0001193125-18-329422.txt : 20181119 0001193125-18-329422.hdr.sgml : 20181119 20181119061118 ACCESSION NUMBER: 0001193125-18-329422 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20181119 DATE AS OF CHANGE: 20181119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXPORT IMPORT BANK OF KOREA CENTRAL INDEX KEY: 0000873463 STANDARD INDUSTRIAL CLASSIFICATION: FOREIGN GOVERNMENTS [8888] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B5 SEC ACT: 1933 Act SEC FILE NUMBER: 333-217916 FILM NUMBER: 181191191 BUSINESS ADDRESS: STREET 1: 460 PARK AVE 20TH FL CITY: NEW YORK STATE: NY ZIP: 10005 424B5 1 d640000d424b5.htm 424(B)(5) 424(B)(5)
Table of Contents

Filed pursuant to Rule 424(b)(5)
Registration Statement No. 333-217916

 

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 NOVEMBER 19, 2018

PRELIMINARY PROSPECTUS SUPPLEMENT

(To Prospectus Dated June 25, 2018)

 

LOGO

The Export-Import Bank of Korea

(A statutory juridical entity established under The Export-Import Bank of Korea Act of 1969, as amended, in the Republic of Korea)

US$                             % Notes due 20    

US$                             % Notes due 20    

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 notes due 20     (the “20     Notes”, and together with 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 May              and November              of each year. The first interest payment on each of the Notes will be made on May             , 2019 in respect of the period from (and including) November             , 2018 to (but excluding) May             , 2019. 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 securities registered in the name of a nominee of The Depository Trust Company, as depositary.

 

 

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  
    Per Note     Total     Per Note     Total  

Public offering price

              %    US$                                      %    US$                        

Underwriting discounts

              %    US$                                      %    US$                        

Proceeds to us, before expenses

              %    US$                                      %    US$                        

In addition to the initial public offering price, you will have to pay for accrued interest, if any, from (and including)             , 2018.

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. There can be no assurance that such listing will be obtained for the Notes. The SGX-ST assumes no responsibility for the correctness of any of the statements made, opinions expressed or reports contained herein. Approval in-principle from, admission to the Official List of, and listing and quotation of any Notes on, the SGX-ST are not to be taken as an indication of the merits of the issuer or the Notes.

The underwriters expect to deliver the Notes to investors through the book-entry facilities of The Depository Trust Company on or about November             , 2018.

 

 

Joint Bookrunners and Lead Managers

 

 

BofA Merrill Lynch

          
  Crédit Agricole CIB        
    Daiwa Capital Markets Europe    
     

    HSBC

    
       

Mizuho Securities                

  
         

Standard Chartered Bank

Co-Manager

KEXIM Bank (UK) Limited

Prospectus Supplement Dated November             , 2018

Table of Contents

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 of these securities in any state where the offer is not permitted.

TABLE OF CONTENTS

 

     Page  
Prospectus Supplement   

Summary of the Offering

      S-6  

Use of Proceeds

      S-8  

Recent Developments

      S-9  

Description of the Notes

      S-99  

Clearance and Settlement

      S-101  

Taxation

      S-104  

Underwriting

      S-105  

Legal Matters

      S-109  

Official Statements and Documents

      S-109  

General Information

      S-109  
Prospectus   

Certain Defined Terms and Conventions

     1  

Use of Proceeds

     2  

The Export-Import Bank of Korea

     3  

Overview

     3  

Capitalization

     4  

Business

     5  

Selected Financial Statement Data

     7  

Operations

     10  

Description of Assets and Liabilities

     15  

Debt

     24  

Credit Policies, Credit Approval and Risk Management

     27  

Capital Adequacy

     28  

Overseas Operations

     29  

Property

     29  

Management and Employees

     30  

Tables and Supplementary Information

     31  

Financial Statements and the Auditors

     42  

The Republic of Korea

     137  

Land and History

     137  

Government and Politics

     139  

The Economy

     142  

Principal Sectors of the Economy

     150  

The Financial System

     157  

Monetary Policy

     162  

Balance of Payments and Foreign Trade

     165  

Government Finance

     172  

Debt

     174  

Tables and Supplementary Information

     176  

Description of the Securities

     179  

Description of Debt Securities

     179  

 

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CERTAIN DEFINED TERMS

All references to “we” or “us” mean The Export-Import Bank of Korea. 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. References to “￦”, “Won” or “Korean won” are to the lawful currency of Korea and “US$” or “U.S. dollars” are to the lawful currency of the United States. Terms used but not defined in this prospectus supplement shall have the same meanings given to them in the accompanying prospectus.

Unless otherwise indicated, all references to “20     Notes” contained in this prospectus supplement are to the US$                     aggregate principal amount of             % notes due 20    , and all references to “20     Notes” are to the US$                     aggregate principal amount of             % notes due 20    . Unless otherwise indicated, all references to the “Notes” are to the 20     Notes and the 20     Notes, collectively.

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.

Our financial information included in this prospectus supplement was prepared under International Financial Reporting Standards as adopted by 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.

ADDITIONAL INFORMATION

The information in this prospectus supplement is in addition to the information contained in our accompanying prospectus dated June 25, 2018. The accompanying prospectus contains information regarding ourselves 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. 333-217916, 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 address of our registered office is 38 Eunhaeng-ro, Yeongdeungpo-gu, Seoul 07242, The Republic of Korea. The SGX-ST assumes no responsibility for the contents of this prospectus supplement and the accompanying prospectus, and makes no representation as to liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus supplement and the accompanying prospectus. Approval in-principle from, admission to the Official List of, and listing and quotation of any Notes on, the SGX-ST are not to be taken as an indication of the merits of the issuer or the Notes.

NOTIFICATION UNDER SECTION 309B(1)(C) OF THE SECURITIES AND FUTURES ACT, CHAPTER 289 OF SINGAPORE (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).

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

 

S-4

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accompanying prospectus, you should observe any restrictions. This prospectus supplement and the accompanying prospectus should not be considered an offer and it is prohibited to use them 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.”

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. This prospectus supplement may only be used for the purposes for which it has been published. 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”) and US$                     aggregate principal amount of             % notes due             , 20     (the “20     Notes”, and together with the 20     Notes, the “Notes”).

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 May             and November              of each year. The first interest payment on each of the Notes will be made on May             , 2019 in respect of the period from (and including) November             , 2018 to (but excluding) May             , 2019. Interest on the Notes will accrue from November             , 2018, 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.

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. There can be no assurance that such listing will be obtained for the Notes. 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. 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.”



 

S-6

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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 any 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 the issuance would constitute a “qualified reopening” for U.S. federal income tax purposes or such additional debt securities would otherwise be part of the same “issue” 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 November             , 2018, 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

KEXIM Bank (UK) Limited, an underwriter, is an affiliate of ours 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-7

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USE OF PROCEEDS

We will use the net proceeds from the sale of the Notes for our general operations, including extending foreign currency loans and repayment of our maturing debt and other obligations.

 

S-8

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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 June 25, 2018. 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 EXPORT-IMPORT BANK OF KOREA

Overview

As of June 30, 2018, we had ￦73,109 billion of outstanding loans, including ￦40,047 billion of outstanding export credits, ￦26,964 billion of outstanding overseas investment credits and ￦3,958 billion of outstanding import credits, as compared to ￦71,884 billion of outstanding loans, including ￦41,369 billion of outstanding export credits, ￦24,107 billion of outstanding overseas investment credits and ￦3,726 billion of outstanding import credits as of December 31, 2017.

Capitalization

As of June 30, 2018, our authorized capital was ￦15,000 billion and our capitalization was as follows:

 

     June 30, 2018  (1)  
    

(billions of Won)

(unaudited)

  

Long-Term Debt (2)(3)(4)(5):

   

Borrowings in Korean Won

    ￦ —    

Borrowings in Foreign Currencies

      3,845  

Export-Import Financing Debentures

      46,580  
  

 

 

  

Total Long-term Debt

    ￦  50,425  
  

 

 

  

Capital:

   

Paid-in Capital (6)

    ￦ 11,815  

Additional Paid-in Capital

      —    

Capital Adjustments

      (129 ) 

Retained Earnings

      1,079  

Legal Reserve

      346  

Voluntary Reserve

      —    

Reserve for Bad Loan (7)

      302  

Unappropriated Retained Earnings

      430  

Other Components of Equity (8)

      366  
  

 

 

  

Total Capital

    ￦ 13,131  
  

 

 

  

Total Capitalization

    ￦ 63,556  
  

 

 

  

 

(1)

Except as described in this prospectus supplement, there has been no material adverse change in our capitalization since June 30, 2018.

(2)

We have translated borrowings in foreign currencies as of June 30, 2018 into Won at the rate of ￦1,121.7 to US$1.00, which was the market average exchange rate as announced by the Seoul Monetary Brokerage Services Ltd., on June 30, 2018.

(3)

As of June 30, 2018, we had contingent liabilities totaling ￦41,427 billion, which consisted of ￦36,351 billion under confirmed guarantees and ￦5,076 billion under unconfirmed guarantees issued on behalf of our clients.

 

S-9

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(4)

As of June 30, 2018, we had entered into 461 interest rate related derivative contracts with a notional amount of ￦40,661 billion and 675 currency related derivative contracts with a notional amount of ￦33,593 billion in accordance with our policy to hedge interest rate and currency risks.

(5)

All of our borrowings, whether domestic or international, are unsecured and unguaranteed.

(6)

As of June 30, 2018, authorized ordinary share capital was ￦15,000 billion and issued fully-paid ordinary share capital was ￦11,815 billion. See “—Business—Government Support and Supervision.”

(7)

If the estimated allowance for credit loss determined by K-IFRS for accounting purposes is lower than that for regulatory purposes as required by Supervisory Regulation of Banking Business, we reserve such difference as regulatory reserve for bad loans. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of and for the six months ended June 30, 2018 and 2017—Note 23.”

(8)

See “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of June 30, 2018 and for the six months ended June 30, 2018 and 2017—Note 22.”

Selected Financial Statement Data

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 unaudited separate financial statements as of and for the six months ended June 30, 2018 included in this prospectus supplement. As permitted by the transition rules of K-IFRS 1109, our comparative unaudited separate financial statements as of December 31, 2017 and for the six months ended June 30, 2017 included in this prospectus supplement have not been restated to retroactively apply K-IFRS 1109 and are not directly comparable to our unaudited separate financial statements as of and for the six months ended June 30, 2018. For information regarding the impact of the application of K-IFRS 1109 on our separate financial statements, see “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of June 30, 2018 and for the six months ended June 30, 2018 and 2017—Note 38.”

You should read the following financial statement data together with our separate financial statements and notes included in this prospectus supplement. The following tables present selected separate financial information as of June 30, 2018 and December 31, 2017 and for the six months ended June 30, 2018 and 2017, which has been derived from our unaudited separate K-IFRS financial statements as of June 30, 2018 and for the six months ended June 30, 2018 and 2017 included in this prospectus supplement:

 

     Six Months Ended
June 30,		  
     2018 (1)      2017  
     (billions of Won)  
     (unaudited)  

Income Statement Data

      

Total Interest Income

    ￦ 1,336      ￦ 1,303  

Total Interest Expense

      894        785  

Net Interest Income

      442        518  

Operating Income

      709        579  

Income before Income Tax

      723        582  

Income Tax Expense

      164        137  

Net Income

      559        445  

 

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     As of
June 30,
2018 (1)
(unaudited)		      As of
December  31,
2017		  
     (billions of Won)  

Balance Sheet Data

      

Total Loan Credits (2)

    ￦ 73,109      ￦ 71,884  

Total Borrowings (3)

      70,910        66,699  

Total Assets

      90,429        83,946  

Total Liabilities

      77,298        71,433  

Total Shareholders’ Equity

      13,131        12,513  

 

(1)

Reflects the application of K-IFRS 1109. For information regarding the impact of the application of K-IFRS 1109, see “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of June 30, 2018 and for the six months ended June 30, 2018 and 2017—Note 38”.

(2)

Gross amount, including bills bought, foreign exchange bought, call loans, inter-bank loans in foreign currency, advance for customers and others and before deducting valuation adjustment of loans in foreign currencies, allowance for loan losses and deferred loan origination fees.

(3)

Includes debentures.

For the six months ended June 30, 2018, we had net income of ￦559 billion compared to net income of ￦445 billion for the six months ended June 30, 2017, primarily due to a decrease in impairment loss on loans at amortized cost to ￦11 billion in the first half of 2018 from ￦756 billion in the corresponding period of 2017, primarily due to an improvement in loan quality, which was partially offset by a decrease in reversal of impairment loss on guarantees to ￦98 billion in the first half of 2018 from ￦656 billion in the corresponding period of 2017, primarily due to a slight decrease in guarantees in the first half of 2018 compared to a significant decrease in guarantees in the corresponding period of 2017.

As of June 30, 2018, our total assets increased to ￦90,429 billion from ￦83,946 billion as of December 31, 2017, primarily due to an increase in cash to ￦4,865 billion as of June 30, 2018 from ￦2,092 billion as of December 31, 2017, an increase in financial investments to ￦8,342 billion as of June 30, 2018 from ￦6,782 billion as of December 31, 2017 and an increase in Loan Credits to ￦73,109 billion as of June 30, 2018 from ￦71,884 billion as of December 31, 2017.

As of June 30, 2018, our total liabilities increased to ￦77,298 billion from ￦71,433 billion as of December 31, 2017. The increase in liabilities was primarily due to an increase in debentures to ￦64,309 billion as of June 30, 2018 from ￦60,685 billion as of December 31, 2017.

The increases in assets and liabilities were primarily due to increases in the volume of loans and debt, respectively. The depreciation of the Won against the U.S. dollar as of June 30, 2018 compared to December 31, 2017 magnified the effect of the increase in the volume of loans and debt, as a majority of our assets and liabilities consisted of foreign currency loans and debt (including significant percentages in U.S. dollars).

As of June 30, 2018, our total shareholders’ equity increased to ￦13,131 billion from ￦12,513 billion as of December 31, 2017, primarily due to an increase in retained earnings to ￦1,079 billion as of June 30, 2018 from ￦708 billion as of December 31, 2017.

Operations

Loan Operations

In the first half of 2018, we provided total loans of ￦23,669 billion, a decrease of 10% from the corresponding period of 2017.

 

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Export Credits

As of June 30, 2018, export credits in the amount of ￦40,047 billion represented 55% of our total outstanding Loan Credits. Our disbursements of export credits amounted to ￦13,324 billion in the first half of 2018, a decrease of 24% from the corresponding period of 2017, which was mainly due to decreased activity for construction of industrial plants. The appreciation of the Won against the U.S. dollar as of June 30, 2018 compared to June 30, 2017 magnified the effect of the decrease in the volume of export credits in the first half of 2018, as a majority of our export credits consisted of foreign currency credits (including a significant percentage in U.S. dollars).

Overseas Investment Credits

As of June 30, 2018, overseas investment credits amounted to ￦26,964 billion, representing 37% of our total outstanding Loan Credits. Our disbursements of overseas investment credits in the first half 2018 increased by 41% to ￦7,148 billion from the corresponding period of 2017, primarily due to increased demand in overseas investment and project credits. The appreciation of the Won against the U.S. dollar as of June 30, 2018 compared to June 30, 2017 partially offset the effect of the increase in the volume of overseas investment credits in the first half of 2018, as a majority of our overseas investment credits consisted of foreign currency credits (including a significant percentage in U.S. dollars).

Import Credits

As of June 30, 2018, import credits in the amount of ￦3,958 billion represented 5% of our total outstanding Loan Credits. Our disbursements of import credits amounted to ￦3,197 billion in the first half of 2018, a decrease of 11% over the corresponding period of 2017, which was mainly due to a decrease in demand for financing for raw materials used for export and domestic consumption. The appreciation of the Won against the U.S. dollar as of June 30, 2018 compared to June 30, 2017 magnified the effect of the decrease in the volume of import credits in the first half of 2018, as a significant portion of our import credits consisted of foreign currency credits (including a significant percentage in U.S. dollars).

Guarantee Operations

Guarantee commitments as of June 30, 2018 decreased to ￦41,427 billion from ￦42,809 billion as of December 31, 2017. Guarantees we had confirmed as of June 30, 2018 decreased to ￦36,351 billion from ￦38,961 billion as of December 31, 2017.

For further information regarding our guarantee and letter of credit operations, see “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of June 30, 2018 and for the six months ended June 30, 2018 and 2017—Note 36”.

 

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Description of Assets and Liabilities

Total Credit Exposure

The following table sets out our Credit Exposure as of June 30, 2018, categorized by type of exposure extended:

 

          June 30, 2018  
          (billions of Won, except
for percentages)		  

A

    Loans in Won    ￦ 17,207        16 % 

B

    Loans in Foreign Currencies      52,804        49  

C

    Loans (A+B)      70,011        66  

D

    Other Loans (1)      3,100        3  

E

    Loan Credits (C+D)      73,111        68  

F

    Allowances for Possible Loan Losses      2,701        3  

G

    Loan Credits including PVD (E-F)      70,410        66  

H

    Guarantees      36,351        34  

I

    Credit Exposure (G+H)    ￦ 106,761        100 % 

 

(1)

Includes call loans, inter-bank loans, other loans.

Loan Credits by Geographic Area

The following table sets out the total amount of our outstanding Loan Credits (including call loans and inter-bank loans in foreign currency) as of June 30, 2018, categorized by geographic area (1)(2):

 

     June 30, 2018  (1)      As % of
June 30, 2018
Total		  
     (billions of Won, except for percentages)  

Asia(2)

    ￦ 54,519        75 % 

Europe

      4,740        6  

America

      9,243        13  

Africa

      4,607        6  
  

 

 

     

 

 

  

Total

    ￦ 73,109        100 % 
  

 

 

     

 

 

  

 

(1)

For purposes of this table, export credits have been allocated to the geographic areas in which the foreign buyers of Korean exports are located; overseas investment credits have been allocated to the geographic areas in which the overseas investments being financed are located; and import credits have been allocated to the geographic areas in which the sellers of the imported goods are located.

(2)

Includes Australia.

Individual Exposure

As of June 30, 2018, our largest Credit Exposure was to Daewoo Shipbuilding & Marine Engineering (“DSME”) in the amount of ￦6,797 billion, a decrease from ￦8,065 billion as of December 31, 2017, primarily due to a decrease in refund guarantees.

As of June 30, 2018, our second and third largest Credit Exposures were to Hanwha Engineering & Construction in the amount of ￦2,402 billion and to Samsung Heavy Industries in the amount of ￦2,263 billion.

 

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The following table sets out our five largest Credit Exposures as of June 30, 2018 (1):

 

Rank

   

Name of Borrower

    Loans      Guarantees      Total  
          (billions of Won)  
1   

Daewoo Shipbuilding & Marine Engineering

      3,045        3,752        6,797  
2   

Hanwha Engineering & Construction

      —          2,402        2,402  
3   

Samsung Heavy Industries

      990        1,273        2,263  
4   

Doosan Heavy Industries & Construction

      903        1,298        2,201  
5   

Sungdong Shipbuilding & Marine Engineering

      2,071        —          2,071  

 

(1)

Excludes loans and guarantees extended to affiliates.

Source: Internal accounting records.

As of June 30, 2018, our exposure to Sungdong Shipbuilding & Marine Engineering decreased slightly to ￦2,071 billion from ￦2,072 billion as of December 31, 2017, primarily due to a slight decrease in guarantees.

Asset Quality

Asset Classifications

The following table provides information on our asset quality and loan loss reserves as of June 30, 2018:

 

     As of June 30, 2018  
     Loan
Amount  (1)		      Loan
Loss
Reserve (2)		  

Normal

    ￦  98,686      ￦ 627  

Precautionary

      5,212        525  

Sub-standard

      602        106  

Doubtful

      736        413  

Estimated Loss

      2,089        2,016  
  

 

 

     

 

 

  

Total

    ￦  107,325      ￦ 3,687  
  

 

 

     

 

 

  

 

(1)

These figures include loans (excluding interbank loans and call loans), domestic usance, bills bought, foreign exchange bought, advances for customers, and confirmed acceptances and guarantees.

(2)

These figures include present value discount.

Reserves for Credit Losses

As of June 30, 2018, the amount of our non-performing assets was ￦3,427 billion, a decrease of 13% from ￦3,934 billion as of December 31, 2017. As of June 30, 2018, our non-performing asset ratio was 3.2%, compared to 3.6% as of December 31, 2017.

We cannot provide any assurance that our current level of exposure to non-performing assets will not increase in the future or that any of our borrowers (including our largest borrowers as described above) is not currently facing, or in the future will not face, material financial difficulties.

 

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The following table sets forth information regarding our loan loss reserves as of June 30, 2018:

 

       June 30, 2018  
      

(billions of Won,

except for percentages)

  

Loan Loss Reserve (A)

      ￦ 3,687  

NPA (B) (1)

        3,427  

Total Equity (C)

        13,131  

Reserve to NPA (A/B)

        108 % 

Equity at Risk (B-A)/C

        —    

 

(1)

Non-performing assets, which are defined as assets that are classified as substandard or below.

Source: Internal accounting records.

Investments

As of June 30, 2018, our total investment in securities amounted to ￦10,806 billion, representing 12% of our total assets.

The following table sets out the composition of our investment securities as of June 30, 2018:

 

Type of Investment Securities

      Amount        %  
       (billions of Won)  

Available-for-Sale Securities

      ￦ 8,250          76 % 

Held-to-Maturity Securities

        93          1  

Investments in Associates and Subsidiaries

        2,463          23  
    

 

 

       

 

 

  

Total

      ￦ 10,806          100 % 
    

 

 

       

 

 

  

For further information relating to the classification guidelines and methods of valuation of our financial instruments (including securities), see “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of June 30, 2018 and for the six months ended June 30, 2018 and 2017—Note 5”.

Guarantees and Acceptances and Contingent Liabilities

As of June 30, 2018, we had issued a total amount of ￦36,351 billion in confirmed guarantees and acceptances, of which ￦31,723 billion, representing 87% of the total amount, was classified as normal and ￦4,006 billion, representing 11% of the total amount, was classified as precautionary, and ￦622 billion, representing 2% of the total amount, was classified as substandard or below.

Derivatives

As of June 30, 2018, our outstanding loans made at floating rates of interest totaled approximately ￦52,710 billion, whereas our outstanding borrowings made at floating rates of interest totaled approximately ￦50,037 billion, including those raised in Australian Dollar, Euro, Pound Sterling and Brazil Real and swapped into U.S. dollar floating rate borrowings. As of June 30, 2018, we had entered into 461 interest rate related derivative contracts with a notional amount of ￦40,661 billion and had entered into 675 currency related derivative contracts with a notional amount of ￦33,593 billion. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of June 30, 2018 and for the six months ended June 30, 2018 and 2017—Note 20”.

 

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Sources of Funding

We raised a net total of ￦26,075 billion (new borrowings plus loan repayments by our clients less repayment of our existing debt) during the first half of 2018, a decrease of 13% from ￦29,829 billion in the corresponding period of 2017. The total loan repayments, including prepayments by our clients, during the first half of 2018 amounted to ￦23,695 billion, a decrease of 2% from ￦24,263 billion during the corresponding period of 2017.

As of June 30, 2018, we had no outstanding borrowings from the Government. We issued Won-denominated domestic bonds in the aggregate amount of ￦5,560 billion during the first half of 2018.

During the first half of 2018, we issued eurobonds in the aggregate principal amount of US$3,197 million in various types of currencies under our existing global medium term notes program, a 6% decrease from US$3,403 million in the corresponding period of 2017. In addition, we issued global bonds during the first half of 2018 in the aggregate amount of US$1,500 million under our U.S. shelf registration statement compared with US$1,500 million in the corresponding period of 2017. As of June 30, 2018, the outstanding amounts of our notes and debentures were US$30,216 million, JPY 182,820 million, HKD 6,011 million, BRL 2,382 million, EUR 2,667 million, THB 21,800 million, CHF 900 million, AUD 3,259 million, INR 32,042 million, CNY 12,298 million, IDR 8,828,400 million, PEN 267 million, TRY 21 million, NZD 1,172 million, ZAR 654 million, NOK 2,250 million, SEK 250 million, GBP 60 million, CAD 690 million and SGD 510 million.

We also borrow from foreign financial institutions in the form of loans that are principally made bilaterally or by syndicates of commercial banks at floating or fixed interest rates and in foreign currencies, with original maturities ranging from one to five years. As of June 30, 2018, the outstanding amount of such borrowings from foreign financial institutions was US$1,600 million.

As of June 30, 2018, our total paid-in capital amounted to ￦11,815 billion, and the Government, The Bank of Korea and Korea Development Bank owned 66.3%, 9.8% and 23.9%, respectively, of our paid-in capital.

As of June 30, 2018, the aggregate outstanding principal amount of our borrowings (including export-import financing debentures), which was ￦71,966 billion, was equal to 19% of the authorized amount of ￦370,020 billion.

Debt

Debt Repayment Schedule

The following table sets out the principal repayment schedule for our debt outstanding as of June 30, 2018:

Debt Principal Repayment Schedule

 

     Maturing on or before December 31,  

Currency (1)

    2018      2019      2020      2021      Thereafter  
     (billions of won)  

Won

    ￦ 7,050      ￦ 4,850      ￦ 470      ￦ —        ￦ 2,040  

Foreign (2)

      5,578        9,847        9,083        8,812        24,237  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total Won Equivalent

    ￦ 12,628      ￦ 14,697      ￦ 9,553      ￦ 8,812      ￦ 26,277  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

Borrowings in foreign currency have been translated into Won at the market average exchange rates on June 30, 2018, as announced by the Seoul Money Brokerage Services Ltd.

(2)

This figure includes debentures, bank loans, commercial papers and repurchase agreements.

 

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As of June 30, 2018, our foreign currency assets maturing within three months, six months and one year exceeded our foreign currency liabilities coming due within such periods by US$2,712 million, US$4,693 million and US$3,895 million, respectively. As of June 30, 2018, our total foreign currency liabilities exceeded our total foreign currency assets by US$7,791 million.

Capital Adequacy

As of June 30, 2018, our capital adequacy ratio, on a consolidated basis, was 13.6%, an increase from 12.9% as of December 31, 2017, which was primarily due to an increase in retained earnings.

The following table sets forth our capital base and capital adequacy ratios (on a consolidated basis) reported as of June 30, 2018:

 

     June 30, 2018  
    

(billions of Won,

except for percentages)

  

Tier I

    ￦ 13,055  

Paid-in Capital (including additional paid-in capital)

      11,686  

Retained Earnings(1)

      983  

Accumulated other comprehensive income

      425  

Common shares issued by consolidated subsidiaries of the bank and held by third parties

      3  

Deductions from Tier I Capital

      (42 ) 

Capital Adjustments

      —    

Deferred Tax Asset

      —    

Others

      (42 ) 

Tier II (General Loan Loss Reserves)

      1,812  

Total Capital

      14,867  

Risk Adjusted Assets

      109,238  

Capital Adequacy Ratios

   

Tier I common equity

      12.0 % 

Tier 1

      12.0 % 

Tier I and Tier II

      13.6 % 

 

(1)

Net amount after deducting regulatory reserve for bad loans.

Source: Internal accounting records.

Financial Statements and the Auditors

Our interim separate financial statements as of June 30, 2018 and December 31, 2017 and for the six months ended June 30, 2018 and 2017 appearing in this prospectus supplement were prepared in conformity with Korean IFRS, as summarized in Note 2 of the notes to our unaudited separate financial statements as of June 30, 2018 and for the six months ended June 30, 2018 and 2017 included in this prospectus supplement.

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 unaudited separate financial statements as of and for the six months ended June 30, 2018 included in this prospectus supplement. As permitted by the transition rules of K-IFRS 1109, our comparative unaudited separate financial statements as of December 31, 2017 and for the six months ended June 30, 2017 included in this prospectus supplement have not been restated to retroactively apply K-IFRS 1109 and are not

 

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directly comparable to our unaudited separate financial statements as of and for the six months ended June 30, 2018. For information regarding the impact of the application of K-IFRS 1109 on our separate financial statements, see Note 38 of the notes to our unaudited separate financial statements as of June 30, 2018 and for the six months ended June 30, 2018 and 2017 included in this prospectus supplement.

 

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THE EXPORT-IMPORT BANK OF KOREA

SEPARATE INTERIM STATEMENTS OF FINANCIAL POSITION

AS OF JUNE 30, 2018 AND DECEMBER 31, 2017

 

      Korean won  
     June 30, 2018(*1)     December 31, 2017  
     (In millions)  

ASSETS:

     

Cash and due from financial institutions (Notes 4, 5 and 7)

    ￦ 4,864,717     ￦ 2,091,920  

Financial assets at fair value through profit or loss
(“FVTPL”) (Notes 4, 5, 8 and 20)

      1,930,661       1,616,973  

Hedging derivative assets (Notes 4, 5 and 20)

      63,268       228,121  

Loans at amortized cost (Notes 4, 5, 10 and 37)

      70,043,253       68,223,320  

Financial investments (Notes 4, 5 and 9)

      8,342,161       6,781,955  

Investments in associates and subsidiaries (Note 11)

      2,642,502       2,598,607  

Tangible assets, net (Note 12)

      265,043       268,465  

Intangible assets, net (Note 13)

      42,120       47,622  

Deferred tax assets (Note 34)

      943,193       1,126,199  

Retirement benefit assets, net (Note 18)

      7,672       12,227  

Other assets (Notes 4, 5, 14 and 37)

      1,284,101       950,531  
  

 

 

    

 

 

  
   ￦ 90,428,691     ￦ 83,945,940  
  

 

 

    

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

LIABILITIES:

     

Financial liabilities at FVTPL (Notes 4, 5 and 20)

    ￦ 1,012,308     ￦ 911,778  

Hedging derivative liabilities (Notes 4, 5 and 20)

      1,775,419       1,058,196  

Borrowings (Notes 4, 5 and 15)

      6,601,474       6,013,457  

Debentures (Notes 4, 5 and 16)

      64,308,624       60,685,098  

Provisions (Note 17)

      568,499       675,118  

Other liabilities (Notes 4, 5, 19 and 37)

      3,031,865       2,088,950  
  

 

 

    

 

 

  
     77,298,189       71,432,597  
  

 

 

    

 

 

  

STOCKHOLDERS’ EQUITY:

     

Capital stock (Note 21)

      11,814,963       11,814,963  

Additional paid-in capital

      —         —    

Capital adjustments

      (129,339 )      (129,339 ) 

Other components of equity (Notes 20 and 22)

      366,369       119,739  

Retained earnings (Note 23)
(Regulatory reserve for loan losses as of June 30, 2018 and December 31, 2017: ￦302,248 million and ￦206,330 million)

      1,078,509       707,980  
  

 

 

    

 

 

  
     13,130,502       12,513,343  
  

 

 

    

 

 

  
   ￦ 90,428,691     ￦ 83,945,940  
  

 

 

    

 

 

  

 

(*1)

The separate interim statement of financial position as of June 30, 2018 was prepared in accordance with K-IFRS No.1109. However, the comparative separate statement of financial position as of December 31, 2017 was not retrospectively restated.

See accompanying notes to separate interim financial statements.

 

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THE EXPORT-IMPORT BANK OF KOREA

SEPARATE INTERIM STATEMENTS OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

    Korean won  
    Six months ended
June 30, 2018(*1)		     Six months  ended
June 30, 2017		  
    (In millions)  

OPERATING INCOME:

    

Net interest income (Notes 24 and 37):

    

Interest income

   ￦ 1,335,892     ￦ 1,302,693  

Interest expenses

     (894,190 )      (784,940 ) 
 

 

 

    

 

 

  
    441,702       517,753  
 

 

 

    

 

 

  

Net commission income (Notes 25 and 37):

    

Commission income

     154,765       205,492  

Commission expenses

     (4,135 )      (2,749 ) 
 

 

 

    

 

 

  
    150,630       202,743  
 

 

 

    

 

 

  

Dividend income (Note 26)

     35,390       33,184  

Loss on financial assets at FVTPL (Note 27)

     (97,488 )      138,818  

Gain (loss) on hedging derivative assets (Notes 20 and 28)

     (1,005,560 )      768,671  

Gain (loss) on financial investments (Note 29)

     (1,463 )      15,539  

Gain (loss) on foreign exchange transaction

     495,145       (702,210 ) 

Other net operating income (loss) (Note 30)

     672,105       (172,509 ) 

Impairment (reversal) on credit (Note 31)

     121,193       (121,691 ) 

General and administrative expenses (Note 32)

     (102,608 )      (100,847 ) 
 

 

 

    

 

 

  

Total operating income

     709,046       579,451  
 

 

 

    

 

 

  

NON-OPERATING INCOME (EXPENSES) (Note 33):

    

Net gain on investments in associates and subsidiaries

     4,577       9,670  

Net other non-operating income (expenses)

     9,291       (6,882 ) 
 

 

 

    

 

 

  
    13,868       2,788  
 

 

 

    

 

 

  

INCOME BEFORE INCOME TAX

     722,914       582,239  

INCOME TAX EXPENSES (Note 34)

     (164,026 )      (136,899 ) 
 

 

 

    

 

 

  

NET INCOME

     558,888       445,340  
 

 

 

    

 

 

  

(Adjusted income after reserve for bad loans for the six months ended June 30, 2018 and 2017: ￦546,466 million and ￦221,137 million) (Note 23)

    

OTHER COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD (Note 22)

    

Items not reclassified subsequently to profit or loss:

     —         —    

Loss on disposal of financial assets at FVOCI

     (17,648 )      —    

Income tax effect

     4,271       —    

Items that are or may be reclassified subsequently to profit or loss:

    

Gain on valuation on available-for-sale (“AFS”) securities

     —         (129,103 ) 

Gain on valuation of financial assets at FVOCI

     648,043       —    

Cash flow hedging gains or losses

     (1,702 )      (1,904 ) 

Income tax effect

     (156,500 )      10,168  
 

 

 

    

 

 

  
    476,464       (120,839 ) 
 

 

 

    

 

 

  

TOTAL COMPREHENSIVE INCOME

   ￦ 1,035,352     ￦ 324,501  
 

 

 

    

 

 

  

 

(*1)

The separate interim statement of comprehensive income for the six-month period ended June 30, 2018 was prepared in accordance with K- IFRS No.1109. However, the comparative separate interim statement of comprehensive income for the six-month period ended June 30, 2017 was not retrospectively restated.

See accompanying notes to separate interim financial statements.

 

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THE EXPORT-IMPORT BANK OF KOREA

SEPARATE INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

                Other components of equity              
    Capital
stock		     Additional
paid-in
capital		     Valuation  on
FVOCI
financial
instruments		     Valuation of
cash-flow
hedge		     Remeasurement,
net of defined
benefit assets		     Gain or loss
on disposal
of FVOCI
financial
instruments		     Retained
earnings		     Total  
    (Korean won in millions)  

January 1, 2017

   ￦ 10,398,055     ￦ 6,723     ￦ 259,564     ￦ 854     ￦ 19,599     ￦ —       ￦ 535,186     ￦ 11,219,981  

Paid-in capital increase

     1,416,908       (130,455 )      —         —           —         —         1,286,453  

Net income

     —         —         —         —         —         —         445,340       445,340  

Other comprehensive income:

                   (120,839 ) 

Loss on valuation of AFS securities, net of tax

     —         —         (119,396 )      —         —         —         —         (119,396 ) 

Loss on valuation of cash flow hedge, net of tax

     —         —         —         (1,443 )      —         —         —         (1,443 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

June 30, 2017

   ￦ 11,814,963     ￦ (123,732 )    ￦ 140,168     ￦ (589 )    ￦ 19,599     ￦ —       ￦ 980,526     ￦ 12,830,935  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

January 1, 2018

   ￦ 11,814,963     ￦ (129,339 )    ￦ 101,985     ￦ 586     ￦ 17,168     ￦ —       ￦ 707,980     ￦ 2,513,343  

Adjustments on initial application of K-IFRS No.1109

     —         —         (216,017 )      —         —         (13,817 )      (128,763 )      (358,597 ) 

January 1, 2018 (restated)

     11,814,963       (129,339 )      (114,032 )      586       17,168       (13,817 )      579,217       12,154,746  

Payment of dividends

     —         —         —         —         —         —       (59,596 )      (59,596 ) 

Net income

     —         —         —         —         —         —         558,888       558,888  

Other comprehensive income:

                   476,464  

Gain on valuation of FVOCI financial instruments, net of tax

     —         —         491,217       —         —         —         —         491,217  

Loss on valuation of cash flow hedge, net of tax

     —         —         —         (1,376 )      —         —         —         (1,376 ) 

Loss on disposal of FVOCI financial instruments, net of tax

     —         —         —         —         —         (13,377 )      —         (13,377 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

June 30, 2018 (*1)

   ￦ 11,814,963     ￦ (129,339 )    ￦ 377,185     ￦ (790 )    ￦ 17,168     ￦ (27,194 )    ￦ 1,078,509     ￦ 13,130,502  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*1)

The separate interim statement of changes in equity for the six-month period ended June 30, 2018 was prepared in accordance with K- IFRS No.1109. However, the comparative separate interim statement of changes in equity for the six-month period ended June 30, 2017 was not retrospectively restated.

See accompanying notes to separate interim financial statements.

 

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THE EXPORT-IMPORT BANK OF KOREA

SEPARATE INTERIM STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

     Korean won  
     Six months
June 30, 2018(*1)		     Six months
June 30, 2017		  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

     

Net income

    ￦ 558,888     ￦ 445,340  
  

 

 

    

 

 

  

Adjustments to reconcile net income to net cash used in operating activities:

     

Income tax expense

      164,026       136,899  

Interest income

      (1,335,892 )      (1,302,693 ) 

Interest expenses

      894,190       784,940  

Dividend income

      (35,390 )      (33,184 ) 

Dividend received from subsidiaries and associates

      (4,577 )      (9,905 ) 

Loss on financial assets at FVTPL

      2,722       —    

Loss on financial assets at FVOCI

      1,722       —    

Loss on financial assets held for trading

      —         336  

Loss on AFS financial assets

      —         3,390  

Transfer to derivatives’ credit risk provision

      49,545       28,731  

Loss on redemption of debentures

      —         1,680  

Loss on foreign exchange transactions

      490,760       928,824  

Impairment loss on credit

      120,903       121,691  

Impairment loss of investments in subsidiaries and associates

      —         235  

Loss on fair value hedged items

      33,767       227,884  

Depreciation and amortization

      10,766       8,034  

Loss on disposals of tangible, intangible and other assets

      1       20  

Loss on valuation of derivative assets

      1,675,519       537,015  

Retirement benefits

      4,416       4,488  

Gain on financial assets at FVTPL

      (13,844 )      —    

Gain on financial assets at FVOCI

      (211 )      —    

Gain on financial assets held for trading

      —         (1,876 ) 

Gain on AFS financial assets

      —         (18,929 ) 

Reversal of derivatives’ credit risk provision

      (40,533 )      (5,806 ) 

Gain on foreign exchange transactions

      (983,186 )      (198,244 ) 

Impairment reversal on credit

      (121,193 )      —    

Gain on fair value hedged items

      (717,545 )      (82,136 ) 

Gain on valuation of derivative assets

      (523,640 )      (1,345,693 ) 

Gain on disposals of tangible assets, intangible assets and other assets

      (101 )      (22 ) 

Changes in operating assets and liabilities:

     

Due from financial institutions

      (1,256,633 )      930,596  

Financial assets at FVTPL

      540,681       675,633  

Hedging derivative net assets

      (864,781 )      (241,182 ) 

Loans at amortized cost

      (506,497 )      (661,559 ) 

Other assets

      (304,171 )      32,063  

Provisions

      (20,081 )      (957,692 ) 

Payment of retirement benefits

      139       903  

Other liabilities

      670,946       137,333  

Other provisions

      —         (380 ) 

Payment of income tax

      (18,306 )      (121,838 ) 

Interest received

      1,218,802       1,145,299  

Interest paid

      (764,694 )      (701,737 ) 

Dividend received

      (38,575 )      43,089  
  

 

 

    

 

 

  

Net cash provided by (used in) operating activities

      (1,115,858 )      511,547  
  

 

 

    

 

 

  

 

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THE EXPORT-IMPORT BANK OF KOREA

SEPARATE INTERIM STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017

 

     Korean won  
     Six months
June 30, 2018(*1)		     Six months
June 30, 2017		  
     (In millions)  

CASH FLOWS FROM INVESTING ACTIVITIES:

     

Disposal of AFS and HTM financial assets

    ￦ —       ￦ 692,007  

Disposal of investment instruments

      101,809       —    

Disposals of investments in associates

      475       —    

Disposals of tangible assets

      1       22  

Disposals of intangible assets

      380       120  

Acquisitions of AFS and HTM financial assets

      —         (415,012 ) 

Acquisitions of investment instruments

      (240,362 )      —    

Investments in subsidiaries and associates

      (44,370 )      (346,422 ) 

Acquisitions of tangible assets

      (906 )      (960 ) 

Acquisitions of intangible assets

      (1,217 )      (9,573 ) 
  

 

 

    

 

 

  

Net cash used in investing activities

      (184,190 )      (79,818 ) 
  

 

 

    

 

 

  

CASH FLOWS FROM FINANCING ACTIVITIES:

     

Increase in call money

      68       710,000  

Proceeds from borrowings

      3,290,567       2,726,364  

Proceeds from debentures

      11,571,264       11,643,149  

Increase in deposits

      2       —    

Repayment of borrowings

      (3,010,978 )      (4,300,299 ) 

Repayment of debentures

      (8,951,815 )      (11,420,822 ) 

Decrease in deposits

      (4 )      —    

Expense related to issuance of capital

      —         (1,203 ) 

Payment of dividends

      (59,596 )      —    
  

 

 

    

 

 

  

Net cash provided by (used in) financing activities

      2,839,508       (642,811 ) 
  

 

 

    

 

 

  

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

      1,499,460       (211,082 ) 

CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD

      815,994       1,354,694  

EFFECTS OF FOREIGN EXCHANGE RATE CHANGES ON THE BALANCE OF CASH AND CASH EQUIVALENTS IN FOREIGN CURRENCIES

      (76,231 )      (32,656 ) 
  

 

 

    

 

 

  

CASH AND CASH EQUIVALENTS, END OF THE PERIOD (Note 7, 35)

    ￦ 2,239,223     ￦ 1,110,956  
  

 

 

    

 

 

  

 

(*1)

The separate interim statement of cash flows for the six-month period ended June 30, 2018 was prepared in accordance with K- IFRS No.1109. However, the comparative separate interim statement of cash flows for the six-month period ended June 30, 2017 was not retrospectively restated.

See accompanying notes to separate interim financial statements.

 

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THE EXPORT-IMPORT BANK OF KOREA

NOTES TO THE SEPARATE INTERIM FINANCIAL STATEMENTS

AS OF JUNE 30, 2018, AND DECEMBER 31, 2017,

AND FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017

1. GENERAL:

(1) Summary of The Export-Import Bank of Korea

The Export-Import Bank of Korea (the “Bank” or the “Company”) was established in 1976 as a special financial institution under The Export-Import Bank of Korea Act (the “EXIM Bank Act”) to grant financial facilities for overseas trade (i.e., export and import), investments and resources development activities. As of June 30, 2018, the Bank operates 10 domestic branches, three domestic offices, four overseas subsidiaries and 24 overseas offices.

The Bank’s authorized capital is ￦15,000,000 million, and through numerous capital increases since the establishment, its paid-in capital is ￦11,814,963 million as of June 30, 2018. The Government of the Republic of Korea (the “Government”), the Bank of Korea (“BOK”), and the Korea Development Bank hold 66.27%, 9.86%, and 23.87%, respectively, of the ownership of the Bank as of June 30, 2018.

The Bank, as a trustee of the Government, has managed the Economic Development Cooperation Fund (“EDCF”) since June 1987 and the Inter-Korean Cooperation Fund (“IKCF”) since March 1991. These funds are accounted for separately and are not included in the Bank’s separate interim financial statements. The Bank receives fees from the Government for the trustee services.

(2) Summary of subsidiaries and associates

1) Subsidiaries of the Bank as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

Subsidiaries

    Location    Capital stock      Main
business		      Number of
shares
owned		      Percentage
of owner-ship
(%)		      Financial
statements
as of		  

KEXIM Bank UK Limited

    United Kingdom      GBP 20 mil.        Finance        20,000,000        100.00        Jun. 30, 2018  

KEXIM Vietnam Leasing Co.(*1)

    Vietnam      USD 13 mil.        Finance        —          100.00        Jun. 30, 2018  

PT.KOEXIM Mandiri Finance

    Indonesia      IDR 52,000 mil.        Finance        442        85.00        Jun. 30, 2018  

KEXIM Asia Limited

    Hong Kong      USD 30 mil.        Finance        30,000,000        100.00        Jun. 30, 2018  

 

(*1)

This entity does not issue share certificates.

 

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(December 31, 2017)

 

Subsidiaries

    Location    Capital stock      Main
business		      Number of
shares
owned		      Percentage
of owner-ship
(%)		      Financial
statements
as of		  

KEXIM Bank UK Limited

    United Kingdom      GBP 20 mil.        Finance        20,000,000        100.00        Dec. 31, 2017  

KEXIM Vietnam Leasing Co.(*1)

    Vietnam      USD 13 mil.        Finance        —          100.00        Dec. 31, 2017  

PT.KOEXIM Mandiri Finance

    Indonesia      IDR 52,000 mil.        Finance        442        85.00        Dec. 31, 2017  

KEXIM Asia Limited

    Hong Kong      USD 30 mil.        Finance        30,000,000        100.00        Dec. 31, 2017  

 

(*1)

This entity does not issue share certificates.

2) Associates of the Bank as of June 30, 2018, and December 31, 2017, are as follows :

(June 30, 2018)

 

Associates

   Location   Capital stock     Main business   Number of
shares owned		     Percentage
of owner-ship
(%)		     Financial
statements as of		  

Korea Asset Management Corporation

   Korea   KRW 860,000 mil.     Financial service     44,482,396       25.86       Jun. 30, 2018  

Credit Guarantee and Investment Fund

   Philippines   USD 855 mil.     Financial service     100,000,000       11.70       Mar. 31, 2018  

Korea Marine Guarantee Incorporated Company

   Korea   KRW 322,357 mil.     Financial service     26,999,999       41.88       Jun. 30, 2018  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

   Korea   KRW  1,319,693 mil.     Shipbuilding     113,075,200       81.25       Jun. 30, 2018  

DAESUN Shipbuilding & Engineering Co., Ltd.

   Korea   KRW 6,262 mil.     Shipbuilding     1,040,000       83.03       Jun. 30, 2018  

KTB Newlake Global Healthcare PEF

   Korea   KRW 28,280 mil.     Financial service     7,070,000,000       25.00       Jun. 30, 2018  

KBS-KDB Private Equity Fund

   Korea   KRW 18,817 mil.     Financial service     3,761,875,000       19.99       Jun. 30, 2018  

Korea Shipping and Maritime Transportation

   Korea   KRW 25,000 mil.     Financial service     2,000,000       40.00       Jun. 30, 2018  

Korea Aerospace Industries. Ltd.

   Korea   KRW 487,376 mil.     Manufacturing     25,745,964       26.41       Jun. 30, 2018  

 

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(December 31, 2017)

 

Associates

   Location   Capital stock     Main business   Number of
shares owned		     Percentage
of owner-
ship (%)		     Financial
statements as of		  

Korea Asset Management Corporation

   Korea   KRW 860,000 mil.     Financial service     44,482,396       25.86       Dec. 31, 2017  

Credit Guarantee and Investment Fund

   Philippines   USD 700 mil.     Financial service     100,000,000       14.29       Sep. 30, 2017  

Korea Marine Guarantee Incorporated Company

   Korea   KRW 322,357 mil.     Financial service     26,999,999       41.88       Dec. 31, 2017  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

   Korea   KRW  1,319,693 mil.     Shipbuilding     93,294,100       81.25       Sep. 30, 2017  

DAESUN Shipbuilding & Engineering Co., Ltd.

