide information sufficient for the institution to determine whether the investor is a United States person or should otherwise be treated as holding a “United States account” of the institution, or to an investor that is, or holds the debt securities directly or indirectly through, a non-U.S. financial institution that is not in compliance with FATCA. Under a grandfathering rule, this withholding tax will not apply unless the debt securities are issued or materially modified after the date that is six months after the date on which final U.S. Treasury Regulations defining the term “foreign passthru payment” are filed with the U.S. Federal Register.

By purchasing the debt securities, U.S. holders agree to provide an IRS form W-9, and whatever other information may be necessary for us to comply with these reporting obligations. If an amount of, or in respect of, U.S. withholding tax were to be deducted or withheld from payments on the debt securities as a result of an investor’s failure to comply with these rules, neither we nor any paying agent nor any other person would be required to pay additional amounts with respect to any debt securities as a result of the deduction or withholding of such tax. You should consult your tax advisors on how FATCA may apply to payments you receive under the debt securities.

Warrants

A description of the tax consequences of an investment in warrants will be provided in the applicable prospectus supplement.

Guarantees

A description of the tax consequences of an investment in guarantees will be provided in the applicable prospectus supplement.

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PLAN OF DISTRIBUTION

We and the Republic, if a guarantee by the Republic is furnished, may sell or issue the debt securities, warrants or guarantees in any of three ways:

• through underwriters or dealers;

• directly to one or more purchasers; or

• through agents.

The prospectus supplement relating to a particular series of debt securities, warrants or guarantees will state:

• the names of any underwriters;

• the purchase price of the securities;

• the proceeds to us from the sale;

• any underwriting discounts and other compensation;

• the initial public offering price;

• any discounts or concessions allowed or paid to dealers; and

• any securities exchanges on which the securities will be listed.

Any underwriter involved in the sale of securities will acquire the securities for its own account. The underwriters may resell the securities from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices to be determined at the time of sale. The securities may be offered to the public either by underwriting syndicates represented by managing underwriters or by underwriters without a syndicate. Unless the prospectus supplement states otherwise, certain conditions must be satisfied before the underwriters become obligated to purchase securities from us and the Republic, if applicable, and they will be obligated to purchase all of the securities if any are purchased. The underwriters may change any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers.

If we and the Republic, if a guarantee by the Republic is furnished, sell any securities through agents, the prospectus supplement will identify the agent and indicate any commissions payable by us and the Republic, if applicable. Unless the prospectus supplement states otherwise, all agents will act on a best efforts basis and will not acquire the securities for their own account.

We and the Republic, if a guarantee by the Republic is furnished, may authorize agents, underwriters or dealers to solicit offers by certain specified entities to purchase the securities from us and the Republic, if applicable, at the public offering price set forth in a prospectus supplement pursuant to delayed delivery contracts. The prospectus supplement will set out the conditions of the delayed delivery contracts and the commission receivable by the agents, underwriters or dealers for soliciting the contracts.

We and the Republic, if a guarantee by the Republic is furnished, may offer debt securities as consideration for the purchase of other of our debt securities, either in connection with a publicly announced tender offer or in privately negotiated transactions. The offer may be in addition to or in lieu of sales of debt securities directly or through underwriters or agents. We may offer guarantees as consideration for transactions involving securities of other issuers.

Agents and underwriters may be entitled to indemnification by us against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribution from us with respect to certain payments which the agents or underwriters may be required to make. Agents and underwriters may be customers of, engage in transactions with, or perform services (including commercial and investment banking services) for us and the Republic in the ordinary course of business.

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LEGAL MATTERS

The validity of any particular series of debt securities or warrants issued with debt securities or any guarantees will be passed upon for us and any underwriters or agents by United States and Korean counsel identified in the related prospectus supplement.

AUTHORIZED REPRESENTATIVES IN THE UNITED STATES

Our authorized agents in the United States are Mr. Byung Soo Kim, General Manager of our New York Branch, or Mr. Ki Cheon Chang, Deputy General Manager of our New York Branch. The address of our New York Branch is 320 Park Avenue, 32nd Floor, New York, New York 10022. The authorized representative of the Republic in the United States is Mr. Minsik Shin, Financial Attaché, Korean Consulate General in New York, located at 460 Park Avenue, 9th Floor, New York, New York 10022.

OFFICIAL STATEMENTS AND DOCUMENTS

Our President and Chairman of the Board of Directors, in his official capacity, has supplied the information set forth under “The Korea Development Bank” (except for the information set out under “The Korea Development Bank—Business—Government Support and Supervision”). Such information is stated on his authority.