   Korea   KRW 7,730 mil.     Shipbuilding     1,040,000       67.30       Sep. 30, 2017  

KTB Newlake Global Healthcare PEF

   Korea   KRW 10,280 mil.     Financial service     257,000,000       25.00       Dec. 31, 2017  

KBS-KDB Private Equity Fund

   Korea   KRW 11,361 mil.     Financial service     2,366,875,000       20.83       Dec. 31, 2017  

Korea Shipping and Maritime Transportation

   Korea   KRW 904,884 mil.     Financial service     1,810,000       40.00       Dec. 31, 2017  

Korea Aerospace Industries. Ltd.

   Korea   KRW 487,376 mil.     Manufacturing     25,745,964       26.41       Dec. 31, 2017  

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:

(1) Basis of condensed separate financial statement preparation

These condensed separate interim financial statements were prepared in accordance with K-IFRS No. 1034, ‘Interim Financial Reporting’ as part of the period covered by the Bank’s K-IFRS annual financial statements. These condensed separate interim financial statements do not include all of the disclosures required for full annual financial statements.

These financial statements are separate financial statements prepared in accordance with K-IFRS No.1027, ‘Separate Financial Statements’ presented by a parent, an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost.

The Bank’s accounting policies applied for the accompanying condensed separate interim financial statements are the same as the policies applied for the preparation of separate financial statements as of and for the year ended December 31, 2017, except for K-IFRS No. 1109 ‘Financial Instruments’ and K-IFRS No. 1115 ‘Revenue from contracts with customers’, which were initially applied from January 1, 2018.

 

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(2) K-IFRS No. 1109 ‘Financial Instruments’

☐ Classification and measurement of financial assets

Applying K-IFRS No.1109, the Bank classifies financial assets to be measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVPL”) on the basis of the Bank’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. If a hybrid contract contains a host that is a financial asset, the embedded derivatives shall not be separated from the host, and the hybrid contract as a whole shall be classified as a financial asset.

 

Business model

   

Contractual cash flows that are solely

payments of principal and interests

   

All other cases

For collecting contractual cash flows

    At amortized cost(*1)    At FVPL(*2)

For both collecting contractual cash flows and selling financial assets

    At FVOCI(*1)

For trading, and others

    At FVPL

 

(*1)

The Bank may irrevocably designate a financial asset as at FVPL to eliminate or significantly reduce an accounting mismatch.

(*2)

The Bank may irrevocably designate equity instruments that is not held for trading as at FVOCI.

As there are more stringent requirements for a financial asset to be classified as measured at amortized costs or FVOCI under K-IFRS No.1109 compared to the existing guidance in K-IFRS No.1039, the adoption of K-IFRS No.1109 would potentially increase the portion of financial assets that are measured at FVPL, which would also increase the volatility in the Bank’s profit or loss.

☐ Classification and measurement of financial liabilities

According to K-IFRS No.1109, changes in fair value of the financial liability designated as at FVPL that is attributable to changes in the credit risk shall be presented as other comprehensive income, not recognized in profit or loss. Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss. However, if recognizing the changes in fair value as other comprehensive income creates or enlarges accounting mismatch, the amounts shall be recognized as profit or loss.

☐ Impairment: Financial assets and contract assets

In accordance with the existing standard K-IFRS No.1039, impairment is recognized only if evidence of impairment based on ‘incurred loss model’ is identified. In accordance with K-IFRS No.1109, the new accounting standard, impairment shall be recognized based on ‘expected credit loss impairment model’ for debt instruments, lease receivables, contract assets, loan commitments and financial guarantee contracts, which are measured at amortized cost or FVOCI.

 

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According to K-IFRS No.1109, a loss allowance shall be measured at the amounts of 12 month expected credit losses or lifetime expected credit losses, by the three stages in the table below depending on the extent of significant increase in credit risk since initial recognition. Hence, an early recognition of credit risk may be available compared to the ‘incurred loss model’ in the existing standard K-IFRS No.1039.

 

Stages (*1)

   

Loss allowance

Stage 1

    No significant increase in credit risk since initial recognition (*2)    12-Month Expected Credit Losses: the portion of lifetime expected credit losses that represent the expected credit losses that result from default events on financial instruments that are possible within 12 months after the reporting date

Stage 2

    Significant increase in credit risk since initial recognition    Lifetime Expected Credit Losses: the expected credit losses that result from all possible default events over the expected life of a financial instrument

Stage 3

    Objective evidence of credit risk management

 

  (*1)

In cases of trade receivable or contract assets in scope of K-IFRS No.1115 ‘Revenue from Contracts with Customers’, if there is no significant financing component in contracts with customers, loss allowance for such assets shall be measured at lifetime expected credit losses. If a significant financing component exists, entities can elect to measure the loss allowance for trade receivable or contract assets at lifetime expected credit losses. In cases of lease receivable, entities can elect to measure the loss allowance at lifetime expected credit losses as well.

  (*2)

If financial instruments have low credit risk at the end of the reporting period, it is also considered that credit risk of such instruments has not increased significantly since initial recognition.

According to K-IFRS No.1109, the Bank only recognizes the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance for financial assets impaired at its initial recognition.

(3) K-IFRS No. 1115 ‘Revenue from contracts with customers’

The core principle under K-IFRS No.1115 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments introduces a five-step approach to revenue recognition and measurement: 1) Identify the contract with a customer, 2) Identify the performance obligations in the contract, 3) Determine the transaction price, 4) Allocate the transaction price to the performance obligations in the contract and, 5) Recognize revenue when (or as) the entity satisfies a performance obligation. This standard has superseded K-IFRS No.1011, ‘Construction Contracts’, K-IFRS No.1018, ‘Revenue’, K-IFRS No.2113, ‘Customer Loyalty Programmes’, K-IFRS No.2115, ‘Agreements for the Construction of Real Estate’, K-IFRS No.2118, ‘Transfers of Assets from Customers’, and K-IFRS No.2031, ‘Revenue-Barter Transactions Involving Advertising Services’. The amendments are effective for annual periods beginning on or after January 1, 2018.

The Bank does not expect the application of K-IFRS No.1115 will have a significant impact on the separate financial statements.

(4) Functional Currency

Items included in the separate financial statements of each entity in the Bank are measured using the currency of the primary economic environment in which the entity operates (the functional currency).

 

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3. SIGNIFICANT ESTIMATES AND JUDGMENTS:

The preparation of separate financial statements requires the application of accounting policies, especially certain critical accounting estimates and assumptions that may have a significant impact on assets (liabilities) and income (expenses). The management’s estimate of outcome may differ from an actual outcome if the management’s estimate and assumption based on its best judgment at the reporting date are different from the actual environment.

Estimates and assumptions are continually evaluated and the 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, or the period of the change and future periods, if the change affects both. Significant judgments are the same as those applied in preparation of the annual separate financial statements for the year ended December 31, 2017, except for the matters described below.

4. RISK MANAGEMENT:

4-1. Summary

(1) Overview of Risk Management Policy

The financial risks that the Bank is exposed to are credit risk, market risk, liquidity risk, operational risk, interest risk, credit concentration risk, strategy/reputational risk, outsourcing risk, settlement risk and others. Credit risk, market risk, liquidity risk, and operational risk have been recognized as the Bank’s key risks.

The Bank’s risk management system focuses on increasing transparency, developing risk management environment and preemptive response to risks due to rapid changes in financial environment to support the Bank’s long-term strategy and business decision efficiently.

The note regarding financial risk management provides information about the risks that the Bank is exposed to, the objective, policies and process for managing the risk, the methods used to measure the risk and capital adequacy. Additional quantitative information is disclosed throughout the separate financial statements.

(2) Risk Management Group

1) Risk Management Committee

The Risk Management Committee establishes risk management strategies in accordance with the directives of the board of directors and determines the Bank’s target risk appetite, approves significant risk matters and reviews the level of risks that the Bank is exposed to and the appropriateness of the Bank’s risk management operations as an ultimate decision-making authority.

2) Risk Management Council

The Risk Management Council is a consultative group that reviews and makes decisions on matters delegated by the Risk Management Committee and discusses the detailed issues relating to the Bank’s risk management.

3) Risk Management Practices Committee

The Risk Management Practices Committee assists the Risk Management Committee and the Risk Management Council. It performs practical work process relating to risk management plan, including targeted Bank for International Settlements (“BIS”) ratio, risk management strategy, risk measurement, risk analysis, economic capital limit and others.

 

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4-2. Credit risk

(1) Overview of Credit Risk

Credit risk is the risk of possible losses in an asset portfolio in the events of counterparty’s default, breach of contract and deterioration in the credit quality of the counterparty. For the risk management reporting purposes, the individual borrower’s default risk, country risk, specific risks and other credit risk exposure components are considered as a whole.

(2) Credit Risk Management

The Bank controls the credit concentration risk exposure by applying and managing total exposure limits to prevent the excessive risk concentration to specific industry and specific borrowers. The Bank maintains allowances for loan losses associated with credit risk on loans and receivables to manage its credit risk.

(3) Maximum exposure to credit risk

The Bank’s maximum exposure of financial instruments to credit risk as of June 30, 2018, and December 31, 2017, is as follows (Korean won in millions):

 

     Jun. 30, 2018      Dec. 31, 2017  

Cash and due from financial institutions

    ￦ 4,864,717      ￦ 2,091,920  

Financial assets at FVTPL

      888,214        891,360  

Hedging derivative assets

      63,268        228,121  

Loans at amortized cost (*1)

      72,726,714        71,486,133  

Financial investments

      1,117,799        1,000,995  

Other financial assets

      1,435,277        1,102,062  

Acceptances and guarantee contracts

      41,427,133        42,808,774  

Commitments (*2)

      16,355,510        19,737,788  
  

 

 

     

 

 

  
   ￦ 138,878,632      ￦ 139,347,153  
  

 

 

     

 

 

  

 

(*1)

Loans at amortized cost exclude loans valuation adjustment related to fair value hedging, allowances for loan losses.

(*2)

Commitments exclude commitments on purchase of beneficiary certificates which are included in other commitments in Note 36.

(4) Credit risk of loans

The Bank maintains allowances for loan losses associated with credit risk on loans to manage its credit risk.

The Bank writes off on non-profitable loans, non-recoverable loans, loans classified as estimated loss by asset quality category, loans requested to be written off by Financial Supervisory Service (“FSS”) and others upon approval of Loan Management Committee.

 

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Loans are categorized as follows (Korean won in millions):

(June 30, 2018)

 

     12 month
expected
credit losses		      Lifetime
expected
credit losses		      Credit-
impaired
financial
assets		      Total  

Collective assessment:

            

Best

    ￦ 16,377,697      ￦ 8,990      ￦ 5,309      ￦ 16,391,996  

Outstanding

      24,554,525        —          42,767        24,597,292  

Good

      25,449,485        1,800,051        29,742        27,279,278  

Below normal

      —          502,900        69,902        572,803  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      66,381,707        2,311,941        147,720        68,841,369  
  

 

 

     

 

 

     

 

 

     

 

 

  

Individual assessment:

            

Best

      —          —          896,045        896,045  

Outstanding

      —          —          —          —    

Good

      —          45,407        69,887        115,294  

Below normal

      —          711,908        2,162,098        2,874,006  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      —          757,315        3,128,030        3,885,345  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 66,381,707      ￦ 3,069,256      ￦ 3,275,750      ￦ 72,726,714  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

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Table of Contents

(December 31, 2017)

 

     Individual
assessment		     Collective
assessment		     Total     Ratio (%)  

Loans:

         

Normal

         

Not past due

    ￦ 2,123,302     ￦ 66,023,655     ￦ 68,146,957       94.79  

Past due

      —         30       30       0.01  

Impaired

      3,610,399       126,860       3,737,259       5.20  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      5,733,701       66,150,545       71,884,246       100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Net deferred origination fees and costs:

         

Normal

         

Not past due

      (37 )      (396,944 )      (396,981 )      99.72  

Past due

      —         —         —         —    

Impaired

      (1,138 )      6       (1,132 )      0.28  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      (1,175 )      (396,938 )      (398,113 )      100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Carrying amounts before deducting allowances:

         

Normal

         

Not past due

      2,123,265       65,626,711       67,749,976       94.77  

Past due

      —         30       30       0.01  

Impaired

      3,609,261       126,866       3,736,127       5.22  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      5,732,526       65,753,607       71,486,133       100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Allowances:

         

Normal

         

Not past due

      (368,644 )      (254,029 )      (622,673 )      18.94  

Percentage (%)

      17.36       0.39       0.92    

Past due

      —         (22 )      (22 )      0.01  

Percentage (%)

      —         73.33       73.33    

Impaired

      (2,601,057 )      (63,243 )      (2,664,300 )      81.05  

Percentage (%)

      72.07       49.85       71.31    
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      (2,969,701 )      (317,294 )      (3,286,995 ))      100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Percentage (%)

      51.80       0.48       4.60    

Carrying amounts:

         

Normal

         

Not past due

      1,754,621       65,372,682       67,127,303       98.43  

Past due

      —         8       8       0.01  

Impaired

      1,008,204       63,623       1,071,827       1.56  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 2,762,825     ￦ 65,436,313     ￦ 68,199,138       100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

The above carrying amounts exclude loan valuation adjustment related to fair value hedging amounting to ￦17,139 million and ￦24,182 million as of June 30, 2018, and December 31, 2017, respectively.

 

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Table of Contents

1) Credit quality of loans that are neither past due nor impaired

Credit quality of loans that are neither past due nor impaired as of December 31, 2017, are as follows (Korean won in millions):

(December 31, 2017)

 

Criteria

   Loans     Deferred
loan
origination
fees and
costs		              
  Loans in
local currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		     Allowances     Carrying
amount		  

Best

   ￦ 2,802,177     ￦ 9,769,413     ￦ 2,121,958     ￦ 14,693,548       21.56       ￦ (62,402)       ￦(9,752)     ￦ 14,621,394  

Outstanding

     4,451,381       29,153,655       1,696,223       35,301,259       51.80       (318,151 )      (72,261 )      34,910,847  

Good

     6,485,730       7,888,486       1,226,780       15,600,996       22.90       (13,665 )      (144,840 )      15,442,491  

Below normal

     1,763,682       787,472       —         2,551,154       3.74       (2,763 )      (395,820 )      2,152,571  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 15,502,970     ￦ 47,599,026     ￦ 5,044,961     ￦ 68,146,957       100.00       ￦ (396,981)     ￦ (622,673 )    ￦ 67,127,303  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

2) Aging analysis of loans that are past due but not impaired

Aging analysis of loans that are past due but not impaired as of December 31, 2017, are as follows (Korean won in millions):

(December 31, 2017)

 

    Loans     Deferred
loan
origination
fees and
costs		              
    Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		     Allowances     Carrying
amount		  

Within one months

   ￦ 30     ￦ —       ￦ —       ￦ 30       100.00     ￦ —         ￦ (22)     ￦ 8  

Within two months

     —         —         —         —         —         —         —         —    

Within three months

     —         —         —         —         —         —         —         —    

Over three months

     —         —         —         —         —         —         —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 30     ￦ —       ￦ —       ￦ 30       100.00     ￦ —         ￦ (22)       ￦8  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

3) Loans assessed for impairment on individual basis

Loans assessed for impairment on individual basis by country and industry of the Bank’s counterparties, as of December 31, 2017, are as follows (Korean won in millions):

(December 31, 2017)

 

    Loans     Allowance     Allowance ratio (%)  
    Domestic     Foreign     Total     Domestic     Foreign     Total     Domestic     Foreign     Total  

Manufacturing

   ￦ 3,449,650     ￦ 35,365     ￦ 3,485,015     ￦ (2,484,785 )    ￦ (35,365 )    ￦ (2,520,150 )      72.03       100.00       72.31  

Transportation

     —         17,218       17,218       —         —         —         —         —         —    

Construction

     1,187       —         1,187       (1,187 )      —         (1,187 )      100.00       —         100.00  

Public Sector & Others

     —         105,841       105,841       —         (79,720 )      (79,720 )      —         75.32       75.32  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 3,450,837     ￦ 158,424     ￦ 3,609,261     ￦ (2,485,972 )    ￦ (115,085 )    ￦ (2,601,057 )      72.04       72.64       72.07  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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Table of Contents

(5) Credit quality of securities (debt securities)

1) Financial assets at FVTPL and Securities (debt securities) exposed to credit risk as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

     12 month
expected
credit losses		      Lifetime
expected
credit losses		      Credit-
impaired
financial
assets		      Total  

Grade 1

    ￦ 973,885      ￦ —        ￦ —        ￦ 973,885  

Grade 2

      15,087        —          —          15,087  

Grade 3

      83,802        —          —          83,802  

Grade 4

      45,025        —          —          45,025  

Grade 5

      —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 1,117,799      ￦ —        ￦ —        ￦ 1,117,799  
  

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2017)

 

Securities that are neither past due nor impaired

    ￦ 1,039,660  

2) Credit quality of securities (debt securities) that are neither past due nor impaired as December 31, 2017, are as follows (Korean won in millions):

(December 31, 2017)

 

     Credit quality(*)  
     Grade 1      Grade 2      Grade 3      Grade 4      Grade 5      Total  

Financial assets at FVTPL

    ￦ 38,665      ￦ —        ￦ —        ￦ —        ￦ —        ￦ 38,665  

AFS financial assets

      911,518        —          —          —          —          911,518  

HTM financial assets

      89,477        —          —          —          —          89,477  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 1,039,660      ￦ —        ￦ —        ￦ —        ￦ —        ￦ 1,039,660  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(*)

Credit quality is classified based on internal credit quality grade as below:

 

     Credit rating

Grade 1

    AAA ~ BBB

Grade 2

    BBB- ~ BB

Grade 3

    BB- ~ B

Grade 4

    B- ~ C

Grade 5

    D

(6) Concentration of credit risk

The amounts disclosed below exclude loan valuation adjustment related to fair value hedging amounting to ￦17,139 million and ￦24,182 million as of June 30, 2018, and December 31, 2017, respectively.

 

S-34

Table of Contents

1) Loans by country where the credit risk belongs to as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(Jun. 30, 2018)

 

    Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		     Deferred
loan
origination
fees		     Allowances  

Asia:

              

Korea

   ￦ 17,189,663       6,727,446       1,132,460       25,049,569       34.26       (7,656 )      (2,153,817 ) 

China

     —         1,813,432       268,402       2,081,834       2.85       (453 )      (32,884 ) 

Saudi Arabia

     —         3,845,382       12,812       3,858,194       5.28       (48,872 )      (7,919 ) 

India

     —         3,197,139       45,267       3,242,406       4.44       (20,626 )      (5,104 ) 

Indonesia

     17,000       3,343,157       8,947       3,369,104       4.61       (65,791 )      (12,657 ) 

Vietnam

     —         3,910,463       9,233       3,919,696       5.36       (22,576 )      (19,266 ) 

Australia

     —         2,170,037       45,667       2,215,704       3.03       (19,001 )      (2,817 ) 

Philippines

     —         155,779       2,632       158,411       0.22       (40 )      (914 ) 

Qatar

     —         684,215       —         684,215       0.94       (2,695 )      (3,674 ) 

Singapore

     —         244,161       103,057       347,218       0.47       (1,027 )      (700 ) 

Oman

     —         1,035,831       9,495       1,045,326       1.43       (11,158 )      (3,693 ) 

Hong Kong

     —         1,086,769       581,156       1,667,925       2.28       (2,317 )      (1,257 ) 

The United Arab Emirates

     —         3,212,203       4,554       3,216,757       4.40       (25,209 )      (967 ) 

Others

     —         3,055,587       606,588       3,662,175       5.01       (50,585 )      (36,115 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     17,206,663       34,481,601       2,830,270       54,518,534       74.57       (278,006 )      (2,281,784 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Europe:

              

Russia

     —         366,756       —         366,756       0.50       (8 )      (1,061 ) 

United Kingdom

     —         469,614       68,770       538,384       0.74       (1,478 )      (730 ) 

France

     —         170,954       156,038       326,992       0.45       (2,053 )      (297 ) 

Netherlands

     —         2,767       24,143       26,910       0.04       —         (85 ) 

Malta

     —         120,904       —         120,904       0.17       (1,046 )      (132 ) 

Uzbekistan

     —         689,743       68,720       758,463       1.04       (6,009 )      (7,671 ) 

Greece

     —         236,121       —         236,121       0.32       (1,263 )      (281 ) 

Turkey

     —         799,541       12,511       812,052       1.11       (16,340 )      (3,090 ) 

Germany

     —         270,860       130       270,990       0.37       (432 )      (580 ) 

Ukraine

     —         103,911       —         103,911       0.14       (2,058 )      (1,221 ) 

Cyprus

     —         222,117       —         222,117       0.30       (2,090 )      (57 ) 

Hungary

     —         143,110       —         143,110       0.20       (1,063 )      (19,821 ) 

Others

     —         739,675       73,793       813,468       1.11       (4,351 )      (3,861 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         4,336,073       404,105       4,740,178       6.48       (38,191 )      (38,887 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

America:

              

Panama

     —         1,216,011       —         1,216,011       1.66       (2,935 )      (4,192 ) 

United States

     —         2,412,273       54,683       2,466,956       3.37       (5,539 )      (30,956 ) 

The British

Virgin Islands

     —         207,749       —         207,749       1.13       (2,229 )      (377 ) 

Mexico

     —         823,766       —         823,766       1.31       (5,962 )      (1,921 ) 

Bermuda

     —         957,382       —         957,382       2.93       (6,937 )      (61,783 ) 

Brazil

     —         2,142,974       —         2,142,974       1.95       (5,260 )      (5,234 ) 

Others

     —         1,422,087       6,547       1,428,634       12.64       (5,126 )      (30,528 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         9,182,242       61,230       9,243,472       1.13       (33,988 )      (134,991 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Africa:

              

Marshall Islands

     —         2,225,096       —         2,225,096       3.04       (10,080 )      (2,635 ) 

Liberia

     —         438,505       —         438,505       0.60       (3,111 )      (45,837 ) 

Madagascar

     —         389,134       —         389,134       0.53       (1,692 )      (65,380 ) 

Others

     —         1,551,268       3,077       1,554,345       2.13       (17,482 )      (131,086 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         4,604,003       3,077       4,607,080       6.30       (32,365 )      (244,938 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

     17,206,663       52,603,919       3,298,682       73,109,264       100.00       (382,550 )      (2,700,600 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

S-35

Table of Contents

(December 31, 2017)

 

    Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		     Deferred
loan
origination
fees		     Allowances  

Asia:

              

Korea

   ￦ 18,939,007     ￦ 5,315,232     ￦ 604,003     ￦ 24,858,242       34.58     ￦ (6,410 )    ￦ (2,995,149 ) 

China

     —         1,833,920       311,601       2,145,521       2.98       (366 )      (37,646 ) 

Saudi Arabia

     —         3,795,685       24,637       3,820,322       5.31       (52,670 )      (8,303 ) 

India

     —         2,743,764       26,628       2,770,392       3.85       (22,580 )      (4,003 ) 

Indonesia

     17,000       3,234,658       8,326       3,259,984       4.54       (70,546 )      (10,627 ) 

Vietnam

     —         3,250,478       16,027       3,266,505       4.54       (22,466 )      (20,972 ) 

Australia

     —         2,170,414       836       2,171,250       3.02       (19,996 )      (4,234 ) 

Philippines

     —         245,572       —         245,572       0.34       (50 )      (10,126 ) 

Qatar

     —         678,507       —         678,507       0.94       (2,832 )      (2,302 ) 

Singapore

     —         163,068       75,507       238,575       0.33       (851 )      (318 ) 

Oman

     —         975,651       10,707       986,358       1.37       (11,643 )      (3,121 ) 

Hong Kong

     —         999,457       387,148       1,386,605       1.93       (2,383 )      (2,491 ) 

The United Arab Emirates

     —         2,921,077       4,863       2,925,940       4.08       (27,197 )      (6,928 ) 

Others

     —         2,296,222       3,168,744       5,464,966       7.61       (53,012 )      (16,618 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     18,956,007       30,623,705       4,639,027       54,218,739       75.42       (293,002 )      (3,122,838 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Europe:

              

Russia

     —         362,699       —         362,699       0.50       (15 )      (1,208 ) 

United Kingdom

     —         444,050       66,542       510,592       0.71       (1,469 )      (433 ) 

France

     —         144,968       3,062       148,030       0.21       (2,188 )      (83 ) 

Netherlands

     —         2,642       12,918       15,560       0.02       —         (44 ) 

Malta

     —         125,602       —         125,602       0.17       (1,211 )      —    

Uzbekistan

     —         669,111       155,895       825,006       1.15       (6,263 )      (4,770 ) 

Greece

     —         237,504       —         237,504       0.33       (1,327 )      (114 ) 

Turkey

     —         659,824       2,802       662,626       0.92       (9,059 )      (1,999 ) 

Germany

     —         281,095       402       281,497       0.39       (478 )      (709 ) 

Ukraine

     —         119,102       —         119,102       0.17       (3,000 )      (91 ) 

Cyprus

     —         232,689       —         232,689       0.32       (2,354 )      —    

Hungary

     —         145,347       —         145,347       0.20       (1,095 )      (5,433 ) 

Others

     —         568,424       99,041       667,465       0.94       (3,692 )      (2,097 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         3,993,057       340,662       4,333,719       6.03       (32,151 )      (16,981 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

America:

              

Panama

     —         1,215,278       —         1,215,278       1.69       (3,273 )      (6,440 ) 

United States

     —         2,540,975       72,629       2,613,604       3.64       (7,733 )      (80,463 ) 

The British
Virgin Islands

     —         219,215       —         219,215       0.30       (2,363 )      (47 ) 

Mexico

     —         834,136       —         834,136       1.16       (6,167 )      (2,194 ) 

Bermuda

     —         819,398       —         819,398       1.14       (7,173 )      (16,533 ) 

Brazil

     —         2,097,645       —         2,097,645       2.92       (5,589 )      (4,117 ) 

Others

     —         1,426,809       3,299       1,430,108       1.99       (5,843 )      (23,511 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         9,153,456       75,928       9,229,384       12.84       (38,141 )      (133,305 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Africa:

              

Marshall Islands

     —         1,903,658       —         1,903,658       2.65       (11,349 )      (8,025 ) 

Liberia

     —         444,802       —         444,802       0.62       (3,344 )      (666 ) 

Madagascar

     —         371,684       —         371,684       0.52       (1,832 )      (1,200 ) 

Others

     —         1,382,260       —         1,382,260       1.92       (18,294 )      (3,980 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         4,102,404       —         4,102,404       5.71       (34,819 )      (13,871 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 18,939,007     ￦ 47,872,622     ￦ 5,055,617     ￦ 71,884,246       100.00     ￦ (398,113 )    ￦ (3,286,995 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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2) Loans by industry as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

    Loans     Deferred
loan
origination
fees		     Allowances  
  Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		  

Manufacturing

   ￦ 11,697,301     ￦ 23,687,505     ￦ 437,929     ￦ 35,822,735       49.00     ￦ (155,540 )    ￦ (2,455,039 ) 

Transportation

     402,155       7,393,327       —         7,795,482       10.66       (38,686 )      (155,116 ) 

Financial institutions

     3,680,368       6,937,118       2,810,943       13,428,429       18.37       (6,335 )      (16,646 ) 

Wholesale and retail

     381,493       1,368,201       38,391       1,788,085       2.45       (3,333 )      (11,137 ) 

Real estate

     —         106,590       —         106,590       0.15       (1,810 )      (703 ) 

Construction

     625,189       419,750       446       1,045,385       1.43       (8,184 )      (7,629 ) 

Public sector and others

     420,157       12,691,428       10,973       13,122,558       17.94       (168,662 )      (54,330 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 17,206,663     ￦ 52,603,919     ￦ 3,298,682     ￦ 73,109,264       100.00     ￦ (382,550 )    ￦ (2,700,600 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(December 31, 2017)

 

    Loans     Deferred
loan
origination
fees		     Allowances  
  Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		  

Manufacturing

   ￦ 14,316,259     ￦ 21,739,146     ￦ 264,633     ￦ 36,320,038       50.53     ￦ (163,359 )    ￦ (3,090,742 ) 

Transportation

     273,905       6,663,808       —         6,937,713       9.65       (39,566 )      (27,784 ) 

Financial institutions

     2,477,740       4,929,310       4,762,571       12,169,621       16.93       (5,451 )      (17,960 ) 

Wholesale and retail

     691,117       1,212,952       25,590       1,929,659       2.68       (3,447 )      (8,444 ) 

Real estate

     9,000       318,201       —         327,201       0.46       (1,917 )      (801 ) 

Construction

     752,442       599,986       447       1,352,875       1.88       (588 )      (9,790 ) 

Public sector and others

     435,545       12,409,218       2,376       12,847,139       17.87       (183,785 )      (131,474 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 18,956,008     ￦ 47,872,621     ￦ 5,055,617     ￦ 71,884,246       100.00     ￦ (398,113 )    ￦ (3,286,995 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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3) Concentration of credit risk of financial assets at FVTPL and securities (debt securities) by industry as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

     Amount      Ratio (%)  

Financial Assets at FVTPL

      

Government and government sponsored institutions

    ￦ —          —    

Banking and insurance

      11,168        37.00  

Others

      19,014        63.00  
  

 

 

     

 

 

  

Subtotal

      30,182        100.00  
  

 

 

     

 

 

  

Financial Assets at FVOCI

      

Government and government sponsored institutions

      101,639        9.91  

Banking and insurance

      880,625        85.90  

Others

      42,959        4.19  
  

 

 

     

 

 

  

Subtotal

      1,025,223        100.00  
  

 

 

     

 

 

  

Financial Assets at amortized cost

      

Government and government sponsored institutions

      —          —    

Banking and insurance

      90,329        97.57  

Others

      2,247        2.43  
  

 

 

     

 

 

  

Subtotal

      92,576        100.00  
  

 

 

     

 

 

  

Total

    ￦ 1,147,981     
  

 

 

     

(December 31, 2017)

 

     Amount      Ratio (%)  

Financial Assets at FVTPL

      

Government and government sponsored institutions

    ￦ —          —    

Banking and insurance

      12,729        32.92  

Others

      25,936        67.08  
  

 

 

     

 

 

  

Subtotal

      38,665        100.00  
  

 

 

     

 

 

  

AFS financial assets

      

Government and government sponsored institutions

      165,117        18.11  

Banking and insurance

      370,859        40.69  

Others

      375,542        41.20  
  

 

 

     

 

 

  

Subtotal

      911,518        100.00  
  

 

 

     

 

 

  

HTM financial assets

      

Government and government sponsored institutions

      5,356        5.98  

Banking and insurance

      61,076        68.26  

Others

      23,045        25.76  
  

 

 

     

 

 

  

Subtotal

      89,477        100.00  
  

 

 

     

 

 

  

Total

    ￦ 1,039,660     
  

 

 

     

 

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4) Concentration of credit risk of financial assets at FVTPL and securities (debt securities) by country as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

     Jun. 30, 2018  
     Amount      Ratio (%)  

Financial assets at FVTPL

      

Korea

    ￦ 13,403        44.41  

Others

      16,779        55.59  
  

 

 

     

 

 

  

Subtotal

      30,182        100.00  
  

 

 

     

 

 

  

Financial Assets at FVOCI

      

Korea

      289,083        28.20  

Others

      736,140        71.80  
  

 

 

     

 

 

  

Subtotal

      1,025,223        100.00  
  

 

 

     

 

 

  

Financial Assets at amortized cost

      

Korea

      38,997        42.12  

Others

      53,579        57.88  
  

 

 

     

 

 

  

Subtotal

      92,576        100.00  
  

 

 

     

 

 

  

Total

    ￦ 1,147,981     
  

 

 

     

(December 31, 2017)

 

     Dec. 31, 2017  
     Amount      Ratio (%)  

Financial assets at FVTPL

      

United States

    ￦ 24,895        64.39  

Others

      13,770        35.61  
  

 

 

     

 

 

  

Subtotal

      38,665        100.00  
  

 

 

     

 

 

  

AFS financial assets

      

Korea

      323,725        35.51  

United States

      427,449        46.89  

Others

      160,334        17.60  
  

 

 

     

 

 

  

Subtotal

      911,518        100.00  
  

 

 

     

 

 

  

HTM financial assets

      

Korea

      28,616        31.98  

China

      27,912        31.19  

Others

      32,949        36.83  
  

 

 

     

 

 

  

Subtotal

      89,477        100.00  
  

 

 

     

 

 

  

Total

    ￦ 1,039,660     
  

 

 

     

 

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5) Credit enhancement and its financial effect as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

    Loans (*1)     Acceptances
and guarantees		     Unused loan
commitments		     Total     Ratio
(%)		  

Maximum exposure to credit risk

   ￦ 72,726,713     ￦ 41,427,133     ￦ 16,355,510     ￦ 130,509,356       100.00  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Credit enhancement:

          

Deposits and savings

     110,589       94,519       7,016       212,124       0.16  

Export guarantee insurance

     25,367       802,993       1,891       830,251       0.64  

Guarantee

     4,504,641       1,815,343       1,292,395       7,612,379       5.82  

Securities

     157,196       410,179       17,400       584,775       0.45  

Real estate

     1,801,462       1,242,173       109,221       3,152,856       2.42  

Ships

     810,790       206,783       —         1,017,573       0.78  

Others

     1,472,942       —         10,452       1,483,394       1.14  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     8,882,987       4,571,990       1,438,375       14,893,352       11.41  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Exposure to credit risk after deducting credit enhancement

   ￦ 63,843,726     ￦ 36,855,143     ￦ 14,917,135     ￦ 115,616,004       88.59  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*1) Loans exclude loans valuation adjustment related to fair value hedging.

(December 31, 2017)

 

    Loans (*1)     Acceptances
and guarantees		     Unused loan
commitments		     Total     Ratio
(%)		  

Maximum exposure to credit risk

   ￦ 71,486,133     ￦ 42,808,774     ￦ 19,737,788     ￦ 134,032,695       100.00  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Credit enhancement:

          

Deposits and savings

     93,112       93,168       7,840       194,120       0.15  

Export guarantee insurance

     —         884,694       1,806       886,500       0.66  

Guarantee

     3,851,033       1,902,263       1,381,731       7,135,027       5.32  

Securities

     149,004       410,282       17,450       576,736       0.43  

Real estate

     1,720,631       1,146,484       432,126       3,299,241       2.46  

Ships

     859,813       205,874       9,643       1,075,330       0.80  

Others

     1,515,638       23,402       9,838       1,548,878       1.16  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     8,189,231       4,666,167       1,860,434       14,715,832       10.98  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Exposure to credit risk after deducting credit enhancement

   ￦ 63,296,902     ￦ 38,142,607     ￦ 17,877,354     ￦ 119,316,863       89.02  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*1) Loans exclude loans valuation adjustment related to fair value hedging.

4-3. Liquidity risk

(1) Overview of liquidity risk

Liquidity risk is the risk that the Bank is unable to meet its payment obligations arising from financial liabilities as they become due. The Bank discloses all financial asset, financial liabilities and off-balance-sheet items, such as loan commitments and analysis of the contractual maturity, which are related to liquidity risk, into seven categories. The cash flows disclosed in the maturity analysis are undiscounted contractual amounts,

 

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including principal and future interest, which resulted in disagreement with the discounted cash flows included in the separate statements of financial position. However, for derivatives, each discounted cash flow consisting of current fair value is presented.

(2) Principles of the liquidity risk management

1) Liquidity risk is managed with integration. The Bank measures, reports and controls liquidity risk by quantification with reasonable method.

2) Liquidity risk reflects financing plans and fund-using plans, and the Bank reports the liquidity risk with preciseness, timeliness and consistency.

3) The Bank establishes liquidity risk management strategy by analyzing liquidity maturity, liquidity gap structure and market environment.

(3) Liquidity risk management

Risk management department monitors changes by liquidity risk sources and compliance of risk limits. It notifies related departments to prepare countermeasures in case the measured liquidity risk is close to risk limits. Also, it analyzes crisis situations and effects of the crisis situations and reports to the Risk Management Committee on a regular basis. Each related department monitors changes of liquidity risk sources and compliance of risk limits by itself and if exposure to new risk is expected, it discusses the matter with the head of risk management department.

(4) Measurement of liquidity risk

The Bank measures liquidity ratio, liquidity gap ratio and others for local currency and foreign currencies and simulates analysis reflecting market environment, product features and the Bank’s strategies.

(5) Analysis on remaining contractual maturity of financial liabilities and off-balance-sheet items

Remaining contractual maturity and amount of financial liabilities and off-balance-sheet items as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

    On demand     Within 1
month		     1 to 3
months		     3 to 6
Months		     6 to 12
months		     1 year to 5
years		     Over 5
years		     Total  

Financial liabilities:

                

Financial liabilities at FVTPL

   ￦ 1,012,308     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 1,012,308  

Hedging derivative liabilities

     —         7,260       36,855       18,017       148,442       824,891       739,954       1,775,419  

Borrowings

     —         417,190       1,747,505       422,228       285,943       3,730,274       332,616       6,935,756  

Debentures

     —         1,011,349       3,509,201       6,006,009       9,491,042       34,879,585       17,840,671       72,737,857  

Other financial liabilities

     —         1,365,664       2,052       423,324       387       59,529       866,422       2,717,378  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 1,012,308     ￦ 2,801,463     ￦ 5,295,613     ￦ 6,869,578     ￦ 9,925,814     ￦ 39,494,279     ￦ 19,779,663     ￦ 85,178,718  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Off-balance sheet

items(*):

                

Commitments

   ￦ 16,355,510     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 16,355,510  

Financial guarantee contracts

     14,952,448       —         —         —         —         —         —         14,952,448  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 31,307,958     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 31,307,958  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*)

Guarantees and loan commitments and other credit facilities provided by the Bank have maturities. However, if the counterparty requests the payment immediately, the payment must be fulfilled.

 

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(December 31, 2017)

 

    On demand     Within 1
month		     1 to 3
months		     3 to 6
Months		     6 to 12
months		     1 year to 5
years		     Over 5
years		     Total  

Financial liabilities:

                

Financial liabilities at FVTPL

   ￦ 911,778     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 911,778  

Hedging derivative liabilities

     —         206       57,322       91,587       45,610       449,538       413,933       1,058,196  

Borrowings

     —         216,013       15,770       1,139,708       424,604       3,936,528       575,566       6,308,189  

Debentures

     —         912,759       3,000,853       5,332,189       9,803,980       31,884,629       17,443,603       68,378,013  

Other financial liabilities

     —         985,367       —         —         65,689       34,810       708,632       1,794,498  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 911,778     ￦ 2,114,345     ￦ 3,073,945     ￦ 6,563,484     ￦ 10,339,883     ￦ 36,305,505     ￦ 19,141,734     ￦ 78,450,674  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Off-balance sheet

items(*):

                

Commitments

   ￦ 19,737,788     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 19,737,788  

Financial guarantee contracts

     14,493,065       —         —         —         —         —         —         14,493,065  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 34,230,853     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 34,230,853  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*)

Guarantees and loan commitments and other credit facilities provided by the Bank have maturities. However, if the counterparty requests the payment immediately, the payment must be fulfilled.

4-4. Market risk

(1) Overview of market risk

1) Definition of market risk

Market risk is the risk of possible losses that arise from the changes of market factors, such as interest rate, stock price, foreign exchange rate, commodity value and other market factors related to the fair value or future cash flows of the financial instruments. The Bank classifies exposures to market risk into either foreign exchange rate risk or interest rate risk. Foreign exchange risk means that possible losses on assets and liabilities denominated in foreign currencies due to changes of foreign exchange rate. Interest rate risk means that possible losses on assets and liabilities due to changes of interest rate.

2) Market risk management group

The Bank operates the Risk Management Committee and the Risk Management Council for managing risks and risk limits. The Risk Management Practices Committee assists the Risk Management Committee and the Risk Management Council for practical matters, such as managing adequate assets and liabilities by analyzing foreign exchange risk, interest rate risk, liquidity risk, money balance plan and effects by initiating new product. Market risk is managed by product and currency for minimizing segments exposed to changes of foreign exchange, interest rate and securities’ price. Foreign exchange risk is measured by definite method and probabilistic method and definite method is used for limits management. Interest rate value at risk (“VaR”) and interest rate earning at risk (“EaR”) are measured by BIS standards, definite method and probabilistic method and definite method is used for limits management. Meanwhile, the Bank performs financial crisis analysis supposing exceptional, but possible events for evaluating latent weakness. The analysis is used for important decision making, such as risk mitigation, emergency plan development and limit setup. The results of the analysis are reported to the board of directors and management on a quarterly basis.

 

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(2) Foreign exchange risk

1) Management of foreign exchange risk

Foreign exchange risk management limit is set up and included in internal capital management limit. A risk management division head monitors changes of foreign exchange risk by source and compliance of risk limits regularly. A finance division head also monitors changes of foreign exchange risk by source and compliance of risk limits. The finance division head needs to cooperate with the risk management division head in case it is expected that the Bank will be exposed to a new risk. The risk management division head orders related divisions to prepare countermeasures in case it is apprehended that foreign exchange risk exceeds risk limit. If foreign exchange risk exceeds the risk limit, the risk management division head orders related divisions to prepare countermeasures and reports to Risk Management Committee after resolving the exceeded limit problem.

2) Measurement of foreign exchange risk

Foreign exchange risk is managed by foreign exchange VaR and foreign exchange position. Foreign exchange VaR is measured on a monthly basis and foreign exchange position is measured on a daily basis. It is measured separately by currency for assets and liabilities denominated in foreign currencies exceeding 5% of total assets and liabilities denominated in foreign currencies.

3) Measurement method

① VaR

The Bank uses a yearly VaR to measure market risk. The yearly VaR is a statistically estimated maximum amount of loss that could occur in one year under normal distribution of financial variables. The Bank calculates VaR using equal weighted-average method based on historical changes in market rates, prices and volatilities over the previous five years data and measures VaR at a 99% single tail confidence level. VaR is a commonly used market risk management technique. However, the method has some shortcomings.

VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movement, however, is not necessarily a good indicator of future events, as there may be conditions and circumstances in the future that the model does not anticipate. As a result, the timing and magnitude of the actual losses can be different, depending on the assumptions made at the time of calculation. In addition, the time periods used for the model, generally one day or 10 days, are assumed to be a sufficient holding period before liquidating the relevant underlying positions. If these holding periods are not sufficient, or too long, the VaR results may understate or overstate the potential loss.

② Stress testing

The stress testing is carried out to analyze the abnormal market situation reflecting intrinsic volatility of foreign exchange that has significant influent on the value of portfolio. The Bank mainly uses historical scenario tool and also uses hypothetical scenario tool for the analysis of an abnormal market situation. Stress testing is performed at least once in every quarter.

③ Results of measurement

Results of foreign exchange VaR as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

    Jun. 30, 2018     Dec. 31, 2017  
  Average     Minimum     Maximum     Ending     Average     Minimum     Maximum     Ending  

Foreign exchange risk

   ￦ 20,185     ￦ 4,635     ￦ 36,969     ￦ 12,300     ￦ 55,558     ￦ 6,117     ￦ 111,035     ￦ 37,718  

 

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(3) Interest rate risk

1) Management of interest rate risk

Interest rate risk management limit is set up and included in internal capital management limit. A risk management division head monitors changes of interest rate risk by source and compliance of risk limits regularly. A finance division head also monitors changes of interest rate risk by source and compliance of risk limits. The finance division head needs to cooperate with the risk management division head in case it is expected that the Bank will be exposed to a new risk. The risk management division head orders related divisions to prepare countermeasures in case it is apprehended that interest rate risk exceeds risk limit. If interest rate risk exceeds the risk limit, the risk management division head orders related divisions to prepare countermeasures and reports to Risk Management Committee after resolving the exceeded limit problem.

2) Measurement of interest rate risk

Interest rate risk is managed by measuring interest rate EaR and interest rate VaR and uses interest rate sensitivity gap and duration gap as supplementary index. Interest rate EaR and interest rate VaR are measured on a monthly basis, and interest rate sensitivity gap and duration gap are measured on a daily basis. The Bank simulates analysis reflecting market environment, product features and the Bank’s strategies.

3) Measurement method

① VaR

The Bank uses a yearly VaR to measure market risk. The yearly VaR is a statistically estimated maximum amount of loss that could occur in one year under normal distribution of financial variables. The Bank calculates VaR using equal weighted-average method based on historical changes in market rates, prices and volatilities over the previous five years data and measures VaR at a 99% single tail confidence level. This means the actual amount of loss may exceed the VaR, on average, once out of 100 business days. VaR is a commonly used market risk management technique. However, the method has some limitations.

VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movement, however, is not necessarily a good indicator of future events, as there may be conditions and circumstances in the future that the model does not anticipate. As a result, the timing and magnitude of the actual losses can be different depending on the assumptions made at the time of calculation. In addition, the time periods used for the model, generally one day or 10 days, are assumed to be a sufficient holding period before liquidating the relevant underlying positions. If these holding periods are not sufficient or too long, the VaR results may understate or overstate the potential loss.

② Stress testing

The stress testing is carried out to analyze the abnormal market situation reflecting intrinsic volatility of interest rate that has significant influence on the value of portfolio. The Bank mainly uses historical scenario tool and also uses hypothetical scenario tool for the analysis of an abnormal market situation. Stress testing is performed at least once in every quarter.

 

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③ Results of measurement

Results of interest rate VaR as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

    Jun. 30, 2018     Dec. 31, 2017  
  Average     Minimum     Maximum     Ending     Average     Minimum     Maximum     Ending  

Interest rate risk

   ￦ 84,180     ￦ 37,984     ￦ 112,921     ￦ 37,984     ￦ 112,024     ￦ 58,413     ￦ 179,886     ￦ 96,423  

4-5. Capital risk

The Bank follows the standard of capital adequacy established by the Financial Services Commission. The standard is based on Basel III, which was established by Basel Committee on Banking Supervision in BIS. In Korea, this standard has been followed since December 2013. According to the standard, domestic banks should maintain at least 8% or above of BIS capital ratio for risk-weighted asset, and quarterly report BIS capital ratio to the FSS.

According to Korean Banking Supervision rules for operations, the Bank’s capitals are mainly divided into two categories:

1) Tier 1 capital (basic capital): Basic capital is composed of capital stock-common and other basic capital. Capital stock-common includes common stock satisfied with qualifications, capital surplus, retained earnings, accumulated other comprehensive income, other reserves and non-controlling interests among the common stock of consolidated subsidiaries. Other basic capital includes securities and capital surplus satisfied with qualifications

2) Tier 2 capital (supplementary capital): Supplementary capital is composed of the securities and capital surplus satisfied with qualifications, non-controlling interests among the securities of consolidated subsidiaries and the amounts of less than below 1.25% of credit risk-weighted asset like allowance for credit losses in respect of credits classified as normal or precautionary.

The risk-weighted asset includes intrinsic risks in total assets, errors of internal operation processes and loss risk from external events. It indicates a size of assets reflecting the level of risks that the Bank bears. The Bank computes the risk-weighted asset by risks (credit risk, market risk and operational risk) and uses it for calculation of BIS capital ratio.

 

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5. FINANCIAL ASSETS AND FINANCIAL LIABILITIES:

5-1. Classification and fair value

(1) Carrying amounts and fair values of financial instruments as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

    Classification     Carrying
amount		     Fair value  

Financial assets:

      

Cash and due from financial institutions

     Non-recurring     ￦ 4,864,717     ￦ 4,864,730  

Financial assets at FVTPL

     Recurring       1,930,661       1,930,661  

Hedging derivative assets

     Recurring       63,268       63,268  

Loans at amortized cost

     Non-recurring       70,043,253       70,129,266  

Financial assets at FVOCI

     Recurring       8,249,619       8,249,619  

Financial assets at amortized cost

     Non-recurring       92,542       92,477  

Other financial assets

     Non-recurring       1,266,116       1,266,116  
   

 

 

    

 

 

  
    ￦ 86,510,176     ￦ 86,596,137  
   

 

 

    

 

 

  

Financial liabilities:

      

Financial liabilities at FVTPL

     Recurring     ￦ 1,012,308     ￦ 1,012,308  

Hedging derivative liabilities

     Recurring       1,775,419       1,775,419  

Borrowings

     Non-recurring       6,601,474       6,596,351  

Debentures

     Non-recurring       64,308,624       63,466,021  

Other financial liabilities

     Non-recurring       2,717,379       2,717,379  
   

 

 

    

 

 

  
    ￦ 76,415,204     ￦ 75,567,478  
   

 

 

    

 

 

  

(December 31, 2017)

 

    Classification     Carrying
amount		     Fair value  

Financial assets:

      

Cash and due from financial institutions

     Non-recurring     ￦ 2,091,920     ￦ 2,092,008  

Financial assets at FVTPL

     Recurring       1,616,973       1,616,973  

Hedging derivative assets

     Recurring       228,121       228,121  

Loans

     Non-recurring       68,223,320       69,459,210  

AFS financial assets

     Recurring       6,692,478       6,692,478  

HTM financial assets

     Non-recurring       89,477       89,119  

Other financial assets

     Non-recurring       933,510       933,510  
   

 

 

    

 

 

  
    ￦ 79,875,799     ￦ 81,111,419  
   

 

 

    

 

 

  

Financial liabilities:

      

Financial liabilities at FVTPL

     Recurring     ￦ 911,778     ￦ 911,778  

Hedging derivative liabilities

     Recurring       1,058,196       1,058,196  

Borrowings

     Non-recurring       6,013,457       5,985,700  

Debentures

     Non-recurring       60,685,098       61,193,068  

Other financial liabilities

     Non-recurring       1,794,498       1,794,498  
   

 

 

    

 

 

  
    ￦ 70,463,027     ￦ 70,943,240  
   

 

 

    

 

 

  

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For each class of financial assets and financial

 

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liabilities, the Bank discloses the fair value of that class of assets and liabilities in a way that permits them to be compared with their carrying amount at the end of each reporting period. The best evidence of fair value of financial instruments is quoted price in an active market.

Methods for measuring fair value of financial instruments are as follows:

 

Financial instruments

   

Method of measuring fair value

Loans and receivables

   

As demand deposits and transferable deposits do not have maturity and are readily convertible to cash, the carrying amounts of these deposits approximate their fair values. Fair values of the deposits with the maturity of more than one year are determined by discounted cash flow model (“DCF model”).

 

DCF model is also used to determine the fair value of loans. Fair value is determined by discounting the cash flows expected from the each contractual period by applying the discount rates for each period.

Investment securities

    Trading financial assets and liabilities and AFS financial assets are measured at fair value using a quoted market price in an active market. If a quoted market price is not available, they are measured by using a price quoted by a third party, such as a pricing service or broker or using the DCF model.

Derivatives

    For exchange traded derivative, quoted price in active market is used to determine fair value and for OTC derivative, fair value is determined primarily using the DCF model. The Bank uses internally developed valuation models that are widely used by market participants to determine fair value of plain OTC derivatives including option, interest rate swap and currency swap based on observable market parameters. However, some complex financial instruments are valued using the results of independent pricing services, where part or all of the inputs are not observable in the market.

Borrowings

    Fair value is determined using DCF model discounting contractual future cash flows by appropriate discount rate.

Debentures

   

Fair value of debentures denominated in local currency is determined by using the valuation of independent third-party pricing services in accordance with the market prices that are quoted in active markets.

 

Fair value of debentures denominated in foreign currencies is determined by DCF model.

Fair values of financial assets and financial liabilities classified as fair value Level 3 of the fair value hierarchy are determined by using the valuation of independent third-party pricing services. Meanwhile, carrying amounts of other financial assets and financial liabilities are regarded as an approximation of fair values.

 

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(2) Fair value hierarchy

Fair value hierarchy of financial assets and liabilities, which are not measured at fair value as of June 30, 2018, and December 31, 2017, is as follows (Korean won in millions):

(June 30, 2018)

 

     Level 1      Level 2      Level 3      Total  

Financial assets:

            

Cash and due from financial institutions

    ￦ 1,737,222      ￦ —        ￦ 3,127,508      ￦ 4,864,730  

Loans at amortized cost

      —          —          70,129,266        70,129,266  

Financial assets at amortized cost

      —          92,477        —          92,477  

Other financial assets

      —          —          1,266,116        1,266,116  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 1,737,222      ￦ 92,477      ￦ 74,522,890      ￦ 76,352,589  
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities:

            

Borrowings

    ￦ —        ￦ 6,596,351      ￦ —        ￦ 6,596,351  

Debentures

      —          63,466,021        —          63,466,021  

Other financial liabilities

      —          —          2,717,379        2,717,379  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ —        ￦ 70,062,372      ￦ 2,717,379      ￦ 72,779,751  
  

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2017)

 

     Level 1      Level 2      Level 3      Total  

Financial assets:

            

Cash and due from financial institutions

    ￦ 647,521      ￦ —        ￦ 1,444,487      ￦ 2,092,008  

Loans

      —          —          69,459,210        69,459,210  

HTM financial assets

      —          89,119        —          89,119  

Other financial assets

      —          —          933,510        933,510  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 647,521      ￦ 89,119      ￦ 71,837,207      ￦ 72,573,847  
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities:

            

Borrowings

    ￦ —        ￦ 5,985,700      ￦ —        ￦ 5,985,700  

Debentures

      —          61,193,068        —          61,193,068  

Other financial liabilities

      —          —          1,794,498        1,794,498  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ —        ￦ 67,178,768      ￦ 1,794,498      ￦ 68,973,266  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

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Fair value hierarchy of financial assets and liabilities measured at fair value as of June 30, 2018, and December 31, 2017, is as follows (Korean won in millions):

(June 30, 2018)

 

     Level 1      Level 2      Level 3      Total  

Financial assets:

            

Financial assets at FVTPL

    ￦ —        ￦ 1,720,239      ￦ 210,422      ￦ 1,930,661  

Hedging derivative assets

      —          63,268        —          63,268  

Financial assets at FVOCI

      306,212        925,754        7,017,653        8,249,619  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 306,212      ￦ 2,709,261      ￦ 7,228,075      ￦ 10,243,548  
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities:

            

Financial liabilities at FVTPL

    ￦ —        ￦ 1,012,308      ￦ —        ￦ 1,012,308  

Hedging derivative liabilities

      —          1,775,419        —          1,775,419  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ —        ￦ 2,787,727      ￦ —        ￦ 2,787,727  
  

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2017)

 

     Level 1      Level 2      Level 3      Total  

Financial assets:

            

Financial assets at FVTPL

    ￦ 725,613      ￦ 891,360      ￦ —        ￦ 1,616,973  

Hedging derivative assets

      —          228,121        —          228,121  

AFS financial assets

      319,416        812,471        3,906,416        5,038,303  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 1,045,029      ￦ 1,931,952      ￦ 3,906,416      ￦ 6,883,397  
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities:

            

Financial liabilities at FVTPL

    ￦ —        ￦ 911,778      ￦ —        ￦ 911,778  

Hedging derivative liabilities

      —          1,058,196        —          1,058,196  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ —        ￦ 1,969,974      ￦ —        ￦ 1,969,974  
  

 

 

     

 

 

     

 

 

     

 

 

  

The Bank classifies financial instruments as three level of fair value hierarchy as below:

 

Level 1:

Financial instruments measured at quoted prices from active markets are classified as fair value Level 1. This level includes listed equity securities, derivatives, and government bonds traded in an active exchange market.

 

Level 2:

Financial instruments measured using valuation techniques where all significant inputs are observable market data are classified as Level 2. This level includes the majority of debt and general OTC derivatives such as swap, futures and options

 

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. This level includes unlisted equity securities, structured bonds and OTC derivatives.

 

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The valuation techniques and input variables of Level 2 financial instruments subsequently not measured at fair value as of June 30, 2018 and December 31, 2017 are as follows (Korean won in millions):

(June 30, 2018)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

Financial assets at amortized cost

         

Debt securities

    ￦ 92,477        DCF Model        Discount rate  

Financial liabilities

         

Borrowings

      6,596,351        DCF Model        Discount rate  

Debentures

      63,466,021        DCF Model        Discount rate  

(December 31, 2017)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

HTM financial assets

         

Debt securities

    ￦ 89,119        DCF Model        Discount rate  

Financial liabilities

         

Borrowings

      5,985,700        DCF Model        Discount rate  

Debentures

      61,193,068        DCF Model        Discount rate  

The valuation techniques and input variables of Level 3 financial instruments subsequently not measured at fair value as of June 30, 2018 and December 31, 2017 are as follows (Korean won in millions):

(June 30, 2018)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

Loans at amortized cost

    ￦ 70,129,266        DCF Model        Discount rate  

Other financial assets

      1,266,116        DCF Model        Discount rate  

Financial liabilities

         

Other financial liabilities

      2,717,378        DCF Model        Discount rate  

(December 31, 2017)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

Loans

    ￦ 69,459,210        DCF Model        Discount rate  

Other financial assets

      933,510        DCF Model        Discount rate  

Financial liabilities

         

Other financial liabilities

      1,794,498        DCF Model        Discount rate  

 

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The valuation techniques and input variables of Level 2 financial instruments, measured at fair value after initial recognition, as of June 30, 2018 and December 31, 2017 are as follows (Korean won in millions):

(June 30, 2018)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

Financial assets at FVTPL:

         

Debt securities

    ￦ 862,207        DCF Model        Discount rate  

Derivative assets for trading

      858,032        DCF Model        Discount rate  

Hedging derivative assets

      63,268        DCF Model        Discount rate  

Financial assets at FVOCI:

         

Debt securities

      925,754        DCF Model        Discount rate  

Financial liabilities

         

Financial liabilities at FVTPL:

         

Derivative liabilities for

trading

      1,012,308        DCF Model        Discount rate  

Hedging derivative liabilities

      1,775,419        DCF Model        Discount rate  

(December 31, 2017)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

Financial assets at FVTPL

         

Debt securities

    ￦ 38,665        DCF Model        Discount rate  

Derivative assets for trading

      852,695        DCF Model        Discount rate  

Hedging derivative assets

      228,121        DCF Model        Discount rate  

AFS financial assets

         

Debt securities

      812,471        DCF Model        Discount rate  

Financial liabilities

         

Financial liabilities at FVTPL

         

Derivative liabilities for trading

      911,778        DCF Model        Discount rate  

Hedging derivative liabilities

      1,058,196        DCF Model        Discount rate  

Below table accounts for quantitative information of fair value using input factor, which is significant but unobservable, and relation between unobservable input factor and estimate of fair value.

(June 30, 2018)

 

    Fair value
(Korean won
in million)		     Valuation
techniques		   Significant
unobservable
input factors		     Range    

Relationship between

unobservable input factors and

fair value estimates

Financial assets at FVTPL:

Unlisted stock

   ￦ 17,430     DCF Model

NAV Methods

CCA Methods

     Discount rate       8.93 %    If discount rate is decreased (increased)/ if growth rate is increased (decreased), fair value is increased (decreased).

Marketable securities

     115,530  

Paid-in capital

     64,059       Growth rate       —    

Loans

     13,403  

Financial assets at FVOCI:

Unlisted stock

   ￦ 7,001,520     DCF Model

NAV Methods

CCA Methods

     Discount rate      

 0.00

17.27

 %~

% 

   If discount rate is decreased (increased)/ if growth rate is increased (decreased), fair value is increased (decreased).

Paid-in capital

     16,133       Growth rate       —    

 

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(December 31, 2017)

 

    Fair value
(Korean won
in millions)		    

Valuation
techniques

  

Significant
unobservable
input factors

  

Range

  

Relationship between

unobservable input factors and fair
value estimates

AFS financial assets:

      

Unlisted stock

   ￦  3,906,416    

DCF Model

CCA Methods NAV Methods

FTE Methods

   Discount rate   5.49%~19.31%   If discount rate is decreased (increased)/ if growth rate is increased (decrease), fair value is increased (decreased).
  Growth rate   —  

1) Changes in Level 3 financial assets that are measured at fair value for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

(Six months ended June 30, 2018)

 

     Beginning
balance (*1)		      Profit
(loss)		     Other
comprehen-
sive income		      Purchases /
issues		      Sales/
settlements		     Transfers
into Level 3 /
Transfers out
of Level 3		      Ending
balance		  

Financial assets

                   

Securities at FVTPL

    ￦ 134,325      ￦  9,910     ￦ —        ￦ 53,731      ￦ (947 )    ￦ —        ￦ 197,019  

Loans at FVTPL

      13,577        (174 )      —          —          —         —          13,403  

Financial assets at FVOCI

      6,292,539        —         675,130        49,999        (15 )      —          7,017,653  
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

    

 

 

     

 

 

  

Total

    ￦ 6,440,441      ￦ 9,736     ￦ 675,130      ￦ 103,730      ￦ (962 )    ￦ —        ￦ 7,228,075  
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

    

 

 

     

 

 

  

 

(*1)

The beginning balance was restated in accordance with K-IFRS No. 1109.

(December 31, 2017)

 

     Beginning
balance		      Profit
(Loss)		     Other
comprehen-
sive income		     Purchases/
issues		      Sales/
settlements		     Transfers into
Level 3 /
Transfers out
of Level 3		      Ending
balance		  

Financial assets

                  

AFS financial assets

    ￦ 3,931,733      ￦ (80 )    ￦ (87,259 )    ￦ 64,366      ￦  (2,344 )    ￦ —        ￦ 3,906,416  

2) In relation to changes in Level 3 of the fair value hierarchy, total gains or losses recognized in profit or loss for the period and total gains or losses for financial instruments held at the end of the reporting period in the separate statement of comprehensive income for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

 

     Net income (loss)  from
financial investments		  
     Six months ended
June 30, 2018		      2017  

Total gains (losses) on financial instruments held at the end of the reporting period

    ￦ 9,736      ￦ (80 ) 

Total gains (losses) included in profit or loss for the period

    ￦  9,736      ￦ (80 ) 

 

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3) The sensitivity of fair value analysis for the Level 3 financial instruments

The Bank performed the sensitivity analysis for the Level 3 financial instruments for which fair value would be measured differently upon reasonably possible alternative assumptions. The Bank classified the effect from changes upon the alternative assumptions into favorable effect and unfavorable effect and presented the most favorable effect or the most unfavorable effect in the table hereunder. Stocks are the financial instruments subject to sensitivity analysis, which are classified as Level 3 and of which changes in fair value are recognized as other comprehensive income. Meanwhile, equity instruments, which are recognized as cost among the financial instruments and are classified as Level 3 are excluded from the sensitivity analysis.

Sensitivity analysis details per market risk variable of each Level 3 financial instrument held and measured at fair value as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

     Net income (loss)     Other comprehensive income (loss)  
       Favorable              Unfavorable             Favorable              Unfavorable      

Financial assets:

           

Financial assets at FVTPL (*1)

    ￦ 1,155      ￦ (453 )    ￦ —        ￦ —    

Financial assets at FVOCI (*1)

      —          —         4,736,889        (1,107,196 ) 

(December 31, 2017)

 

     Net income (loss)      Other comprehensive income (loss)  
       Favorable              Unfavorable              Favorable              Unfavorable      

Financial assets:

            

AFS Financial assets (*1)

    ￦ —        ￦ —        ￦ 3,175,806      ￦ (936,590 ) 

 

(*1)

Changes in fair value of stocks are computed along with the increases or decreases in either growth rate from nil to 1% and discount rate or liquidation value from negative 1% to 1% and discount rate, which are unobservable inputs.

5-2. Carrying amounts of financial instruments

Carrying amounts of financial instruments as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

    Financial assets
at FVTPL		     Financial assets
at FVOCI		     Financial
assets at
amortized
cost		     Hedging
derivative
assets		     Total  

Financial assets:

          

Cash and due from financial institutions

   ￦ —       ￦ 4,864,717     ￦ —       ￦ —       ￦ 4,864,717  

Financial assets at FVTPL

     1,930,661       —         —         —         1,930,661  

Hedging derivative assets

     —         —         —         63,268       63,268  

Loans at amortized cost

     —         70,043,253       —         —         70,043,253  

Financial investments

     —         92,542       8,249,619       —         8,342,161  

Other financial assets

     —         1,266,116       —         —         1,266,116  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 1,930,661     ￦ 76,266,628     ￦ 8,249,619     ￦ 63,268     ￦ 86,510,176  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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     Financial
liabilities at
FVTPL		      Financial
liabilities at
amortized cost		      Hedging
derivative
liabilities		      Total  

Financial liabilities:

            

Financial liabilities at FVTPL

    ￦ 1,012,308      ￦ —        ￦ —        ￦ 1,012,308  

Hedging derivative liabilities

      —          —          1,775,419        1,775,419  

Borrowings

      —          6,601,474        —          6,601,474  

Debentures

      —          64,308,624        —          64,308,624  

Other financial liabilities

      —          2,717,379        —          2,717,379  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 1,012,308      ￦ 73,627,477      ￦ 1,775,419      ￦ 76,415,204  
  

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2017)

 

    Financial
assets at
FVTPL		     Loans     AFS financial
assets		     HTM financial
assets		     Hedging
derivative
assets		     Total  

Financial assets:

            

Cash and due from financial institutions

   ￦ —       ￦ 2,091,920     ￦ —       ￦ —       ￦ —       ￦ 2,091,920  

Financial assets at FVTPL

     1,616,973       —         —         —         —         1,616,973  

Hedging derivative assets

     —         —         —         —         228,121       228,121  

Loans

     —         68,223,320       —         —         —         68,223,320  

Financial investments

     —         —         6,692,478       89,477       —         6,781,955  

Other financial assets

     —         933,510       —         —         —         933,510  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 1,616,973     ￦ 71,248,750     ￦ 6,692,478     ￦ 89,477     ￦ 228,121     ￦ 79,875,799  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

     Financial
liabilities at
FVTPL		      Financial
liabilities at
amortized cost		      Hedging
derivative
liabilities		      Total  

Financial liabilities:

            

Financial liabilities at FVTPL

    ￦ 911,778      ￦ —        ￦ —        ￦ 911,778  

Hedging derivative liabilities

      —          —          1,058,196        1,058,196  

Borrowings

      —          6,013,457        —          6,013,457  

Debentures

      —          60,685,098        —          60,685,098  

Other financial liabilities

      —          1,794,498        —          1,794,498  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 911,778      ￦ 68,493,053      ￦ 1,058,196      ￦ 70,463,027  
  

 

 

     

 

 

     

 

 

     

 

 

  

5-3. Offset of financial instruments

The Bank has conditional rights of setoff that are enforceable and exercisable only in the events mentioned in agreements regardless of meeting some or all of the offsetting criteria in K-IFRS 1032 for financial instruments. Cash collaterals do not meet the offsetting criteria in K-IFRS 1032, but they can be set off with net amount of financial instruments.

 

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The effects of netting agreements as of June 30, 2018, and December 31, 2017, are as follow (Korean won in millions):

(June 30, 2018)

 

     Gross amounts
of recognized
financial assets
(liabilities)		      Gross
amounts of
recognized
financial
liabilities
(assets) to be
setoff		      Net amounts of
financial assets
(liabilities)
presented in the
separate
statement of
financial
position		     

 

Amount that is not offset in
the financial statements

     Net
amount		  
   Financial
instruments		     Cash
collateral		  

Financial assets:

                

Derivatives

    ￦ 921,300      ￦ —        ￦ 921,300      ￦ (290,538 )    ￦ (9,530 )    ￦ 621,232  

Financial liabilities:

                

Derivatives

      2,787,727        —          2,787,727        (290,538 )      (1,287,299 )      1,209,890  

(December 31, 2017)

 

     Gross amounts
of recognized
financial assets
(liabilities)		      Gross
amounts of
recognized
financial
liabilities
(assets) to be
setoff		      Net amounts of
financial assets
(liabilities)
presented in the
separate
statement of
financial
position		     

 

Amount that is not offset in
the financial statements

     Net
amount		  
   Financial
instruments		     Cash
collateral		  

Financial assets:

                

Derivatives

    ￦ 1,080,816      ￦ —        ￦ 1,080,816      ￦ (535,438 )    ￦ (38,009 )    ￦ 507,369  

Financial liabilities:

                

Derivatives

      1,969,974        —          1,969,974        (535,438 )      (667,220 )      767,316  

5-4. Transfer of financial assets

The Bank has securities sold under repurchase agreements (“RP”), and it refers to the financial assets that have been transferred, but presented in the separate financial statements since the assets do not meet the conditions of derecognition. In case of securities sold under the RP, securities are disposed, but the Bank agrees to repurchase at the fixed amount, so that the Bank retains substantially all the risks and rewards of ownership of the securities. There are no carrying amounts of transferred assets and relevant liabilities as of June 30, 2018 and December 31, 2017.

6. OPERATING SEGMENT:

Though the Bank conducts business activities related to financial services, in accordance with relevant laws, such as the Export-Import Bank of Korea Act, it does not report separate segment information, as management considers the Bank to be operating under one core business.

 

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7. CASH AND DUE FROM FINANCIAL INSTITUTIONS:

(1) Cash and cash equivalents as of June 30, 2018 and December 31, 2017 are as follows (Korean won in millions):

 

Detail

    Jun. 30, 2018     Dec. 31, 2017  

Due from financial institutions in local currency

    ￦ 558,864     ￦ 439,119  

Due from financial institutions in foreign currencies

      4,305,853       1,652,801  
  

 

 

    

 

 

  

Subtotal

      4,864,717       2,091,920  
  

 

 

    

 

 

  

Restricted due from financial institutions

      (2,115,494 )      (985,926 ) 

Due from financial institutions with original maturities of more than three months at acquisition date

      (510,000 )      (290,000 ) 
  

 

 

    

 

 

  

Subtotal

      (2,625,494 )      (1,275,926 ) 
  

 

 

    

 

 

  

Total(*1)

    ￦ 2,239,223     ￦ 815,994  
  

 

 

    

 

 

  

 

(*1)

Equal to the cash and due from financial institutions as presented on the separate statements of cash flows.

(2) Restricted due from financial institutions as of June 30, 2018 and December 31, 2017 are as follows (Korean won in millions):

 

Detail

   

Financial Institution

    Jun. 30, 2018      Dec. 31, 2017     

Reason for restriction

Others

    DEUTSCHE BANK TRUST COMPANY AMERICAS and others    ￦ 2,115,494      ￦ 985,926      Credit support annex for derivative transactions

8. FINANCIAL ASSETS AT FVTPL:

Details of financial assets at FVTPL as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

     Jun. 30, 2018  

Debt securities in local currency

   

Paid-in capital

    ￦ 59,630  

Beneficiary certificates

      910,615  
  

 

 

  

Subtotal

      970,245  
  

 

 

  

Debt securities in foreign currency

   

Debt securities

      16,779  

Paid-in capital

      4,429  

Beneficiary certificates

      50,343  

Equity securities in foreign currency stocks

      17,430  
  

 

 

  

Subtotal

      88,981  
  

 

 

  

Loans at FVPL

   

Privately placed corporate bonds

      13,403  

Derivative assets

   

Interest product

      481,069  

Currency product

      376,939  

Others

      24  
  

 

 

  

Subtotal

      858,032  
  

 

 

  

Total

    ￦ 1,930,661  
  

 

 

  

 

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(December 31, 2017)

 

     Dec. 31, 2017  

Equity securities

   

Beneficiary certificates

    ￦ 725,613  

Debt securities

   

Debt securities in foreign currency

      38,665  

Derivative assets

   

Stocks

      1,444  

Interest product

      329,246  

Currency product

      521,982  

Others

      23  
  

 

 

  
     852,695  
  

 

 

  

Total

    ￦ 1,616,973  
  

 

 

  

9. FINANCIAL INVESTMENTS:

Details of financial investments as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

     Jun. 30, 2018  

Financial assets at FVOCI

   

Debt securities in local currency

   

National bond

    ￦ 99,469  

Beneficiary certificates

      1  

Derivative linked securities

      50,004  

Equity securities

   

Stocks

      7,208,262  

Paid-in capital

      16,133  
  

 

 

  

Subtotal

      7,373,869  
  

 

 

  

Debt securities in foreign currencies

   

Corporate bonds and etc. (*1)

      796,927  

Derivative linked securities

      78,823  
  

 

 

  

Subtotal

      875,750  
  

 

 

  

Financial assets at amortized cost

   

Debt securities in foreign currencies

   

Corporate bonds and etc. (*1)

      92,542  
  

 

 

  

Total

    ￦ 8,342,161  
  

 

 

  

 

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(December 31, 2017)

 

     Dec. 31, 2017  

AFS securities in local currency

   

Equity securities

   

Marketable securities

    ￦ 220,370  

Non-marketable securities

      5,410,644  

Equity investments in unincorporated entities

      62,117  

Others

      65,642  

Debt securities

   

Debt securities

      149,085  
  

 

 

  

Subtotal

      5,907,858  
  

 

 

  

AFS securities in foreign currencies

   

Equity securities

   

Stocks

      17,764  

Paid-in capital

      4,423  

Debt securities

   

Debt securities (*1)

      762,433  
  

 

 

  

Subtotal

      784,620  
  

 

 

  

HTM securities in foreign currencies

   

Debt securities

   

Debt securities (*1)

      89,477  
  

 

 

  

Total

    ￦ 6,781,955  
  

 

 

  

 

(*1)

Includes securities, which are pledged as collateral amounting to ￦42,986 million and ￦31,220 million as of June 30, 2018, and December 31, 2017, respectively.

 

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10. LOANS AT AMORTIZED COST:

Loans as presented below exclude loan valuation adjustment related to fair value hedging amounting to ￦17,139 million and ￦24,182 million as of June 30, 2018, and December 31, 2017, respectively.

(1) Details of loans as of June 30, 2018 and December 31, 2017 are as follows (Korean won in millions):

 

    

Detail

    Jun. 30, 2018     Dec. 31, 2017  

Loans in local currency

    Loans for export    ￦ 11,393,483     ￦ 12,027,416  
   Loans for foreign investments      1,067,470       797,992  
   Loans for import      2,222,326       1,959,237  
   Troubled Debt Restructuring (*1)      1,637,343       2,161,537  
   Others      886,040       2,009,825  
     

 

 

    

 

 

  
  

Subtotal

      17,206,662       18,956,007  
     

 

 

    

 

 

  

Loans in foreign currencies

    Loans for export      27,774,645       25,985,848  
   Loans for foreign investments      21,629,143       19,518,443  
   Loans for rediscounted trading notes      1,009,530       —    
   Loans for import      1,535,975       1,594,141  
   Overseas funding loans      567,029       546,938  
   Domestic usance bills (*2)      200,006       172,830  
   Others      87,598       54,422  
     

 

 

    

 

 

  
  

Subtotal

      52,803,926       47,872,622  
     

 

 

    

 

 

  

Others

    Foreign-currency bills bought      826,484       1,063,717  
  

Advance payments on acceptances and guarantees

      45,356       10,656  
   Call loans      1,929,198       2,056,086  
   Interbank loans in foreign currencies      297,638       1,925,158  
     

 

 

    

 

 

  
  

Subtotal

      3,098,676       5,055,617  
     

 

 

    

 

 

  
  

Total

      73,109,264       73,109,264  
  

Net deferred origination fees and costs

      (382,550 )      (382,550 ) 
  

Allowance for loan losses

      (2,700,600 )      (2,700,600 ) 
     

 

 

    

 

 

  
  

Total

    ￦ 70,026,114     ￦ 68,199,138  
     

 

 

    

 

 

  

 

(*1)

Representing loans originated by the Bank to companies that are undergoing debt restructuring activities.

(*2)

Representing receivables associated with letters of credit issued by domestic banks in Korea.

 

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(2) Changes in allowance for loan losses for the six months ended June 30, 2018 and for the year ended December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

     12 month
expected
credit losses		     Lifetime
expected
credit losses		     Credit-impaired
financial assets		     Total  

Beginning balance

    ￦  240,653     ￦ 415,963     ￦ 2,661,044     ￦ 3,317,660  

- Transfer to 12 month expected credit losses

      1,163       (1,163 )      —         —    

- Transfer to lifetime expected credit losses

      (4,438 )      4,490       (52 )      —    

- Transfer to credit-impaired financial assets

      (649 )      (27,360 )      28,009       —    

Written-off

      —         —         (602,436 )      (602,436 ) 

Collection of written-off loans

      —         —         5,888       5,888  

Loan-for-equity swap

      —         —         (6,170 )      (6,170 ) 

Others

      (33,886 )      —         —         (33,886 ) 

Unwinding effect

      (10 )      (22 )      (17,429 )      (17,461 ) 

Foreign exchange translation

      4,726       15,490       5,729       25,945  

Additional provisions, net of reversals

      27,750       5,978       (22,668 )      11,060  
  

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance

    ￦ 235,309     ￦ 413,376     ￦ 2,051,915     ￦ 2,700,600  
  

 

 

    

 

 

    

 

 

    

 

 

  

(December 31, 2017)

 

     Individual
assessment		     Collective
assessment		     Total  

Beginning balance

    ￦ 2,228,715     ￦ 697,020     ￦ 2,925,735  

Written-off

      (205,540 )      (79,080 )      (284,620 ) 

Collection of written-off loans

      445       18,094       18,539  

Loan-for-equity swap

      (48,404 )      (4,093 )      (52,497 ) 

Others

      —         (938,437 )      (938,437 ) 

Unwinding effect

      (74,103 )      (5,745 )      (79,848 ) 

Foreign exchange translation

      (10,137 )      (15,932 )      (26,069 ) 

Additional provisions, net of reversals

      706,250       1,017,942       1,724,192  

Transfer in (out)

      372,475       (372,475 )      —    
  

 

 

    

 

 

    

 

 

  

Ending balance

    ￦ 2,969,701     ￦ 317,294     ￦ 3,286,995  
  

 

 

    

 

 

    

 

 

  

 

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11. INVESTMENTS IN ASSOCIATES AND SUBSIDIARIES:

(1) Details of investments in associates and subsidiaries as of June 30, 2018 and December 31, 2017 are as follows (Korean won in millions):

(June 30, 2018)

 

Company (*1)

   Detail     Location     Business     Year-end     Ownership
(%)		     Net asset     Carrying
amount		  

KEXIM Bank UK Limited

     Subsidiary      
 United
Kingdom		  
 		    
 Financial
service		  
 		     December       100.00     ￦ 46,817     ￦ 48,460  

KEXIM Vietnam Leasing Co.

     Subsidiary       Vietnam      
 Financial
service		  
 		     December       100.00       16,520       10,275  

PT.KOEXIM Mandiri Finance

     Subsidiary       Indonesia      
 Financial
service		  
 		     December       85.00       27,833       25,270  

KEXIM Asia Limited

     Subsidiary      
 Hong
Kong		  
 		    
 Financial
service		  
 		     December       100.00       63,668       49,139  

Korea Asset Management Corporation

     Associate       Korea      
 Financial
service		  
 		     December       25.86       448,334       380,520  

Credit Guarantee and Investment Fund (*2,5)

     Associate       Philippines      
 Financial
service		  
 		     December       11.07       116,477       115,486  

Korea Marine Guarantee Inc.

     Associate       Korea      
 Financial
service		  
 		     December       41.88       131,045       135,000  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd. (*6)

     Associate       Korea       Shipbuilding       December       81.25       (1,400,994 )      —    

DAESUN Shipbuilding & Engineering Co.,
Ltd. (*7)

     Associate       Korea       Shipbuilding       December       83.03       (319,453 )      —    

KTB Newlake Global Healthcare PEF

     Associate       Korea      
 Financial
service		  
 		     December       25.00       6,402       7,070  

KBS-KDB Private Equity Fund (*2)

     Associate       Korea      
 Financial
service		  
 		     December       19.99       3,714       3,762  

Korea Shipping and Maritime Transportation

     Associate       Korea      
 Financial
service		  
 		     December       40.00       338,732       400,000  

Korea Aerospace Industries. Ltd.

     Associate       Korea       Manufacturing       December       26.41       274,008       1,467,520  
             

 

 

  

Total

               ￦ 2,642,502  
             

 

 

  

 

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(December 31, 2017)

 

Company(*1)

   Detail     Location     Business     Year—
end		     Ownership
(%)		     Net asset     Carrying
amount		  

KEXIM Bank UK Limited

     Subsidiary       United Kingdom      
 Financial
service		  
 		     December       100.00     ￦ 45,079     ￦ 48,460  

KEXIM Vietnam Leasing Co.

     Subsidiary       Vietnam      
 Financial
service		  
 		     December       100.00       15,568       10,275  

PT.KOEXIM Mandiri Finance

     Subsidiary       Indonesia      
 Financial
service		  
 		     December       85.00       27,359       25,270  

KEXIM Asia Limited

     Subsidiary       Hong Kong      
 Financial
service		  
 		     December       100.00       60,176       49,139  

Korea Asset Management Corporation

     Associate       Korea      
 Financial
service		  
 		     December       25.86       450,571       380,520  

Credit Guarantee and Investment Fund(*2,4)

     Associate       Philippines      
 Financial
service		  
 		     December       14.29       113,046       115,486  

Korea Marine Guarantee Inc.

     Associate       Korea      
 Financial
service		  
 		     December       41.88       130,788       135,000  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.(*3,4)

     Associate       Korea       Shipbuilding       December       81.25       (972,550 )      —    

DAESUN Shipbuilding & Engineering Co., Ltd.(*4,7)

     Associate       Korea       Shipbuilding       December       67.30       (264,588 )      —    

KTB Newlake Global Healthcare PEF

     Associate       Korea      
 Financial
service		  
 		     December       25.00       2,010       2,570  

KBS-KDB Private Equity Fund

     Associate       Korea      
 Financial
service		  
 		     December       20.83       2,096       2,367  

Korea Shipping and Maritime Transportation

     Associate       Korea      
 Financial
service		  
 		     December       40.00       304,812       362,000  

Korea Aerospace Industries. Ltd.

     Associate       Korea       Manufacturing       December       26.41       301,181       1,467,520  
             

 

 

  

Total

               ￦ 2,598,607  
             

 

 

  

 

(*1)

In cases of associates, the amounts represent net asset after taking into account percentage of ownership.

(*2)

As of June 30, 2018 and December 31, 2017, this entity is classified into an associate because the Bank has significant influence in the way of representation on the board of directors or equivalent governing body of the investee.

(*3)

As of December 31, 2017, this entity was under the creditor-led work out programs. The Bank should had to at least 75% of the total creditor’s loans to have substantive control based on the creditor’s agreement. As the Bank had only 69.01% of the total creditor’s loans, this was classified into associates.

(*4)

The most recent financial statements were using (due to the unavailability of the ones as of December 31, 2017) in which the significant transactions or events, which occurred between the end of preceding reporting period of an associate and that of the Bank, had been reflected.

(*5)

The most recent financial statements were using (due to the unavailability of the ones as of June 30, 2018) in which the significant transactions or events, which occurred between the end of preceding reporting period of an associate and that of the Bank, had been reflected.

(*6)

Since the corporate restructuring process has been initiated during the current half-year and major decisions have been made by the courts, the Bank classified the entity as an associate not considering to have substantial control over the entity.

(*7)

This entity was under the creditor-led work out programs. The Bank should have at least 75% of the total creditor’s loans to have a substantive control based on the creditor’s agreement. As the Bank had only 70.60% of the total creditor’s loans, this was classified into associates.

 

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(2) Changes in investments in associates and subsidiaries for the six months ended June 30, 2018 and for the year ended December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

Company

   Detail     Beginning
balance		     Acquisition     Disposals     Impairment
loss		     Ending
balance		  

KEXIM Bank UK Limited

     Subsidiary     ￦ 48,460     ￦ —       ￦ —       ￦ —       ￦ 48,460  

KEXIM Vietnam Leasing Co.

     Subsidiary       10,275       —         —         —         10,275  

PT.KOEXIM Mandiri Finance

     Subsidiary       25,270       —         —         —         25,270  

KEXIM Asia Limited

     Subsidiary       49,139       —         —         —         49,139  

Korea Asset Management Corporation

     Associate       380,520       —         —         —         380,520  

Credit Guarantee and Investment Fund

     Associate       115,486       —         —         —         115,486  

Korea Marine Guarantee Incorporated Company

     Associate       135,000       —         —         —         135,000  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

     Associate       —         —         —         —         —    

DAESUN Shipbuilding & Engineering Co., Ltd.

     Associate       —         —         —         —         —    

KTB Newlake Global Healthcare PEF

     Associate       2,570       4,500       —         —         7,070  

KBS-KDB Private Equity Fund

     Associate       2,367       1,870       (475 )      —         3,762  

Korea Shipping and Maritime Transportation

     Associate       362,000       38,000       —         —         400,000  

Korea Aerospace Industries. LTD.

     Associate       1,467,520       —         —         —         1,467,520  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

     ￦ 2,598,607     ￦ 44,370     ￦ (475 )    ￦ —       ￦ 2,642,502  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(December 31, 2017)

 

Company

   Detail     Beginning
balance		     Acquisition     Disposals     Impairment
loss		     Ending
balance		  

KEXIM Bank UK Limited

     Subsidiary     ￦ 48,460     ￦ —       ￦ —       ￦ —       ￦ 48,460  

KEXIM Vietnam Leasing Co.

     Subsidiary       10,275       —         —         —         10,275  

PT.KOEXIM Mandiri Finance

     Subsidiary       25,270       —         —         —         25,270  

KEXIM Asia Limited

     Subsidiary       49,139       —         —         —         49,139  

Korea Asset Management Corporation

     Associate       380,520       —         —         —         380,520  

Credit Guarantee and Investment Fund

     Associate       115,486       —         —         —         115,486  

Korea Marine Guarantee Inc.

     Associate       135,000       —         —         —         135,000  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

     Associate       —         236       —         (236 )      —    

DAESUN Shipbuilding & Engineering Co., Ltd.

     Associate       —         —         —         —         —    

EQP Global Energy Infrastructure PEF

     Associate       280       —         (280 )      —         —    

KTB Newlake Global Healthcare PEF

     Associate       1,153       1,417       —         —         2,570  

KBS-KDB Private Equity Fund

     Associate       501       1,866       —         —         2,367  

Korea Shipping and Maritime Transportation

     Associate       —         362,000       —         —         362,000  

Korea Aerospace Industries. Ltd.

     Associate       —         1,467,520       —         —         1,467,520  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

     ￦ 766,084     ￦ 1,833,039     ￦ (280 )    ￦ (236 )    ￦ 2,598,607  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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(3) Summarized financial information of associates and subsidiaries as of and for the six months ended June 30, 2018, and as of and for the year ended December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

Company

    Assets      Liabilities      Operating
income (loss)		     Net income
(loss)		     Comprehensive
net income
(loss)		  

KEXIM Bank UK Limited

    ￦ 477,191      ￦ 430,374      ￦ 1,743     ￦ 1,868     ￦ 1,738  

KEXIM Vietnam Leasing Co.

      148,797        132,277        342       212       952  

PT.KOEXIM Mandiri Finance

      190,187        162,354        1,675       1,387       992  

KEXIM Asia Limited

      449,771        386,103        1,397       1,167       3,491  

Korea Asset Management Corporation

      3,495,250        1,761,555        6,681       9,389       9,389  

Credit Guarantee and Investment Fund

      1,040,254        44,724        4,384       4,156       (3,494 ) 

Korea Marine Guarantee Inc.

      334,346        21,441        502       868       899  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      964,555        2,688,856        (21,999 )      (72,467 )      (72,479 ) 

DAESUN Shipbuilding & Engineering Co., Ltd.

      393,473        778,217        (797 )      (3,712 )      (3,712 ) 

KTB Newlake Global Healthcare PEF

      25,867        260        (433 )      (433 )      (433 ) 

KBS-KDB Private Equity Fund

      19,030        448        1,064       1,064       1,064  

Korea Shipping and Maritime Transportation

      974,082        127,253        12,770       (10,326 )      (47,975 ) 

Korea Aerospace Industries. Ltd.

      3,756,688        2,719,285        74,260       59,000       59,032  

(December 31, 2017)

 

Company

    Assets      Liabilities      Operating
income (loss)		     Net income
(loss)		     Comprehensive
net income
(loss)		  

KEXIM Bank UK Limited

    ￦ 453,479      ￦ 408,400      ￦ 3,470     ￦ 2,831     ￦ (1,129 ) 

KEXIM Vietnam Leasing Co.

      144,783        129,216        1,786       1,599       (2,166 ) 

PT.KOEXIM Mandiri Finance

      176,436        149,077        2,769       2,397       (5,003 ) 

KEXIM Asia Limited

      423,166        362,989        3,452       3,094       (13,969 ) 

Korea Asset Management Corporation

      3,567,608        1,825,259        60,350       45,137       33,104  

Credit Guarantee and Investment Fund

      837,193        46,106        12,234       12,310       15,269  

Korea Marine Guarantee Inc.

      331,270        18,978        (849 )      (1,863 )      (1,785 ) 

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      1,294,318        2,703,607        43,967       7,976       15,412  

DAESUN Shipbuilding & Engineering Co., Ltd.

      420,575        795,346        (10,398 )      (143 )      (143 ) 

KTB Newlake Global Healthcare PEF

      8,279        239        (671 )      (671 )      (671 ) 

KBS-KDB Private Equity Fund

      10,516        454        (915 )      (915 )      (915 ) 

Korea Shipping and Maritime Transportation

      764,796        2,767        27,646       (153,589 )      (142,856 ) 

Korea Aerospace Industries. Ltd.

      3,166,223        2,025,818        (208,873 )      (235,186 )      (239,776 ) 

 

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12. TANGIBLE ASSETS:

Changes in tangible assets for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

(Six months ended June 30, 2018)

 

Detail

    Beginning
balance		      Acquisitions      Disposals     Depreciation     Ending
balance		  

Lands

    ￦ 190,807      ￦ —        ￦ —       ￦ —       ￦ 190,807  

Buildings

      63,687        —          —         (1,347 )      62,340  

Vehicles

      874        43        —         (254 )      663  

Furniture and fixture

      13,097        843        (1 )      (2,726 )      11,213  

Construction in progress

      —          20        —         —         20  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ 268,465      ￦ 906      ￦ (1 )    ￦ (4,327 )    ￦ 265,043  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

(2017)

 

Detail

    Beginning
balance		      Acquisitions      Disposals     Depreciation     Ending
balance		  

Lands

    ￦  190,807      ￦ —        ￦ —     ￦ —       ￦ 190,807  

Buildings

      66,383        —          —         (2,696 )      63,687  

Vehicles

      1,278        230        (41 )      (593 )      874  

Furniture and fixture

      14,669        4,084        (5 )      (5,651 )      13,097  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ 273,137      ￦ 4,314      ￦ (46 )    ￦ (8,940 )    ￦ 268,465  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

13. INTANGIBLE ASSETS:

Changes in intangible assets for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

(Six months ended June 30, 2018)

 

Detail

    Beginning
balance		      Acquisitions      Disposals     Amortization     Impairment      Ending
balance		  

Computer software

    ￦ 13,037      ￦ 443      ￦ —       ￦ (1,788 )    ￦ —        ￦ 11,692  

System development fees

      30,839        774        —         (4,651 )      —          26,962  

Memberships

      3,746        —          (280 )      —         —          3,466  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

  

Total

    ￦ 47,622      ￦ 1,217      ￦ (280 )    ￦ (6,439 )    ￦ —        ￦ 42,120  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

  

(2017)

 

Detail

    Beginning
balance		      Acquisitions      Disposals     Amortization     Impairment     Ending
balance		  

Computer software

    ￦ 12,400      ￦ 3,939      ￦ —       ￦ (3,302 )    ￦ —       ￦ 13,037  

System development fees

      26,066        10,690        —         (5,917 )      —         30,839  

Memberships

      4,133        336        (506 )      —         (217 )      3,746  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 42,599      ￦ 14,965      ￦ (506 )    ￦ (9,219 )    ￦ (217 )    ￦ 47,622  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

 

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14. OTHER ASSETS:

(1) Details of other assets as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

       Jun. 30, 2018           Dec. 31, 2017      

Other financial assets :

     

Guarantee deposits

    ￦ 38,958     ￦ 38,153  

Accounts receivable

      547,106       238,046  

Accrued income

      849,179       825,800  

Receivable spot exchange

      34       63  

Allowances for loan losses on other assets

      (169,161 )      (168,552 ) 
  

 

 

    

 

 

  

Subtotal

      1,266,116       933,510  
  

 

 

    

 

 

  

Other assets :

     

Advance payments

      23       1  

Prepaid expenses

      5,607       2,048  

Current income tax asset

      559       4,703  

Sundry assets

      11,796       10,269  
  

 

 

    

 

 

  

Subtotal

      17,985       17,021  
  

 

 

    

 

 

  

Total

    ￦ 1,284,101     ￦ 950,531  
  

 

 

    

 

 

  

(2) Changes in allowances for loan losses on other assets for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		     2017  

Beginning balance (*1)

    ￦ 168,156     ￦ 50,938  

Write-off

      —         —    

Collection of written-off loans

      1       15  

Foreign exchange translation

      —         (8 ) 

Additional provisions

      1,005       117,622  

Others

      (1 )      (15 ) 
  

 

 

    

 

 

  

Ending balance

    ￦ 169,161     ￦ 168,552  
  

 

 

    

 

 

  

 

(*1)

The beginning balance was restated in accordance with K-IFRS No. 1109.

 

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15. BORROWINGS:

(1) Details of borrowings as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

Detail

   

Lender

   

Interest rate (%)

    Amount  

Borrowings in foreign currencies:

         

Borrowings from the Government

   

MINISTRY OF ECONOMY AND FINANCE (*1)

    LIBOR 3M+0.50 ~ LIBOR 3M+0.78    ￦ 3,116,172  

Long term borrowings from foreign financial institutions

   

CREDIT AGRICOLE CIB and others

    LIBOR 3M+0.40 ~ LIBOR 3M+0.85      1,794,720  

Discount on borrowings

            (1,470 ) 

Commercial papers

   

ING BANK N.V. AMSTERDAM and others

    (-)0.33 ~ 2.54      1,229,535  

Offshore commercial papers denominated in foreign currency

   

SOCIETE GENERALE, HONG KONG BR. and others

    (-)0.36 ~ 2.33      240,817  

Others (Foreign banks)

   

DBS BANK LTD, SINGAPORE BRANCH and others

    0.00 ~ 0.03      200,006  

Others (CSA)

   

ING BANK N.V. AMSTERDAM and others

    —        21,694  
        

 

 

  

Total

          ￦ 6,601,474  
        

 

 

  

 

(*1)

Formerly, Ministry of Strategy and Finance

(December 31, 2017)

 

Detail

   

Lender

   

Interest rate (%)

    Amount  

Borrowings in foreign currencies:

         

Borrowings from the Government

   

MINISTRY OF ECONOMY AND FINANCE

    LIBOR 3M+0.50 ~ LIBOR 3M+0.78    ￦ 2,976,435  

Long term borrowings from foreign financial institutions

   

BANK OF AMERICA N.A and others

    LIBOR 3M+0.40 ~ LIBOR 3M+0.85      2,678,500  

Discount on borrowings

            (2,224 ) 

Commercial papers

   

BRED BANQUE POPULAIRE

    (-)0.40      42,727  

Offshore commercial papers denominated in foreign currency

   

BARCLAYS BANK PLC LONDON and others

    (-)0.39 ~ 1.69      72,999  

Others (Foreign banks)

   

DBS BANK LTD, SINGAPORE BRANCH and others

    0.00 ~ 0.06      172,830  

Others (CSA)

   

CITIBANK N.A., HONG KONG and others

    —        72,190  
        

 

 

  

Total

          ￦ 6,013,457  
        

 

 

  

(2) Details of the borrowings from other financial institutions as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

Type

    Call-money      Borrowings in foreign
currencies		      Total  

Commercial banks

    ￦  —        ￦  3,485,302      ￦  3,485,302  

 

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(December 31, 2017)

 

Type

    Call-money      Borrowings in foreign
currencies		      Total  

Commercial banks

    ￦  —        ￦  3,037,022      ￦  3,037,022  

The above borrowings excluded the present value discounting effect.