The Minister of Economy and Finance of The Republic of Korea, in his official capacity, has supplied the information set out under “The Korea Development Bank—Business—Government Support and Supervision” and “The Republic of Korea.” Such information is stated on his authority. The documents identified in the portion of this prospectus captioned “The Republic of Korea” as the sources of financial or statistical data are official public documents of the Republic or its agencies and instrumentalities.

EXPERTS

Our separate financial statements as of and for the years ended December 31, 2020 and 2019 have been included in this prospectus in reliance upon the report of Nexia Samduk, independent auditors, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

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FORWARD-LOOKING STATEMENTS

This prospectus includes future expectations, projections or “forward-looking statements”, as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe”, “expect”, “anticipate”, “estimate”, “project” and similar words identify forward-looking statements. In addition, all statements other than statements of historical facts included in this prospectus are forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove correct. This prospectus discloses important factors that could cause actual results to differ materially from our expectations, or Cautionary Statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.

Factors that could adversely affect the future performance of the Korean economy include:

• the occurrence of severe health pandemics, such as the ongoing global outbreak of the COVID-19 pandemic, or other severe health epidemics in Korea or other parts of the world, such as the Middle East Respiratory Syndrome outbreak in Korea in 2015;

• adverse conditions or developments in the economies of countries and regions that are important export markets for Korea, such as the United States, Europe, Japan and China, or in emerging market economies in Asia or elsewhere, including as a result of deteriorating economic and trade relations between the United States and China and increased uncertainties resulting from the United Kingdom’s exit from the European Union, or Brexit;

• 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 Japanese yen exchange rates or revaluation of the Chinese yuan and the overall impact of Brexit on the value of the Korean Won), interest rates, inflation rates or stock markets;

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

• a substantial decrease in tax revenues and a substantial increase in the Government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs, in particular in light of the Government’s ongoing efforts to provide emergency relief payments relating to COVID-19 to households and corporations in need of funding, which, together, would lead to an increased Government budget deficit as well as an increase in the Government’s debt;

• declines in consumer confidence and a slowdown in consumer spending, in particular due to the outbreak of infectious diseases, including the ongoing global outbreak of the COVID-19 pandemic;

• increasing levels of household debt;

• increasing delinquencies and credit defaults by consumer and small- and medium-sized enterprise borrowers;

• substantial decreases in the market prices of Korean real estate;

• 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;

• the continued growth of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from Korea to China), as well as a slowdown in the growth of China’s economy, which is Korea’s most important export market;

• investigations of large Korean business groups and their senior management for bribery, embezzlement and other possible misconduct relating to the impeachment and dismissal of former President Park Geun-hye in March 2017;

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

• increased reliance on exports to service foreign currency borrowings, which could cause friction with Korea’s trading partners;

• social and labor unrest;

• financial problems or lack of progress in the restructuring of Korean conglomerates, other large troubled companies, their suppliers or the financial sector;

• loss of investor confidence arising from corporate accounting irregularities or corporate governance issues at certain Korean companies;

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

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

• 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, in particular the ongoing trade disputes with Japan;

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

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

• hostilities or political or social tensions involving oil-producing countries in the Middle East (including a potential escalation of hostilities between the United States and Iran) and Northern Africa and any material disruption in the supply of oil or sudden changes in the price of oil;

• 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.

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FURTHER INFORMATION

We filed a registration statement with respect to the securities with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and its related rules and regulations. You can find additional information concerning ourselves and the securities in the registration statement and any pre- or post-effective amendment, including its various exhibits, which may be inspected at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. These filings are also available to the public from the Securities and Exchange Commission’s website at http://www.sec.gov.

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HEAD OFFICE OF THE BANK

14, Eunhaeng-ro

Yeongdeungpo-gu, Seoul 07242

The Republic of Korea

FISCAL AGENT AND PRINCIPAL PAYING AGENT

The Bank of New York Mellon

240 Greenwich Street

New York, NY 10286

United States of America

LEGAL ADVISORS TO THE BANK

as to Korean law	as to U.S. law
Kim & Chang 39, Sajik-ro 8 gil Jongno-gu, Seoul 03170 Korea	Cleary Gottlieb Steen & Hamilton LLP c/o 19th Floor, Ferrum Tower 19 Eulji-ro 5-gil, Jung-gu Seoul 04539 The Republic of Korea

LEGAL ADVISOR TO THE UNDERWRITERS

as to U.S. law

Linklaters LLP

22nd Floor, Center One Building

26, Eulji-ro 5-gil, Jung-gu

Seoul 04539

The Republic of Korea

AUDITOR OF THE BANK

Nexia Samduk

12F, S&S Building

48 Ujeongguk-ro, Jongno-gu

Seoul 03145

The Republic of Korea

SINGAPORE LISTING AGENT

Shook Lin & Bok LLP

1 Robinson Road

#18-00 AIA Tower

Singapore 048542