16. DEBENTURES:

Details of debentures as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

Detail

    Jun. 30, 2018     Dec. 31, 2017  
     Interest rate (%)      Amount     Interest rate (%)      Amount  

Local currency:

           

Floating rate

      1.67 ~ 1.82      ￦ 1,360,000       1.67 ~ 1.83      ￦ 1,100,000  

Fixed rate

      1.48 ~ 4.70        13,050,000       1.35 ~ 4.70        13,020,000  
     

 

 

       

 

 

  

Subtotal

         14,410,000          14,120,000  
     

 

 

       

 

 

  

Fair value hedging adjusting

         (83,173 )         (80,211 ) 

Discount on debentures:

         (73,631 )         (78,861 ) 
     

 

 

       

 

 

  

Subtotal

         14,253,196          13,960,928  
     

 

 

       

 

 

  

Foreign currencies:

           

Floating rate

     
 LIBOR+0.30 ~
LIBOR+1.00
 		      8,951,785      
 LIBOR+0.30
~ LIBOR +1.00		  
 		      7,685,330  

Fixed rate

      0.16 ~ 9.32        42,001,648       0.17 ~ 9.32        39,253,997  
     

 

 

       

 

 

  

Subtotal

         50,953,433          46,939,327  
     

 

 

       

 

 

  

Fair value hedging adjusting

         (782,523 )         (98,744 ) 

Discount on debentures

         (115,482 )         (116,413 ) 
     

 

 

       

 

 

  

Subtotal

         50,055,428          46,724,170  
     

 

 

       

 

 

  

Total

       ￦ 64,308,624        ￦ 60,685,098  
     

 

 

       

 

 

  

17. PROVISIONS:

(1) Details of provisions as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

     Jun. 30, 2018      Dec. 31, 2017  

Provisions for acceptances and guarantees

    ￦ 453,763      ￦ 509,038  

Provisions for unused loan commitments

      114,736        166,080  
  

 

 

     

 

 

  

Total

    ￦ 568,499      ￦ 675,118  
  

 

 

     

 

 

  

 

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(2) Changes in provisions for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

(Six months ended June 30, 2018)

 

      Acceptances and guarantees  
      12 month
expected
credit
losses		     Lifetime
expected
credit losses		     Credit-
impaired
financial
assets		      Total  

Beginning balance (*1)

    ￦  45,086     ￦ 440,860     ￦ 52,335      ￦ 538,281  

- Transfer to 12 month expected credit losses

      1,142       (1,142 )      —          —    

- Transfer to lifetime expected credit losses

      (15 )      15       —          —    

- Transfer to credit-impaired financial assets

      (68 )      (1,937 )      2,005        —    

Foreign exchange translation

      1,503       11,340       638        13,481  

Additional provisions (reversal of provision)

      (3,923 )      (101,994 )      7,918        (97,999 ) 
  

 

 

    

 

 

    

 

 

     

 

 

  

Ending balance

    ￦ 43,725     ￦ 347,142     ￦ 62,896      ￦  453,763  
  

 

 

    

 

 

    

 

 

     

 

 

  

 

      Unused loan commitments  
      12 month
expected
credit
losses		     Lifetime
expected
credit
losses		     Credit-
impaired
financial
assets		     Total  

Beginning balance (*1)

    ￦  16,961     ￦ 89,674     ￦ 84,441     ￦ 191,076  

- Transfer to 12 month expected credit losses

      101       (101 )      —         —    

- Transfer to lifetime expected credit losses

      —         2       (2 )      —    

- Transfer to credit-impaired financial assets

      (45 )      (66 )      111       —    

Foreign exchange translation

      251       424       7       682  

Additional provisions (Reversal of provision)

      4,928       5       (81,955 )      (77,022 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance

    ￦ 22,196     ￦ 89,938     ￦ 2,602     ￦  114,736  
  

 

 

    

 

 

    

 

 

    

 

 

  

 

(*1)

The beginning balance was restated in accordance with K-IFRS No. 1109.

(2017)

 

Detail

   Acceptances and guarantees     Unused loan
commitments		     Provision
for others		     Total  
  Individual
assessment		     Collective
assessment		     Subtotal  

Beginning balance

   ￦ 403,504     ￦ 1,004,406     ￦ 1,407,910     ￦ 228,839     ￦ 15,198     ￦ 1,651,947  

Foreign exchange translation

     (5,572 )      (14,047 )      (19,619 )      (104 )      —         (19,723 ) 

Additional provisions (Reversal of provision)

     (314,764 )      (564,489 )      (879,253 )      (62,655 )      1,344       (940,564 ) 

Transfers in (out)

     370,270       (370,270 )      —         —         (14,818 )      (14,818 ) 

Payment

     —       —       —         —         (1,724 )      (1,724 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance

   ￦ 453,438     ￦ 55,600     ￦ 509,038     ￦ 166,080     ￦ —       ￦ 675,118  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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18. RETIREMENT BENEFIT PLAN:

The Bank operates both defined benefit plan and defined contribution plan.

 

  (1)

Defined benefit plan

The Bank operates defined benefit plans, which have the following characteristics:

 

  •  

The entity has the obligation to pay the agreed benefits to all its current and past employees.

 

  •  

The entity is liable for actuarial risk (excess of actual payment against expected amount) and investment risk.

The present value of the defined benefit obligation recognized in the separate statements of financial position is calculated annually by independent actuaries in accordance with actuarial valuation method. The present value of the defined benefit obligation is calculated using the projected unit credit method (“PUC”). The data used in the PUC, such as interest rates, future salary increase rate, mortality rate, consumer price index and expected return on plan asset, are based on observable market data and historical data, which are annually updated.

Actuarial assumptions may differ from actual results due to change in the market, economic trend and mortality trend, which may affect defined benefit obligation liabilities and future payments. Actuarial gains and losses arising from changes in actuarial assumptions are recognized in the period incurred through other comprehensive income or loss.

(2) Details of defined benefit obligation as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

      Jun. 30, 2018     Dec. 31, 2017  

Present value of defined benefit obligations

    ￦ 83,769     ￦ 79,956  

Fair value of plan assets

      (91,441 )      (92,183 ) 
  

 

 

    

 

 

  

Defined benefit assets, net

    ￦ (7,672 )    ￦ (12,227 ) 
  

 

 

    

 

 

  

(3) Changes in net defined benefit obligations for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

(Six months ended June 30, 2018)

 

     Present value of the
defined benefit
obligation		     Plan assets     Net defined
benefit obligation		  

Beginning balance

    ￦ 79,956     ￦ (92,183 )    ￦ (12,227 ) 

Contributions from the employer

      —         —         —    

Current service cost

      4,657       —         4,657  

Interest expense (income)

      1,551       —         1,551  

Return on plan assets, excluding the interest expense (income)

      —         (1,792 )      (1,792 ) 

Actuarial gains and losses arising from changes in financial assumptions

      —         —         —    

Actuarial gains and losses arising from experience adjustments

      —         —         —    

Management fee on plan assets

      —         —         —    

Benefits paid

      (2,395 )      2,534       139  
  

 

 

    

 

 

    

 

 

  

Ending balance

    ￦ 83,769     ￦ (91,441 )    ￦ (7,672 ) 
  

 

 

    

 

 

    

 

 

  

 

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(2017)

 

     Present value of the
defined benefit
obligation		     Plan assets     Net defined
benefit obligation		  

Beginning balance

    ￦ 72,105     ￦ (70,013 )    ￦ 2,092  

Contributions from the employer

      —         (27,100 )      (27,100 ) 

Current service cost

      8,912       —         8,912  

Interest expense (income)

      2,612       (2,548 )      64  

Return on plan assets, excluding the interest expense (income)

      —         1,258       1,258  

Actuarial gains and losses arising from changes in financial assumptions

      (3,081 )      —         (3,081 ) 

Actuarial gains and losses arising from experience adjustments

      5,029       —         5,029  

Management fee on plan assets

      —         122       122  

Benefits paid

      (5,621 )      6,098       477  
  

 

 

    

 

 

    

 

 

  

Ending balance

    ￦ 79,956     ￦ (92,183 )    ￦ (12,227 ) 
  

 

 

    

 

 

    

 

 

  

(4) Details of plan assets as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

     Jun. 30, 2018      Dec. 31, 2017  

Cash and cash equivalent

    ￦ 3      ￦ 3  

Debt securities

      15,234        15,073  

Others

      76,204        77,107  
  

 

 

     

 

 

  

Total

    ￦ 91,441      ￦ 92,183  
  

 

 

     

 

 

  

(5) Retirement benefit costs incurred from the defined contribution plan for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

Retirement benefit cost

    ￦ 259      ￦ 211  

 

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19. OTHER LIABILITIES:

Details of other liabilities as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

     Jun. 30, 2018      Dec. 31, 2017  

Other financial liabilities:

      

Financial guarantee contract liabilities

    ￦ 1,348,715      ￦ 1,123,773  

Foreign exchanges payable

      343,861        213  

Accounts payable

      375,247        57,022  

Accrued expenses

      649,395        613,328  

Guarantee deposit received

      161        162  
  

 

 

     

 

 

  

Subtotal

      2,717,379        1,794,498  
  

 

 

     

 

 

  

Other liabilities:

      

Allowance for credit loss in derivatives

      78,923        69,910  

Unearned income

      230,673        220,441  

Sundry liabilities

      4,890        4,101  
  

 

 

     

 

 

  

Subtotal

      314,486        294,452  
  

 

 

     

 

 

  

Total

    ￦ 3,031,865      ￦ 2,088,950  
  

 

 

     

 

 

  

20. DERIVATIVES:

The Bank operates derivatives both for trading and hedging purposes. Derivatives held for trading purpose are included in financial assets and liabilities at FVTPL.

(1) Fair value hedge

Fair value hedge is a hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized 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. When applying fair value hedge, the gain or loss on the hedged item attributable to the hedged risk shall adjust the carrying amount of the hedged item and be recognized in profit or loss.

The Bank shall discontinue prospectively the fair value hedge if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Bank revokes the designation. Any adjustment arising from the gain or loss on the hedged item attributable to the hedged risk to the carrying amount of a hedged financial instrument for which the effective interest method is used shall be amortized to profit or loss.

The Bank uses interest rate swaps for hedging changes of fair values in hedged items arising from changes in interest rates. The Bank also uses currency swaps for hedging changes of fair values in hedged items arising from changes in foreign exchange rates

(2) Cash flow hedge

Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and could affect profit or loss. When applying cash flow hedge, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognized in other comprehensive income; and the ineffective portion of the gain or loss on the hedging instrument are recognized in profit or loss. If a hedge of a forecast transaction

 

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subsequently results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affect profit or loss.

The Bank shall discontinue prospectively the cash flow hedge if hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Bank revokes the designation. The forecasted transaction is no longer expected to occur, any related cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income from the period when the hedge was effective are reclassified from equity to profit or loss as a reclassification adjustment.

The Bank uses interest rate swaps for hedging changes of cash flows in hedged items arising from changes in interest rates. The Bank also uses currency swaps for hedging changes of cash flows in hedged items arising from changes in foreign exchange.

(3) Details of derivative assets and liabilities as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

            Derivative assets  

Detail

    Notional      Fair value
hedge		      Cash flow
hedge		      Trading      Total  

Interest:

               

Interest rate swaps

    ￦ 40,660,712      ￦ 8,082      ￦ —        ￦ 481,069      ￦ 489,151  

Currency:

               

Currency forwards

      7,087,364        —          —          89,023        89,023  

Currency swaps

      26,505,618        55,186        —          287,916        343,102  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      33,592,982        55,186        —          376,939        432,125  

Others:

               

Other derivatives

      —          —          —          24        24  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 74,253,694      ￦ 63,268      ￦ —        ￦ 858,032      ￦ 921,300  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

            Derivative liabilities  

Detail

    Notional      Fair value
hedge		      Cash flow
hedge		      Trading      Total  

Interest:

               

Interest rate swaps

    ￦ 40,660,712      ￦ 728,434      ￦ —        ￦ 490,066      ￦ 1,218,500  

Currency:

               

Currency forwards

      7,087,364        —          —          75,586        75,586  

Currency swaps

      26,505,618        1,046,985        —          446,638        1,493,623  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      33,592,982        1,046,985        —          522,224        1,569,209  

Others:

               

Other derivatives

      —          —          —          18        18  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 74,253,694      ￦ 1,775,419      ￦ —        ￦ 1,012,308      ￦ 2,787,727  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

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(December 31, 2017)

 

            Derivative assets  

Detail

    Notional      Fair value
hedge		      Cash flow
hedge		      Trading      Total  

Interest:

               

Interest rate swaps

    ￦ 38,780,733      ￦ 89,305      ￦ —        ￦ 329,246      ￦ 418,551  

Currency:

               

Currency forwards

      6,451,057        —          —          113,466        113,466  

Currency swaps

      24,518,828        138,816        —          408,516        547,332  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      30,969,885        138,816        —          521,982        660,798  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Stock:

               

Stock options

      2,298,275        —          —          1,444        1,444  

Other:

               

Other derivative

      —          —          —          23        23  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 72,048,893      ￦ 228,121      ￦ —        ￦ 852,695      ￦ 1,080,816  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

            Derivative liabilities  

Detail

    Notional      Fair value
hedge		      Cash flow
hedge		      Trading      Total  

Interest:

               

Interest rate swaps

    ￦ 38,780,733      ￦ 369,290      ￦ —        ￦ 311,850      ￦ 681,140  

Currency:

               

Currency forwards

      6,451,057        —          —          152,478        152,478  

Currency swaps

      24,518,828        688,906        —          447,433        1,136,339  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      30,969,885        688,906        —          599,911        1,288,817  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Stock:

               

Stock options

      2,298,275        —          —          —          —    

Other:

               

Other derivative

      —          —          —          17        17  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 72,048,893      ￦ 1,058,196      ￦ —        ￦ 911,778      ￦ 1,969,974  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

(4) Gains and losses from fair value hedging instruments and hedged items attributable to the hedged risk for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		     Six months ended
June 30, 2017		  

Fair value hedge—hedged items

    ￦ 683,778     ￦ (145,748 ) 

Fair value hedge—hedging instruments

      (1,005,560 )      768,671  

(5) The Bank recognized ￦(1,702) million and ￦(1,904) million as other comprehensive income (loss) (before tax effect) for the six months ended June 30, 2018 and 2017, and cash flow hedge ineffectiveness recognized in earnings was nil for the six months ended June 30, 2018 and 2017.

21. CAPITAL STOCK:

As of June 30, 2018, the authorized capital and paid-in capital of the Bank are ￦15,000,000 million and ￦11,814,963 million, respectively. The Bank does not issue share certificates.

 

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Changes in capital stock for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

 

     Six months
ended June 30,
2018		      2017  

Beginning balance

    ￦ 11,814,963      ￦ 10,398,055  

Paid-in capital increase and investment in kind

      —          1,416,908  
  

 

 

     

 

 

  

Ending balance

    ￦ 11,814,963      ￦ 11,814,963  
  

 

 

     

 

 

  

22. OTHER COMPONENTS OF EQUITY:

(1) Details of other components of equity as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

     Jun. 30, 2018     Dec. 31, 2017  

Gain on valuation of AFS securities

    ￦ —       ￦ 101,985  

Gain on valuation of financial assets at FVOCI

      377,185       —    

Gain on disposal of financial assets at FVOCI

      (27,194 )      —    

Gain on valuation of cash flow hedge

      (790 )      586  

Remeasurement of net defined benefit obligation

      17,168       17,168  
  

 

 

    

 

 

  

Total

    ￦ 366,369     ￦ 119,739  
  

 

 

    

 

 

  

(2) Changes in other components for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

(Six months ended June 30, 2018)

 

     Beginning
Balance  (*1)		     Increase
(decrease)		     Tax effect     Ending
balance		  

Gain (loss) on valuation of financial assets at FVOCI

    ￦ (114,032 )    ￦ 648,043     ￦ (156,826 )    ￦ 377,185  

Loss on disposal of financial assets at FVOCI

      (13,817 )      (17,648 )      4,271       (27,194 ) 

Gain (loss) on valuation of cash flow hedge

      586       (1,702 )      326       (790 ) 

Remeasurement of net defined benefit liability

      17,168       —         —         17,168  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ (110,095 )    ￦ 628,693     ￦ (152,229 )    ￦ 366,369  
  

 

 

    

 

 

    

 

 

    

 

 

  

 

(*1)

The beginning balance was restated in accordance with K-IFRS No. 1109.

(2017)

 

     Beginning
balance		      Increase
(decrease)		     Tax effect      Ending
balance		  

Gain on valuation of AFS securities

    ￦ 259,564      ￦ (129,103 )    ￦ 9,707      ￦ 140,168  

Gain (loss) on valuation of cash flow hedge

      854        (1,904 )      461        (589 ) 

Remeasurement of net defined benefit liability

      19,599        —         —          19,599  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total

    ￦ 280,017      ￦ (131,007 )    ￦ 10,168      ￦ 159,178  
  

 

 

     

 

 

    

 

 

     

 

 

  

 

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23. RETAINED EARNINGS:

(1) Details of retained earnings as of as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

     Jun. 30, 2018      Dec. 31, 2017  

Legal reserve (*1)

    ￦ 346,135      ￦ 328,856  

Reserve for bad loan

      302,248        206,330  

Unappropriated retained earnings

      430,126        172,794  
  

 

 

     

 

 

  

Total

    ￦ 1,078,509      ￦ 707,980  
  

 

 

     

 

 

  

 

(*1)

Pursuant to the EXIM Bank Act, the Bank appropriates 10% of separate net income for each accounting period as legal reserve, until the accumulated reserve equals to its paid-in capital.

(2) Changes in retained earnings for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		     2017  

Beginning balance (*1)

    ￦ 579,217     ￦ 535,186  

Net income for the period

      558,888       172,794  

Dividends

      (59,596 )      —    
  

 

 

    

 

 

  

Ending balance

    ￦ 1,078,509     ￦ 707,980  
  

 

 

    

 

 

  

 

(*1)

The beginning balance was restated in accordance with K-IFRS No. 1109.

(3) Reserve for bad loans

Reserve for bad loans is calculated and disclosed according to Article 29 (1) and (2), Regulation on Supervision of Banking Business. In accordance with Regulation on Supervision of Banking Business, etc., if the estimated allowance for credit loss determined by K-IFRS for the accounting purpose is lower than those for the regulatory purpose required by Regulation on Supervision of Banking Business, the Bank should reserve such difference as the regulatory reserve for bad loans. Due to the fact that regulatory reserve for bad loans is a voluntary reserve, the amounts that exceed the existing reserve for bad loans over the compulsory reserve for bad loans at the period-end date are reversed in profit. In case of accumulated deficit, the Bank should recommence setting aside reserve for bad loans at the time when accumulated deficit is reduced to zero.

1) Reserve for bad loans

Details of reserve for bad loans as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

     Jun. 30, 2018      Dec. 31, 2017  

Accumulated reserve for bad loans

    ￦ 302,248      ￦ 206,330  

Expected reserve for bad loans

      (55,500 )       95,918  
  

 

 

     

 

 

  

Reserve for bad loans

    ￦ 246,248      ￦ 302,248  
  

 

 

     

 

 

  

 

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2) Regulatory reserve for bad loans and net income after adjusting reserve for bad loans.

Details of regulatory reserve for bad loans and net income after adjusting the reserve for six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

Net income for the period

    ￦ 558,588      ￦ 445,340  

Regulatory reserve for bad loans

      (12,122 )       (224,203 ) 
  

 

 

     

 

 

  

Net profit after adjusting the reserve for loan losses (*1)

    ￦ 546,466      ￦ 221,137  
  

 

 

     

 

 

  

 

(*1)

Adjusted profit considering reserves for bad debt as above is calculated by assuming that the provision in reserves for bad debt before income tax is reflected in net income.

(4) Details of dividends for the six months ended June 30, 2018, and for the year ended December 31, 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

The Government

    ￦ 39,493      ￦ —    

BOK

      5,876        —    

Korea Development Bank

      14,227        —    
  

 

 

     

 

 

  

Total

    ￦ 59,596      ￦ —    
  

 

 

     

 

 

  

 

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24. NET INTEREST INCOME:

Net interest income is the amount after deduction of interest expenses from interest income, and the details are as follows:

(1) Details of interest income for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

Interest of due from financial institutions:

      

Due from financial institutions in local currency

    ￦ 4,878      ￦ 1,899  

Due from financial institutions in foreign currencies

      14,546        7,784  
  

 

 

     

 

 

  

Subtotal

      19,424        9,683  
  

 

 

     

 

 

  

Interest of financial assets at FVTPL:

      

Interest of trading securities

      —          793  

Interest of trading securities at FVTPL

      667        —    

Interest of loans at FVTPL

      83        —    
  

 

 

     

 

 

  

Subtotal

      750        793  
  

 

 

     

 

 

  

Interest of investments:

      

Interest of AFS securities

      —          8,823  

Interest of securities at FVOCI

      11,711        —    

Interest of HTM securities

      —          1,077  

Interest of securities at amortized cost

      503        —    
  

 

 

     

 

 

  

Subtotal

      12,214        9,900  
  

 

 

     

 

 

  

Interest of loans:

      

Interest of loans in local currency

      278,592        321,521  

Interest of loans in foreign currencies

      987,811        934,790  

Interest of advance for customers

      9,894        —    

Interest of bills bought

      384        11,878  

Interest of call loans

      21,108        10,557  

Interest of interbank loans

      5,106        877  
  

 

 

     

 

 

  

Subtotal

      1,302,895        1,279,623  
  

 

 

     

 

 

  

Other interest income

      609        2,694  
  

 

 

     

 

 

  

Total

    ￦ 1,335,892      ￦  1,302,693  
  

 

 

     

 

 

  

(2) Details of interest expenses for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

Interest of borrowings:

      

Borrowings in foreign currencies

    ￦ 74,623      ￦ 75,127  

Interest of call money

      198        3,185  

Interest of debentures:

      

Interest of debentures in local currency

      125,793        93,724  

Interest of debentures in foreign currencies

      689,166        605,755  
  

 

 

     

 

 

  

Subtotal

      814,959        699,479  
  

 

 

     

 

 

  

Other interest income

      4,410        7,149  
  

 

 

     

 

 

  

Total

    ￦ 894,190      ￦ 784,940  
  

 

 

     

 

 

  

 

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25. NET COMMISSION INCOME:

Net commission income is the amount after deduction of commission expenses from commission income, and the details are as follows.

(1) Details of commission income for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

Commission income in local currency:

      

Commission income on management of EDCF

    ￦ 8,088      ￦ 7,692  

Commission income on management of IKCF

      1,135        1,138  

Other commission income in local currency

      6        —    
  

 

 

     

 

 

  

Subtotal

      9,229        8,830  
  

 

 

     

 

 

  

Commission income in foreign currencies:

      

Commission income on letter of credit

      852        1,233  

Commission income on confirmation on export letter of credit

      176        428  

Commission income on loan commitments

      16,020        19,614  

Management fee

      —          —    

Arrangement fee

      1,115        5,938  

Advisory fee

      105        61  

Cancellation fee

      —          22  

Prepayment fee

      304        2,793  

Sundry commission income on foreign exchange

      54        77  

Structuring fee

      —          —    

Brokerage fee for foreign currencies exchange funds

      1,101        1,409  

Other commission income in foreign currencies

      596        3,116  
  

 

 

     

 

 

  

Subtotal

      20,323        34,691  
  

 

 

     

 

 

  

Others:

      

Other commission income

      6,697        1,844  

Guarantee fees in local currency:

      

Guarantee fees in local currency

      —          21,795  

Guarantee fees in foreign currencies:

      

Guarantee fees in foreign currencies

      82,164        108,326  

Premium for guarantee

      36,352        30,006  
  

 

 

     

 

 

  

Subtotal

      118,516        138,332  
  

 

 

     

 

 

  

Total

    ￦ 154,765      ￦ 205,492  
  

 

 

     

 

 

  

 

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(2) Details of commission expenses for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

Commission expenses in local currency:

      

Commission expenses on domestic transaction

    ￦ 182      ￦ 216  

Commission expenses in foreign currencies:

      

Service fees paid to credit-rating agency

      675        1,580  

Sundry commission expenses on foreign exchange

      1,061        534  

Sundry commissions expenses on offshore transaction

      —          1  
  

 

 

     

 

 

  

Subtotal

      1,736        2,115  
  

 

 

     

 

 

  

Others:

      

Other commissions expenses

      2,217        418  
  

 

 

     

 

 

  

Total

    ￦  4,135      ￦  2,749  
  

 

 

     

 

 

  

26. DIVIDEND INCOME:

Details of dividend income for six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

Financial assets at FVTPL

    ￦ 1,618      ￦ —    

AFS securities

      —          33,184  

Financial assets at FVOCI

      33,772        —    

Investments in associates

      4,577        9,905  
  

 

 

     

 

 

  

Total

    ￦ 39,967      ￦ 43,089  
  

 

 

     

 

 

  

27. GAIN (LOSS) ON FINANCIAL ASSETS AT FVTPL:

Details of gain (loss) on financial assets at FVTPL for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		  

Securities at FVTPL:

   

Gain on valuation

    ￦ 13,542  

Loss on valuation

      (2,722 ) 

Gain on disposal

      6,320  

Loss on disposal

      (427 ) 

Others

      302  
  

 

 

  

Subtotal

      17,015  
  

 

 

  

Trading derivatives:

   

Gain on valuation

      514,440  

Loss on valuation

      (636,645 ) 

Gain on transaction

      296,613  

Loss on transaction

      (288,911 ) 
  

 

 

  

Subtotal

      (114,503 ) 
  

 

 

  

Total

    ￦  (97,488 ) 
  

 

 

  

 

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     Six months ended
June 30, 2017		  

Trading securities:

   

Gain on valuation

    ￦ 1,876  

Loss on valuation

      (336 ) 

Gain on disposal

      7,427  

Loss on disposal

      (171 ) 
  

 

 

  

Subtotal

      8,796  
  

 

 

  

Trading derivatives:

   

Gain on valuation

      606,120  

Loss on valuation

      (502,614 ) 

Gain on transaction

      247,240  

Loss on transaction

      (220,724 ) 
  

 

 

  

Subtotal

      130,022  
  

 

 

  

Total

    ￦ 138,818  
  

 

 

  

28. GAIN (LOSS) ON HEDGING DERIVATIVES:

Details of gain (loss) on hedging derivatives for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		     Six months ended
June 30, 2017		  

Gain on hedging derivatives

    ￦ 173,444     ￦  812,286  

Loss on hedging derivatives

      (1,179,004 )      (43,615 ) 
  

 

 

    

 

 

  

Total

    ￦ (1,005,560 )    ￦ 768,671  
  

 

 

    

 

 

  

29. GAIN (LOSS) ON FINANCIAL INVESTMENTS:

Details of gain (loss) on financial investments for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		  

Financial assets at FVOCI:

   

Gain on disposals

    ￦ 211  

Loss on disposals

      (1,674 ) 
  

 

 

  

Total

    ￦  (1,463 ) 
  

 

 

  

 

     Six months ended
June 30, 2017		  

AFS securities:

   

Gain on disposals

    ￦  18,929  

Loss on disposals

      (92 ) 

Impairment loss

      (3,298 ) 
  

 

 

  

Total

    ￦ 15,539  
  

 

 

  

 

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30. OTHER OPERATING INCOME (EXPENSES):

Details of other operating income (expenses) for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

Other operating income:

      

Gains on sale of loans

    ￦ —        ￦ 1,655  

Gain on fair value hedged items

      717,545        82,136  

Others

      313        6,396  
  

 

 

     

 

 

  

Subtotal

      717,858        90,187  
  

 

 

     

 

 

  

Other operating expenses:

      

Loss on fair value hedged items

      33,767        227,884  

Contribution to Credit Guarantee Fund and Technology Credit Guarantee Fund

      2,391        2,641  

Others

      9,595        32,171  
  

 

 

     

 

 

  

Subtotal

      45,753        262,696  
  

 

 

     

 

 

  

Total

    ￦  672,105      ￦  (172,509 ) 
  

 

 

     

 

 

  

31. IMPAIRMENT LOSS (REVERSAL) ON CREDIT:

Details of impairment loss (reversal) on credit for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		     Six months ended
June 30, 2017		  

Loans at amortized cost

    ￦ 11,060     ￦ 755,542  

Other financial assets

      1,006       3,629  

Guarantees

      (97,999 )      (655,532 ) 

Unused loan commitments

      (77,022 )      (6,897 ) 

Financial guarantee contract

      41,690       24,949  

Financial assets at FVOCI

      79       —    

Financial assets at amortized cost

      (7 )      —    
  

 

 

    

 

 

  

Total

    ￦ (121,193 )    ￦ 121,691  
  

 

 

    

 

 

  

 

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32. GENERAL AND ADMINISTRATIVE EXPENSES:

Details of general and administrative expenses for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

    

Detail

   

Six months ended

June 30, 2018

   

Six months ended

June 30, 2017

General and administrative

    Short-term salaries    ￦ 48,834    ￦ 46,574

Other expenses in financing department

    Office expenses    25,606    24,528
     

 

   

 

  

Subtotal

    74,440    71,102
     

 

   

 

Office expenses of EDCF

       761    793

General and administrative

   

Postemployment benefit (defined contributions)

    259    211

Others

   

Postemployment benefit (defined benefits)

    4,416    4,488
   Depreciation of tangible assets    4,327    4,499
   Amortization of intangible assets    6,439    3,535
   Taxes and dues    11,966    16,219
     

 

   

 

  

Subtotal

    27,407    28,952
     

 

   

 

   Total    ￦ 102,608    ￦ 100,847
  

 

   

 

 

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33. NON-OPERATING INCOME (EXPENSES):

Details of non-operating income (expenses) for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

    

Detail

    Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

Gain(loss) on investments in associates and subsidiaries

    Dividend income    ￦ 4,577      ￦ 9,905  
   Impairment loss      —          (235 ) 
     

 

 

     

 

 

  
  

Subtotal

      4,577        9,670  
     

 

 

     

 

 

  

Others income

   

Gain on disposals of tangible assets

      1        22  
  

Gain on disposals of intangible assets

      100        —    
  

Rental income

      80        78  
  

Damages paid for breach of contracts

      2        2  
  

Interest on other loans

      55        40  
  

Revenue on research project

      15,680        22  
  

Other miscellaneous income

      328        1,240  
     

 

 

     

 

 

  
  

Subtotal

      16,246        1,404  
     

 

 

     

 

 

  
        

Others expenses

   

Loss on disposal of tangible assets

      1        1  
  

Impairment loss on intangible assets

      —          19  
  

Expenses for contribution

      1,985        2,460  
  

Court cost

      2,153        1,166  
  

Expenses on research project

      2,790        3,585  
  

Other miscellaneous expenses

      26        1,055  
     

 

 

     

 

 

  
  

Subtotal

      6,955        8,286  
     

 

 

     

 

 

  
  

Total

    ￦  13,868      ￦  2,788  
  

 

 

     

 

 

  

 

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34. INCOME TAX EXPENSE (BENEFIT):

(1) Details of income tax expenses (benefit) for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		     Six months ended
June 30, 2017		  

Current income tax payable

    ￦ —       ￦ —    

Adjustment recognized in the period for current tax of prior periods

      23,004       —    

Changes in deferred income taxes due to temporary differences

      297,492       126,767  

Changes in deferred income taxes directly recognized in equity

      (156,469 )      10,132  
  

 

 

    

 

 

  

Income tax expense

    ￦ 164,026     ￦ 136,899  
  

 

 

    

 

 

  

(2) Details of the reconciliation between net income before income tax and income tax expense (benefit) for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		     Six months ended
June 30, 2017		  

Net income (loss) before income tax

    ￦  722,914     ￦  582,239  

Income tax (benefit) calculated at statutory tax rate (11% up to ￦200 million, 22% over ￦200 million to ￦20 billion and 24.2% over ￦20 billion)

      174,482       140,440  

Adjustments:

     

Effect on non-taxable income

      (7,797 )      (495 ) 

Effect on non-deductible expense

      3,831       324  

Unrecognized temporary differences

      —         57  

Others

      16,514       941  
  

 

 

    

 

 

  

Subtotal

      12,548       827  
  

 

 

    

 

 

  

Adjustment recognized in the period for current tax of prior periods

      (23,004 )      (4,368 ) 
  

 

 

    

 

 

  

Income tax expense

    ￦ 164,026     ￦ 136,899  
  

 

 

    

 

 

  

Effective tax rate from operations

      22.69 %      23.51 % 

35. STATEMENTS OF CASH FLOWS:

Details of significant noncash investing and financing transactions for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

     Six months ended
June 30, 2018		     Six months ended
June 30, 2017		  

Loan-for-equity swap

    ￦ (6,170 )    ￦ —    

Gain (loss) on valuation of AFS securities

      —         (157,514 ) 

Contributed equity

      —         1,416,907  

 

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36. CONTINGENT LIABILITIES AND COMMITMENTS:

(1) Details of contingent liabilities and commitments as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

Detail

    Jun. 30, 2018      Dec. 31, 2017  

Guarantees

    Confirmed    ￦ 36,350,655      ￦ 38,960,799  
   Unconfirmed      5,076,478        3,847,975  
     

 

 

     

 

 

  
  

Subtotal

      41,427,133        42,808,774  
     

 

 

     

 

 

  

Loan commitments

   

Local currency, foreign currency loan commitments

      15,801,249        17,996,772  
   Others      684,222        1,825,727  
     

 

 

     

 

 

  
  

Subtotal

      16,485,471        19,822,499  
     

 

 

     

 

 

  
  

Total

    ￦ 57,912,604      ￦ 62,631,273  
     

 

 

     

 

 

  

(2) Details of guarantees that have been provided for others as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

 

Detail

    Jun. 30, 2018      Dec. 31, 2017  

Confirmed guarantees

    Local currency:      
  

Performance of contracts

    ￦ 62,534      ￦ 50,709  
  

Repayment of advances

      212,959        227,091  
  

Others

      521,343        602,187  
     

 

 

     

 

 

  
  

Subtotal

      796,836        879,987  
     

 

 

     

 

 

  
   Foreign currency:      
  

Performance of contracts

      9,796,331        10,096,151  
  

Repayment of advances

      8,287,710        11,091,318  
  

Acceptances of imported goods

      2,170        3,277  
  

Acceptances of import letter of credit outstanding

      91,165        89,480  
  

Foreign liabilities

      11,502,357        10,964,999  
  

Others

      5,874,086        5,835,587  
     

 

 

     

 

 

  
  

Subtotal

      35,553,819        38,080,812  
     

 

 

     

 

 

  

Unconfirmed guarantees

    Foreign liabilities      1,598,913        1,569,782  
   Repayment of advances      3,376,667        2,243,202  
   Performance of contracts      —          33,793  
   Underwriting of import credit      61,481        1,163  
   Others      39,417        35  
     

 

 

     

 

 

  
  

Subtotal

      5,076,478        6,063,975  
     

 

 

     

 

 

  
  

Total

    ￦ 41,427,133      ￦ 42,808,774  
     

 

 

     

 

 

  

 

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(3) Details of guarantees classified by country as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

     Confirmed guarantees     Unconfirmed guarantees     Total  

Detail

   Amount     Ratio (%)     Amount     Ratio (%)     Amount     Ratio (%)  

Asia

   Korea   ￦ 23,034,757       63,37     ￦ 3,435,062       67.67     ￦ 26,469,819       63.89  
  Saudi Arabia     1,926,300       5.30       —         0.00       1,926,300       4.65  
  India     578,345       1.59       45,790       0.90       624,135       1.51  
  Indonesia     989,571       2.72       127,783       2.52       1,117,354       2.70  
  Vietnam     1,058,517       2.91       230,834       4.55       1,289,351       3.11  
  Australia     682,411       1.88       53,044       1.04       735,455       1.78  
  Philippines     21,346       0.06       3,121       0.06       24,467       0.06  
  Qatar     293,235       0.81       —         0.00       293,235       0.71  
  Oman     358,104       0.99       56,399       1.11       414,503       1.00  
  Others     1,068,717       2.94       55,620       1.10       1,124,337       2.71  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     30,011,303       19.20       4,007,653       78.95       34,018,956       82.12  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Europe

   United Kingdom     423,780       1.17       —         0.00       423,780       1.02  
  France     412,655       1.13       27,270       0.54       439,925       1.06  
  Uzbekistan     303,387       0.83       39,382       0.78       342,769       0.83  
  Others     547,338       1.50       473,401       9.31       1,020,739       2.46  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     1,687,160       4.63       540,053       10.63       2,227,213       5.37  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

America

   United States     2,168,243       5.96       90,399       1.78       2,258,642       5.45  
  Brazil     425,054       1.17       —         0.00       425,054       1.03  
  Mexico     270,267       0.74       2,034       0.04       272,301       0.66  
  Bermuda     281,745       0.78       —         0.00       281,745       0.68  
  Others     209,193       0.58       35,010       0.69       244,203       0.59  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     3,354,502       9.23       127,443       2.51       3,481,945       8.41  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Africa

   Madagascar     166,772       0.46       —         0.00       166,772       0.40  
  Marshall Islands     709,249       1.95       —         0.00       709,249       1.71  
  Others     421,669       1.16       401,329       7.91       822,998       1.99  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     1,297,690       3.57       401,329       7.91       1,699,019       4.10  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Total

   ￦ 36,350,655       100.00     ￦ 5,076,478       100.00     ￦ 41,427,133       100.00  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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(December 31, 2017)

 

     Confirmed guarantees     Unconfirmed guarantees     Total  

Detail

   Amount     Ratio (%)     Amount     Ratio (%)     Amount     Ratio (%)  

Asia

   Korea   ￦ 26,140,921       67.10     ￦ 2,197,447       57.11     ￦ 28,338,368       66.20  
  Saudi Arabia     1,914,178       4.91       —         —         1,914,178       4.47  
  India     441,562       1.13       78,704       2.05       520,266       1.22  
  Indonesia     970,827       2.49       122,053       3.17       1,092,880       2.55  
  Vietnam     960,748       2.47       301,267       7.83       1,262,015       2.95  
  Australia     697,324       1.79       50,666       1.32       747,990       1.75  
  Philippines     126,536       0.32       8,614       0.22       135,150       0.32  
  Qatar     290,789       0.75       —         —         290,789       0.68  
  Oman     326,291       0.84       75,970       1.97       402,261       0.94  
  Others     983,640       2.52       117,139       3.04       1,100,779       2.56  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     32,852,816       84.32       2,951,860       76.71       35,804,676       83.64  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Europe

   United Kingdom     329,506       0.85       —         —         329,506       0.77  
  France     394,781       1.01       52,095       1.35       446,876       1.04  
  Uzbekistan     280,884       0.72       1,163       0.03       282,047       0.66  
  Others     449,278       1.15       184,849       4.80       634,127       1.48  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     1,454,449       3.73       238,107       6.18       1,692,556       3.95  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

America

   United States     2,348,208       6.03       194,670       5.06       2,542,878       5.94  
  Brazil     471,757       1.21       —         —         471,757       1.10  
  Mexico     265,381       0.68       1,942       0.05       267,323       0.62  
  Bermuda     191,686       0.49       —         —         191,686       0.45  
  Others     281,531       0.72       33,958       0.88       315,489       0.74  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     3,558,563       9.13       230,570       5.99       3,789,133       8.85  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Africa

   Madagascar     159,293       0.41       —         —         159,293       0.37  
  Marshall Islands     568,553       1.46       —         —         568,553       1.33  
  Others     367,125       0.95       427,438       11.12       794,563       1.86  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     1,094,971       2.82       427,438       11.12       1,522,409       3.56  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Total

   ￦ 38,960,799       100.00     ￦ 3,847,975       100.00     ￦ 42,808,774       100.00  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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(4) Details of guarantees classified by industry as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

     Confirmed guarantees      Unconfirmed guarantees      Total  

Detail

    Amount      Ratio (%)      Amount      Ratio (%)      Amount      Ratio (%)  

Manufacturing

    ￦ 16,314,816        44.88      ￦ 4,187,767        82.49      ￦ 20,502,583        49.49  

Transportation

      2,074,175        5.71        31,571        0.62        2,105,746        5.08  

Finance

      2,053,208        5.65        39,382        0.78        2,092,590        5.05  

Wholesale and retail

      992,655        2.73        78,060        1.54        1,070,715        2.58  

Property related business

      372,080        1.02        58,048        1.14        430,128        1.04  

Construction

      8,718,035        23.98        330,446        6.51        9,048,481        21.84  

Public and others

      5,825,686        16.03        351,204        6.92        6,176,890        14.92  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 36,350,655        100.00      ￦ 5,076,478        100.00      ￦ 41,427,133        100.00  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2017)

 

     Confirmed guarantees      Unconfirmed guarantees      Total  

Detail

    Amount      Ratio (%)      Amount      Ratio (%)      Amount      Ratio (%)  

Manufacturing

    ￦ 18,577,567        47.68      ￦ 3,087,986        80.25      ￦ 21,665,553        50.61  

Transportation

      1,850,655        4.75        56,203        1.46        1,906,858        4.45  

Finance

      2,051,157        5.26        1,163        0.03        2,052,320        4.79  

Wholesale and retail

      863,844        2.22        217,253        5.65        1,081,097        2.53  

Property related business

      353,741        0.91        59,345        1.54        413,086        0.96  

Construction

      9,251,902        23.75        22,135        0.58        9,274,037        21.67  

Public and others

      6,011,933        15.43        403,890        10.49        6,415,823        14.99  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 38,960,799        100.00      ￦ 3,847,975        100.00      ￦ 42,808,774        100.00  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

(5) Global Medium-Term Note Program and CP programs

The Bank has been establishing the following programs regarding the issue of foreign currencies bonds and CPs:

 

  1)

Established on August 1, 1991, initially, and annually renewed, U.S. Shelf Registration to issue foreign bonds under the Securities and Exchange Commission rule of the United States of America with an issuance limit of USD 50 billion.

 

  2)

Established on May 14, 1997, and May 16, 1997, initially, and annually renewed, CP program to issue CPs with issuance limits of USD 6 billion and USD 2 billion, respectively.

 

  3)

Established on November 6, 1997, initially, and annually renewed, Euro Medium-Term Note Program to issue mid-to-long-term foreign currencies bonds with an issuance limit of USD 25 billion.

 

  4)

Established on February 2, 2008, initially, and renewed every year, MYR MTN program to issue Malaysian Ringgit-denoted bonds with issuance limits of MYR 4 billion.

 

  5)

Established in 1995, initially, and every other yearly renewed, Yen Shelf Registration to issue Samurai bond with an issuance limit of JPY 500 billion.

 

  6)

Established on May 31, 2010, Australian Domestic Debt Issuance Program to issue Kangaroo bond with limit of AUD 4 billion.

 

  7)

Established on January 17, 2011, and renewed every two years, Uridashi Shelf Registration to issue Uridashi bond with an issuance limit of JPY 500 billion.

 

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(6) Litigations

As of June 30, 2018, 11 lawsuits (aggregated claim amount: ￦167,688 million) were filed as a plaintiff and 8 pending litigations as a defendant were filed (aggregated claim amount: ￦127,742 million). The Bank’s management expects that there is no significant impact on the financial statements due to these lawsuits but it is possible to make additional loss to the Bank due to the results of future litigation.

(7) Written-off loans

The Bank manages written-off loans that have claims on debtors due to the statute of limitations, uncollected after write-off, etc. The written-off loans as of June 30, 2018, and December 31, 2017, are ￦2,034,384 million and ￦1,385,885 million, respectively.

37. TRANSACTIONS AND BALANCES WITH RELATED PARTIES:

Related parties consist of entities related to the Bank, postemployment benefits, a key management personnel and a close member of that person’s family, an entity controlled or jointly controlled and an entity influenced significantly.

(1) Details of related parties as of June 30, 2018, are as follows:

 

Detail

    Relationship      Ownership-
percentage  (%)		  

Parent:

      

Korean government

      Parent        66.27  

Subsidiaries and Associates:

      

KEXIM Bank UK Limited

      Subsidiary        100.00  

PT.KOEXIM Mandiri Finance

      Subsidiary        85.00  

KEXIM Vietnam Leasing Co.

      Subsidiary        100.00  

KEXIM Asia Limited

      Subsidiary        100.00  

Korea Asset Management Corporation

      Associate        25.86  

Credit Guarantee and Investment Fund

      Associate        11.70  

Korea Marine Guarantee Inc.

      Associate        41.88  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      Associate        81.25  

DAESUN Shipbuilding & Engineering Co., Ltd.

      Associate        83.03  

KTB Newlake Global Healthcare PEF

      Associate        25.00  

KBS-KDB Private Equity Fund

      Associate        19.99  

Korea Shipping and Maritime Transportation

      Associate        40.00  

Korea Aerospace Industries. Ltd.

      Associate        26.41  

 

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(2) Significant balances of receivables, payables and guarantees with the related parties

 

  1)

Significant balances of receivables and payables with the related parties as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

Detail

    Receivables      Allowance
/Provisions		      Payables  

Subsidiaries:

         

KEXIM Bank UK Limited

    ￦ 120,171      ￦ —        ￦ 160  

PT.KOEXIM Mandiri Finance

      160,053        258        —    

KEXIM Vietnam Leasing Co.

      123,181        214        —    

KEXIM Asia Limited

      148,384        70        —    
  

 

 

     

 

 

     

 

 

  

Subtotal

      551,789        542        160  
  

 

 

     

 

 

     

 

 

  

Associates:

         

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      1,982,320        1,590,542        —    

DAESUN Shipbuilding & Engineering Co., Ltd.

      471,504        366,295        83,958  
  

 

 

     

 

 

     

 

 

  

Subtotal

      2,453,824        1,956,837        83,958  
  

 

 

     

 

 

     

 

 

  

Total

    ￦ 3,005,613      ￦ 1,957,379      ￦ 84,118  
  

 

 

     

 

 

     

 

 

  

(December 31, 2017)

 

Detail

    Receivables      Allowance
/Provisions		      Payables  

Subsidiaries:

         

KEXIM Bank UK Limited

    ￦ 136,805      ￦ —        ￦ 93  

PT.KOEXIM Mandiri Finance

      145,109        227        —    

KEXIM Vietnam Leasing Co.

      122,994        195        —    

KEXIM Asia Limited

      121,267        58        59  
  

 

 

     

 

 

     

 

 

  

Subtotal

      526,175        480        152  
  

 

 

     

 

 

     

 

 

  

Associates:

         

SUNGDONG Shipbuilding & Marine
Engineering Co., Ltd.

      1,931,974        1,590,951        —    

DAESUN Shipbuilding &
Engineering Co., Ltd.

      459,156        284,443        41,743  
  

 

 

     

 

 

     

 

 

  

Subtotal

      2,391,130        1,875,394        41,743  
  

 

 

     

 

 

     

 

 

  

Total

    ￦ 2,917,305      ￦ 1,875,874      ￦ 41,895  
  

 

 

     

 

 

     

 

 

  

 

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  2)

Guarantees provided to the related parties as of June 30, 2018, and December 31, 2017, are as follows (Korean won in millions):

(June 30, 2018)

 

Detail

    Confirmed
guarantees		      Unconfirmed
guarantees		      Loans
commitments		      Other
commitments		  

Subsidiaries:

            

KEXIM Bank UK Limited

    ￦ —        ￦ —        ￦ 277,763      ￦ 12,339  

PT.KOEXIM Mandiri Finance

      —          —          8,974        —    

KEXIM Vietnam Leasing Co.

      —          —          33,651        —    

KEXIM Asia Limited

      —          —          101,803        —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      —          —          422,191        12,339  
  

 

 

     

 

 

     

 

 

     

 

 

  

Associates:

            

DAESUN Shipbuilding &
Engineering Co., Ltd.

      149,752        92,505        —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      149,752        92,505        —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 149,752      ￦ 92,505      ￦ 422,191      ￦ 12,339  
  

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2017)

 

Detail

    Confirmed
guarantees		      Unconfirmed
guarantees		      Loans
commitments		      Other
commitments		  

Subsidiaries:

            

KEXIM Bank UK Limited

    ￦ —        ￦ —        ￦ 202,495      ￦ 15,000  

PT.KOEXIM Mandiri Finance

      —          —          16,071        —    

KEXIM Vietnam Leasing Co.

      —          —          16,071        —    

KEXIM Asia Limited

      —          —          88,766        20,892  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      —          —          323,403        35,892  
  

 

 

     

 

 

     

 

 

     

 

 

  

Associates:

            

SUNGDONG Shipbuilding & Marine
Engineering Co., Ltd.

      25,997        98,061        210,000        —    

DAESUN Shipbuilding &
Engineering Co., Ltd.

      92,812        77,425        —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      118,809        175,486        210,000        —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 118,809      ￦ 175,486      ￦ 533,403      ￦ 35,892  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

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(3) Profit and loss transactions with related parties

Profit and loss transactions with related parties for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

Detail

  

Related party

   Six months ended June 30, 2018     Six months ended June 30, 2017  
  Revenue     Bad debt
expenses		     Expenses     Revenue     Bad debt
expenses		     Expenses  

Subsidiaries

   KEXIM Bank UK Limited   ￦ 1,227     ￦ —       ￦ 232     ￦ 1,047     ￦ —       ￦ 259  
  PT.KOEXIM Mandiri Finance     1,721       18       —         1,048       —         —    
  KEXIM Vietnam Leasing Co.     1,504       8       —         1,050       —         —    
  KEXIM Asia Limited     1,301       12       13       1,088       —         96  

Associate

  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

     31,504       11,841       6       40,508       (82,776 )      1,133  
 

DAESUN Shipbuilding & Engineering Co., Ltd

     15,792       (339 )      —         2,803       (48,578 )      38  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Total

   ￦ 53,049     ￦ 11,540     ￦ 251     ￦ 47,544     ￦ (131,354 )    ￦ 1,526  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(4) Money dealing with related parties

Money dealing with related parties for six months ended June 30, 2018, and for the year ended December 31, 2017, is as follows (Korean won in millions):

 

Detail

    Six months ended
June 30, 2017		      2017  
  

 

 

     

 

 

  
   Financing transaction      Financing transaction  
   Loan      Collection      Loan      Collection  

Subsidiaries:

            

KEXIM Bank UK Limited

    ￦ 110,040      ￦ 131,734      ￦ 240,458      ￦ 231,744  

PT.KOEXIM Mandiri Finance

      152,756        145,172        297,385        275,019  

KEXIM Vietnam Leasing Co.

      116,265        121,844        209,031        214,802  

KEXIM Asia Limited

      147,574        131,958        320,952        315,549  

Associates:

            

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      24,345        465        34,000        216,503  

DAESUN Shipbuilding & Engineering Co., Ltd.

      —          —          99,450        —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 550,980      ￦ 531,173      ￦ 1,201,276      ￦ 1,253,617  
  

 

 

     

 

 

     

 

 

     

 

 

  

(5) Details of compensation for key executives for the six months ended June 30, 2018 and 2017, are as follows (Korean won in millions):

 

Detail

    Six months ended
June 30, 2018		      Six months ended
June 30, 2017		  

Salaries

    ￦ 1,137      ￦ 949  

Severance and retirement benefits

      76        36  
  

 

 

     

 

 

  

Total

    ￦ 1,213      ￦ 985  
  

 

 

     

 

 

  

 

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38. THE ADOPTION OF K-IFRS No. 1109 ‘Financial Instruments’:

The Bank has adopted K-IFRS No. 1109 ‘Financial Instruments’ which was published on September 25, 2015 from the year beginning on January 1, 2018. The effect of the adoption of this new standard to the Bank’s financial statements is as follows:

(1) Classification and measurement of financial assets

The impacts on the classification and measurements of the non-derivative financial instruments as of January 1, 2018 by application of this new standard were as follows (Korean won in millions):

 

   

Classification under

K-IFRS No.1039

  

Classification under
K-IFRS No.1109

   Amounts
under K-IFRS
No.1039(*)		     Amounts
under K-IFRS
No.1109(*)		  

Due from banks:

   Loans and receivables   Amortized cost   ￦ 2,091,920     ￦ 2,091,920  

Loans:

   Loans and receivables   FVPL     18,216       13,577  
  Loans and receivables   FVOCI     1,095,968       866,319  
  Loans and receivables   Amortized cost     70,371,948       70,371,948  

Other financial assets

   Loans and receivables   Amortized cost     1,102,062       1,102,062  

Trading assets (debt securities)

   FVTPL   FVPL     38,665       38,665  

Trading assets (equity securities)

   FVTPL   FVPL     725,613       725,613  

AFS financial assets (debt securities)

   AFS financial assets   FVOCI     911,518       911,518  

AFS financial assets (equity securities)

   AFS financial assets   FVPL     134,324       134,324  
  AFS financial assets   FVOCI     5,646,636       5,646,636  

HTM financial assets (debt securities)

   HTM financial assets   Amortized cost     89,477       89,477  
     

 

 

    

 

 

  

Total of the non-derivative financial instruments

   ￦ 82,226,347     ￦ 81,992,059  
 

 

 

    

 

 

  

 

(*)

These are amounts before deduction of allowance for loan loss, and exclude loan valuation adjustment related to fair value hedging amounting to ￦24,182 million.

 

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(2) Loss allowances impact

The impacts on loss allowances as of January 1, 2018 by application of this new standard were as follows (Korean won in millions):

 

Detail

    Stages    Loans      Loss allowance
under K-IFRS
No.1039		      Loss allowance
under K-IFRS
No.1109		  

Loans and receivables

    Stage 1    ￦ 64,646,271      ￦ 209,161      ￦ 228,664  
   Stage 2      3,185,189        96,182        402,351  
   Stage 3      4,099,725        2,840,651        2,840,893  
   Reclassification      2,315,657        309,554        —    
     

 

 

     

 

 

     

 

 

  
   Subtotal      74,246,842        3,455,548        3,471,908  
     

 

 

     

 

 

     

 

 

  

Acceptances and guarantee contracts/ Commitments

    Stage 1      48,995,311        744,674        757,402  
   Stage 2      12,335,103        541,790        722,570  
   Stage 3      1,216,148        512,427        512,440  
     

 

 

     

 

 

     

 

 

  
   Subtotal      62,546,562        1,798,891        1,992,412  
     

 

 

     

 

 

     

 

 

  

Debt securities

    Stage 1      1,000,995        —          1,840  
     

 

 

     

 

 

     

 

 

  

Total

       ￦ 137,794,399      ￦ 5,254,439      ￦ 5,466,160  
     

 

 

     

 

 

     

 

 

  

(3) Changes in equity

Changes in retained earnings as of January 1, 2018 due to the initial application date of K-IFRS No.1109 were as follows (Korean won in millions):

 

     Amounts  

Retained earnings at January 1, 2018 before changes

    ￦ 707,980  

Adjustments of retained earnings due to the application of K-IFRS No.1109:

   

Reclassification from financial assets at amortized cost to financial assets at FVTPL

      120,064  

Reclassification from available-for-sale financial assets to financial assets at FVTPL

      (61,926 ) 

Increase in loss allowance for financial assets at amortized cost

      (30,705 ) 

Increase in provisions for acceptances and guarantees

      (29,244 ) 

Increase in provisions for unused loan commitments

      (166,116 ) 

Increase in loss allowance for debt instruments at FVOCI

      (2,342 ) 

Others (*1)

      397  
        

 

 

  

Subtotal

      (169,872 ) 
        

 

 

  

Tax effect

      41,109  
        

 

 

  

Retained earnings at January 1, 2018 after changes

      579,217  
        

 

 

  

 

(*1)

Others represent translation difference of foreign currencies, and others.

 

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Changes in other components of equity of January 1, 2018 due to the initial application date of K-IFRS No.1109 were as follows (Korean won in millions):

 

     Amounts  

Other components of equity at January 1, 2018 before changes

    ￦ 119,739  

Adjustments of other components of equity due to the application of K-IFRS No.1109:

   

Reclassification from financial assets at amortized cost to financial assets at FVOCI

      (305,553 ) 

Reclassification from available-for-sale financial assets to financial assets at FVOCI

      2,342  
  

 

 

  

Subtotal

      (303,211 ) 
  

 

 

  

Tax effect

      73,377  
  

 

 

  

Other components of equity at January 1, 2018 after changes

      (110,095 ) 
  

 

 

  

 

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THE REPUBLIC OF KOREA

The Economy

Gross Domestic Product

Based on preliminary data, GDP growth in the first half of 2018 was 2.8% at chained 2010 year prices, as aggregate private and general government consumption expenditures increased by 3.7%, gross domestic fixed capital formation increased by 1.0% and exports of goods and services increased by 3.2%, which more than offset an increase in imports of goods and services by 3.1%, each compared with the corresponding period of 2017.

Based on preliminary data, GDP growth in the third quarter of 2018 was 2.0% at chained 2010 year prices, as aggregate private and general government consumption expenditures increased by 3.2%, exports of goods and services increased by 3.1% and imports of goods and services decreased by 1.2%, which more than offset a decrease in gross domestic fixed capital formation by 6.5%, each compared with the corresponding period of 2017.

Prices, Wages and Employment

The inflation rate was 1.3% in the first quarter of 2018, 1.5% in the second quarter of 2018 and 1.6% in the third quarter of 2018. The unemployment rate was 4.3% in the first quarter of 2018, 3.9% in the second quarter of 2018 and 3.8% in the third quarter of 2018.

The Financial System

Securities Markets

The following table shows the value of the Korea Composite Stock Price Index as of the dates indicated:

 

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  

Monetary Policy

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:

 

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

Balance of Payments and Foreign Trade

Balance of Payments

Based on preliminary data, the Republic recorded a current account surplus of approximately US$57.7 billion in the first nine months of 2018. The current account surplus in the first nine months of 2018 decreased from the current account surplus of US$61.2 billion in the corresponding period of 2017, primarily due to increases in deficit from the primary and secondary income accounts.

 

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Trade Balance

Based on preliminary data, the Republic recorded a trade surplus of US$20.1 billion in the first nine months of 2018. Exports increased by 4.7% to US$450.3 billion and imports increased by 11.4% to US$395.7 billion from US$430.2 billion of exports and US$355.1 billion of imports, respectively, in the corresponding period of 2017.

Foreign Currency Reserves

The amount of the Government’s foreign currency reserves was US$402.7 billion as of October 31, 2018.

 

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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 form of global note before deciding whether to invest in the Notes. We have filed a copy of these documents with the U.S. Securities and Exchange Commission as exhibits to the registration statement no. 333-217916.

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 Notes under the fiscal agency agreement, dated as of August 1, 1991, between us and The Bank of New York Mellon (formerly known as The Bank of New York) (as successor to JPMorgan Chase Bank, N.A.), as fiscal agent, as amended or supplemented from time to time (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, and the 20         Notes are initially limited to US$             aggregate principal amount. 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, the “Maturity Dates”). 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 May              and November              each year (each an “Interest Payment Date”). The first interest payment on each of the Notes will be made on May             , 2019 in respect of the period from (and including) November             , 2018 to (but excluding) May             , 2019. Interest on the Notes will accrue from November             , 2018. If any Interest Payment Date or any Maturity Date falls on a day that is not a business day (as defined below), then payment will not be made on such date but will be made on the next succeeding day that is a business day, with the same force and effect as if made on the Interest Payment Date or the Maturity Date (as the case may be), and no interest shall be payable in respect of such delay. The term “business day” as used herein means a day other than a Saturday, a Sunday, or any other day on which banking institutions in The City of New York, London or Seoul are authorized or required by law or executive order to remain closed.

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 an Interest Payment Date for such Note. 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.

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.

 

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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 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.”

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 a global note is exchanged for Notes in definitive 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 a global note is exchanged for Notes in definitive form, an announcement of such exchange will be made by or on behalf of us through the SGX-ST. 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 any 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 the issuance would constitute a “qualified reopening” for U.S. federal income tax purposes or such additional debt securities would otherwise be part of the same “issue” for U.S. federal income tax purposes.

Notices

While the Notes are represented by the global note deposited with the custodian for DTC, notices to holders may be given by delivery to DTC, and such notices will be deemed to be given on the date of delivery to DTC. The fiscal agent may also mail notices by first-class mail, postage prepaid, to each registered holder’s last known address as it appears in the security register that the fiscal agent maintains. The fiscal agent will only mail these notices to the registered holder of the Notes. You will not receive notices regarding the Notes directly from us unless we reissue the Notes to you in fully certificated form.

Neither the failure to give any notice to a particular holder, nor any defect in a notice given to a particular holder, will affect the sufficiency of any notice given to another holder.

 

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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. DTC is owned by a number of its direct participants and by the New York Stock Exchange Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers Inc.

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 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.

 

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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 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 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.

 

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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 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 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 Korean tax considerations that may be relevant to you if you invest in the Notes, please refer to the section “Taxation—Korean Taxation” in the accompanying prospectus.

United States Tax Considerations

Stated interest on the Notes will be treated as qualified stated interest for U.S. federal income tax purposes. Under certain circumstances as described under “Taxation—Korean Taxation” in the accompanying prospectus, a U.S. holder may be subject to Korean withholding tax upon the sale or other disposition of Notes. A U.S. holder eligible for benefits of the Korea-U.S. tax treaty, which exempts capital gains from tax in Korea, would not be eligible to credit against its U.S. federal income tax liability any such Korean tax withheld. U.S. holders should consult their own tax advisers with respect to their eligibility for benefits under the Korea-U.S. tax treaty and, in the case of U.S. holders that are not eligible for treaty benefits, their ability to credit any Korean tax withheld upon sale of the Notes against their U.S. federal income tax liability.

For a discussion of additional U.S. federal income tax considerations that may be relevant to you if you invest in the Notes and are a U.S. holder, see “Taxation—United States 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 November             , 2018 (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 each of the Underwriters has severally agreed to purchase, the following principal amount of the Notes set out opposite its name below:

 

Name of the Underwriters

    Principal Amount
of 20     Notes		      Principal Amount
of 20     Notes		  

Crédit Agricole Corporate and Investment Bank

    US$                    US$                

Daiwa Capital Markets Europe Limited

      

The Hongkong and Shanghai Banking Corporation Limited

      

Merrill Lynch, Pierce, Fenner & Smith Incorporated

      

Mizuho Securities USA LLC

      

Standard Chartered Bank

      

KEXIM Bank (UK) Limited

      
  

 

 

     

 

 

  
   US$                    US$                
  

 

 

     

 

 

  

KEXIM Bank (UK) Limited, an Underwriter, is an affiliate of ours 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 Notes of a series, 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. 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 behalf of us 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.

In connection with this offering, any of the Underwriters appointed and acting in its capacity as stabilizing manager (the “Stabilizing Managers”) or any person acting on their behalf may purchase and sell the Notes in the open market. These transactions may include over-allotment, covering transactions and stabilizing transactions. Over-allotment involves sales of the Notes in excess of the principal amount of the 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

 

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positions. Stabilizing transactions consist of certain bids or purchases of the Notes made 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 Managers may conduct these transactions in the over-the-counter market or otherwise. If the Stabilizing Managers commence any of these transactions, they may discontinue such transactions at any time, and must discontinue them after a limited period.

The amount of net proceeds from our 20     Notes is US$                     after deducting underwriting discounts but not estimated expenses. Our 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 net proceeds from our 20     Notes is US$                     after deducting underwriting discounts but not estimated expenses. Our 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 its or 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 November             , 2018, which we expect will be the                      business day following the date of this prospectus supplement. Under Rule 15c6-l 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 before the settlement date, 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 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

 

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resident of Korea, except as permitted by applicable Korean laws and regulations; and (ii) any securities dealer to whom it sells 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 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 any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any of the 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 the Notes, from or otherwise involving the United Kingdom.

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 Law of Japan (Law No. 25 of 1948, as amended); it will not offer or sell, directly or indirectly, any of the Notes in Japan or to, or for the account or benefit of, any resident of Japan or to, or for the account or benefit of, any resident for reoffering or resale, directly or indirectly, in Japan or to, or for the account or benefit of, any resident of Japan except (i) pursuant to an exemption from the registration requirements of, or otherwise in compliance with, the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and (ii) in compliance with the other relevant laws and regulations of Japan.

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 (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and any rules made under that Ordinance; or (ii) 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 the Laws of Hong Kong) or which do not constitute an offer to the public within the meaning of that Ordinance; 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 Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and any rules made under that Ordinance.

Singapore

Each Underwriter has severally represented and agreed 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 severally represents, warrants and agrees 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

 

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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), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Each Underwriter further has severally represented and agreed to notify (whether through the distribution of this prospectus supplement and the accompanying prospectus or otherwise) each of the following relevant persons specified in Section 275 of the SFA which has subscribed or purchased Notes from or through that Underwriter, namely 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:

(1) 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;

(2) where no consideration is or will be given for the transfer;

(3) where the transfer is by operation of law; or

(4) as specified in Section 276(7) of the SFA.

 

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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 Shin & Kim, Seoul, Korea. Certain legal matters will also be passed upon for the Underwriters by Davis Polk & Wardwell LLP, New York, New York, and by Lee & Ko, Seoul, Korea. In giving their opinions, Cleary Gottlieb Steen & Hamilton LLP and Davis Polk & Wardwell LLP may rely as to matters of Korean law upon the opinions of Shin & Kim and Lee & Ko.

OFFICIAL STATEMENTS AND DOCUMENTS

Our Chairman and President, in his official capacity, has supplied the information set forth in this prospectus supplement under “Recent Developments—The Export-Import Bank of Korea.” 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 1976 as a special governmental financial institution pursuant to the Export-Import Bank of Korea Act, as amended. Our corporate registry number is 111235-0000158. Our authorized share capital is ￦15,000 billion. As of June 30, 2018, our paid-in capital was ￦11,815 billion.

Our board of directors can be reached at the address of our registered office: c/o 38 Eunhaeng-ro, Yeongdeungpo-gu, Seoul 07242, The Republic of Korea.

The issue of the Notes has been authorized by our Chairman and President on November 13, 2018. On November 6, 2018, we filed our report 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 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:

 

    

CUSIP

   

ISIN

20     Notes

   

            

   

                

20     Notes

   

            

   

                

 

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PROSPECTUS

 

LOGO

$12,082,248,627

The Export-Import Bank of Korea

Debt Securities

Warrants to Purchase Debt Securities

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 June 25, 2018

Table of Contents

TABLE OF CONTENTS

 

     Page  

Certain Defined Terms and Conventions

      1  

Use of Proceeds

      2  

The Export-Import Bank of Korea

      3  

Overview

      3  

Capitalization

      4  

Business

      5  

Selected Financial Statement Data

      7  

Operations

      10  

Description of Assets and Liabilities

      15  

Debt

      24  

Credit Policies, Credit Approval and Risk Management

      27  

Capital Adequacy

      28  

Overseas Operations

      29  

Property

      29  

Management and Employees

      30  

Tables and Supplementary Information

      31  

Financial Statements and the Auditors

      42  

The Republic of Korea

      137  

Land and History

      137  

Government and Politics

      139  

The Economy

      142  

Principal Sectors of the Economy

      150  

The Financial System

      157  

Monetary Policy

      162  

Balance of Payments and Foreign Trade

      165  

Government Finance

      172  

Debt

      174  

Tables and Supplementary Information

      176  

Description of the Securities

      179  

Description of Debt Securities

      179  

Description of Warrants

      185  

Terms Applicable to Debt Securities and Warrants

      186  

Description of Guarantees

      187  

Limitations on Issuance of Bearer Debt Securities and Bearer Warrants

      188  

Taxation

      189  

Korean Taxation

      189  

United States Tax Considerations

      191  

Plan of Distribution

      200  

Legal Matters

      201  

Authorized Representatives in the United States

      201  

Official Statements and Documents

      201  

Experts

      201  

Forward-Looking Statements

      202  

Further Information

      204  

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CERTAIN DEFINED TERMS AND CONVENTIONS

All references to the “Bank”, “we”, “our” or “us” mean The Export-Import Bank of Korea. 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 “￦” 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 “Canadian Dollar” or “CAD” are to the currency of Canada, 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 “Chinese Renminbi” or “CNY” are to the currency of the People’s Republic of China, references to “Swiss Franc” or “CHF” are to the currency of Switzerland, references to “British Pound” or “GBP” are to the currency of the United Kingdom, references to “Deutsche Mark” are to the currency of the Federal Republic of Germany, references to “Hong Kong Dollar” or “HKD” are to the currency of Hong Kong, S.A.R., references to “Singapore dollar” or “SGD” are to the currency of Singapore, references to “Turkish Lira” or “TRY” are to the currency of Turkey, references to “Malaysia Ringgit” or “MYR” are to the currency of Malaysia, references to “Brazilian Real” or “BRL” are to the currency of Federative Republic of Brazil, references to “Mexican Peso” or “MXN” are to the currency of the United Mexican States, references to “New Zealand Dollar” or “NZD” are to the currency of New Zealand, references to “Taiwan Dollar” or “TWD” are to the currency of Taiwan, references to “Thai Baht” or “THB” are to the currency of Thailand, references to “Australian Dollar” or “AUD” are to the currency of Australia, references to “Indian Rupee” or “INR” are to the currency of India, references to “Indonesian Rupiah” or “IDR” are to the currency of Indonesia, references to “Saudi Riyal” or “SAR” are to the currency of Saudi Arabia, references to “Russian Ruble” or “RUB” are to the currency of the Russian Federation, references to “Swedish Krona” or “SEK” are to the currency of Sweden, references to “South African Rand” or “ZAR” are to the currency of South Africa, references to “Danish Krone” or “DKK” are to the currency of Denmark and references to “Peruvian Sol” or “PEN” are to the currency of Peru.

In this prospectus, where information has been prepared in thousands, millions or billions of units, amounts may have been rounded up or down. Accordingly, actual numbers may differ from those contained herein due to rounding. All discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

Our separate financial statements and information included in this prospectus were prepared under International Financial Reporting Standards as adopted by Korea (“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.

 

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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.

 

2

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THE EXPORT-IMPORT BANK OF KOREA

Overview

We were established in 1976 as a special governmental financial institution pursuant to the Export-Import Bank of Korea Act, as amended (the “KEXIM Act”). Since our establishment, we have been promoting the export and competitiveness of Korean goods and services in international markets. To this end, we have introduced financing facilities and implemented lending policies that are responsive to the needs of Korean exporters.

Our primary purpose, as stated in the KEXIM Act, is to “promote the sound development of the national economy and economic cooperation with foreign countries by extending the financial aid required for export and import transactions, overseas investment and the development of natural resources abroad.” Over the years, we have developed various financing facilities and lending policies that are consistent with the Government’s overall economic policies. In the latter part of the 1980s, as a result of changing trade conditions and the increased internationalization of the Korean economy, overseas investment credits and import credits were promoted and began to constitute an important portion of our business. In recent years, we have focused on the development of new financing facilities, including structured financing for ships and project financing for the construction of industrial plants and the development of natural resources abroad.

As of December 31, 2017, we had ￦71,884 billion of outstanding loans, including ￦41,369 billion of outstanding export credits, ￦24,107 billion of outstanding overseas investment credits and ￦3,726 billion of outstanding import credits, as compared to ￦76,724 billion of outstanding loans, including ￦42,628 billion of outstanding export credits, ￦27,527 billion of outstanding overseas investment credits and ￦3,741 billion of outstanding import credits as of December 31, 2016.

Although our management has control of our day-to-day operations, our operations are subject to the close supervision of the Government. The Government’s determination each fiscal year regarding the amount of financial support to extend to us, in the form of contributions to capital or transfers of our income to reserves, plays an important role in determining our lending capacity. The Government has the power to appoint or dismiss our President, Deputy President, Senior Executive Directors and Auditor. Moreover, the Minister of Strategy and Finance of the Republic has, on behalf of the Republic, signed the registration statement of which this Prospectus forms a part.

The Government supports our operations pursuant to Article 37 of the KEXIM Act. Article 37 of the KEXIM Act provides that “the annual net losses of the Export-Import Bank of Korea shall be offset each year by the reserve, and if the reserve be insufficient, the Government shall provide funds to cover the deficit.” As a result of the KEXIM Act, the Government is generally responsible for our operations and is legally obligated to replenish any deficit that arises if our reserves, consisting of our surplus and capital surplus items, are insufficient to cover any of our annual net losses. In light of the above, if we have insufficient funds to make any payment under any of our obligations, including the debt securities 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 37 do not, however, constitute a direct guarantee by the Government of our obligations, and the provisions of the KEXIM Act, including Article 37, may be amended at any time by action of the National Assembly.

In January 2014, the Government amended the KEXIM Act to:

 

  •  

increase our authorized capital from ￦8,000 billion to ￦15,000 billion;

 

  •  

expand our operation scope that enables us, among other things, to invest in (i) funds intended to support export and import transactions by small and medium-sized enterprises and (ii) special purpose companies that carry out value added overseas development projects in a flexible way; and

 

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  •  

reduce restrictions on our financing and investment activities by providing additional flexibility to us to cope with changes in market conditions.

In March 2016, the Government amended the KEXIM Act, which will take effect at the end of June 2016, to strengthen its enforcement powers by allowing:

 

  •  

the Minister of Strategy and Finance to impose any necessary sanctions against the officers of the Bank; and

 

  •  

the Financial Services Commission to request the Minister of Strategy and Finance to apply sanctions against the employees of the Bank.

Capitalization

As of December 31, 2017, our authorized capital was ￦15,000 billion and capitalization was as follows:

 

     December 31, 2017 (1)  
     (billions of Won)  

Long-Term Debt (2)(3)(4)(5)(6):

   

Borrowings in Korean Won

    ￦ —    

Borrowings in Foreign Currencies

      4,316  

Export-Import Financing Debentures

      43,109  
  

 

 

  

Total Long-Term Debt

    ￦ 47,425  
  

 

 

  

Capital and Reserves:

   

Capital Stock(7)

    ￦ 11,815  

Additional Paid-in-Capital

      —    

Capital Adjustments

      (129 ) 

Retained Earnings

      708  

Legal Reserve(8)

      329  

Voluntary Reserve(8)

      —    

Reserve for Bad Loans(9)

      206  

Unappropriated Retained Earnings

      173  

Other Components of Equity(10)

      120  
  

 

 

  

Total Capital and Reserve

    ￦ 12,513  
  

 

 

  

Total Capitalization(8)

    ￦ 59,938  
  

 

 

  

 

(1)

Except as described in this prospectus, there has been no material adverse change in our capitalization since December 31, 2017.

(2)

Consists of borrowings and debentures with maturities of more than a year remaining.

(3)

We have translated borrowings in foreign currencies as of December 31, 2017 into Won at the rate of ￦1,071.40 to US$1.00, which was the market average exchange rate as announced by the Seoul Monetary Brokerage Services Ltd., on December 31, 2017.

(4)

As of December 31, 2016, we had contingent liabilities totaling ￦42,809 billion, which consisted of ￦38,961 billion under outstanding guarantees and acceptances and ￦3,848 billion under contingent guarantees and acceptances issued on behalf of our clients. For further information relating to our contingent liabilities under outstanding guarantees as of December 31, 2017, see “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 36.”

(5)

As of December 31, 2017, we had entered into 468 interest rate related derivative contracts with a notional amount of ￦38,781 billion and 739 currency related derivative contracts with a notional amount of ￦30,970 billion in accordance with our policy to hedge interest rate and currency risks. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 20.”

 

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(6)

See “—Description of Assets and Liabilities—Sources of Funding” for an explanation of these sources of funds. All our borrowings, whether domestic or international, are unsecured and unguaranteed.

(7)

As of December 31, 2017, our authorized ordinary share capital was ￦15,000 billion and issued fully-paid capital stock was ￦11,815 billion. See “—Business—Government Support and Supervision.”

(8)

See “—Business—Government Support and Supervision” for a description of the manner in which annual net income is transferred to the legal reserve and may be transferred to the voluntary reserve.

(9)

If the estimated allowance for credit loss determined by K-IFRS for the accounting purposes is lower than that for regulatory purposes as required by Supervisory Regulation of Banking Business, we reserve such difference as the regulatory reserve for bad loans. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 23.”

(10)

See “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 22.”

Business

Purpose and Authority

We were established in 1976 as a special governmental financial institution pursuant to the KEXIM Act. The KEXIM Act, the Enforcement Decree of the KEXIM Act (the “KEXIM Decree”) and our Articles of Incorporation (the “By-laws”) define and regulate our powers and authority. We are treated as a special juridical entity under Korean law and are not subject to certain of the laws regulating activities of commercial banks.

We were established, as stated in the KEXIM Act, to “promote the sound development of the national economy and economic cooperation with foreign countries by extending the financial aid required for export and import transactions, overseas investment and the development of natural resources abroad.” As an instrument in serving the Government’s public policy objectives, we do not seek to maximize our profits. We do, however, strive to maintain an adequate level of profitability to strengthen our equity base in order to support the growth in the volume of our business.

Our primary purpose has been the provision of loans and guarantees to facilitate Korean companies’ exports and overseas investments and projects. Most of our activities have been carried out pursuant to this authority.

We have the authority to undertake a range of financial activities. These fall into four principal categories:

 

  •  

export credits;

 

  •  

overseas investment credits;

 

  •  

import credits; and

 

  •  

guarantee facilities.

Export credits include loans to facilitate Korean exports of capital and non-capital goods and technical and non-technical services. Overseas investment credits consist of loans to finance Korean overseas investments and projects. Import credits include the extension of loans to finance Korean imports of essential materials and natural resources. Guarantee facilities are made available to support the obligations of Korean exporters and importers.

We also have the authority to administer, on behalf of the Government, the Government’s Economic Development Cooperation Fund and the Inter-Korea Cooperation Fund, formerly known as South and North Korea Co-operation Fund.

We may also undertake other business activities incidental to the foregoing, including currency and interest rate swap transactions. We have engaged in such swap transactions for hedging purposes only.

 

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Government Support and Supervision

The Government’s determination each fiscal year, regarding the amount of financial support to extend to us, plays an important role in determining our lending capacity. Such support has included contributions to capital, loans and transfers of our income to reserves.

Our authorized capital was ￦30 billion when the Government enacted the KEXIM Act in 1969. The National Assembly amended the KEXIM Act and increased our authorized capital to ￦150 billion in 1974, ￦500 billion in 1977, ￦1,000 billion in 1986, ￦2,000 billion in January 1998, ￦4,000 billion in September 1998 and ￦8,000 billion in January 2009. In January 2014, the Government further increased our authorized capital to ￦15,000 billion.

As of December 31, 1996, the capital contribution from the Government was approximately ￦686 billion, all in cash. Since 1997, 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) ￦130 billion, ￦40 billion, ￦75 billion, ￦15 billion, ￦10 billion, ￦935 billion, ￦10 billion and ￦65 billion in cash in January 2014, January 2015, August 2015, September 2015, July 2016, September 2016, October 2016 and November 2016, respectively, and (ii) ￦380 billion and ￦1,000 billion in the form of shares of Korea Land & Housing Corporation in July 2014 and December 2015, respectively, ￦500 billion in the form of shares of Korea Aerospace Industries Ltd. in June 2016, ￦125 billion in the form of shares of Yeosu Gwangyang Port Authority in May 2017, ￦125 billion in the form of shares of Incheon Port Authority in May 2017 and ￦1,167 billion in the form of shares of Korea Aerospace Industries Ltd. in June 2017, in order to enhance our capacity to finance projects, including large-scale overseas development projects. Taking into account these capital contributions, our total capital stock was ￦11,815 billion as of December 31, 2017.

Pursuant to the KEXIM Act, only the Government, The Korea Development Bank, The Bank of Korea, certain designated domestic banking institutions, exporters’ associations and international financial organizations may contribute to our capital stock. As of December 31, 2017, the Government directly owned 66% of our capital stock and indirectly owned, through The Bank of Korea and The Korea Development Bank, 10% and 24%, respectively, of our capital stock. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 1.”

In addition to contributions to our capital, the Government provides funding for our financing activities. The Government has made loans available to us for our lending activities. See “—Description of Assets and Liabilities—Sources of Funding.”

The Government also supports our operation pursuant to Articles 36 and 37 of the KEXIM Act. Article 36 of the KEXIM Act and the By-laws provide that we shall apply our net income earned during each fiscal year, after deduction of depreciation expense for such fiscal year, in the following manner and in order of priority:

 

  •  

first, at least 10% of such net income is transferred to our legal reserve until the total amount of our legal reserve equals the total amount of our capital stock;

 

  •  

second, if the Minister of Strategy and Finance approves such distribution, the balance of any such net income, after such transfer to the legal reserve, is distributed to the institutions, other than the Government, that have contributed to our capital (up to a maximum 15% annual dividend rate); and

 

  •  

third, the remaining balance of any such net income is distributed in whatever manner our Operations Committee determines and the Minister of Strategy and Finance approves, such as additions to our voluntary reserve.

Article 37 of the KEXIM Act provides that “the annual net losses of the Export-Import Bank of Korea shall be offset each year by the reserve, and if the reserve be insufficient, the Government shall provide funds to cover

 

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the deficit.” As a result of the KEXIM Act, the Government is generally responsible for our operations and is legally obligated to replenish any deficit that arises if our reserves are insufficient to cover any of our annual net losses. In light of this provision, if we have insufficient funds to make any payment under any of our obligations, the Government would take appropriate steps 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 37 do not, however, constitute a direct guarantee by the Government of our obligations, and the provisions of the KEXIM Act, including Article 37, may be amended at any time by action of the National Assembly.

The Government closely supervises our operations including in the following ways:

 

  •  

the President of the Republic appoints our President upon the recommendation of the Minister of Strategy and Finance;

 

  •  

the Minister of Strategy and Finance appoints our Deputy President and Senior Executive Directors upon the recommendation of our President;

 

  •  

the Minister of Strategy and Finance appoints our Auditor;

 

  •  

one month prior to the beginning of each fiscal year, we must submit our proposed program of operations and budget for the fiscal year to the Minister of Strategy and Finance for his approval and immediately after the approval of the Minister of Strategy and Finance, we must report such program to the National Assembly;

 

  •  

the Minister of Strategy and Finance must approve our operating manual, which sets out guidelines for all principal operating matters, including the range of permitted financings;

 

  •  

the Board of Audit and Inspection, a Government department, examines our settlement of accounts annually;

 

  •  

each of the Minister of Strategy and Finance and 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 Minister of Strategy and Finance may issue any orders it deems necessary to enforce the KEXIM Act or delegate examinations to the Financial Services Commission;

 

  •  

the Financial Services Commission may supervise our operations to ensure managerial soundness based upon the KEXIM Decree and the Supervisory Regulations of Banking Business legislated by the Financial Services Commission and may issue orders deemed necessary for such supervision;

 

  •  

we must submit our annual report to the Ministry of Strategy and Finance (formerly, the Ministry of Finance and Economy) within two months after the end of each fiscal year and to the National Assembly within nine months after the end of each fiscal year outlining our operations and analyzing our activities during the relevant fiscal year; and

 

  •  

we may amend our By-laws and operating manual only with the approval of the Minister of Strategy and Finance.

Selected Financial Statement Data

Except where expressly indicated otherwise in this prospectus, loans in Won and loans in foreign currencies are collectively referred to as the “Loans”; bills bought, foreign exchange bought, advances for customers, call loans and interbank loans in foreign currency are collectively referred to as the “Other Loans”; Loans and Other Loans are collectively referred to as the “Loan Credits”; confirmed guarantees and acceptances are collectively referred to as the “Guarantees”; and Loan Credits and Guarantees are collectively referred to as the “Credit Exposure.”

 

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You should read the following selected financial statement data together with our separate financial statements and notes included in this prospectus.

 

     Year Ended December 31,  
     2015      2016     2017  
    

(billions of Won)

  

Income Statement Data

        

Total Interest Income

    ￦ 1,887      ￦ 2,231     ￦ 2,684  

Total Interest Expense

      1,201        1,417       1,604  

Net Interest Income

      686        815       1,080  

Operating Income (Loss)

      32        (1,958 )      229  

Income (Loss) before Income Tax

      35        (1,958 )      229  

Income Tax Expense (Benefit)

      14        (471 )      56  

Net Income (Loss)

      22        (1,487 )      173  
     As of December 31,  
     2015      2016     2017  
    

(billions of Won)

  

Balance Sheet Data

        

Total Loan Credits (1)

    ￦ 69,412      ￦ 76,724     ￦ 71,884  

Total Borrowings (2)

      65,197        71,880       66,699  

Total Assets

      81,890        89,775       83,946  

Total Liabilities

      70,864        78,555       71,433  

Total Shareholders’ Equity

      11,026        11,220       12,513  

 

(1)

Gross amount, including bills bought, foreign exchange bought, call loans, inter-bank loans in foreign currency, advance for customers and others and before deducting valuation adjustment of loans in foreign currencies, allowance for loan losses and deferred loan origination fees. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 10.”

(2)

Includes debentures.

2017

We had net income of ￦173 billion in 2017 compared to net loss of ￦1,487 billion in 2016. The principal factors for the net income of ￦173 billion in 2017 compared to the net loss of ￦1,487 billion in 2016 included:

 

  •  

reversal of impairment loss on guarantees of ￦879 billion in 2017 compared to impairment loss on guarantees of ￦1,165 billion in 2016, primarily due to a decrease in refund guarantees to shipbuilding companies, which resulted in an improvement in guarantee quality; and

 

  •  

an increase in net interest income to ￦1,080 billion in 2017 from ￦815 billion in 2016, primarily due to an increase in interest income from loans which more than offset an increase in interest expense from debentures.

The above factors were partially offset by income tax expense of ￦56 billion in 2017 compared to income tax benefit of ￦471 billion in 2016, primarily due to income before income tax of ￦229 billion in 2017 compared to loss before income tax of ￦1,958 billion in 2016.

As of December 31, 2017, our total assets decreased by 6% to ￦83,946 billion from ￦89,775 billion as of December 31, 2016, primarily due to a 6% decrease in Loan Credits to ￦71,884 billion as of December 31, 2017 from ￦76,724 billion as of December 31, 2016.

 

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As of December 31, 2017, our total liabilities decreased by 9% to ￦71,433 billion from ￦78,555 billion as of December 31, 2016, primarily due to a 38% decrease in borrowings to ￦6,013 billion as of December 31, 2017 from ￦9,761 billion as of December 31, 2016 and a 2% decrease in debentures to ￦60,685 billion as of December 31, 2017 from ￦62,119 billion as of December 31, 2016.

The decreases in assets and liabilities were primarily due to the appreciation of the Won against the U.S. dollar as of December 31, 2017 compared to December 31, 2016, as a majority of our assets and liabilities consisted of foreign currency loans and debt (including significant percentages in U.S. dollars). The decreases in the volume of loans and debt magnified the effect of the appreciation of the Won against the U.S. dollar.

As of December 31, 2017, our total shareholders’ equity increased by 12% to ￦12,513 billion from ￦11,220 billion as of December 31, 2016, primarily due to an increase in capital stock.

2016

In 2016, we had net loss of ￦1,487 billion compared to net income of ￦22 billion in 2015. The principal factors for the net loss of ￦1,487 billion in 2016 compared to the net income of ￦22 billion in 2015 included:

 

  •  

an increase in impairment loss on loans to ￦1,929 billion in 2016 from ￦836 billion in 2015, primarily due to a downgrade of the classification of our exposure to (i) Daewoo Shipbuilding & Marine Engineering Co., Ltd. (“DSME”) from normal to precautionary, following our evaluation of DSME’s financial condition (including a significant increase in its liabilities) and operating results (including a significant operating loss) and (ii) STX Offshore & Shipbuilding Co., Ltd. from substandard to estimated loss, following its filing for court receivership in June 2016; and

 

  •  

an increase in impairment loss on guarantees to ￦1,165 billion in 2016 from ￦122 billion in 2015, primarily due to a deterioration in credit quality with respect to guarantees extended to certain borrowers (including DSME and STX Offshore & Shipbuilding).

The above factors were partially offset by an income tax benefit of ￦471 billion in 2016 compared to an income tax expense of ￦13 billion in 2015, primarily due to loss before income tax of ￦1,958 billion in 2016.

As of December 31, 2016, our total assets increased to ￦89,775 billion from ￦81,890 billion as of December 31, 2015, primarily due to an increase in Loan Credits to ￦76,724 billion as of December 31, 2016 from ￦69,412 billion as of December 31, 2015.

As of December 31, 2016, our total liabilities increased to ￦78,555 billion from ￦70,864 billion as of December 31, 2015, primarily due to an increase in debentures to ￦62,119 billion as of December 31, 2016 from ￦53,240 billion as of December 31, 2015, which more than offset a decrease in borrowings to ￦9,761 billion as of December 31, 2016 from ￦11,958 billion as of December 31, 2015.

The increases in assets and liabilities were primarily due to increases in the volume of loans and debt, respectively. The depreciation of the Won against the U.S. dollar as of December 31, 2016 compared to December 31, 2015 magnified the effect of the increase in the volume of loans and debt, as a majority of our assets and liabilities consisted of foreign currency loans and debt (including significant percentages in U.S. dollars).

As of December 31, 2016, our total shareholders’ equity increased to ￦11,220 billion from ￦11,026 billion as of December 31, 2015, primarily due to an increase in capital stock to ￦10,398 billion as of December 31, 2016 from ￦8,878 billion as of December 31, 2015 and an increase in unrealized gains on available-for-sale securities to ￦260 billion from ￦116 billion as of December 31, 2015, which more than offset a decrease in retained earnings to ￦535 billion as of December 31, 2016 from ￦2,028 billion as of December 31, 2015.

 

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Operations

Loan Operations

Our primary objective since our establishment has been to promote the export and competitiveness of Korean goods and services in international markets. To this end, we have introduced various financing facilities and implemented lending policies that are responsive to the needs of Korean exporters and foreign importers. Over the years, we have also developed financing facilities and lending policies that are consistent with the Government’s overall economic policies. In the latter part of the 1980s, as a result of changing trade conditions and the increased internationalization of the Korean economy, overseas investment credits and import credits were promoted and began to constitute an important portion of our business. Our lending programs include (1) export credits to Korean exporters or foreign buyers of Korean goods and services, (2) overseas investment credits to Korean firms and (3) import credits to Korean importers.

Before approving a credit, we consider:

 

  •  

economic benefits to the Republic;

 

  •  

the industry’s rank in the order of priorities established by the Government’s export-import policy;

 

  •  

credit risk associated with the loans to be extended; and

 

  •  

the goal of diversifying our lending activities.

The KEXIM Act and the By-laws provide that we may extend credit only where repayment “is considered probable.” Accordingly, we carefully investigate the financial position of each prospective borrower and the technical and financial aspects of the project to be financed, and a loan is made only if we believe there is reasonable assurance of repayment. See “—Credit Policies, Credit Approval and Risk Management—Credit Approval.”

In 2017, we provided Loans of ￦51,360 billion, a decrease of 10% from the previous year, but our commitments of Loans amounted to ￦50,316 billion, an increase of 1% from the previous year. The decrease in disbursements for Loans was primarily attributable to disbursements made in 2017 based on decreased commitments we approved in 2016. The increase in commitments of Loans was primarily due to an increase in new commitments for export credits and import credits.

 

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The following table sets out the total amounts of our outstanding Loan Credits, categorized by type of credit:

 

     As of December 31,     As % of
2017 Total		  
     2015      2016     2017  
     (billions of Won)  

Export Credits

        

Industrial Plants

    ￦ 15,299      ￦ 17,105     ￦ 15,082       21 % 

Shipbuilding

      12,748        14,328       14,855       21  

Ferrous & nonferrous metal products

      2,088        1,971       1,738       2  

Petrochemical products

      1,505        1,462       1,577       2  

Automobiles

      1,221        1,732       1,945       3  

Electronic machineries

      1,045        1,682       2,048       3  

Others (1)

      4,290        4,348       4,124       6  
  

 

 

     

 

 

    

 

 

    

 

 

  

Sub-total

      38,196        42,628       41,369       58  
  

 

 

     

 

 

    

 

 

    

 

 

  

Overseas Investment Credits

      25,641        27,527       24,107       34  

Import Credits

      3,783        3,741       3,726       5  

Call Loans

      902        2,765       2,056       3  

Others (2)

      844        541       1,925       3  

Present Value Premium/Discount

      46        (478 )      (1,297 )      (2 ) 
  

 

 

     

 

 

    

 

 

    

 

 

  

Total Loan Credits

    ￦ 69,412      ￦ 76,724     ￦ 71,884       100 % 
  

 

 

     

 

 

    

 

 

    

 

 

  

 

(1)

Includes general machinery, service sector, etc.

(2)

Includes loans for Inter-bank loans in foreign currency, advances for customers, etc.

Source: Internal accounting records

The following table sets out our new loan commitments, categorized by type of credit:

New Loan Credit Commitments by Type of Credit

 

     As of December 31,      As % of
2017 Total		  
     2015      2016      2017  
     (billions of Won)  

Export Credits

      

Industrial Plants

    ￦ 6,566      ￦ 3,227      ￦ 5,051        10 % 

Shipbuilding

      7,889        7,703        7,352        15  

Ferrous & nonferrous metal products

      2,090        1,327        1,352        3  

Petrochemical products

      4,782        3,822        4,206        8  

Automobiles

      2,677        3,494        3,535        7  

Electronic machineries

      1,834        1,843        2,108        4  

Others (1)

      7,456        8,901        7,446        15  
  

 

 

     

 

 

     

 

 

     

 

 

  

Sub-total

      33,294        30,317        31,050        62  
  

 

 

     

 

 

     

 

 

     

 

 

  

Overseas Investment Credits

      14,359        13,369        12,361        25  

Import Credits

      7,406        6,221        6,905        14  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 55,060      ￦ 49,907      ￦ 50,316        100 % 
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

Includes general machinery, service sector, etc.

Source: Internal accounting records

 

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Export Credits

We offer export credits to either domestic suppliers or foreign buyers to finance export transactions.

Export Credits to domestic suppliers include:

 

  •  

export loans to Korean exporters that export capital goods such as ships, industrial plants and machinery;

 

  •  

pre-shipment credit to Korean exporters or manufacturers producing export products;

 

  •  

technical service credit to Korean companies that export technical services abroad, including overseas construction projects;

 

  •  

short-term trade financing to Korean exporters that manufacture export goods under short-term export contracts;

 

  •  

small business export credit to small and medium-sized enterprises that manufacture export goods or supply materials needed by their primary exporters;

 

  •  

rediscount on trade bills to domestic commercial banks for exporters;

 

  •  

forfaiting to Korean exporters by discounting trade bills under the usance line of credit from export transactions on a non-recourse basis; and

 

  •  

export factoring to Korean exporters by discounting trade receivables that occurs from open account export transactions on credit on a non-recourse basis.

Export credits to foreign buyers include:

 

  •  

direct loans to foreign buyers that purchase Korean goods and services;

 

  •  

project finance to foreign companies that intend to import industrial plants, facilities and technical services from Korea for large-scale projects, of which the cash flows from such projects are the main source for repayment;

 

  •  

structured finance to foreign shipping companies that purchase ships from Korean shipyards, of which the repayment usually depends on the cash flows generated by the operation of ships; and

 

  •  

interbank export loans to creditworthy banks in foreign countries to help foreign buyers obtain credit for the purchase of goods and services of Korean origin.

As of December 31, 2017, export credits in the amount of ￦41,369 billion represented 58% of our total outstanding Loan Credits. Our disbursements of export credits in 2017 amounted to ￦32,938 billion, a decrease of 8% from the previous year, primarily due to decreased activity for construction of industrial plants. Our commitments of export credits in 2017 amounted to ￦31,050 billion, an increase of 2% from the previous year.

We offer export credits to Korean companies in order to provide them with the funds required for the manufacture or construction of capital and non-capital goods and readying of technical services designated in our operating manual for export. Capital goods eligible for export credit financings currently include ships, industrial plants, industrial machinery and overseas construction projects. With respect to eligible items supported by our export credits, ships have traditionally had the largest share of our export credit operations.

We offer export loans and technical service credits to domestic suppliers at fixed (no less than the Commercial Interest Reference Rate under the OECD Arrangement (as defined below)) or floating rates of interest with maturities of up to 12 years for ships and maturities of varying terms, from two to 18 years, for financings of other eligible items. We typically require a minimum down payment of 20% of the contract amount for ship export financings and a minimum down payment of 15% for financings of other eligible items. When the

 

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credit rating of a prospective borrower does not meet our internal rating criteria, these export credits are secured by promissory notes issued in connection with the relevant transaction, or letters of guarantees or letters of credit issued or confirmed by a creditworthy international bank or the importer’s government or central bank. Other terms and conditions under such export credit facilities must be in accordance with the Arrangement on Guidelines for Officially Supported Export Credits by the Organization for Economic Cooperation and Development (the “OECD Arrangement”). We offer direct loans to foreign buyers, project finance to project companies and structured finance for ships to foreign shipping companies under similar terms and conditions as export credit financings to domestic suppliers. We offer interbank export loans to overseas banks to facilitate imports by foreign importers of Korean manufactured goods. Interbank export loans are offered at fixed or floating rates of interest with maturities of up to ten years.

Overseas Investment Credits

We extend overseas investment credits to either Korean companies or foreign companies in which a Korean company has an equity share, to finance investments in eligible overseas businesses and projects. Such financing programs include:

 

  •  

overseas investment credit to Korean companies that invest abroad in the form of capital subscription, acquisition of stocks and long-term credit;

 

  •  

overseas project credit to Korean companies or their overseas subsidiaries engaging in businesses outside Korea;

 

  •  

major resources development credit to Korean companies for development of natural resources and acquisition of mining rights abroad; and

 

  •  

overseas business credit to foreign companies in which Korean companies have an equity stake, in the form of funds for purchasing equipment or working capital.

As of December 31, 2017, overseas investment credits amounted to ￦24,107 billion, representing 34% of our total outstanding Loan Credits. Our commitments of overseas investment credits in 2017 amounted to ￦12,361 billion, a decrease of 8% from the previous year. Our disbursements of overseas investment credits in 2017 amounted to ￦11,504 billion, a decrease of 22% from the previous year. The decrease in new commitments and disbursements for overseas investment credits was primarily due to decreased demand for overseas investment and project credits.

Proposals for overseas investment credits to finance the acquisition of important materials or the development of natural resources for the Korean economy, as determined by the Government, are given priority, together with projects that promote the export of Korean goods and services. As a result, projects financed by our overseas investment credit program have been mainly in the fields of manufacturing or development of natural resources.

We offer overseas investment credits at either fixed or floating rates of interest with maturities up to 30 years. Such facilities may require security in the form of a bank guarantee, pledge or mortgage on the borrower’s local assets. Depending upon the size of the borrower, we will provide up to 100% of the financing required for the overseas investment project.

Import Credits

We offer import credits to Korean companies that directly import essential materials, natural resources and high-technology materials whose stable and timely supply is required for the national economy, or to Korean companies that import such items after developing them overseas. Import credits are extended for importation of eligible items, including nuclear fuels, aircraft, mineral ores, crude oil, lumber, wood pulp, grains, cotton, sugar, and equipment and machinery for research and development, and for use in advanced technological industries.

 

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As of December 31, 2017, import credits in the amount of ￦3,726 billion represented 5% of our total outstanding Loan Credits. Disbursements and new commitments of import credits amounted to ￦6,918 billion and ￦6,905 billion, respectively, in 2017, an increase of 10% and 11%, respectively, from the previous year, primarily due to an increase in demand for financing for raw materials used for export and domestic consumption.

We offer import credits at either fixed or floating rates of interest with maturities up to ten years for equipment and machinery and shorter maturities of up to two years for other items, which may require security in the form of a bank guarantee, pledge or mortgage on the borrower’s local assets. We generally provide up to 80% of the import contract amount, but provide up to 90% of the import contract amount in the case of small and medium-sized enterprises and up to 100% for transactions with a letter of credit opened by a bank.

Guarantee Operations

We provide guarantees in favor of Korean commercial banks and foreign banks or foreign importers in respect of the obligations of Korean exporters in order to facilitate export and import financings. Such guarantee programs for Korean exporters and importers include (1) financial guarantees to co-financing banks that provide loans for transactions that satisfy our eligibility requirements and (2) project-related guarantees to foreign importers for the performance of Korean exporters on eligible projects in the form of bid bonds, advance payment bonds, performance bonds and retention bonds. Guarantee commitments as of December 31, 2017 decreased to ￦42,809 billion from ￦59,679 billion as of December 31, 2016. Guarantees we had confirmed as of December 31, 2017 decreased to ￦38,961 billion from ￦53,615 billion as of December 31, 2016.

We mainly issue project-related guarantees, which include:

 

  •  

advance payment guarantees that are issued to overseas importers of Korean goods and services to support obligations to refund down payments made to Korean exporters in the event of a failure to deliver the goods to be exported; and

 

  •  

performance guarantees that are issued to foreign importers to support the performance by Korean exporters of their contractual obligations.

In 2017, we issued project-related confirmed guarantees in the amount of ￦6,052 billion, a decrease of 31% from the previous year.

We also issue letters of credit to foreign exporters to assist in the financing of projects approved in connection with import credit loans, and to Korean exporters to assist in the financing of projects approved in connection with export credit loans.

For further information regarding our guarantee and letter of credit operations, see “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 36.”

Government Account Operations

Economic Development Cooperation Fund

In 1987, the Government established the Economic Development Cooperation Fund (the “EDCF”) to provide loans, at concessional interest rates, to governments or agencies of developing countries for projects that contribute to industrial development or economic stabilization of such countries. We administer the EDCF on behalf of the Government and are responsible for project appraisal, documentation and administrative work relating to the EDCF Loans. The EDCF business accounts are maintained separately from our own account on behalf of the Government, and we derive no separate income or expenditures from our operation of the EDCF

 

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business. Government contributions constitute the primary funding source of the EDCF. Loan disbursements by the EDCF in 2017 amounted to ￦749 billion for 101 projects in 32 countries, an increase of 0.4% from the previous year. As of December 31, 2017, the total outstanding loans extended by the EDCF was ￦6,308 billion, an increase of 11% from the previous year.

Inter-Korea Cooperation Fund

In 1991, the Government established the Inter-Korea Cooperation Fund (the “IKCF”) to promote mutual exchanges and cooperation between the Republic and North Korea by engaging in funding and financing activities to support family reunions, cultural events, academic seminars, trade and economic cooperation between the two countries. We administer the IKCF under the initiative and policy coordination of the Ministry of Unification. The IKCF accounts are maintained separately from our own account on behalf of the Government. Government contributions are the major funding source of the IKCF. The IKCF disbursements during 2017 amounted to ￦68 billion for 223 projects, and cumulative total disbursements as of December 31, 2017 were ￦6,745 billion, an increase of 1% from ￦6,677 billion as of December 31, 2016.

Other Operations

We engage in various other activities related to our financing activities.

Activities in which we currently engage include:

 

  •  

country information services performed by the Overseas Economic Research Institute, which conducts country studies and country risk evaluation to assist in the efficient utilization of our financial resources;

 

  •  

export credit advisory services, which are aimed at bringing about a larger share of overseas bidding by giving Korean exporters a wide range of knowledge on the country, industry, market and financial situation of the importing country in the early stage of the tendering process or contract negotiations;

 

  •  

consulting services by in-house professionals including lawyers, accountants and regional experts who consult on international transactions; and

 

  •  

management of Korea’s foreign direct investment database.

Description of Assets and Liabilities

Total Credit Exposure

We extend credits to support export and import transactions, overseas investment projects and other relevant products in various forms including loans and guarantees.

The following table sets out our Credit Exposure as of December 31, 2015, 2016 and 2017, categorized by type of exposure extended:

 

          As of December 31,  
          2015     2016     2017  
          (billions of Won, except for percentages)  

A

    Loans in Won    ￦ 14,953       12 %    ￦ 16,178       13 %    ￦ 18,956       18 % 

B

    Loans in Foreign Currencies      51,385       41       55,523       44       47,873       45  

C

    Loans (A+B)      66,338       53       71,701       56       66,829       62  

D

    Other Loans      3,074       2       5,023       4       5,056       5  

E

    Loan Credits (C+D)      69,412       56       76,724       60       71,884       67  

F

    Allowances for Loan Losses      (2,405 )      (2 )      (2,926 )      (2 )      (3,287 )      (3 ) 

G

    Loan Credits including present value
discounts (E-F)		      67,007       54       73,798       58       68,597       64  

H

    Guarantees      57,096       46       53,615       42       38,961       36  

I

    Credit Exposure (G+H)      124,103       100       127,413       100       107,558       100  

 

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Loan Credits by Geographic Area

The following table sets out the total amount of our outstanding Loan Credits as of December 31, 2015, 2016 and 2017, categorized by geographic area (1):

 

     As of December 31, (1)      As % of
2017 Total		  
     2015      2016      2017  
     (billions of Won)  

Asia(2)

    ￦ 50,272      ￦ 56,012      ￦ 54,219        75 % 

Europe

      5,258        5,463        4,334        6  

America

      9,722        11,190        9,229        13  

Africa

      4,161        4,059        4,102        6  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 69,412      ￦ 76,724      ￦ 71,884        100 % 
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

For purposes of this table, export credits have been allocated to the geographic areas in which the foreign buyers of Korean exports are located; overseas investment credits have been allocated to the geographic areas in which the overseas investments being financed are located; and import credits have been allocated to the geographic areas in which the sellers of the imported goods are located.

(2)

Includes Australia.

Source: Internal accounting records

We engage in business related to Iran, including transactions involving as counterparties Iranian banks that may be indirectly owned or controlled by the Iranian government. The U.S. State Department has designated Iran as a state sponsor of terrorism, and U.S. law generally prohibits U.S. persons from doing business in Iran. We are a Korean bank and our activities with respect to Iran have not involved any U.S. person in either a managerial or operational role and have been subject to policies and procedures designed to ensure compliance with applicable Korean laws and regulations. We believe that our activities related to Iran are not subject to the mandatory sanctions administered or enforced by the United States Government (including, without limitation, Section 104 of the U.S. Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”) and the Iran Financial Sanctions Regulations issued by the U.S. Secretary of the Treasury thereunder (the “IFSR”)).

Our business related to Iran consists solely of extensions of credit and financing provided in connection with exports of Korean goods and services to Iran and our disbursements of Iran-related credits are made directly to Korean suppliers or exporters except certain credits made to Iranian banks. Such activities have involved export-related credits to finance the export contracts of Korean exporters supplying goods and services to Iranian companies, credit line extensions to Iranian banks to finance consumer products exports by Korean exporters, extensions of credit through non-recourse discounting of export trade bills, and purchases of promissory notes securing export transactions. Our Loans to Iran represented 0.1%, 0.3% and 0.5% of our total assets as of December 31, 2015, 2016 and 2017, respectively, and also represented 0.1%, 0.3% and 0.7% of our Loan Credits as of those respective dates. Our total operating revenues from transactions with Iran in 2015, 2016 and 2017 represented 0.3%, 0.3% and 0.3% of our total operating revenues, respectively.

We are aware, through press reports and other means, of initiatives by governmental entities in the U.S. and by U.S. institutions such as universities and pension funds, to adopt laws, regulations or policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with Iran, including, without limitation, CISADA and IFSR. It is possible that such initiatives may result in our being unable to gain or retain entities subject to such prohibitions as customers or as investors in our debt securities. In addition, our reputation may suffer due to our association with Iran. Such a result could have significant adverse effects on our business or the price of our debt securities.

Individual Exposure

The KEXIM Decree imposes limits on our aggregate credits extended to a single person or business group. As of the date hereof, we are in compliance with such requirements.

 

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As of December 31, 2017, our largest Credit Exposure was to Daewoo Shipbuilding & Marine Engineering, or DSME, in the amount of ￦8,065 billion. As of December 31, 2017, our second largest and third largest Credit Exposures, respectively, were to Hyundai Heavy Industries Co., Ltd. in the amount of ￦3,393 billion and to Samsung Heavy Industries Co., Ltd. in the amount of ￦3,183 billion.

The following table sets out our five largest Credit Exposures as of December 31, 2017 (1):

 

Rank

   

Name of Borrower

   

Loan Credits

   

Guarantees

   

Total

          (billions of Won)
1   

Daewoo Shipbuilding & Marine Engineering Co., Ltd.

    ￦3,189    ￦4,876    ￦8,065
2   

Hyundai Heavy Industries Co., Ltd.

    1,584    1,809    3,393
3   

Samsung Heavy Industries Co., Ltd.

    939    2,244    3,183
4   

Hanwha Engineering & Construction Co., Ltd.

    —      2,434    2,434
5   

Doosan Heavy Industries Co., Ltd.

    900    1,497    2,397

 

(1)

Excludes loans and guarantees extended to affiliates.

Source: Internal accounting records.

In recent years, 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 Korea Development Bank, plan to provide financial support to DSME, including provision of liquidity support of up to ￦4.2 trillion. In December 2016, in a bid to improve DSME’s capital structure, we exchanged a term loan in the amount of ￦1 trillion provided by us to DSME for perpetual bonds newly issued by DSME, while KDB engaged in debt-for-equity swaps amounting to ￦1.8 trillion. In March 2017, we and The Korea Development Bank announced a second joint plan to provide an additional ￦2.9 trillion in financial support to DSME, which was approved by the other creditors in April 2017. Based on such plan, we exchanged a term loan in the amount of ￦1.28 trillion provided by us to DSME for perpetual bonds issued by DSME and The Korea Development Bank provided additional debt-to-equity swaps of ￦0.3 trillion in June 2017. Other creditors also provided debt-to-equity swaps for up to 80% of their debt with DSME and rescheduled the maturities of the remainder.

In addition, we have Credit Exposures to a number of financially troubled Korean companies including STX Offshore & Shipbuilding and Sungdong Shipbuilding & Marine Engineering Co., Ltd. STX Offshore & Shipbuilding, which had filed for court receivership in June 2016 and executed debt-for-equity swaps with their creditors (including us), exited court receivership in July 2017. Sungdong Shipbuilding & Marine Engineering, which had been in voluntary out-of-court debt restructuring since 2010, filed for court receivership in March 2018.

As of December 31, 2017, our Credit Exposure to STX Offshore & Shipbuilding and Sungdong Shipbuilding & Marine Engineering amounted to ￦407 billion and ￦2,072 billion, respectively.

 

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Asset Quality

The Supervisory Regulation of Banking Business (“Supervisory Regulation”) legislated by the Financial Services Commission requires banks, including us, to analyze and classify their credits into one of five categories as normal, precautionary, substandard, doubtful or estimated loss by taking into account borrowers’ repayment capacity as well as a number of other factors including the financial position, profitability, transaction history of the relevant borrower and the value of any collateral or guarantee taken as security for the extension of credit. Categorizations are applied to all loans except call loans and interbank loans, which are classified as normal. Credit categorizations are as follows:

 

Normal

    Credits extended to customers which, in consideration of their business and operations, financial conditions and future cash flows, do not raise concerns regarding their ability to repay the credits.

Precautionary

    Credits extended to customers (1) which, in consideration of their business and operations, financial conditions and future cash flows, are judged to have potential risks with respect to their ability to repay the credits in the future, although there have not occurred any immediate risks of default in repayment; or (2) which are in arrears for one month or more but less than three months.

Substandard

    (1) Credits extended to customers, which in consideration of their business and operations, financial conditions and future cash flows, are judged to have incurred considerable risks for default in repayment as the customers’ ability to repay has deteriorated; or (2) that portion which is expected to be collected of total credits (a) extended to customers which have been in arrears for three months or more, (b) extended to customers which are judged to have incurred serious risks due to the occurrence of final refusal to pay their promissory notes, liquidation or bankruptcy proceedings, or closure of their businesses or (c) of “Doubtful Customers” or “Estimated-loss Customers” (each as defined below).

Doubtful

    That portion of credits in excess of the amount expected to be collected of total credits extended to (1) customers (“Doubtful Customers”) which, in consideration of their business and operations, financial conditions and future cash flows, are judged to have incurred serious risks of default in repayment due to noticeable deterioration in their ability to repay; or (2) customers which have been in arrears for three months or more but less than twelve months.

Estimated Loss

    That portion of credits in excess of the amount expected to be collected of total credits extended to (1) customers (“Estimated-loss Customers”), which, in consideration of their business and operations, financial conditions and future cash flows, are judged to have to be accounted as a loss as the inability to repay became certain due to serious deterioration in their ability to repay; (2) customers which have been in arrears for twelve months or more; or (3) customers which are judged to have incurred serious risks of default in repayment due to the occurrence of final refusal to pay their promissory notes, liquidation or bankruptcy proceedings, or closure of their businesses.

Under K-IFRS, we establish provisions for credit losses with respect to loans using either a case-by-case or collective approach. We assess individually significant loans on a case-by-case basis and other loans on a collective basis. In addition, if we determine that no objective evidence of impairment exists for a loan, it includes such loan in a group of loans with similar credit risk characteristics and assesses them collectively for impairment regardless of whether such loan is significant. If there is objective evidence that an impairment loss has been incurred for individually significant loans, the amount of the loss is measured as the difference between

 

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the financial asset’s carrying amount and the present value of the estimated future cash flows discounted at such asset’s original effective interest rate. Future cash flows are estimated through a case-by-case analysis of individually assessed assets, which takes into account the benefit of any guarantee or other collateral held. The value and timing of future cash flow receipts are based on available estimates in conjunction with facts available at the time of review and reassessed on a periodic basis as new information becomes available. For collectively assessed loans, we base the level of provisions for credit losses on a portfolio basis in light of the homogenous nature of the assets included in each portfolio. The provisions are determined based on a quantitative review of the relevant portfolio, taking into account such factors as the level of arrears, the value of any security, and historical and projected cash recovery trends over the recovery period. For more detailed information regarding our loan loss provisioning policy, see “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 3(14).”

Asset Classifications

The following table provides information on our loan loss reserves:

 

     As of December 31, 2015      As of December 31, 2016      As of December 31, 2017  
     Loan
Amount (1) (2)		      Loan
Loss
Reserve (2)		      Loan
Amount (1) (2)		      Loan
Loss
Reserve (2)		      Loan
Amount (1) (2)		      Loan
Loss
Reserve (2)		  
     (billions of Won)  

Normal

    ￦ 118,708      ￦ 449      ￦ 110,589      ￦ 343      ￦ 95,222      ￦ 270  

Precautionary

      2,007        297        11,145        1,219        9,007        790  

Sub-standard

      2,169        888        2,573        757        592        166  

Doubtful

      1,658        943        1,617        1,041        2,075        1,732  

Estimated Loss

      210        207        1,588        1,080        1,267        1,207  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 124,752      ￦ 2,783      ￦ 127,512      ￦ 4,439      ￦ 108,163      ￦ 4,165  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

These figures include loans (excluding interbank loans and call loans), domestic usance bills, bills bought, notes bought, advances for customers, confirmed acceptances and guarantees.

(2)

These figures exclude the regulatory reserve for loans and guarantees.

Reserves for Credit Losses

Non-performing assets (“NPA”) are defined as assets that are classified as substandard or below.

The following table sets out our 10 largest non-performing assets as of December 31, 2017:

 

Borrower

    Loans      Guarantees      Total  
     (billions of Won)  

Sungdong Shipbuilding & Marine Engineering Co., Ltd.

    ￦ 1,650      ￦ —        ￦ 1,650  

Daesun Shipbuilding & Engineering Co., Ltd.

      487        135        622  

SPP Shipbuilding Co., Ltd.

      534        —          534  

STX Offshore & Shipbuilding Co., Ltd.

      87        320        407  

DB Metal Co., Ltd.

      98        —          98  

Recaudo Bogota S.A.S.

      48        26        74  

Kode Novus I, LLC

      49        —          49  

Kumho Tire Co., Inc.

      24        17        40  

Kumho Tire Georgia Inc.

      32        —          32  

Wooyang HC Co., Ltd.

      10        21        32  
  

 

 

     

 

 

     

 

 

  

Total

    ￦ 3,019      ￦ 519      ￦ 3,538  
  

 

 

     

 

 

     

 

 

  

 

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In the early 1990’s, at the direction of the Government, we extended a commodity loan in the aggregate amount of US$466 million to Vnesheconombank, the Bank for Foreign Economic Affairs of the former Soviet Union, which was guaranteed by the government of the former Soviet Union, as part of the Government’s policy to enhance economic cooperation between the two countries. Since the dissolution of the Soviet Union, the Government had been negotiating repayment terms with the government of the Russian Federation, which agreed to assume the guarantee of the former Soviet Union in respect of the obligations of Vnesheconombank under such loan. In 1995, the two governments came to an agreement on a repayment schedule in respect of approximately half of the loan. Since the agreement was made, US$229 million of the principal was repaid.

In June 2003, the two governments reached an agreement as to the rescheduling of the remaining portion of the loan and the change of the borrower from Vnesheconombank to the government of the Russian Federation. As a result, in September 2003, we upgraded the classification of the outstanding ￦258 billion (including accrued and unpaid interest) of our exposure to the government of the Russian Federation from estimated loss to doubtful in terms of asset quality and established a 70% provisioning level for that credit exposure. In June 2004, we further upgraded the classification of our exposure to the government of the Russian Federation from doubtful to precautionary in terms of asset quality, following the continued repayment of the loan by the government of the Russian Federation in accordance with the agreed payment schedule. As of December 31, 2017, our exposure to the government of the Russian Federation amounted to ￦91 billion and we established a 0.2% provisioning level for that credit exposure.

We cannot provide any assurance that our current level of exposure to non-performing assets will continue in the future or that any of its borrowers (including its largest borrowers as described above) is not currently facing, or in the future will not face, material financial difficulties.

As of December 31, 2017, the amount of our non-performing assets was ￦3,934 billion, a decrease of 32% from ￦5,778 billion as of December 31, 2016. As of December 31, 2017, our non-performing asset ratio was 3.6%, compared to 4.5% as of December 31, 2016.

The following table sets forth our reserves for possible credit losses as of December 31, 2015, 2016 and 2017:

 

       As of December 31,  
       2015      2016      2017  
       (billions of Won, except for percentages)  

Loan Loss Reserve (A) (1)

      ￦ 2,783      ￦ 4,439      ￦ 4,165  

NPA (B) (2)

        4,037        5,778        3,934  

Total Shareholders’ Equity (C)

        11,026        11,220        12,513  

Reserve to NPA (A/B)

        69 %       77 %       106 % 

Equity at Risk (B-A)/C

        7 %       10 %       —    

 

(1)

Consists of allowance for loan losses and provisions for confirmed acceptances and guarantees, excluding the regulatory reserve for loans and guarantees.

(2)

Non-performing assets, which are defined as assets that are classified as substandard or below.

Source: Internal accounting records

The following table sets forth our actual loan loss reserve ratios as of December 31, 2015, 2016 and 2017:

 

Classification of Loans

    Actual Reserve Coverage
(as of December 31, 2015)		     Actual Reserve Coverage
(as of December 31, 2016)		     Actual Reserve Coverage
(as of December 31, 2017)		  

Normal

      0.5 %      0.4 %      0.3 % 

Precautionary

      17.3 %      17.1 %      12.1 % 

Substandard

      47.6 %      31.6 %      28.1 % 

Doubtful

      63.2 %      68.4 %      85.4 % 

Estimated Loss

      98.0 %      75.0 %      97.7 % 

 

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Investments

Under the KEXIM Decree, we are not allowed to hold stocks or securities of more than three years’ maturity in excess of 60% of our equity capital. However, investment in the following securities is not subject to this restriction:

 

  •  

Government bonds;

 

  •  

BOK currency stabilization bonds;

 

  •  

securities acquired via contributions by the Government; and

 

  •  

securities acquired through investment approved by the Minister of Strategy and Finance, for research related to our operations, for our financing or pursuant to Korean statutes.

As of December 31, 2017, our total investment in securities amounted to ￦9,381 billion, representing 11% of our total assets. Our securities portfolio consists primarily of available-for-sale securities. Available-for-sale securities mainly consists of marketable securities (including equity securities in Industrial Bank of Korea which was recapitalized by the Government through us) and non-marketable securities (including equity securities in Korea Expressway Corporation, Korea Land & Housing Corporation and Korea Aerospace Industries Ltd. which were in-kind contributions made by the Government to us). In 2014, we sold 976,625 shares of common stock, which represented all of our holding of common stock in Kumho Tire, for ￦11 billion. In 2015, we sold 3,459,279 shares of common stock, which represented all of our holding of common stock in SAMT Co., Ltd., for ￦4 billion. In 2016, we sold 639,505 shares of common stock, which represented 5% of our holdings of common stock in Taihan Electric Wire Co., Ltd., for ￦2 billion. In 2017, we sold 2,199,936 shares of common stock of STX Heavy Industries, which represented all of our holdings of common stock in the company, for ￦19 billion.

The following table sets out the composition of our securities as of December 31, 2015, 2016 and 2017:

 

       As of
December 31, 2015		      As of
December 31, 2016		      As of
December 31, 2017		  

Type of Investment Securities

      Amount        %      Amount        %      Amount        %  
       (billions of Won, except for percentages)  

Available-for-sale Securities

      ￦ 5,837          88 %     ￦ 7,027          89 %     ￦ 6,693          71 % 

Held-to-maturity Securities

        108          2        111          1        89          1  

Investments in Associates and Subsidiaries

        679          10        766          10        2,599          28  
    

 

 

       

 

 

     

 

 

       

 

 

     

 

 

       

 

 

  

Total

      ￦ 6,624          100 %     ￦ 7,904          100 %     ￦ 9,381          100 % 
    

 

 

       

 

 

     

 

 

       

 

 

     

 

 

       

 

 

  

For further information relating to the classification guidelines and methods of valuation for unrealized gains and losses on our securities, see “—Financial Statements and the Auditors—Notes to separate financial statements and of and for the years ended December 31, 2017 and 2016—Note 2 and Note 5.”

Guarantees and Acceptances and Contingent Liabilities

We have credit risk factors that are not reflected on the balance sheet, which include risks associated with guarantees and acceptances. Guarantees and acceptances do not appear on the balance sheet, but rather are recorded as an off-balance sheet item in the notes to the financial statements. Guarantees and acceptances include financial guarantees, project related guarantees, such as bid bond, advance payment bond, performance bond or retention bond, and acceptances and advances relating to trade financings such as letters of credit or import freight. Contingent liabilities, for which the guaranteed amounts were not finalized, appear as unconfirmed guarantees and acceptance items in the notes to the financial statements as off-balance sheet items.

As of December 31, 2017, we had issued a total amount of ￦38,961 billion in confirmed guarantees and acceptances, of which ￦33,088 billion, representing 85% of the total amount, was classified as normal,

 

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￦5,305 billion, representing 14% of the total amount, was classified as precautionary, and ￦567 billion, representing 1% of the total amount, was classified as substandard or below.

Derivatives

The objective in our strategy and policies on derivatives is to actively manage and minimize our foreign exchange and interest rate risks. It is our policy to hedge all currency and interest rate risks wherever possible (taking into consideration the cost of hedging). We use various hedging instruments, including foreign exchange forwards and options, interest rate swaps, and cross currency swaps.

Under our internal trading rules that have been submitted to the Financial Supervisory Service, our policy is to engage in derivative transactions mainly for hedging our own position. As part of our total exposure management system, we monitor our exposure to derivatives and may make real-time inquiries, which enables our Risk Management Department to check our exposure on a regular basis. Under the guidelines set by the Financial Supervisory Service, we are required to submit reports on our derivatives exposure to the Financial Supervisory Service on a quarterly basis. As a measure to reduce the risk of intentional manipulation or error, we have separated responsibility for different functions such as initiation, authorization, approval, recording, monitoring and reporting to the Financial Supervisory Service. The Risk Management Department conducts regular reviews of derivative transactions to monitor any breach of compliance with the relevant regulatory requirements.

As of December 31, 2017, our outstanding loans made at floating rates of interest totaled approximately ￦48,085 billion, whereas our outstanding borrowings made at floating rates of interest totaled approximately ￦51,126 billion, including those raised in Australian Dollar, New Zealand Dollar, Canadian Dollar, Euro, Swiss Franc, Chinese Yuan, Indonesian Rupiah, Indian Rupee, Hong Kong Dollar, Brazil Real, Swedish Krona and Singapore Dollar and swapped into U.S. dollar floating rate borrowings. As a result, we are exposed to possible interest rate risks to the extent that the amount of our borrowings made at floating rates of interest exceeds the amount of our loans made at floating rates of interest. Foreign exchange risk arises because a majority of our assets and liabilities are denominated in non-Won currencies. In order to match our currency and interest rate structure, we generally enter into swap transactions.

The following table shows the unsettled notional amounts and estimated fair values of derivatives we held as of the dates indicated.

 

    As of December 31,  
    2015     2016     2017  
    Unsettled
Notional
Amount		     Fair Value
of Assets		     Fair
Value of
Liabilities		     Unsettled
Notional
Amount		     Fair Value
of Assets		     Fair
Value of
Liabilities		     Unsettled
Notional
Amount		     Fair Value
of Assets		     Fair
Value of
Liabilities		  
    (billions of Won)  

Currency forwards

   ￦ 6,156     ￦ 208     ￦ 96     ￦ 5,581     ￦ 145     ￦ 157     ￦ 6,451     ￦ 113     ￦ 152  

Currency swaps

     19,101       114       3,167       23,132       273       2,501       24,519       547       1,136  

Interest rate swaps

     23,111       296       160       34,407       395       530       38,781       419       681  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 48,368     ￦ 619     ￦ 3,422     ￦ 63,120     ￦ 813     ￦ 3,188     ￦ 69,751     ￦ 1,079     ￦ 1,969  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

As of December 31, 2017, we had entered into 739 currency related derivative contracts with a notional amount of ￦30,970 billion and had entered into 468 interest rate related derivative contracts with a notional amount of ￦38,781 billion. In connection with our currency forwards and currency swaps, we had net valuation loss of ￦628 billion in 2017 and ￦2,240 billion in 2016, primarily due to the appreciation of the U.S. dollar against other currencies, which resulted in an increase in the value of our obligations denominated in the U.S. dollar. In connection with our interest rate swaps, we recorded net valuation loss of ￦262 billion in 2017

 

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and ￦135 billion in 2016, primarily due to an increase in benchmark interest swap rates, such as the U.S. dollar interest swap rate in 2017, which resulted in a decrease in the value of our floating-for-fixed interest rate swaps. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 20.”

Sources of Funding

We obtain funds primarily through borrowings from the issuance of bonds in both domestic and international capital markets, borrowings from domestic and foreign financial institutions, capital contributions and internally generated funds. Internally generated funds result from various activities we carried on and include principal and interest payments on our loans, fees from guarantee operations and other services, and income from marketable securities we hold.

We raised a net total of ￦53,486 billion (new borrowings plus loan repayments by our clients less repayment of our existing debt) during 2017, an 11% decrease compared with the previous year’s ￦60,061 billion. The total loan repayments, including prepayments by our clients, during 2017 amounted to ￦47,448 billion, a decrease of 11% from ￦53,039 billion during 2016.

Since our establishment, the Government has, from time to time, provided us with loans to support our lending to Korean exporters and provide liquidity to us. As of December 31, 2017, we had no outstanding borrowings from the Government. We also issued Won-denominated domestic bonds in the aggregate amounts of ￦11,180 billion, ￦12,270 billion and ￦13,670 billion during 2015, 2016 and 2017, respectively.

We have diversified our funding sources by borrowing from various overseas sources and issuing long-term floating-rate notes and fixed-rate debentures in the international capital markets. These issues were in foreign currencies, including the U.S. dollar, Thai Baht, Malaysia Ringgit, Japanese Yen, Australian Dollar, Euro, Hong Kong Dollar, Singapore Dollar, Swiss Franc, Brazilian Real, Turkish Lira, Mexican Peso, Peruvian Sol, Indian Rupee, Indonesian Rupiah, Chinese Yuan, New Zealand Dollar, Saudi Riyal, Taiwan Dollar, Russian Ruble, South African Rand, Deutsche Mark, Danish Krone, Swedish Krona, Czech Koruna, Norwegian Krone, British Pound and Canadian Dollar and have original maturities ranging from one to thirty years.

During 2017, we issued Eurobonds in the aggregate principal amount of US$4,857 million in various types of currencies under our existing medium term notes program, a 8% decrease from US$5,283 million in 2016. These bond issues consisted of offerings of US$2,250 million, HKD 761 million, BRL 1,611 million, EUR 750 million, CNH 200 million, SGD 200 million, INR 6,300 million, CAD 365 million, AUD 100 million, IDR 2,645,400 million, CHF 250 million and SEK 250 million. In addition, we issued global bonds during 2017 in the aggregate amount of US$3,500 million under our U.S. shelf registration statement (the “U.S. Shelf Program”) compared with US$5,600 million in 2016. As of December 31, 2017, the outstanding amounts of our notes and debentures were US$29,466 million, JPY 77,820 million, HKD 6,561 million, MYR 500 million, BRL 3,222 million, EUR 2,711 million, THB 23,800 million, CHF 400 million, AUD 3,352 million, INR 10,942 million, CNY 11,201 million, IDR 5,395,400 million, PEN 266 million, TRY 21 million, NZD 1,238 million, ZAR 654 million, NOK 2,750 million, CZK 700 million, GBP 60 million, CAD 690 million, SEK 250 million and SGD 621 million.

We also borrow from foreign financial institutions in the form of loans that are principally made by syndicates of commercial banks at floating or fixed interest rates and in foreign currencies, with original maturities ranging from two to five years. As of December 31, 2017, the outstanding amount of such borrowings from foreign financial institutions was US$2,500 million.

Our capital stock has increased from time to time since our establishment. From January 1998 to December 2017, the Government contributed ￦10,435 billion to our capital. As of December 31, 2017, our total capital stock amounted to ￦11,815 billion, and the Government, The Bank of Korea and The Korea Development Bank owned 66%, 10% and 24%, respectively, of our capital stock.

 

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In connection with our fund raising activities, we have from time to time sold third parties promissory notes, including related guarantees, acquired as collateral in connection with export credit financings.

The KEXIM Act provides that the aggregate outstanding principal amount of all of our borrowings, including the total outstanding export-import financing debentures we issued in accordance with the KEXIM Decree, may not exceed an amount equal to thirty times the sum of our capital stock plus our reserves. As of December 31, 2017, the aggregate outstanding principal amount of our borrowings (including export-import financing debentures), which was ￦67,075 billion, was equal to 18% of the authorized amount of ￦375,688 billion.

We are not permitted to accept demand or time deposits.

Each year we must submit to the Government for its approval an operating plan which includes our target levels for different types of funding. The following table is the part of the operating plan dealing with fund-raising for 2018:

 

Sources of Fund

    (billions of Won)  

Capital Contribution

      —    

Borrowings

      20,040  

Net Collection of Loans

      26,569  

Collection of Loans

      45,862  

Repayment of Debts

      (19,293 ) 

Others

      1,391  
  

 

 

  

Total

    ￦ 48,000  
  

 

 

  

Debt

Debt Repayment Schedule

The following table sets out the principal repayment schedule for our outstanding debt (consisting of borrowings and debentures) as of December 31, 2017:

Debt Principal Repayment Schedule

 

     Maturing on or before December 31,  

Currency (1)

    2018      2019      2020      2021      Thereafter  
     (billions of Won)  

Won

    ￦ 11,370      ￦ 1,040      ￦ —        ￦ —        ￦ 1,710  

Foreign (2)

      8,280        9,256        8,342        6,434        20,644  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total Won Equivalent

    ￦ 19,650      ￦ 10,296      ￦ 8,342      ￦ 6,434      ￦ 22,354  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

Borrowings and debentures in foreign currency have been translated into Won at the market average exchange rates on December 31, 2017, as announced by the Seoul Money Brokerage Services Ltd.

(2)

This figure includes debentures, bank loans, commercial papers and repurchase agreements.

Normally we determine the level of our foreign currency reserves based upon an estimate, at any given time, of aggregate loan disbursements to be made over the next two to three months. Our average foreign currency reserves in 2016 and 2017 were approximately US$4,100 million and US$3,671 million, respectively.

Although we currently believe that such reserves, together with additional borrowings available under our uncommitted short-term backup credit facilities and commercial paper programs, will be sufficient to repay our

 

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outstanding debt as it becomes due, there can be no assurance that we will continue to be able to borrow under such credit facilities, or that the devaluation of the Won will not adversely affect our ability to access funds sufficient to repay our foreign currency denominated indebtedness in the future. In addition to maintaining sufficient foreign currency reserves, we monitor the maturity profile of our foreign currency assets and liabilities to ensure that there are sufficient maturing assets to meet our liabilities as they become due. As of December 31, 2017, our foreign currency assets maturing within three months, six months and one year exceeded our foreign currency liabilities coming due within such periods by US$4,519 million, US$5,900 million and US$6,411 million, respectively. As of December 31, 2017, our total foreign currency liabilities exceeded our total foreign currency assets by US$7,630 million.

Internal and External Debt of the Bank

The following table summarizes, as of December 31 of the years indicated, the outstanding internal debt of the Bank:

Internal Debt of the Bank

 

     (billions of Won)  
2013      8,130  
2014      8,670  
2015      9,700  
2016      12,080  
2017      14,120  

 

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The following table sets out, by currency and the equivalent amount in U.S. Dollars, the outstanding external debt of the Bank as of December 31, 2017:

External Debt of the Bank

 

     Amount in
Original
Currency		      Equivalent
Amount in
U.S. Dollars (1)		  
     (billions)  

US$

    US$ 34.8      US$ 34.8  

Euro (EUR)

    EUR 2.7        3.2  

Japanese yen (JPY)

    JPY  77.8        0.7  

Brazilian real (BRL)

    BRL 3.2        1.0  

Australian Dollars (AUD)

    AUD 3.4        2.6  

British Pound (GBP)

    GBP 0.1        0.1  

Thai Baht (THB)

    THB 23.8        0.7  

Hong Kong dollar (HKD)

    HKD 6.6        0.8  

Swiss franc (CHF)

    CHF 0.4        0.4  

Malaysian Ringgit (MYR)

    MYR 0.5        0.1  

Indonesian rupiah (IDR)

    IDR  5,395.4        0.4  

Chinese Yuan (CNY)

    CNY  11.2        1.7  

Norwegian Krone (NOK)

    NOK 2.8        0.3  

Turkish Lira (TRY)

    TRY 0.1        0.0  

Mexican Peso (MXN)

    MXN 0.3        0.0  

New Zealand Dollar (NZD)

    NZD 1.2        0.9  

Indian Rupee (INR)

    INR 10.9        0.2  

South African Rand (ZAR)

    ZAR 0.7        0.1  

Peru Nuevo sol (PEN)

    PEN 0.3        0.1  

Czech Koruna (CZK)

    CZK 0.7        0.5  

Canadian Dollar (CAD)

    CAD 0.7        0.5  

Singapore Dollar (SGD)

    SGD 0.6        3.2  
     

 

 

  
      US$ 49.2  
     

 

 

  

 

(1)

Amounts expressed in currencies other than U.S. dollar are converted to U.S. dollar at the exchange rate announced by the Seoul Money Brokerage Services, Ltd. in effect on December 31, 2017 or the prevailing market rate on December 31, 2017.

The following table summarizes, as of December 31 of the years indicated, the outstanding external debt of the Bank:

External Debt of the Bank

 

     (billions of Won)  
2013      40,203  
2014      48,411  
2015      54,631  
2016      59,847  
2017      52,710  

For further information on the outstanding indebtedness of the Bank, see “—Tables and Supplementary Information.”

 

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Debt Record

We have never defaulted in the payment of principal of, or interest on, any of our obligations.

Credit Policies, Credit Approval and Risk Management

Credit Policies

The Credit Policy Department functions as our centralized policy-making and planning division with respect to our lending activities. The Credit Policy Department formulates and revises our internal regulations on loan programs, sets basic lending guidelines on a country basis and gathers data from our various operating groups and produces various internal and external reports.

Credit Approval

We have multiple levels of loan approval authority, depending on the loan amount and other factors such as the nature of the credit, the conditions of the transaction, and whether the loan is secured. Our Board of Directors can approve loans of any amount. The Chief Executive Credit Committee, Credit Committee, Loan Officer Committee, Director Generals and Directors each have 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.

At each level of authority, loan applications are reviewed on the basis of the feasibility of the project from a technical, financial and economic point of view in addition to evaluating the probability of recovery. In conducting such a review, the following factors are considered:

 

  •  

eligibility of the transaction under our financing criteria;

 

  •  

country risk of the country of the borrower and the country in which the related project is located;

 

  •  

credit risk of the borrower;

 

  •  

a supplier’s ability to perform under the related supply contract;

 

  •  

legal disputes over the related project and supply contract; and

 

  •  

availability of collateral.

When the credit rating of a prospective borrower does not meet our internal rating criteria, our policy is to ensure that the loans are either guaranteed or made on a partially or fully secured basis. As of December 31, 2017, approximately 12% of our total outstanding loans were guaranteed or made on a partially or fully secured basis.

Risk Management

Our overall risk management policy is set by the Risk Management Committee, which meets on a quarterly basis and from time to time to establish tolerance limits for various exposures, whereas the overall risk management is overseen by the Risk Management Department, which is responsible for monitoring risk exposure.

The Risk Management Department reports our loan portfolio to the Financial Supervisory Service on a quarterly basis. The Risk Management Department also monitors our operating groups’ compliance with internal guidelines and procedures. To manage liquidity risk, we review the strategy for the sources and uses of funds, with each division submitting projected sources and uses to the Treasury Group. The Risk Management Department and the Treasury Group continually monitor our overall liquidity and the Treasury Group prepares both weekly and monthly cash flow forecasts. Our policy is to maintain a liquidity level, which can cover loan disbursements for a period of two to three months going forward. We protect ourselves from potential liquidity squeezes by maintaining sufficient amount of liquid assets with additional back-up of short-term credit lines.

 

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Our core lending activities expose us to market risk, mostly in the form of interest rate and foreign currency risks. The Risk Management Department reports interest rate and foreign exchange gap positions to the Risk Management Committee on a quarterly basis. We also monitor changes in, and matches of, foreign currency assets and liabilities in order to reduce exposure to currency fluctuations.

One of the key components of our risk management policy, which also affects our fund-raising efforts, is to monitor matches of asset maturities and liability maturities. The average maturity as of December 31, 2017 for our Won- and foreign currency-denominated loans was 14 months and 43 months, respectively, and for Won- and foreign currency-denominated liabilities was 21 months and 54 months, respectively.

We follow an overall risk management process where we:

 

  •  

determine the risk management objectives;

 

  •  

identify key exposures;

 

  •  

measure key risks; and

 

  •  

monitor risk management results.

Our risk management system is a continuous system that is frequently evaluated and updated on an ongoing basis.

Capital Adequacy

Under the Financial Supervisory Service’s guidelines on risk-adjusted capital which were introduced in consideration of the standards set by the Bank for International Settlements, all banks in Korea, including us, are required to maintain a capital adequacy ratio (Tier I and Tier II) of at least 8% on a consolidated basis. To the extent that we fail to maintain this ratio, the Korean regulatory authorities may require corrective measures ranging from management improvement recommendations to emergency measures such as disposal of assets.

The current capital adequacy requirements of the Financial Services Commission are derived from a new set of bank capital measures, referred to as Basel III, which the Basel Committee on Banking Supervision initially introduced in 2009 and began phasing in starting from 2013. Commencing in July 2013, the Financial Services Commission promulgated a series of amended regulations implementing Basel III, pursuant to which Korean banks, including us, were required to maintain a minimum ratio of Tier I common equity capital (which principally includes equity capital, capital surplus and retained earnings less reserve for credit losses) to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to 4.5% and 6.0%, respectively, from January 1, 2015. Such requirements are in addition to the pre-existing requirement for a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets of 8.0%, which remains unchanged. The amended regulations also require an additional capital conservation buffer of 0.625% on January 1, 2016, with such buffer to increase to 1.25% on January 1, 2017, to 1.875% on January 1, 2018 and to 2.5% on January 1, 2019, as well as a potential counter-cyclical capital buffer of up to 2.5% starting in 2016, which will be determined on a quarterly basis by the Financial Services Commission. Presently, the Financial Services Commission has set the counter-cyclical capital buffer at 0%. As of December 31, 2017, our capital adequacy ratio, on a consolidated basis, was 12.9%, an increase from 10.8% as of December 31, 2016, which was primarily due to an increase in total capital and a decrease in total risk-weighted assets.

 

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The following table sets forth our capital base and capital adequacy ratios (on a consolidated basis) reported as of December 31, 2015, 2016 and 2017:

 

     As of December 31,  
           2015                 2016                 2017        
     (billions of Won, except for percentages)  

Tier I

    ￦ 10,586     ￦ 11,239     ￦ 12,447  

Capital stock (including capital surplus and capital adjustments)

      8,878       10,405       11,686  

Retained Earnings(1)

      1,611       606       623  

Accumulated other comprehensive income

      124       286       185  

Others

      2       3       2  

Deductions from Tier I Capital

      (29 )      (61 )      (49 ) 

Capital Adjustments

      —         —         —    

Deferred Tax Asset

      —         —         —    

Others

      (29 )      (61 )      (49 ) 

Tier II (General Loan Loss Reserves)

      1,301       1,975       1,678  

Total Capital

      11,887       13,214       14,126  

Risk Adjusted Assets

      118,438       122,663       109,501  

Capital Adequacy Ratios

       

Tier I common equity

      8.9 %      9.2 %      11.4 % 

Tier I

      8.9 %      9.2 %      11.4 % 

Tier I and Tier II

      10.0 %      10.8 %      12.9 % 

 

(1)

Net amount after deducting regulatory reserve for bad loans.

Source: Internal accounting records

Overseas Operations

We maintain an international presence through 24 overseas representative offices, which are located in New York City, Tokyo, Beijing, São Paolo, Paris, Washington D.C., Shanghai, New Delhi, Dubai, Moscow, Mexico City, Tashkent, Hanoi, Manila, Jakarta, Yangon, Bogota, Istanbul, Dar es Salaam, Maputo, Accra, Phnom Penh, Addis Ababa and Colombo.

We also have three wholly-owned subsidiaries: KEXIM Bank (UK) Ltd. in London, KEXIM (Asia) Ltd. in Hong Kong and KEXIM Vietnam Leasing Co., Ltd. in Ho Chi Minh City. These subsidiaries are engaged in the merchant banking and lease financing businesses, and assist us in raising overseas financing. We also own 85% of P.T. Koexim Mandiri Finance, a subsidiary in Jakarta, which is primarily engaged in the business of lease financing.

The table below sets forth brief details of our subsidiaries as of December 31, 2017:

 

     Principal Place
of Business		    Type of Business    Book Value      Bank’s Holding  
               (billions of Won)      (%)  

Kexim Bank (UK) Ltd.

    United Kingdom    Commercial Banking    ￦ 48        100 % 

KEXIM (Asia) Ltd.

    Hong Kong    Commercial Banking      49        100  

P.T. Koexim Mandiri Finance

    Indonesia    Leasing and Factoring      25        85  

Kexim Vietnam Leasing Co., Ltd.

    Vietnam    Leasing and Lending      10        100  

Property

Our head office is located at 38 Eunhaeng-ro, Yeongdeungpo-gu, Seoul 07242, Korea, a 45,715 square meter building on a site of 9,110 square meters and owned by us. In addition to the head office, we own a staff

 

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training center located near Seoul on a site of 47,881 square meters and a marine finance center, a 4,423 square meter building, located in Busan on a site of 556 square meters. We also maintain 13 branches in Busan, Gwangju, Daegu, Changwon, Daejeon, Suwon, Incheon, Ulsan, Cheongju, Jeonju, Gumi, Yeosu and Wonju. Our domestic branch offices and overseas representative offices are located in facilities held under long-term leases.

Management and Employees

Management

Our governance and management is the responsibility of our Board of Directors, which has authority to decide important matters relating to our business. The Board of Directors is chaired by our President and is comprised of six members: the President, the Deputy President, two Senior Executive Directors and two Non-standing Senior Executive Directors. The Auditor may attend and state his/her opinion at the meetings of the Board of Directors. The President of Korea appoints our President upon the recommendation of the Minister of Strategy and Finance. The Minister of Strategy and Finance appoints the Deputy President and all Senior Executive Directors upon the recommendation of our President. The Minister of Strategy and Finance appoints the Auditor. All Board members and the Auditor serve for three years and are eligible for re-appointment for successive terms of office.

The members of the Board of Directors are currently as follows:

 

Name

    Age      Board Member Since      Position  

Sung-soo Eun

      56        September 11, 2017        Chairman and President  

Young-pyo Hong

      62        May 15, 2015        Deputy President  

Seung-joong Kang

      58        January 18, 2018        Senior Executive Director  

Deog-yong Shin

      57        January 18, 2018        Senior Executive Director  

Sung-bae Kim

      63        December 30, 2016        External Director  

Gong-pil Choi

      60        December 30, 2016        External Director  

Our basic policy guidelines for activities are established by the Operations Committee. According to the By-laws, the Operations Committee is composed of officials nominated as follows:

 

  •  

President of KEXIM;

 

  •  

official of the Ministry of Strategy and Finance, nominated by the Minister of Strategy and Finance;

 

  •  

official of the Ministry of Foreign Affairs, nominated by the Minister of Foreign Affairs;

 

  •  

official of the Ministry of Trade, Industry & Energy, nominated by the Minister of Trade, Industry & Energy;

 

  •  

official of the Ministry of Land, Infrastructure and Transport, nominated by the Minister of Land, Infrastructure and Transport;

 

  •  

official of the Ministry of Oceans and Fisheries, nominated by the Minister of Oceans and Fisheries;

 

  •  

official of the Financial Services Commission, nominated by the Chairman of the Financial Services Commission;

 

  •  

executive director of The Bank of Korea, nominated by the Governor of The Bank of Korea;

 

  •  

executive director of the Korea Federation of Banks, nominated by the Chairman of the Korea Federation of Banks;

 

  •  

representative of an exporters’ association (Korea International Trade Association), nominated by the Minister of Strategy and Finance after consultation with the Minister of Trade, Industry & Energy;

 

  •  

officer of the Korea Trade Insurance Corporation established under the Trade Insurance Act, nominated by the Chairman and President of the Korea Trade Insurance Corporation; and

 

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  •  

up to two persons who have extensive knowledge and experience in international economic cooperation work, recommended by our President and appointed by the Minister of Strategy and Finance.

The members of the Operations Committee are currently as follows:

 

Name

    Age     

Member Since

   

Position

Sung-soo Eun

      56      September 11, 2017    Chairman and President of KEXIM

Kun Il Hwang

      57      September 28, 2017    Deputy Minister for International Economic Affairs, Ministry of Strategy and Finance

Kang-hyeon Yun

      54      September 22, 2017    Deputy Minister for Economic Affairs, Ministry of Foreign Affairs

Young Sam Kim

      54      August 18, 2017    Deputy Minister for International Trade and Investment, Ministry of Trade, Industry & Energy

Il Pyeong Kim

      53      September 25, 2017    Assistant Minister for Construction Policy Bureau, Ministry of Land, Infrastructure and Transport

Ki-doo Eom

      51      January 25, 2017    Director of Shipping & Logistics Bureau, Ministry of Oceans and Fisheries

Byeong Doo Sohn

      53      September 12, 2017    Secretary General, Financial Services Commission

Ho Soon Shin

      55      September 26, 2017    Deputy Governor, The Bank of Korea

Jae Moon Hong

      57      March 7, 2018    Senior Executive Director, Korea Federation of Banks

Jin Hyun Han

      58      February 27, 2018    Executive Vice Chairman, Korea International Trade Association

Byung-tae Kang

      58      March 23, 2017    Deputy President, Korea Trade Insurance Corporation

Yoon Heo (Private Sector)

      55      February 21, 2017    Professor, Sogang Graduate School of International Studies

Won-chang Jang (Private Sector)

      53      February 21, 2017    Professor, Inha University

Employees

As of December 31, 2017, we had 1,076 employees, among whom 775 employees were members of our labor union. We have never experienced a work stoppage of a serious nature. Every two years, the management and union negotiate and enter into a collective bargaining agreement. The most recent collective bargaining agreement was entered into in November 2017.

Tables and Supplementary Information

A. External Debt of the Bank

(1) External Bonds of the Bank

 

Currency

    Original
Principal
Amount		      Interest Rate (%)     

Issue Date

   

Maturity Date

    Principal Amount
Outstanding as of
December 31, 2017		  

USD

      50,000,000        7.8      April 27, 2009    April 29, 2019      50,000,000  

USD

      1,250,000,000        5.125      June 29, 2010    June 29, 2020      1,250,000,000  

USD

      1,000,000,000        4      October 20, 2010    January 29, 2021      1,000,000,000  

USD

      1,000,000,000        4.375      September 15, 2011    September 15, 2021      1,000,000,000  

USD

      1,000,000,000        5      January 11, 2012    April 11, 2022      1,000,000,000  

 

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Currency

    Original
Principal
Amount		      Interest Rate (%)     

Issue Date

   

Maturity Date

    Principal Amount
Outstanding as of
December 31, 2017		  

USD

      100,000,000        6.78      January 27, 2012    January 27, 2027      100,000,000  

USD

      500,000,000        1.75      February 27, 2013    February 27, 2018      500,000,000  

USD

      10,000,000        LIBOR 3M + 0.9      June 20, 2013    June 20, 2018      10,000,000  

USD

      50,000,000        4.369      August 27, 2013    February 27, 2025      50,000,000  

USD

      35,500,000        2.24      August 29, 2013    September 14, 2018      35,500,000  

USD

      500,000,000        2.875      September 17, 2013    September 17, 2018      500,000,000  

USD

      49,000,000        3.81      October 30, 2013    October 30, 2023      49,000,000  

USD

      45,000,000        3.81      October 30, 2013    October 30, 2023      45,000,000  

USD

      25,000,000        3.81      October 30, 2013    October 30, 2023      25,000,000  

USD

      20,000,000        3.9      October 30, 2013    October 30, 2023      20,000,000  

USD

      50,000,000        3.66      November 06, 2013    November 06, 2023      50,000,000  

USD

      50,000,000        3.87      November 06, 2013    November 06, 2025      50,000,000  

USD

      20,000,000        3.67      November 06, 2013    November 06, 2023      20,000,000  

USD

      50,000,000        3.91      November 07, 2013    November 07, 2025      50,000,000  

USD

      20,000,000        3.71      November 07, 2013    November 07, 2023      20,000,000  

USD

      40,000,000        4      November 07, 2013    November 07, 2025      40,000,000  

USD

      40,000,000        3.73      November 07, 2013    November 07, 2023      40,000,000  

USD

      50,000,000        3.76      November 08, 2013    November 08, 2023      50,000,000  

USD

      50,000,000        4.03      November 08, 2013    November 08, 2025      50,000,000  

USD

      30,000,000        4.03      November 08, 2013    November 08, 2025      30,000,000  

USD

      20,000,000        4.03      November 08, 2013    November 08, 2025      20,000,000  

USD

      35,000,000        3.786      November 12, 2013    November 12, 2023      35,000,000  

USD

      30,000,000        4.03      November 12, 2013    November 12, 2025      30,000,000  

USD

      38,500,000        1.89      November 26, 2013    December 05, 2018      38,500,000  

USD

      750,000,000        4      January 14, 2014    January 14, 2024      750,000,000  

USD

      220,000,000        3.95      January 27, 2014    January 27, 2024      220,000,000  

USD

      50,000,000        4.14      January 28, 2014    January 28, 2026      50,000,000  

USD

      50,000,000        4.14      February 03, 2014    February 03, 2026      50,000,000  

USD

      50,000,000        4.14      February 03, 2014    February 03, 2026      50,000,000  

USD

      50,000,000        4.06      February 04, 2014    February 04, 2026      50,000,000  

USD

      50,000,000        4.07      February 04, 2014    February 04, 2026      50,000,000  

USD

      20,000,000        4.02      February 05, 2014    February 05, 2026      20,000,000  

USD

      30,000,000        4      February 13, 2014    February 13, 2026      30,000,000  

USD

      30,000,000        4      February 18, 2014    February 18, 2026      30,000,000  

USD

      40,000,000        4.04      February 19, 2014    February 19, 2026      40,000,000  

USD

      36,800,000        2.05      May 22, 2014    May 22, 2019      36,800,000  

USD

      30,000,000        3.3      July 07, 2014    July 07, 2024      30,000,000  

USD

      500,000,000        3.25      August 12, 2014    August 12, 2026      500,000,000  

USD

      500,000,000        2.375      August 12, 2014    August 12, 2019      500,000,000  

USD

      17,800,000        1.8      September 26, 2014    September 26, 2019      17,800,000  

USD

      50,000,000        3.409      October 24, 2014    October 24, 2029      50,000,000  

USD

      50,000,000        3.409      October 24, 2014    October 24, 2029      50,000,000  

USD

      50,000,000        3.402      October 29, 2014    October 29, 2029      50,000,000  

USD

      50,000,000        3.23      October 30, 2014    October 30, 2026      50,000,000  

USD

      30,000,000        3.463      October 31, 2014    October 31, 2029      30,000,000  

USD

      50,000,000        3.5      November 06, 2014    November 06, 2029      50,000,000  

USD

      50,000,000        3.5      November 19, 2014    November 19, 2029      50,000,000  

USD

      50,000,000        3.53      November 20, 2014    November 20, 2029      50,000,000  

USD

      50,000,000        3.5      November 25, 2014    November 26, 2029      50,000,000  

USD

      50,000,000        3.35      November 28, 2014    November 28, 2026      50,000,000  

USD

      1,000,000,000        2.25      January 21, 2015    January 21, 2020      1,000,000,000  

USD

      1,250,000,000        2.875      January 21, 2015    January 21, 2025      1,250,000,000  

USD

      50,000,000        2.62      February 27, 2015    February 27, 2023      50,000,000  

USD

      50,000,000        3.02      March 4, 2015    March 4, 2030      50,000,000  

USD

      50,000,000        3.02      March 4, 2015    March 4, 2030      50,000,000  

USD

      30,000,000        3.044      March 6, 2015    March 6, 2030      30,000,000  

USD

      30,000,000        3.044      March 6, 2015    March 6, 2030      30,000,000  

USD

      50,000,000        2.81      March 6, 2015    March 6, 2025      50,000,000  

USD

      50,000,000        2.845      March 10, 2015    March 10, 2025      50,000,000  

 

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Table of Contents

Currency

    Original
Principal
Amount		      Interest Rate (%)     

Issue Date

   

Maturity Date

    Principal Amount
Outstanding as of
December 31, 2017		  

USD

      40,000,000        3.087      March 10, 2015    March 10, 2030      40,000,000  

USD

      50,000,000        2.8      March 17, 2015    March 17, 2025      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.4      March 23, 2015    March 23, 2018      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.4      March 23, 2015    March 23, 2018      50,000,000  

USD

      50,000,000        2.7      April 1, 2015    April 1, 2027      50,000,000  

USD

      100,000,000        LIBOR 3M + 0.45      April 10, 2015    April 10, 2018      100,000,000  

USD

      50,000,000        LIBOR 3M + 0.4      April 23, 2015    April 23, 2018      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.4      April 23, 2015    April 23, 2018      50,000,000  

USD

      50,000,000        2.4075      May 8, 2015    May 8, 2023      50,000,000  

USD

      50,000,000        2.41      May 11, 2015    May 11, 2023      50,000,000  

USD

      50,000,000        2.4125      May 12, 2015    May 12, 2023      50,000,000  

USD

      30,000,000        LIBOR 3M + 0.5      May 13, 2015    May 13, 2020      30,000,000  

USD

      100,000,000        LIBOR 3M + 0.4      May 21, 2015    May 21, 2018      100,000,000  

USD

      50,000,000        2.675      May 27, 2015    May 27, 2023      50,000,000  

USD

      50,000,000        2.552      May 27, 2015    May 27, 2023      50,000,000  

USD

      50,000,000        2.62      May 28, 2015    May 28, 2023      50,000,000  

USD

      600,000,000        2.625      June 30, 2015    December 30, 2020      600,000,000  

USD

      400,000,000        3.25      June 30, 2015    August 12, 2026      400,000,000  

USD

      30,000,000        3.33      August 4, 2015    August 4, 2027      30,000,000  

USD

      50,000,000        3.45      August 4, 2015    August 4, 2030      50,000,000  

USD

      50,000,000        3.047      September 1, 2015    September 1, 2025      50,000,000  

USD

      50,000,000        3.32      September 3, 2015    September 3, 2030      50,000,000  

USD

      20,000,000        LIBOR 3M + 0.5      September 11, 2015    September 11, 2018      20,000,000  

USD

      750,000,000        2.5      November 10, 2015    May 10, 2021      750,000,000  

USD

      1,000,000,000        3.25      November 10, 2015    November 10, 2025      1,000,000,000  

USD

      50,000,000        LIBOR 3M + 0.7      December 1, 2015    January 31, 2019      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.7      December 1, 2015    January 31, 2019      50,000,000  

USD

      25,000,000        LIBOR 3M + 0.65      January 21, 2016    January 21, 2019      25,000,000  

USD

      50,000,000        3.95      January 21, 2016    January 21, 2031      50,000,000  

USD

      50,000,000        3.95      January 21, 2016    January 21, 2031      50,000,000  

USD

      400,000,000        2.125      February 11, 2016    February 11, 2021      400,000,000  

USD

      50,000,000        3.94      February 11, 2016    February 11, 2031      50,000,000  

USD

      50,000,000        3.94      February 11, 2016    February 11, 2031      50,000,000  

USD

      50,000,000        3.83      February 16, 2016    February 16, 2031      50,000,000  

USD

      30,000,000        LIBOR 3M + 0.7      February 18, 2016    February 18, 2019      30,000,000  

USD

      50,000,000        2.6      February 25, 2016    February 25, 2026      50,000,000  

USD

      50,000,000        2.6      February 25, 2016    February 25, 2026      50,000,000  

USD

      350,000,000        LIBOR 3M + 1.0      March 17, 2016    March 17, 2021      350,000,000  

USD

      50,000,000        3.72      March 21, 2016    March 21, 2031      50,000,000  

USD

      30,000,000        LIBOR 3M + 0.7      March 31, 2016    March 31, 2019      30,000,000  

USD

      1,000,000,000        2.625      May 26, 2016    May 26, 2026      1,000,000,000  

USD

      1,000,000,000        1.75      May 26, 2016    May 26, 2019      1,000,000,000  

USD

      500,000,000        LIBOR 3M + 0.7      May 26, 2016    May 26, 2019      500,000,000  

USD

      50,000,000        2.38      July 01, 2016    July 01, 2026      50,000,000  

USD

      50,000,000        3.19      July 01, 2016    July 01, 2031      50,000,000  

USD

      50,000,000        1.57      July 11, 2016    July 11, 2020      50,000,000  

USD

      50,000,000        3.05      July 13, 2016    July 13, 2031      50,000,000  

USD

      50,000,000        2.52      July 22, 2016    July 22, 2031      50,000,000  

USD

      50,000,000        2.085      July 22, 2016    July 22, 2026      50,000,000  

USD

      50,000,000        1.935      July 28, 2016    July 28, 2021      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.42      August 02, 2016    February 02, 2018      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.42      August 02, 2016    February 02, 2018      50,000,000  

USD

      50,000,000        2.205      August 02, 2016    August 02, 2026      50,000,000  

USD

      50,000,000        3.09      August 02, 2016    August 02, 2031      50,000,000  

USD

      50,000,000        2.29      August 03, 2016    August 03, 2026      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.42      August 05, 2016    February 05, 2018      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.44      August 08, 2016    August 08, 2018      50,000,000  

USD

      50,000,000        3.1      August 09, 2016    August 09, 2031      50,000,000  

USD

      30,000,000        LIBOR 3M + 0.4      August 11, 2016    August 10, 2018      30,000,000  

 

33

Table of Contents

Currency

    Original
Principal
Amount		      Interest Rate (%)     

Issue Date

   

Maturity Date

    Principal Amount
Outstanding as of
December 31, 2017		  

USD

      50,000,000        1.31      August 16, 2016    February 16, 2018      50,000,000  

USD

      50,000,000        1.31      August 16, 2016    February 16, 2018      50,000,000  

USD

      30,000,000        2.27      August 16, 2016    August 16, 2026      30,000,000  

USD

      50,000,000        2.29      August 17, 2016    August 17, 2026      50,000,000  

USD

      45,000,000        3.25      August 19, 2016    August 19, 2031      45,000,000  

USD

      50,000,000        LIBOR 3M + 0.4      August 24, 2016    August 24, 2018      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.4      August 24, 2016    August 24, 2018      50,000,000  

USD

      50,000,000        1.45      August 30, 2016    August 30, 2019      50,000,000  

USD

      50,000,000        2.01      August 30, 2016    August 30, 2024      50,000,000  

USD

      50,000,000        3.08      September 30, 2016    September 30, 2031      50,000,000  

USD

      750,000,000        LIBOR 3M + 0.46      October 21, 2016    October 21, 2019      750,000,000  

USD

      750,000,000        1.5      October 21, 2016    October 21, 2019      750,000,000  

USD

      700,000,000        2.375      October 21, 2016    April 21, 2027      700,000,000  

USD

      300,000,000        1.875      October 21, 2016    October 21, 2021      300,000,000  

USD

      33,000,000        LIBOR 3M + 0.38      November 01, 2016    November 01, 2018      33,000,000  

USD

      100,000,000        LIBOR 3M + 0.56      November 01, 2016    November 01, 2018      100,000,000  

USD

      50,000,000        2.74      November 17, 2016    November 17, 2028      50,000,000  

USD

      200,000,000        LIBOR 3M + 0.3      November 23, 2016    February 23, 2018      200,000,000  

USD

      50,000,000        LIBOR 3M + 0.39      November 29, 2016    May 29, 2018      50,000,000  

USD

      50,000,000        3.23      December 12, 2016    December 12, 2028      50,000,000  

USD

      50,000,000        3.2      December 14, 2016    December 14, 2028      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.35      December 20, 2016    March 20, 2018      50,000,000  

USD

      30,000,000        3.42      January 06, 2017    January 06, 2029      30,000,000  

USD

      30,000,000        3.42      January 06, 2017    January 06, 2029      30,000,000  

USD

      50,000,000        LIBOR 3M + 0.36      January 09, 2017    January 09, 2018      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.36      January 09, 2017    January 09, 2018      50,000,000  

USD

      50,000,000        3.47      January 12, 2017    January 12, 2032      50,000,000  

USD

      50,000,000        3.38      January 18, 2017    January 18, 2032      50,000,000  

USD

      30,000,000        3.4      January 18, 2017    January 18, 2032      30,000,000  

USD

      50,000,000        3.33      January 19, 2017    January 19, 2032      50,000,000  

USD

      500,000,000        2.125      January 25, 2017    January 25, 2020      500,000,000  

USD

      500,000,000        2.75      January 25, 2017    January 25, 2022      500,000,000  

USD

      500,000,000        LIBOR 3M + 0.875      January 25, 2017    January 25, 2022      500,000,000  

USD

      20,000,000        LIBOR 3M + 0.38      January 26, 2017    July 26, 2018      20,000,000  

USD

      50,000,000        LIBOR 3M + 0.36      February 02, 2017    February 03, 2018      50,000,000  

USD

      20,000,000        LIBOR 3M + 0.38      February 07, 2017    August 07, 2018      20,000,000  

USD

      50,000,000        3.475      February 17, 2017    February 17, 2032      50,000,000  

USD

      50,000,000        3.475      February 17, 2017    February 17, 2032      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.72      March 23, 2017    March 23, 2022      50,000,000  

USD

      50,000,000        3.25      April 24, 2017    April 24, 2029      50,000,000  

USD

      50,000,000        3.54      April 24, 2017    April 26, 2032      50,000,000  

USD

      50,000,000        LIBOR 3M + 0.4      June 01, 2017    June 01, 2020      50,000,000  

USD

      100,000,000        LIBOR 3M + 0.68      June 01, 2017    June 01, 2021      100,000,000  

USD

      120,000,000        LIBOR 3M + 0.33      June 19, 2017    January 19, 2019      120,000,000  

USD

      180,000,000        LIBOR 3M + 0.55      June 19, 2017    January 19, 2021      180,000,000  

USD

      400,000,000        LIBOR 3M + 0.8      July 05, 2017    July 05, 2022      400,000,000  

USD

      50,000,000        LIBOR 3M + 0.32      July 06, 2017    January 06, 2019      50,000,000  

USD

      50,000,000        3.58      August 17, 2017    August 17, 2037      50,000,000  

USD

      50,000,000        3.56      August 18, 2017    August 18, 2037      50,000,000  

USD

      200,000,000        4.1      October 11, 2017    October 11, 2047      200,000,000  

USD

      50,000,000        3.65      October 25, 2017    October 25, 2047      50,000,000  

USD

      50,000,000        3.65      October 25, 2017    October 25, 2047      50,000,000  

USD

      400,000,000        2.5      November 01, 2017    November 01, 2020      400,000,000  

USD

      1,000,000,000        3      November 01, 2017    November 01, 2022      1,000,000,000  

USD

      600,000,000        LIBOR 3M + 0.925      November 01, 2017    November 01, 2022      600,000,000  

USD

      50,000,000        3.55      November 08, 2017    November 08, 2037      50,000,000  

USD

      50,000,000        3.55      November 08, 2017    November 08, 2037      50,000,000  

USD

      50,000,000        3.65      November 17, 2017    November 17, 2047      50,000,000  

USD

      50,000,000        3.65      November 17, 2017    November 17, 2047      50,000,000  

 

34

Table of Contents

Currency

    Original
Principal
Amount		      Interest Rate (%)     

Issue Date

   

Maturity Date

    Principal Amount
Outstanding as of
December 31, 2017		  

USD

      50,000,000        3.72      November 17, 2017    November 17, 2047      50,000,000  

USD

      20,000,000        3.72      November 17, 2017    November 17, 2047      20,000,000  

USD

      50,000,000        3.65      November 27, 2017    November 27, 2047      50,000,000  

USD

      50,000,000        3.7      December 06, 2017    December 06, 2047      50,000,000  
              

 

 

  
        Subtotal in Original Currency    USD  29,465,600,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(1)    ￦ 31,569,443,840,000  
        

 

 

  

JPY

      15,000,000,000        3.24      June 20, 2008    June 20, 2018      15,000,000,000  

JPY

      5,000,000,000        2.5      December 29, 2009    December 27, 2019      5,000,000,000  

JPY

      3,600,000,000        0.5      September 15, 2011    September 15, 2021      3,600,000,000  

JPY

      4,220,000,000        0.63      August 29, 2013    September 14, 2020      4,220,000,000  

JPY

      11,000,000,000        0.64      March 14, 2014    March 14, 2019      11,000,000,000  

JPY

      39,000,000,000        0.37      September 25, 2015    September 25, 2018      39,000,000,000  
              

 

 

  
        Subtotal in Original Currency    JPY  77,820,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(2)    ￦ 738,597,402,000  
        

 

 

  

HKD

      252,000,000        4.05      June 24, 2010    June 24, 2020      252,000,000  

HKD

      120,000,000        3.45      September 23, 2011    September 23, 2021      120,000,000  

HKD

      250,000,000        3.92      November 08, 2011    November 08, 2021      250,000,000  

HKD

      60,000,000        3.92      November 08, 2011    November 08, 2021      60,000,000  

HKD

      380,000,000        2.525      February 13, 2014    February 13, 2019      380,000,000  

HKD

      370,000,000        2.525      February 13, 2014    February 13, 2019      370,000,000  

HKD

      200,000,000        2.42      September 30, 2014    September 30, 2019      200,000,000  

HKD

      160,000,000        1.98      February 2, 2015    February 3, 2020      160,000,000  

HKD

      300,000,000        1.9      February 2, 2015    February 3, 2020      300,000,000  

HKD

      300,000,000        2.28      April 13, 2015    April 13, 2022      300,000,000  

HKD

      850,000,000        1.57      May 11, 2015    May 11, 2018      850,000,000  

HKD

      300,000,000        1.8      January 22, 2016    January 22, 2018      300,000,000  

HKD

      200,000,000        1.8      January 22, 2016    January 22, 2018      200,000,000  

HKD

      380,000,000        HIBOR 3M + 0.715      January 25, 2016    January 25, 2018      380,000,000  

HKD

      120,000,000        HIBOR 3M + 0.715      January 25, 2016    January 25, 2018      120,000,000  

HKD

      380,000,000        2.2      February 16, 2016    February 15, 2019      380,000,000  

HKD

      345,000,000        1.93      June 24, 2016    June 24, 2021      345,000,000  

HKD

      300,000,000        1.44      July 15, 2016    July 12, 2019      300,000,000  

HKD

      300,000,000        1.5      August 02, 2016    August 02, 2019      300,000,000  

HKD

      233,000,000        2.1      November 03, 2016    November 03, 2023      233,000,000  

HKD

      266,000,000        2.52      March 03, 2017    March 03, 2021      266,000,000  

HKD

      252,000,000        2.405      October 26, 2017    October 26, 2022      252,000,000  

HKD

      243,000,000        2.69      December 14, 2017    December 14, 2022      243,000,000  
              

 

 

  
        Subtotal in Original Currency    HKD  6,561,000,000  
              

 

 

  
        Subtotal in Equivalent Amount of Won(3)    ￦ 899,316,270,000  
              

 

 

  

MYR

      500,000,000        4.5      March 12, 2008    March 12, 2018      500,000,000  
              

 

 

  
        Subtotal in Original Currency    MYR  500,000,000  
              

 

 

  
        Subtotal in Equivalent Amount of Won(4)    ￦ 131,735,000,000  
              

 

 

  

BRL

      22,000,000        9.32      September 26, 2014    September 26, 2018      22,000,000  

BRL

      340,000,000        BRL CDI 3M + 0.48      May 12, 2016    January 31, 2018      340,000,000  

BRL

      606,120,000        8.52      September 26, 2016    September 26, 2019      606,120,000  

BRL

      192,000,000        BRL CDI 3M + 0.38      November 14, 2016    November 01, 2018      192,000,000  

BRL

      192,000,000        BRL CDI 3M + 0.38      November 16, 2016    November 07, 2018      192,000,000  

BRL

      130,000,000        BRL CDI 3M + 0.4      December 21, 2016    December 14, 2018      130,000,000  

BRL

      128,500,000        BRL CDI 3M + 0.4      December 21, 2016    December 14, 2018      128,500,000  

BRL

      145,000,000        BRL CDI 3M + 0.452      January 26, 2017    December 21, 2018      145,000,000  

BRL

      145,000,000        BRL CDI 3M + 0.452      January 26, 2017    December 21, 2018      145,000,000  

BRL

      500,000,000        BRL CDI 3M + 0.33      April 13, 2017    June 28, 2018      500,000,000  

 

35

Table of Contents

Currency

    Original
Principal
Amount		      Interest Rate (%)     

Issue Date

   

Maturity Date

    Principal Amount
Outstanding as of
December 31, 2017		  

BRL

      500,000,000        BRL CDI 3M + 0.34      April 19, 2017    October 18, 2018      500,000,000  

BRL

      160,500,000        7.02      September 01, 2017    September 03,2019      160,500,000  

BRL

      160,500,000        7.02      September 01, 2017    September 03,2019      160,500,000  
              

 

 

  
        Subtotal in Original Currency    BRL 3,221,620,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(5)    ￦ 1,042,032,989,000  
        

 

 

  

EUR

      117,000,000        3.875      July 12, 2012    July 12, 2032      117,000,000  

EUR

      30,000,000        3.6      July 19, 2012    July 19, 2027      30,000,000  

EUR

      750,000,000        2      April 30, 2013    April 30, 2020      750,000,000  

EUR

      250,000,000        2      May 15, 2013    April 30, 2020      250,000,000  

EUR

      20,000,000        EURIBOR 3M + 0.745      February 05, 2014    March 27, 2019      20,000,000  

EUR

      750,000,000        0.375      March 15, 2016    March 15, 2019      750,000,000  

EUR

      750,000,000        0.5      May 30, 2017    May 30, 2022      750,000,000  
              

 

 

  
        Subtotal in Original Currency    EUR 2,667,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(6)    ￦ 3,411,759,750,000  
        

 

 

  

THB

      1,500,000,000        6.28      August 07, 2008    August 07, 2018      1,500,000,000  

THB

      3,000,000,000        3.95      June 28, 2010    June 28, 2020      3,000,000,000  

THB

      1,000,000,000        4.4      November 25, 2011    November 25, 2021      1,000,000,000  

THB

      1,500,000,000        3.9      August 27, 2012    August 27, 2022      1,500,000,000  

THB

      2,800,000,000        4.34      March 11, 2013    March 11, 2023      2,800,000,000  

THB

      2,000,000,000        3.81      March 11, 2013    March 11, 2018      2,000,000,000  

THB

      1,500,000,000        4.78      July 31, 2013    July 31, 2025      1,500,000,000  

THB

      500,000,000        4.78      July 31, 2013    July 31, 2025      500,000,000  

THB

      10,000,000,000        2.18      September 4, 2015    September 4, 2018      10,000,000,000  
              

 

 

  
        Subtotal in Original Currency    THB 23,800,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(7)    ￦ 779,926,000,000  
        

 

 

  

CHF

      45,000,000        2.1      September 05, 2013    December 30, 2023      45,000,000  

CHF

      5,000,000        2.1      September 06, 2013    December 30, 2023      5,000,000  

CHF

      100,000,000        1.125      March 03, 2014    September 03, 2019      100,000,000  

CHF

      250,000,000        0.17      July 18, 2017    July 18, 2025      250,000,000  
              

 

 

  
        Subtotal in Original Currency    CHF 400,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(8)    ￦ 437,888,000,000  
        

 

 

  

AUD

      45,000,000        7.35      August 10, 2011    August 10, 2021      45,000,000  

AUD

      20,000,000        6.8      April 11, 2012    April 11, 2022      20,000,000  

AUD

      100,000,000        4.75      April 24, 2013    April 24, 2019      100,000,000  

AUD

      93,100,000        4.05      May 23, 2013    May 17, 2018      93,100,000  

AUD

      22,000,000        5.975      August 08, 2013    August 08, 2023      22,000,000  

AUD

      25,000,000        BBSW 3M + 1.45      August 08, 2013    August 08, 2018      25,000,000  

AUD

      63,000,000        4.43      August 29, 2013    September 14, 2018      63,000,000  

AUD

      100,000,000        5.375      September 12, 2013    September 12, 2019      100,000,000  

AUD

      36,000,000        4.42      November 26, 2013    December 05, 2018      36,000,000  

AUD

      100,000,000        5.125      February 25, 2014    February 25, 2020      100,000,000  

AUD

      50,000,000        5.125      February 25, 2014    February 25, 2020      50,000,000  

AUD

      300,000,000        4.5      April 17, 2014    April 17, 2019      300,000,000  

AUD

      200,000,000        BBSW 3M + 1.08      April 17, 2014    April 17, 2019      200,000,000  

AUD

      100,000,000        4.75      June 03, 2014    June 03, 2021      100,000,000  

AUD

      76,600,000        3.5      September 26, 2014    September 26, 2019      76,600,000  

AUD

      250,000,000        4.25      November 21, 2014    May 21, 2020      250,000,000  

AUD

      250,000,000        BBSW 3M + 1.15      November 21, 2014    May 21, 2020      250,000,000  

AUD

      21,000,000        5.15      November 24, 2014    November 24, 2029      21,000,000  

AUD

      300,000,000        3.7      August 19, 2015    February 19, 2021      300,000,000  

AUD

      350,000,000        BBSW 3M + 1.2      August 19, 2015    February 19, 2021      350,000,000  

AUD

      200,000,000        4      December 07, 2016    June 07, 2027      200,000,000  

AUD

      50,000,000        4      December 15, 2016    June 07, 2027      50,000,000  

 

36

Table of Contents

Currency

    Original
Principal
Amount		      Interest Rate (%)     

Issue Date

   

Maturity Date

    Principal Amount
Outstanding as of
December 31, 2017		  

AUD

      150,000,000        3.5      February 14, 2017    February 14, 2022      150,000,000  

AUD

      250,000,000        BBSW 3M + 1.17    February 14, 2017    February 14, 2022      250,000,000  

AUD

      100,000,000        4      February 14, 2017    June 07, 2027      100,000,000  

AUD

      60,000,000        3.98      October 10, 2017    October 10, 2027      60,000,000  

AUD

      40,000,000        3.4      December 08, 2017    December 08, 2024      40,000,000  
              

 

 

  
        Subtotal in Original Currency    AUD 3,351,700,000  
              

 

 

  
        Subtotal in Equivalent Amount of Won(9)    ￦ 2,799,205,772,000  
              

 

 

  

INR

      4,641,700,000        5.46      September 26, 2016    September 26, 2019      4,641,700,000  

INR

      3,200,000,000        6.2      August 07, 2017    August 07, 2021      3,200,000,000  

INR

      3,100,000,000        6.2      August 25, 2017    August 07, 2021      3,100,000,000  
              

 

 

  
        Subtotal in Original Currency    INR 10,941,700,000  
              

 

 

  
        Subtotal in Equivalent Amount of Won(10)    ￦ 182,835,807,000  
              

 

 

  

CNY

      120,000,000        4.55      August 23, 2013    August 23, 2023      120,000,000  

CNY

      300,000,000        4.5      November 06, 2013    November 06, 2023      300,000,000  

CNY

      500,000,000        3.625      January 27, 2014    January 27, 2019      500,000,000  

CNY

      500,000,000        4.5      January 27, 2014    January 27, 2024      500,000,000  

CNY

      700,000,000        3.7      November 28, 2014    November 28, 2019      700,000,000  

CNY

      300,000,000        4.5      February 17, 2015    February 17, 2018      300,000,000  

CNY

      243,000,000        4.5      February 17, 2015    February 17, 2018      243,000,000  

CNY

      300,000,000        4.46      February 25, 2015    February 25, 2020      300,000,000  

CNY

      250,000,000        4.5      February 25, 2015    February 25, 2018      250,000,000  

CNY

      500,000,000        4.2      February 26, 2015    February 26, 2022      500,000,000  

CNY

      300,000,000        4.05      February 26, 2015    February 26, 2020      300,000,000  

CNY

      1,000,000,000        4.4      March 03, 2015    March 3, 2018      1,000,000,000  

CNY

      275,000,000        4.785      March 18, 2015    March 18, 2019      275,000,000  

CNY

      300,000,000        4.79      March 27, 2015    March 27, 2019      300,000,000  

CNY

      1,250,000,000        3.6      June 10, 2015    June 10, 2018      1,250,000,000  

CNY

      137,000,000        4.1      July 24, 2015    July 24, 2018      137,000,000  

CNY

      300,000,000        4.1      July 24, 2015    July 24, 2018      300,000,000  

CNY

      188,000,000        4.005      July 30, 2015    July 30, 2018      188,000,000  

CNY

      1,000,000,000        4.1      August 06, 2015    August 06, 2018      1,000,000,000  

CNY

      280,000,000        4.2      August 07, 2015    August 07, 2018      280,000,000  

CNY

      215,000,000        5.2      February 16, 2016    February 16, 2019      215,000,000  

CNY

      200,000,000        5.1      March 02, 2016    March 02, 2019      200,000,000  

CNY

      200,000,000        4.85      March 09, 2016    March 09, 2019      200,000,000  

CNY

      200,000,000        4.95      March 17, 2016    March 17, 2019      200,000,000  

CNY

      200,000,000        4.4      March 30, 2016    March 30, 2019      200,000,000  

CNY

      220,000,000        4.5      April 01, 2016    April 01, 2019      220,000,000  

CNY

      280,000,000        3.62      June 24, 2016    June 22, 2018      280,000,000  

CNY

      333,000,000        3.84      July 28, 2016    July 28, 2019      333,000,000  

CNY

      200,000,000        3.6      August 11, 2016    August 11, 2018      200,000,000  

CNY

      210,000,000        4.45      December 09, 2016    December 09, 2019      210,000,000  

CNY

      200,000,000        5.535      March 17, 2017    March 17, 2022      200,000,000  
              

 

 

  
        Subtotal in Original Currency    CNY  11,201,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(11)    ￦ 1,833,043,650,000  
        

 

 

  

IDR

      500,000,000,000        8      August 27, 2014    May 15, 2018      500,000,000,000  

IDR

      600,000,000,000        8      October 17, 2014    October 17, 2019      600,000,000,000  

IDR

      600,000,000,000        8      February 17, 2015    May 15, 2018      600,000,000,000  

IDR

      650,000,000,000        8.1      March 24, 2015    March 24, 2018      650,000,000,000  

IDR

      400,000,000,000        8      July 22, 2015    October 17, 2019      400,000,000,000  

IDR

      665,400,000,000        6.9      June 14, 2017    January 08, 2021      665,400,000,000  

IDR

      655,000,000,000        6.9      June 14, 2017    January 08, 2021      655,000,000,000  

IDR

      655,000,000,000        6.9      July 14, 2017    January 08, 2021      655,000,000,000  

IDR

      670,000,000,000        7.25      December 07, 2017    December 07, 2024      670,000,000,000  
              

 

 

  
        Subtotal in Original Currency    IDR  5,395,400,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(12)    ￦ 426,236,600,000  
        

 

 

  

PEN

      61,000,000        6.875      September 07, 2010    September 07, 2022      61,000,000  

PEN

      47,000,000        6.875      July 08, 2011    September 07, 2022      47,000,000  

 

37

Table of Contents

Currency

    Original
Principal
Amount		      Interest Rate (%)     

Issue Date

   

Maturity Date

    Principal Amount
Outstanding as of
December 31, 2017		  

PEN

      20,000,000        6.875      July 19, 2011    September 07, 2022      20,000,000  

PEN

      15,000,000        6.875      August 05, 2011    September 07, 2022      15,000,000  

PEN

      54,500,000        7.25      October 25, 2011    October 25, 2041      54,500,000  

PEN

      13,600,000        7.15      November 04, 2011    November 04, 2021      13,600,000  

PEN

      54,500,000        6.875      November 21, 2011    September 07, 2022      54,500,000  
              

 

 

  
        Subtotal in Original Currency    PEN  265,600,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(13)    ￦ 87,855,168,000  
        

 

 

  

SGD

      68,000,000        1.95      June 15, 2015    June 15, 2018      68,000,000  

SGD

      250,000,000        2.04      July 24, 2015    July 24, 2018      250,000,000  

SGD

      42,750,000        1.75      June 17, 2016    June 15, 2018      42,750,000  

SGD

      60,000,000        2.04      November 09, 2016    July 24, 2018      60,000,000  

SGD

      200,000,000        2.318      September 27, 2017    September 27, 2022      200,000,000  
              

 

 

  
        Subtotal in Original Currency    SGD  620,750,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(14)    ￦ 496,991,072,500  
        

 

 

  

TRY

      21,000,000        8.54      September 26, 2014    September 26, 2018      21,000,000  
              

 

 

  
        Subtotal in Original Currency    TRY  21,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(15)    ￦ 5,960,220,000  
        

 

 

  

NZD

      20,500,000        5.18      November 26, 2013    December 05, 2018      20,500,000  

NZD

      66,000,000        4.5      May 22, 2014    May 17, 2018      66,000,000  

NZD

      74,600,000        4.97      May 22, 2014    May 22, 2019      74,600,000  

NZD

      100,000,000        5.125      August 27, 2014    August 27, 2019      100,000,000  

NZD

      12,000,000        4.46      September 26, 2014    September 26, 2019      12,000,000  

NZD

      100,000,000        5.125      October 15, 2014    October 15, 2019      100,000,000  

NZD

      55,000,000        4.2      December 15, 2014    December 11, 2018      55,000,000  

NZD

      400,000,000        3.5      July 28, 2016    July 28, 2021      400,000,000  

NZD

      10,000,000        2.63      November 25, 2016    November 16, 2020      10,000,000  

NZD

      400,000,000        4      March 09, 2017    March 09, 2022      400,000,000  
              

 

 

  
        Subtotal in Original Currency    NZD  1,238,100,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(16)    ￦ 940,559,808,000  
        

 

 

  

ZAR

      653,600,000        8      November 25, 2016    November 16, 2020      653,600,000  
              

 

 

  
        Subtotal in Original Currency    ZAR  653,600,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(17)    ￦ 56,608,296,000  
        

 

 

  

CAD

      325,000,000        2.711      December 05, 2014    December 05, 2019      325,000,000  

CAD

      65,000,000        3.16      February 16, 2017    February 16, 2032      65,000,000  

CAD

      300,000,000        1.927      February 24, 2017    February 24, 2020      300,000,000  
              

 

 

  
        Subtotal in Original Currency    CAD 690,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(18)    ￦ 588,356,100,000  
        

 

 

  

NOK

      500,000,000        3      May 22, 2013    May 23, 2018      500,000,000  

NOK

      250,000,000        4.55      June 26, 2013    June 26, 2025      250,000,000  

NOK

      250,000,000        4.55      June 26, 2013    June 26, 2025      250,000,000  

NOK

      250,000,000        4.55      June 26, 2013    June 26, 2025      250,000,000  

NOK

      300,000,000        4.5075      September 09, 2013    September 11, 2023      300,000,000  

NOK

      300,000,000        4.5075      September 10, 2013    September 11, 2023      300,000,000  

NOK

      300,000,000        4.5075      September 11, 2013    September 11, 2023      300,000,000  

NOK

      300,000,000        4.5075      September 12, 2013    September 11, 2023      300,000,000  

NOK

      300,000,000        4.5075      September 13, 2013    September 11, 2023      300,000,000  
              

 

 

  
        Subtotal in Original Currency    NOK  2,750,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(19)    ￦ 357,115,000,000  
        

 

 

  

CZK

      700,000,000        PRIBOR 3M + 0.5      June 17, 2013    June 17, 2018      700,000,000  
              

 

 

  
        Subtotal in Original Currency    CZK 700,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(20)    ￦ 35,014,000,000  
        

 

 

  

 

38

Table of Contents

Currency

    Original
Principal
Amount		      Interest Rate (%)     

Issue Date

   

Maturity Date

    Principal Amount
Outstanding as of
December 31, 2017		  

GBP

      30,000,000        GBP LIBOR 3M + 0.32      August 05, 2016    August 05, 2019      30,000,000  

GBP

      30,000,000        GBP LIBOR 3M + 0.28      August 16, 2016    August 16, 2019      30,000,000  
              

 

 

  
        Subtotal in Original Currency    GBP 60,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(21)    ￦ 86,371,800,000  
        

 

 

  

SEK

      250,000,000        1.28      December 11, 2017    December 11, 2024      250,000,000  
              

 

 

  
        Subtotal in Original Currency    SEK 250,000,000  
        

 

 

  
        Subtotal in Equivalent Amount of Won(22)    ￦ 32,475,000,000  
        

 

 

  
     Total External Bonds of the Bank in Equivalent Amount of Won    ￦ 46,939,327,544,500  
     

 

 

  

 

*

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 1,071.40, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(2)

Japanese Yen amounts are converted to Won amounts at the rate of JPY 100.00 to Won 949.11, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(3)

Hong Kong Dollar amounts are converted to Won amounts at the rate of HKD 1.00 to Won 137.07, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(4)

Malaysia Ringgit amounts are converted to Won amounts at the rate of MYR 1.00 to Won 263.47, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(5)

Brazilian Real amounts are converted to Won amounts at the rate of BRL 1.00 to Won 323.45, the prevailing market rate on December 31, 2017.

(6)

Euro amounts are converted to Won amounts at the rate of EUR 1.00 to Won 1,279.25, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(7)

Thai Baht amounts are converted to Won amounts at the rate of THB 1.00 to Won 32.77, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(8)

Swiss Franc amounts are converted to Won amounts at the rate of CHF 1.00 to Won 1,094.72, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(9)

Australian Dollar amounts are converted to Won amounts at the rate of AUD 1.00 to Won 835.16, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(10)

Indian Rupee amounts are converted to Won amounts at the rate of INR 1.00 to Won 16.71, the prevailing market rate on December 31, 2017.

(11)

Chinese Yuan amounts are converted to Won amounts at the rate of CNY 1.00 to Won 163.65, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(12)

Indonesian Rupiah amounts are converted to Won amounts at the rate of IDR 100.00 to Won 7.90, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(13)

Peruvian Sol amounts are converted to Won amounts at the rate of PEN 1.00 to Won 330.78, the prevailing market rate on December 31, 2017.

(14)

Singapore Dollar amounts are converted to Won amounts at the rate of SGD 1.00 to Won 800.63, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(15)

Turkish Lira amounts are converted to Won amounts at the rate of TRY 1.00 to Won 283.82, the prevailing market rate on December 31, 2017.

(16)

New Zealand Dollar amounts are converted to Won amounts at the rate of NZD 1.00 to Won 759.68, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(17)

South African Rand amounts are converted to Won amounts at the rate of ZAR 1.00 to Won 86.61, the prevailing market rate on December 31, 2017.

(18)

Canadian Dollar amounts are converted to Won amounts at the rate of CAD 1.00 to Won 852.69, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(19)

Norwegian Krone amounts are converted to Won amounts at the rate of NOK 1.00 to Won 129.86, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(20)

Czech Koruna amounts are converted to Won amounts at the rate of CZK 1.00 to Won 50.02, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(21)

British Pound amounts are converted to Won amounts at the rate of GBP 1.00 to Won 1,439.53, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(22)

Swedish Krona amounts are converted to Won amounts at the rate of SEK 1.00 to Won 129.9, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

 

39

Table of Contents

(2) External Borrowings of the Bank

 

Lender

   Classifications     Range of Interest Rates     Range of
Years of
Issue		     Range of
Years of
Maturity		     Principal
Amount
Outstanding as
of December 31,
2017(1)		  
          (%)                 (millions of Won)  

Bank of Tokyo-Mitsubishi UFJ, LTD

    
 Borrowings from
BTMU
 		     LIBOR 3M + 0.6       2014       2019       321,420  

HSBC Bank PLC, London

    
 Borrowings from
HSBC
 		     LIBOR 3M + 0.5       2015       2018       160,710  

Syndicated Lenders

    

 Borrowings from
Syndicated
Lenders

 		     LIBOR 3M + 0.5       2015       2018       428,560  

Bank of Tokyo-Mitsubishi UFJ, LTD

    
 Borrowings from
BTMU
 		     LIBOR 3M + 0.4       2015       2018       214,280  

Agricultural Bank of China, Seoul

    

 Borrowings from

ABC

  

 

     LIBOR 3M+0.85       2016       2021       107,140  

Bank of America, N.A.

    

 Borrowings from

BA-ML

  

 

     LIBOR 3M+0.73       2016       2019       214,280  

Syndicated Lenders

    


 Borrowings from

Syndicated
Lenders

  


 

     LIBOR 3M+0.60       2016       2019       428,560  

Bank of Tokyo-Mitsubishi UFJ, LTD

    
 Borrowings from
BTMU
 		     LIBOR 3M+0.45       2017       2018       214,280  

Syndicated Lenders

    

 Borrowings from
Syndicated
Lenders

 		     LIBOR 3M+0.57       2017       2020       267,850  

HSBC Bank PLC, London

    
 Borrowings from
HSBC
 		     LIBOR 3M+0.45       2017       2018       160,710  

Bank of America, N.A.

    

 Borrowings from

BA-ML

  

 

     LIBOR 3M+0.7       2017       2021       160,710  
         

 

 

  

Long-term Borrowings from Foreign
Financial Institution

           ￦ 2,678,500  
         

 

 

  

Compulsory Loan

       LIBOR 3M + 0.5 ~ 0.78       2014       2024     ￦ 2,976,435  

Foreign Currency CP

       -0.4 ~ 1.69       2017       2018     ￦ 115,726  
         

 

 

  

Total External Borrowings of the Bank

 

   ￦ 5,770,661  
 

 

 

  

 

(1)

Converted to Won amounts at the relevant market average exchange rates in effect on December 31, 2017 as announced by Seoul Money Brokerage Services, Ltd.

 

40

Table of Contents

B. Internal Debt of the Bank

 

Title

    Range of
Interest Rates		      Range of
Years of Issue		      Range of Years
of Original
Maturity		      Principal
Amounts
Outstanding as
of December 31,
2017		  
     (%)                    (millions of Won)  

Bonds

            

Short-term Industrial Finance Bonds

      1.35~1.84        2017        2018      ￦ 3,570,000  

Long-term Industrial Finance Bonds

      1.41~4.70        2014~2017        2018~2032        10,550,000  
           

 

 

  

Total Bonds

      1.35~4.70        2014~2017        2018~2032        14,120,000  
           

 

 

  

Total Internal Debt

 

    ￦ 14,120,000  
  

 

 

  

 

41

Table of Contents

Financial Statements and the Auditors

The Minister of Strategy and Finance appoints our internal Auditor who is responsible for examining our financial operations and auditing our financial statements and accounting records. The present internal Auditor is Cho Yong Soon, who was appointed for a three-year term on January 18, 2018.

We prepare our financial statements annually for submission to the Minister of Strategy and Finance, accompanied by an opinion of the Auditor. Although we are not legally required to have financial statements audited by external auditors, an independent public accounting firm has audited our separate financial statements since 1983 and consolidated financial statements since 1998. As of the date of this prospectus, our independent auditor is KPMG Samjong Accounting Corp., located at 27th Floor, Gangnam Finance Center, 737 Yeoksam-dong, Gangnam-gu, Seoul, Korea which has audited our separate financial statements as of and for the year ended December 31, 2017 included in this prospectus. Deloitte Anjin LLC, located at 9th Floor, One IFC Bldg., 10 Gukjegeumyung-ro, Yeongdeungpo-gu, Seoul, Korea has audited our separate financial statements as of and for the year ended December 31, 2016 included in this prospectus.

Our separate financial statements and information included in this prospectus were prepared under K-IFRS. For a summary of financial statement preparation and significant accounting policies, see “—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 2.” These principles and procedures differ in certain material respects from generally accepted accounting principles in the United States.

We recognize interest income on loans and debt securities using the effective interest method. See “—Notes to Separate Financial Statements as of and for the years ended December 31, 2017 and 2016—Note 3(17).”

We classify a non-derivative financial asset as held for trading if either it is acquired for the purpose of selling it in the near term, or it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking. We classify debt securities with fixed or determinable payments and fixed maturities, and which we intend to hold to maturity, as held-to-maturity securities. We classify investments that are categorized as neither trading securities nor held-to-maturity securities as available-for-sale securities. We record our trading and available-for-sale securities at fair value. However, investments in available-for-sale securities that do not have readily determinable fair values are recognized at cost. We record held-to-maturity securities at amortized cost. We recognize impairment losses on securities in current operations when the recoverable amounts are less than the carrying amount of equity securities or amortized cost of debt securities.

We record debenture issuance costs as discounts on debentures and amortize them over the maturity period of the debentures using the effective interest method.

Our financial statements are separate financial statements prepared in accordance with the requirements of K-IFRS 1027 Separate Financial Statements, in which a parent, or an investor with joint control of, or significant influence over, an investee accounts for the investments based on the cost method or valuation methods in accordance with K-IFRS 1039 Financial Instruments.

Since we initially adopted K-IFRS in 2013, our premises and equipment on the statements of financial position as of January 1, 2013 have been measured at their fair value in accordance with IFRS 1 paragraph 30(b), and we have chosen to apply the cost model to the premises and equipment in accordance with IAS 16 paragraph 29.

 

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Independent Auditors’ Report

The Board of Directors and Stockholder

The Export-Import Bank of Korea:

We have audited the accompanying separate financial statements of the Export-Import Bank of Korea (the “Bank”), which comprise the separate statement of financial position as of December 31, 2017, and the separate statements of comprehensive income, changes in equity and cash flows for the year ended December 31, 2017, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an audit opinion on these separate financial statements based on our audit. We conducted our audit in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the separate financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the separate financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the separate financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the separate financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the separate financial statements present fairly, in all material respects, the financial position of the Export-Import Bank of Korea as of December 31, 2017, and its financial performance and its cash flows for the year then ended in accordance with K-IFRS.

Other matters

The accompanying statement of financial position of the Bank as of December 31, 2016, and the related statements of comprehensive loss, changes in equity and cash flows for the year then ended, were audited by Deloitte Anjin LLC whose report thereon dated March 29, 2017, expressed an unqualified opinion.

The procedures and practices utilized in the Republic of Korea to audit such separate financial statements may differ from those generally accepted and applied in other countries.

 

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/s/ KPMG Samjong Accounting Corp.

KPMG Samjong Accounting Corp.

Seoul, Korea

March 30, 2018

 

This report is effective as of March 30, 2018, 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.

 

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THE EXPORT-IMPORT BANK OF KOREA

SEPARATE STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 2017 AND 2016

 

     Korean won  
     December 31, 2017     December 31, 2016  
     (In millions)  

ASSETS:

     

Cash and due from financial institutions (Notes 4, 5 and 7)

    ￦ 2,091,920     ￦ 3,863,279  

Financial assets at fair value through profit or loss
(“FVTPL”) (Notes 4, 5, 8 and 20)

      1,616,973       1,899,065  

Hedging derivative assets (Notes 4, 5 and 20)

      228,121       168,417  

Loans (Notes 4, 5, 10 and 37)

      68,223,320       73,418,788  

Financial investments (Notes 4, 5 and 9)

      6,781,955       7,138,785  

Investments in associates and subsidiaries (Note 11)

      2,598,607       766,084  

Tangible assets, net (Note 12)

      268,465       273,137  

Intangible assets, net (Note 13)

      47,622       42,599  

Deferred tax assets (Note 34)

      1,126,199       1,159,376  

Retirement benefit assets, net (Note 18)

      12,227       —    

Other assets (Notes 4, 5, 14 and 37)

      950,531       1,045,768  
  

 

 

    

 

 

  
   ￦ 83,945,940     ￦ 89,775,298  
  

 

 

    

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

LIABILITIES:

     

Financial liabilities at FVTPL (Notes 4, 5 and 20)

    ￦ 911,778     ￦ 852,699  

Hedging derivative liabilities (Notes 4, 5 and 20)

      1,058,196       2,335,530  

Borrowings (Notes 4, 5 and 15)

      6,013,457       9,761,389  

Debentures (Notes 4, 5 and 16)

      60,685,098       62,119,016  

Provisions (Note 17)

      675,118       1,651,947  

Retirement benefit liabilities , net (Note 18)

      —         2,092  

Other liabilities (Notes 4, 5, 19 and 37)

      2,088,950       1,832,644  
  

 

 

    

 

 

  
     71,432,597       78,555,317  
  

 

 

    

 

 

  

STOCKHOLDERS’ EQUITY:

     

Capital stock (Note 21)

    ￦ 11,814,963     ￦ 10,398,055  

Additional paid-in capital

      —         6,723  

Capital adjustments

      (129,339 )      —    

Other components of equity (Notes 20 and 22)

      119,739       280,017  

Retained earnings (Note 23)
(Regulatory reserve for bad loans as of December 31, 2017 and 2016: ￦206,330 million and ￦476,882 million)

      707,980       535,186  
  

 

 

    

 

 

  
     12,513,343       11,219,981  
  

 

 

    

 

 

  
   ￦ 83,945,940     ￦ 89,775,298  
  

 

 

    

 

 

  

See accompanying notes to the separate financial statements.

 

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THE EXPORT-IMPORT BANK OF KOREA

SEPARATE STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

    Korean won  
    Year ended
December 31, 2017		     Year ended
December 31, 2016		  
    (In millions)  

OPERATING INCOME(LOSS):

    

Net interest income (Notes 24 and 37):

    

Interest income

   ￦ 2,683,728     ￦ 2,231,474  

Interest expenses

     (1,603,753 )      (1,416,819 ) 
 

 

 

    

 

 

  
    1,079,975       814,655  
 

 

 

    

 

 

  

Net commission income (Notes 25 and 37):

    

Commission income

     401,102       456,708  

Commission expenses

     (9,373 )      (8,448 ) 
 

 

 

    

 

 

  
    391,729       448,260  
 

 

 

    

 

 

  

Dividend income (Note 26)

     35,352       23,060  

Gain on financial assets at FVTPL (Note 27)

     263,982       194,413  

Gain (Loss) on hedging derivative assets (Notes 20 and 28)

     1,208,274       (656,561 ) 

Gain (Loss) on financial investments (Note 29)

     16,143       (1,165 ) 

Gain (Loss) on foreign exchange transaction

     (1,528,844 )      265,983  

Other net operating income (expenses) (Note 30)

     54,270       390,368  

Impairment loss on credit (Note 31)

     (1,080,828 )      (3,233,679 ) 

General and administrative expenses (Note 32)

     (210,715 )      (203,139 ) 
 

 

 

    

 

 

  

Total operating income (loss)

     229,338       (1,957,805 ) 
 

 

 

    

 

 

  

NON OPERATING INCOME (EXPENSES) (Note 33):

    

Net gain on investments in associates and subsidiaries

     9,670       3,584  

Net other non-operating expenses

     (10,156 )      (3,964 ) 
 

 

 

    

 

 

  
    (486 )      (380 ) 
 

 

 

    

 

 

  

INCOME (LOSS) BEFORE INCOME TAX

     228,852       (1,958,185 ) 

INCOME TAX EXPENSE (BENEFIT) (Note 34)

     56,058       (470,896 ) 
 

 

 

    

 

 

  

NET INCOME (LOSS)

     172,794       (1,487,289 ) 
 

 

 

    

 

 

  

(Adjusted income (loss) after reserve for bad loans for the years ended December 31, 2017 and 2016: ￦595,796 million and ￦(2,040,195) million) (Note 23)

    

OTHER COMPREHENSIVE INCOME (LOSS) FOR THE YEAR (Note 22)

    

Items not reclassified subsequently to profit or loss:

    

Remeasurements of net defined benefit liability

     (3,207 )      20,918  

Income tax effect

     776       (5,061 ) 
 

 

 

    

 

 

  
    (2,431 )      15,857  

Items that are or maybe reclassified subsequently to profit or loss:

    

Gain (Loss) on valuation on Available-For-Sale (“AFS”) securities

     (179,477 )      188,914  

Cash flow hedging gains or losses

     (467 )      1,298  

Income tax effect

     22,097       (46,032 ) 
 

 

 

    

 

 

  
    (157,847 )      144,180  
 

 

 

    

 

 

  

TOTAL COMPREHENSIVE INCOME (LOSS)

   ￦ 12,516     ￦ (1,327,252 ) 
 

 

 

    

 

 

  

See accompanying notes to the separate financial statements.

 

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THE EXPORT-IMPORT BANK OF KOREA

SEPARATE STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

                Other components of equity              
    Capital
stock		     Additional
paid-in capital
(Capital
adjustments)		     Valuation on
AFS securities		     Cash flow
Hedging gains
or losses		     Remeasurement
elements
of defined
benefit plans		     Retained
earnings		     Total  
    (Korean won in millions)  

January 1, 2016

   ￦ 8,878,055     ￦ —       ￦ 116,369     ￦ (131 )    ￦ 3,742     ￦ 2,027,863     ￦ 11,025,898  

Dividends

               (5,388 )      (5,388 ) 

Paid-in capital increase

     1,520,000       6,723               1,526,723  

Total comprehensive loss

                 (1,327,252 ) 

Net loss

               (1,487,289 )      (1,487,289 ) 

Other comprehensive income:

                 160,037  

Gain on valuation of AFS securities, net of tax

         143,195             143,195  

Gain on valuation of cash flow hedge, net of tax

           985           985  

Remeasurement elements of defined benefit plans, net of tax

             15,857         15,857  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

December 31, 2016

   ￦ 10,398,055     ￦ 6,723     ￦ 259,564     ￦ 854     ￦ 19,599     ￦ 535,186     ￦ 11,219,981  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

January 1, 2017

   ￦ 10,398,055     ￦ 6,723     ￦ 259,564     ￦ 854     ￦ 19,599     ￦ 535,186     ￦ 11,219,981  

Paid-in capital increase

     1,416,908       (136,062 )              1,280,846  

Total comprehensive loss

                 12,516  

Net income

               172,794       172,794  

Other comprehensive income:

                 (160,278 ) 

Loss on valuation of AFS securities, net of tax

         (157,579 )            (157,579 ) 

Loss on valuation of cash flow hedge, net of tax

           (268 )          (268 ) 

Remeasurement elements of defined benefit plans, net of tax

             (2,431 )        (2,431 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

December 31, 2017

   ￦ 11,814,963     ￦ (129,339 )    ￦ 101,985     ￦ 586     ￦ 17,168     ￦ 707,980     ￦ 12,513,343  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

See accompanying notes to the separate financial statements.

 

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THE EXPORT-IMPORT BANK OF KOREA

SEPARATE STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

     Korean won  
     2017     2016  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

     

Net income (loss)

    ￦ 172,794     ￦ (1,487,289 ) 
  

 

 

    

 

 

  

Adjustments to reconcile net income (loss) to net cash used in operating activities:

     

Income tax expense (benefit)

      56,058       (470,896 ) 

Interest income

      (2,683,728 )      (2,231,474 ) 

Interest expenses

      1,603,753       1,416,819  

Dividend income

      (35,352 )      (23,060 ) 

Dividend received from subsidiaries and associates

      (9,905 )      (7,999 ) 

Loss on financial assets held for trading

      808       2,670  

Loss on AFS financial assets

      4,722       8,726  

Transfer to derivatives’ credit risk provision

      41,204       68,062  

Loss on debenture redemption

      2,455       45  

Loss on foreign exchange transactions

      1,986,736       1,708,018  

Impairment loss on credit

      1,080,828       3,233,680  

Impairment loss of investments in subsidiaries and associates

      236       4,415  

Loss on fair value hedged items

      184,212       47,389  

Depreciation and amortization

      18,159       12,708  

Loss on disposals of tangible, intangible and other assets

      24       14  

Impairment loss on tangible, intangible and other assets

      217       538  

Loss on valuation of derivative assets

      1,054,473       1,389,192  

Retirement benefits

      9,098       12,390  

Provision for others

      1,344       16,317  

Gain on financial assets held for trading

      (5,046 )      (25,378 ) 

Gain on AFS financial assets

      (20,865 )      (7,561 ) 

Reversal of derivatives’ credit risk provision

      (9,525 )      (31,315 ) 

Gain on foreign exchange transactions

      (492,192 )      (1,997,850 ) 

Gain on fair value hedged items

      (277,508 )      (524,283 ) 

Gain on valuation of derivative assets

      (1,802,086 )      (671,414 ) 

Gain on disposals of tangible assets, intangible assets and other assets

      (60 )      (782 ) 

Reversal of impairment loss on tangible, intangible and other assets

      (50 )      —    

Changes in operating assets and liabilities:

     

Due from financial institutions

      1,032,475       (15,749 ) 

Financial assets at FVTPL

      481,539       (418,485 ) 

Hedging derivative net assets

      (733,261 )      (855,891 ) 

Loans

      (1,854,328 )      (7,037,664 ) 

Other assets

      (27,447 )      (78,000 ) 

Provisions

      (910,287 )      68,209  

Payment of retirement benefits

      (26,624 )      (37,168 ) 

Other liabilities

      93,906       (151,993 ) 

Other provisions

      (1,724 )      —    

 

(Continued)

 

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Table of Contents

THE EXPORT-IMPORT BANK OF KOREA

SEPARATE STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

     Korean won  
     2017     2016  
     (In millions)  

Payment (Refund) of income tax

      (4,660 )      3,845  

Interest received

      2,304,960       2,104,451  

Interest paid

      (1,395,738 )      (1,220,613 ) 

Dividend received

      45,257       31,059  
  

 

 

    

 

 

  

Net cash used in operating activities

      (115,128 )      (7,166,317 ) 
  

 

 

    

 

 

  

CASH FLOWS FROM INVESTING ACTIVITIES:

     

Disposals of AFS and HTM financial assets

    ￦ 912,204     ￦ 462,608  

Disposals of subsidiaries and associates

      44       —    

Disposals of tangible assets

      101       1,356  

Disposals of intangible assets

      536       —    

Acquisitions of AFS and HTM securities

      (973,564 )      (896,343 ) 

Acquisitions of Investments in subsidiaries and associates

      (365,283 )      (91,174 ) 

Acquisitions of tangible assets

      (4,314 )      (9,881 ) 

Acquisitions of intangible assets

      (14,965 )      (19,651 ) 
  

 

 

    

 

 

  

Net cash used in investing activities

      (445,241 )      (553,085 ) 
  

 

 

    

 

 

  

CASH FLOWS FROM FINANCING ACTIVITIES:

     

Increase in call money

      316       —    

Proceeds from borrowings

      4,915,469       8,698,157  

Proceeds from debentures

      24,094,658       26,128,039  

Increase in guarantee deposits

      —         4  

Increase in capital stock

      —         1,020,000  

Decrease in call money

      —         (207,952 ) 

Repayment of borrowings

      (7,655,267 )      (10,841,478 ) 

Repayment of debentures

      (20,809,262 )      (18,303,440 ) 

Expense related to issuance of capital

      (6,810 )      —    

Payment of dividends

      —         (5,388 ) 
  

 

 

    

 

 

  

Net cash provided by financing activities

      539,104       6,487,942  
  

 

 

    

 

 

  

NET DECREASE IN CASH AND CASH EQUIVALENTS

      (21,265 )      (1,231,460 ) 

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR

      1,354,694       2,455,307  

EFFECTS OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

      (517,435 )      130,847  
  

 

 

    

 

 

  

CASH AND CASH EQUIVALENTS, END OF THE YEAR (Notes 7 and 35)

    ￦ 815,994     ￦ 1,354,694  
  

 

 

    

 

 

  

See accompanying notes to the separate financial statements.

 

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Table of Contents

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO THE SEPARATE FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

1. GENERAL:

(1) Summary of the Export-Import Bank of Korea

The Export-Import Bank of Korea (the “Bank” or the “Company”) was established in 1976 as a special financial institution under the Export-Import Bank of Korea Act (the “EXIM Bank Act”) to grant financial facilities for overseas trade (i.e., export and import), investments and resources development activities. As of December 31, 2017, the Bank operates 10 domestic branches, 3 domestic offices, 4 overseas subsidiaries, and 24 overseas offices.

The Bank’s authorized capital is ￦15,000,000 million, and through numerous capital increases since the establishment, its paid-in capital is ￦11,814,963 million as of December 31, 2017. The Government of the Republic of Korea (the “Government”), the Bank of Korea (“BOK”), and the Korea Development Bank hold 66.27%, 9.86%, and 23.87%, respectively, of the ownership of the Bank as of December 31, 2017.

The Bank, as a trustee of the Government, has managed the Economic Development Cooperation Fund (“EDCF”) since June 1987 and the Inter-Korean Cooperation Fund (“IKCF”) since March 1991. The funds are accounted for separately and are not included in the Bank’s separate financial statements. The Bank receives fees from the Government for the trustee services.

(2) Summary of subsidiaries and associates

1) Subsidiaries of the Bank as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

Subsidiaries

    Location    Capital stock      Main
business		      Number of
shares
owned		      Percentage
of ownership
(%)		      Financial
statements
as of		  

KEXIM Bank UK Limited

    United
Kingdom		      GBP 20 mil.        Finance        20,000,000        100.00        Dec. 31, 2017  

KEXIM Vietnam Leasing Co.(*)

    Vietnam      USD 13 mil.        Finance        —          100.00        Dec. 31, 2017  

PT.KOEXIM Mandiri Finance

    Indonesia      IDR 52,000 mil.        Finance        442        85.00        Dec. 31, 2017  

KEXIM Asia Limited

    Hong Kong      USD 30 mil.        Finance        30,000,000        100.00        Dec. 31, 2017  

 

(*)

This entity does not issue share certificates.

(December 31, 2016)

 

Subsidiaries

    Location    Capital stock      Main
business		      Number of
shares
owned		      Percentage
of ownership
(%)		      Financial
statements
as of		  

KEXIM Bank UK Limited

    United
Kingdom		      GBP 20 mil.        Finance        20,000,000        100.00        Dec. 31, 2016  

KEXIM Vietnam Leasing Co.(*)

    Vietnam      USD 13 mil.        Finance        —          100.00        Dec. 31, 2016  

PT.KOEXIM Mandiri Finance

    Indonesia      IDR 52,000 mil.        Finance        442        85.00        Dec. 31, 2016  

KEXIM Asia Limited

    Hong Kong      USD 30 mil.        Finance        30,000,000        100.00        Dec. 31, 2016  

 

(*)

This entity does not issue share certificates.

 

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Table of Contents

2) Associates of the Bank as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

Associates

   Location   Capital stock     Main business   Number of
shares owned		     Percentage
of ownership
(%)		     Financial
statements as of		  

Korea Asset Management Corporation

   Korea   KRW 860,000 mil.     Financial
service		     44,482,396       25.86       Dec. 31, 2017  

Credit Guarantee and Investment Fund

   Philippines   USD 700 mil.     Financial
service		     100,000,000       14.29       Sep. 30, 2017  

Korea Marine Guarantee Incorporated Company

   Korea   KRW 322,357 mil.     Financial
service		     135,000 mil       41.88       Dec. 31, 2017  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

   Korea   KRW 1,319,693 mil.     Shipbuilding     93,294,100       81.25       Sep. 30, 2017  

DAESUN Shipbuilding & Engineering Co., Ltd.

   Korea   KRW 7,730 mil.     Shipbuilding     1,040,000       67.30       Sep. 30, 2017  

KTB Newlake Global Healthcare PEF

   Korea   KRW 10,280 mil.     Financial
service		     257,000,000       25.00       Dec. 31, 2017  

KBS-KDB Private Equity Fund

   Korea   KRW 11,361 mil.     Financial
service		     2,366,875,000       20.83       Dec. 31, 2017  

Korea Shipping and Maritime Transportation

   Korea   KRW 904,884 mil.     Financial
service		     1,810,000       40.00       Dec. 31, 2017  

Korea Aerospace Industries. Ltd.

   Korea   KRW 487,376 mil.     Manufacturing     25,745,964       26.41       Dec. 31, 2017  

(December 31, 2016)

 

Associates

   Location   Capital stock     Main business   Number of
shares owned		     Percentage
of ownership
(%)		     Financial
statements as of		  

Korea Asset Management Corporation

   Korea   KRW 860,000 mil.     Financial
service		     44,482,396       25.86       Dec. 31, 2016  

Credit Guarantee and Investment Fund

   Philippines   USD 700 mil.     Financial
service		     100,000,000       14.29       Sep. 30, 2016  

Korea Marine Guarantee Incorporated Company

   Korea   KRW 256,620 mil.     Financial
service		     26,999,999       52.63       Dec. 31, 2016  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

   Korea   KRW 1,319,376 mil.     Shipbuilding     93,294,100       70.71       Sep. 30, 2016  

DAESUN Shipbuilding & Engineering Co., Ltd.

   Korea   KRW 7,730 mil.     Shipbuilding     1,040,000       67.27       Sep. 30, 2016  

EQP Global Energy Infrastructure PEF

   Korea   KRW 1,235 mil.     Financial
service		     279,610,108       22.64       Dec. 31, 2016  

KTB Newlake Global Healthcare PEF

   Korea   KRW 4,610 mil.     Financial
service		     1,152,500,000       25.00       Dec. 31, 2016  

KBS-KDB Private Equity Fund

   Korea   KRW 2,406 mil.     Financial
service		     501,250,000       20.83       Dec. 31, 2016  

 

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2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:

(1) Basis of Financial Statement Presentation

The Bank’s separate financial statements are prepared under K-IFRS.

These financial statements are separate financial statements prepared in accordance with K-IFRS No.1027, ‘Separate Financial Statements’ presented by a parent, an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost.

The accompanying separate financial statements have been prepared on the historical cost basis except for certain non-current assets and financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is based on the fair values of the consideration given.

The principal accounting policies are set out below. Except for the effect of the Amendments to K-IFRSs and new interpretations set out below, the principal accounting policies used to prepare the financial statements as of and for the year ended December 31, 2017 are consistent with the accounting policies used to prepare the financial statements as of and for the year ended December 31, 2016.

- Amendments to K-IFRS No.1007—Statement of Cash Flows

These amendments are effective for annual periods beginning on or after January 1, 2017. An entity shall provide a classification of changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash flows. The adoption of the amendments has no significant impact on the bank’s financial statements.

- Amendments to K-IFRS No.1012—Income Taxes

These amendments are effective for annual periods beginning on or after January 1, 2017. The amendments clarify the concept of temporary differences on unrealized gain and loss, in condition that debt instruments, which are measured on fair values, are under tax base amount. The adoption of the amendments had no significant impact on the Bank’s financial statements.

(2) Functional Currency

The separate financial statements of the Bank are prepared in functional currency of the respective operation. These separate financial statements are presented in Korean won, which is the Bank’s functional currency and the currency of the primary economic environment in which the Bank operates.

(3) Significant Estimates and Judgments

The preparation of separate financial statements requires the application of accounting policies and certain critical accounting estimates and assumptions may have a significant impact on assets (liabilities) and income (expenses). The management’s estimate may differ from the actual outcome if the management’s estimate and assumption based on its best judgment at the reporting date are different from an actual environment.

Estimates and assumptions are continually evaluated and the 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, or the period of the change and future periods, if the change affects both.

1) Significant Estimates and Assumptions

Uncertainty in estimates and assumptions with significant risk that will result in material adjustment are as follows:

① Fair value of financial instruments

The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. Financial instruments that are not actively

 

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traded in the market and with less transparent market price, will have less objective fair value and will require judgment in liquidity, concentration, uncertainty in market factors and assumption in price determination and other risks.

As described in the significant accounting policies ‘Recognition and Measurement of Financial Instruments’ diverse valuation techniques are used to determine the fair value of financial instruments, from general market accepted valuation model to internally developed valuation model that incorporates various types of assumptions and variables.

② Provision of credit losses (allowances for loan losses, provisions for acceptances and guarantees, financial guarantee contracts and unused loan commitments)

The Bank determines and recognizes allowances for loan losses through impairment testing and recognizes provisions for acceptances and guarantees, financial guarantee contracts and unused loan commitments. The amount of provisions of credit losses is determined by the methodology and assumptions used for estimating expected cash flows of the borrower for allowances on individual loans and collectively assessing allowances for groups of loans, guarantees and unused loan commitments.

③ Defined benefit obligation

The present value of defined benefit obligations is measured by the independent actuaries using projected unit credit method. It is determined by actuarial assumptions and variables such as future increases in salaries, rate of retirement, discount rate and others.

2) Critical judgments in applying the accounting policies

Critical judgments in applying the accounting policies that have significant impact on the amount recognized in the separate financial statements are as follows:

① Impairment of AFS equity investments

As described in the significant accounting policies in ‘Impairment of Financial Assets’, when there is significant or prolonged decline in the fair value of an investment in an equity instrument below its original cost, there is objective evidence that AFS equity investments are impaired.

Accordingly, the Bank considers the decline in the fair value of over 30% against the original cost as “significant decline” and a six-month continuous decline in the market price for marketable equity instrument as “prolonged decline”.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(1) General

The significant accounting policies applied in the preparation of these separate financial statements after transition to K-IFRS are set out below.

(2) Foreign Currency

1) Foreign currency transactions

In preparing the separate financial statements of the Bank, transactions in currencies other than the Bank’s functional currency (foreign currencies) are recorded by applying the rates of exchange at the dates of the transactions.

At the end of each reporting period foreign currency monetary items are translated using the closing rate which is the spot exchange rate at the end of the reporting period. Non-monetary items that are measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value was determined and non-monetary items that are measured in terms of historical cost in a foreign

 

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currency are translated using the spot exchange rate at the date of the transaction. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in profit or loss in the period in which they arise. When gains or losses on a non-monetary item are recognized in other comprehensive income, any exchange component of those gains or losses are recognized in other comprehensive income. Conversely, when gains or losses on a non-monetary item are recognized in profit or loss, any exchange component of those gains or losses are recognized in profit or loss.

2) Foreign operations

The results and financial position of all foreign operations, whose functional currency differs from the Bank’s presentation currency, are translated into the Bank’s presentation currency using the following procedures;

Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position. Income and expenses for statement of comprehensive income presented are translated at average exchange rates for the period.

Any fair value adjustments to the carrying amounts of assets and liabilities arising from the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and are translated into the presentation currency at the closing rate.

On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, are reclassified from equity to profit or loss (as a reclassification adjustment) when the gains or losses on disposal are recognized. On the partial disposal of a subsidiary that includes a foreign operation, the Bank reattributes the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income to the non-controlling interests in that foreign operation. In any other partial disposal of a foreign operation, the Bank reclassifies to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income.

(3) Recognition and Measurement of Financial Instruments

1) 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 (a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by market regulation or practice) is recognized using trade date accounting.

The Bank classifies the financial assets as financial assets at FVTPL, HTM investments, AFS financial assets, loans, receivables and financial liabilities as financial liabilities at FVTPL and other financial liabilities as the nature and holding purpose of financial instrument at initial recognition in the purpose of financial reporting.

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 FVTPL, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. The fair value of a financial instrument on initial recognition is normally the transaction price (that is, the fair value of the consideration given or received).

 

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2) Subsequent measurement

After initial recognition, financial instruments are measured at one of the following based on classification at initial recognition.

① Amortized cost

The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition and adjusted to reflect minus the principal repayments, plus or minus the cumulative amortization using the effective interest method (as defined below) and minus any reduction (directly or through the use of an allowances account) for impairment or bad debt expenses.

② Fair value

The Bank primarily uses fair values for the measurement of financial instruments. Fair values are the published price quotations in an active market and are based on the market prices or the dealer price quotations of financial instruments traded in an active market where available

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

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. However for these more complex instruments, the Bank uses internally developed models, which are usually based on valuation methods and techniques generally recognized as standard within the industry, or the value measured by the 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 measure fair value on certain assumptions.

Also, the Bank classified measurements of fair value recognized in the financial statements into the following hierarchy.

 

•  Level 1:

   Fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

•  Level 2:

   Fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

•  Level 3:

   Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value measurement is categorized in its entirety in the level of the lowest-level input that is significant to the entire measurement. For this purpose, input that is significant is estimated by the entire measurement.

On the other hand, the fair value hierarchy of foreign currency financial instruments is not affected by fluctuation of foreign exchange rate.

Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for significant adjustments. In this situation, the measurement is regarded as Level 3.

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. These factors include counterparty credit risk, bid-ask spread, liquidity risk and others.

 

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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 accepted economic methodologies for pricing financial instruments. Periodically, the Bank calibrates the valuation technique and tests it for validity using prices from any observable current market transactions in the same instrument or based on any available observable market data.

3) Derecognition

Derecognition is the removal of a previously recognized financial asset or financial liability from the separate statement of financial position. The following is criteria for removal;

☐ 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 the financial assets have been neither transferred nor retained substantially all the risks, rewards of ownership and control. Therefore, if the Bank neither transfers nor retains 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.

☐ Derecognition of financial liabilities

Financial liabilities are derecognized from the separate statement of financial position when the obligation specified in contract is discharged, canceled or expires.

4) Offsetting

Financial assets and financial liabilities are offset and the net amounts are presented in the separate statement of financial position when, and only when, the Bank currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

(4) Cash and cash equivalents

Cash and cash equivalents include cash on hand, foreign currency, and highly liquid short term investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value.

(5) Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is contingent consideration that may be paid by an acquirer as part of business combination to which K-IFRS No.1103 applies, the financial asset is classified as held for trading, or the financial asset is designated by the Bank as at FVTPL upon initial recognition.

A non-derivative financial asset is classified as held for trading if either

 

  •  

It is acquired for the purpose of selling it in the near term, or

 

  •  

It is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking.

 

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The Bank may designate certain financial assets, other than contingent consideration that may be paid by an acquirer as part of business combination to which K-IFRS No.1103 applies or held for trading, upon initial recognition as at FVTPL when one of the following conditions is met:

 

  •  

It 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.

 

  •  

A group of financial assets is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the Bank’s key management personnel.

 

  •  

A contract contains one or more embedded derivatives may designate the entire hybrid (combined) contract as a financial asset at FVTPL if allowed according to K-IFRS No.1039, ‘Financial Instruments: Recognition and measurement’.

After initial recognition, a financial asset at FVTPL 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, dividend income, and gains or losses from sale and repayment from financial assets at FVTPL are recognized in the statement of comprehensive income as net gains on financial instruments at FVTPL.

(6) Financial Investments

AFS and HTM financial assets are presented as financial investments.

1) AFS financial assets

Profit or loss of financial assets classified as AFS, except for impairment loss and foreign exchange gains and losses, is recognized as other comprehensive income, and cumulative profit or loss is reclassified from equity to current profit or loss at the derecognition of financial asset and it is recognized as part of other operating profit or loss in the separate statements of comprehensive income.

However, interest income measured using effective interest rate is recognized in current profit or loss, and dividends of financial assets classified as AFS are recognized when the right to receive payment is established.

AFS financial assets denominated in foreign currencies are translated at the closing rate.

For such a financial asset, exchange differences resulting from changes in amortized cost are recognized in profit or loss as part of other operating income and expenses. For AFS equity instruments that are not monetary items for example, equity instruments, the gains or losses that are recognized in other comprehensive income includes any related foreign exchange component.

2) HTM financial assets

HTM financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Bank’s management has the positive intention and ability to hold to maturity. HTM financial assets are subsequently measured at amortized cost using the effective interest method after initial recognition and interest income is recognized using the effective interest rate.

(7) Loans

Non-derivative financial assets are classified as loans if these are not quoted in an active market and payments are fixed or determinable. After initial recognition, these are subsequently measured at amortized cost using the effective interest method.

 

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(8) Impairment of financial assets

The Bank assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred, if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. However, losses expected as a result of future events, no matter how likely, are not recognized.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured and recognized in profit or loss by category of financial assets.

1) Loans

If there is objective evidence that an impairment loss on loans carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the loan’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the loan’s original effective interest rate. The Bank first assesses whether objective evidence of impairment exists individually for loans that are individually significant (individual evaluation of impairment), and individually or collectively for loans that are not individually significant.

If the Bank determines that no objective evidence of impairment exists for an individually assessed loan, whether significant or not, it includes the loan in a group of loans with similar credit risk characteristics and collectively assesses them for impairment (collective evaluation of impairment).

☐ Individual assessment of impairment

Individual assessment of impairment losses are calculated by discounting the expected future cash flows of a loan at its original effective interest rate and comparing the resultant present value with the loan’s current carrying amount. This process normally encompasses management’s best estimate, such as operating cash flow of borrower and fair value less cost to sell of any collateral held and the timing of anticipated receipts.

☐ Collective assessment of impairment

The methodology based on historical loss experience is used to estimate inherent incurred loss on groups of loans for collective evaluation of impairment. Such methodology incorporates factors such as type of product and borrowers, credit rating, portfolio size, loss emergence period, recovery period and applies probability of default (PD) on each loan (or pool of loans) and loss given default (LGD) by type of collateral. Also, consistent assumptions are applied to form a formula-based model in estimating inherent loss and to determine factors on the basis of historical loss experience and current condition. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

2) AFS financial assets

When a decline in the fair value of an AFS financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss (the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss) that had been recognized in other comprehensive income is reclassified from equity to profit or loss as part of other operating income and expenses.

If, in a subsequent period, the fair value of an AFS debt instrument classified as increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss as part

 

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of other operating income and expenses. However, impairment losses recognized in profit or loss for an AFS equity instrument classified as available for sale are not reversed through profit or loss.

3) HTM financial assets

If there is objective evidence that an impairment loss on HTM financial assets carried at amortized cost has been incurred, the amount of the loss 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. Impairment loss of HTM financial assets is directly deducted from the carrying amount. The amount of the loss is recognized in profit or loss as part of other operating income and expenses. In case of financial asset classified as HTM, if, in a subsequent period, the amount of the impairment loss is decreased and objectively related to the event occurring after the impairment is recognized, the previously recognized impairment loss is reversed to the extent of amortized cost at the date of recovery. The amount of reversal is recognized in profit or loss as part of other operating income and expenses in the separate statement of comprehensive income.

(9) Derivatives

The Bank enters into numerous numbers of derivatives such as currency forward, interest rate swaps, currency swaps and others for trading purpose or to manage its exposures to fluctuations in interest rates and currency exchange and others. These derivatives are presented as financial assets and liabilities at FVTPL and derivatives for hedging in accordance with purpose and subsequent measurement.

Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently measured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in net profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in such case the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Bank designates certain derivatives as hedging instruments to hedge the risk of changes in fair value of a recognized asset or liability or firm contracts (fair value hedge).

At the inception of the hedge there is formal designation and documentation of the hedging relationship and the Bank’s risk management objective and strategy for undertaking the hedge. That documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value attributable to the hedged risk.

1) Derivative for trading

All derivatives, except for derivatives that are designated and qualify for hedge accounting are classified as financial instruments held for trading and measured at fair value. Gains or losses arising from a change in fair value are recognized in profit or loss as part of net gains on financial instruments at FVTPL.

2) Derivative financial instruments for hedging

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in the line of the comprehensive income statement relating to the hedged item in the income statement.

Fair value hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Bank revokes the designation. Once fair value hedge accounting is discontinued, the adjustment to the carrying amount of

 

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a hedged item for which the effective interest method is used is fully amortized to profit or loss by the maturity of the financial instrument in the separate statements of comprehensive income.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is recognized in the line of the separate statements of comprehensive income relating to the hedged item.

① Fair value hedge

Fair value hedge is a hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized 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. When applying fair value hedge, the gain or loss on the hedged item attributable to the hedged risk shall adjust the carrying amount of the hedged item and be recognized in profit or loss.

The Bank shall discontinue prospectively the fair value hedge if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Bank revokes the designation. Any adjustment arising from the gain or loss on the hedged item attributable to the hedged risk to the carrying amount of a hedged financial instrument for which the effective interest method is used shall be amortized to profit or loss.

The Bank uses interest rate swaps for hedging changes of fair values in hedged items arising from changes in interest rates. The Bank also uses currency swaps for hedging changes of fair values in hedged items arising from changes in foreign exchange rates.

② Cash flow hedge

Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and could affect profit or loss. When applying cash flow hedge, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognized in other comprehensive income; and the ineffective portion of the gain or loss on the hedging instrument are recognized in profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affect profit or loss.

The Bank shall discontinue prospectively the cash flow hedge if hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Bank revokes the designation. The forecasted transaction is no longer expected to occur, any related cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income from the period when the hedge was effective are reclassified from equity to profit or loss as a reclassification adjustment.

The Bank uses interest rate swaps for hedging changes of cash flows in hedged items arising from changes in interest rates. The Bank also uses currency swaps for hedging changes of cash flows in hedged items arising from changes in foreign exchange.

3) Embedded derivatives

An embedded derivative is separated from the host contract and accounted for as a derivative if, and only if the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract and a separate instrument with the same terms as the embedded derivative would meet the

 

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definition of a derivative and the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss. Gains or losses arising from a change in the fair value of embedded derivative separated from host contract are recognized in profit or loss as part of net gains on financial instruments at FVTPL.

4) Day one profit and loss

If the Bank uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of financial instruments, there may be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the fair value of financial instruments is recognized as the transaction price and the difference is amortized by using straight- line method over the life of the financial instruments. If the fair value of the financial instruments is determined using observable market inputs, the difference between the transaction price and amounts determined using observable markets inputs are recognized in the profit or loss.

(10) Tangible assets

1) Recognition and measurement

All property and equipment that qualify for recognition as an asset are measured at their cost and subsequently carried at their cost less any accumulated depreciation and any accumulated impairment losses.

The cost of property and equipment includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent expenditures are capitalized only when they prolong the useful life or enhance values of the assets but the costs of the day-to-day servicing of the assets such as repair and maintenance costs are recognized in profit or loss as incurred. If part of an item of an asset has a useful life different from that of the entire asset, it is recognized as a separate asset.

2) Depreciation

Land is not depreciated whereas other property and equipment are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Bank. The depreciable amount of an asset is determined after deducting its residual value.

The depreciation method is straight-line and estimated useful lives of the assets are as follows.

 

Property and equipment

    Estimated useful lives

Buildings and structures

    10–60 years

Vehicles

    4 years

Tools, furniture and fixtures

    4–20 years

The residual value, the useful life and the depreciation method applied to an asset are reviewed at least at each financial year-end and, if expectations differ from previous estimates or if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the changes are accounted for as a change in an accounting estimate.

(11) Intangible assets

Intangible assets are measured initially at cost and subsequently carried at its cost less any accumulated amortization and any accumulated impairment losses.

 

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Intangible assets are amortized using the straight-line method with no residual value over their estimated useful economic life since the assets are available for use.

 

Intangible assets

    Estimated useful lives

Software

    5 years

System development costs

    5 years

The amortization period and the amortization method for intangible assets with a definite useful life are reviewed at least at each financial year-end. The useful life of an intangible asset that is not being amortized is reviewed each period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. If there is any change, it is accounted for as a change in an accounting estimate.

(12) Impairment of non-financial assets

The Bank assesses at the end of each reporting period whether there is any indication that a non-financial asset, except for deferred tax assets, assets arising from employee benefits and non-current assets (or group of assets to be sold) classified as held for sale, may be impaired. If any such indication exists, the Bank estimates the recoverable amount of the asset. However, irrespective of whether there is any indication of impairment, the Bank tests goodwill acquired in a business combination, an intangible asset with an indefinite useful life and an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount.

The recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Bank determines the recoverable amount of the cash-generating unit to which the asset belongs (the asset’s cash-generating unit).

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and such impairment loss is recognized immediately in profit or loss.

(13) Financial liabilities at FVTPL

Financial liabilities at FVTPL include contingent consideration that may be paid by an acquirer as part of a business combination to which K-IFRS No.1103 applies, short-term financial liabilities and financial liabilities recognized as financial liabilities at FVTPL initially. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. Otherwise, the transaction cost is recognized in current profit or loss.

(14) Provisions

A provision is recognized if the Bank has a present obligation (legal or constructive) as a result of the past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision, and where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

Provisions on confirmed and unconfirmed acceptances and guarantees, unfunded commitments of credit card and unused credit line of consumer and corporate loans are recognized using valuation model that applies the credit conversion factor, default rates, and loss given default. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provisions are reversed.

 

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(15) Financial guarantee contracts

A financial guarantee contract is a contract that requires 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 modified terms of a debt instrument.

Financial guarantee contracts are initially recognized at fair value and are amortized over the life of the contract. After initial recognition, financial guarantee contracts are measured at the greater of:

 

  •  

The amount determined in accordance with K-IFRS No.1037, ‘Provisions, Contingent Liabilities and Contingent Assets’ and

 

  •  

The initial amount recognized, less, when appropriate, cumulative amortization recognized in accordance with K-IFRS No.1018, ‘Revenue’.

(16) Equity and Reserve

Equity and Reserve are any contract or agreement that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

(17) Interest income and expenses

Interest income and expenses are recognized using the effective interest method. Effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or groups of financial assets or financial liabilities) and of allocating the interest income or interest expenses over the relevant period.

The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. In those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument (or group of financial instruments), the Bank uses the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

Interest on impaired financial assets is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

(18) Fee and commission income

The Bank recognizes financial service fee in accordance with the accounting standard of the financial instrument related to the fees earned.

1) Fees that are an integral part of the effective interest of a financial instrument

Such fees are generally treated as adjustments of effective interest. Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating the terms of the instrument, preparing and processing documents and closing the transaction and origination fees received on issuing financial liabilities measured at amortized cost.

However, fees relating to the creation or acquisition of a financial asset at FVTPL are recognized as revenue immediately.

2) Fees earned as services are provided

Such fees are recognized as revenue as the services are provided.

 

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3) Fees that are earned on the execution of a significant act

Such fees are recognized as revenue when the significant act has been completed.

(19) Dividend income

Dividend income is recognized in profit or loss when the right to receive payment is established. Dividend income from financial assets at FVTPL and financial investment is recognized in profit or loss as part of dividend income in the separate statements of comprehensive income.

(20) Employee compensation and benefits

1) Defined contribution plans

When employees render service related to defined contribution plans, contributions related to employees services are recognized in current profit or loss without contributions included in cost of assets. Contributions which are supposed to be paid are recognized in accrued expenses after deducting any amount already paid. Also, if contributions already paid exceed contributions which would be paid at the end of period, the amount of excess is recognized in prepaid expenses.

2) Defined benefit plans

The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan 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. When the calculation results in a potential asset for the Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.

Remeasurements of the net defined benefit liability, 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 recognized immediately in OCI. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

3) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service.

Short-term employee benefits are recognized in current profit and loss when employees render the related service. Short-term employee benefits are not discounted.

(21) Income taxes

Income tax expense represents the sum of the tax currently payable and deferred tax.

 

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1) Current tax

Current income tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period. The difference between the taxable profit and accounting profit may arise when income or expenses are included in accounting profit in one period, but is included in taxable profit in a different period, and if there is revenue that is exempt from taxation, expenses that are not deductible in determining taxable profit (tax loss). Current income tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The Bank offsets current income tax assets and current income tax liabilities if, and only if, the Bank has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

2) Deferred tax

Deferred tax is recognized, using the asset-liability method, on temporary differences arising between the tax base amount of assets and liabilities and their carrying amount in the financial statements. Deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except for deferred tax liabilities which the timing of the reversal of the temporary difference is controlled by the Bank and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period. The Bank reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences 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 Bank offsets deferred tax assets and deferred tax liabilities when the Bank has a legally enforceable right to set off current tax assets against current tax liabilities; and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity; or different taxable entity which intend either to settle current tax liabilities and assets on a net basis or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

(22) New standards and interpretations not yet adopted

1) Amendments to K-IFRS No.1109—Financial Instruments

K-IFRS No.1109, published on September 25, 2015, is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. It replaces existing guidance in K-IFRS No.1039, ‘Financial Instruments: Recognition and Measurement’. The Bank plans to adopt K-IFRS No.1109 for the

 

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year beginning on January 1, 2018 and will recognize the accumulated effect resulting from initial application of K-IFRS No.1109 on the date of initial application, which is January 1, 2018.

Adoption of K-IFRS No. 1109 will generally be applied retrospectively, except for the following:

 

  •  

Exemption allowing the Bank not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes; and

 

  •  

Prospective application of new hedge accounting except for those specified in K-IFRS 1109 for retrospective application such as accounting for the time value of options.

The key features of the new standard, K-IFRS No.1109, are 1) classification and measurement of financial assets that reflects the business model in which the assets are managed and their cash flow characteristics, 2) impairment methodology that reflects ‘expected credit loss’ (ECL) model for financial assets, and 3) expanded scope of hedged items and hedging instruments which qualify for hedge accounting and changes in assessment method for effect of hedging relationships.

K-IFRS No.1109 will require the Bank to assess the financial impact from application of K-IFRS No.1109 and revise its accounting processes and internal controls related to financial instruments. Actual impact of adopting K-IFRS No.1109 will be dependent on the financial instruments the Bank holds and economic conditions at that time as well as accounting policy elections and judgment that it will make in the future.

For the application of K-IFRS No.1109, the Bank performed analysis and identified necessary modifications to internal controls and implemented change in accounting systems relating to financial instruments in 2017.

To assess financial impacts from application of K-IFRS No.1109, the Bank performed an impact analysis on the 2017 separate financial statements based on the situation and available information as of December 31, 2017. Expected financial impacts on the Bank’s separate financial statements by the main topics of K-IFRS No.1109 were summarized as follows:

The financial analysis disclosed herein is subject to change depending on additional information that the Bank uses hereafter and related decision making.

☐ Classification and measurement of financial assets

When K-IFRS No.1109 is applied, the Bank will classify financial assets to be measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVPL”) on the basis of the Bank’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. If a hybrid contract contains a host that is a financial asset, the embedded derivatives shall not be separated from the host, and the hybrid contract as a whole shall be classified as a financial asset.

 

Business model

   

Contractual cash flows that are solely
payments of principal and interests

    All other cases

For collecting contractual cash flows

    At amortized cost (*1)    At FVPL (*2)

For both collecting contractual cash flows and selling financial assets

    At FVOCI (*1)

For trading, and others

    At FVPL

 

  (*1)

The Bank may irrevocably designate a financial asset as at FVPL to eliminate or significantly reduce an accounting mismatch.

  (*2)

The Bank may irrevocably designate equity instruments that is not held for trading as at FVOCI.

As there are more stringent requirements for a financial asset to be classified as measured at amortized costs or FVOCI under K-IFRS No.1109 compared to the existing guidance in K-IFRS No.1039, the

 

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adoption of K-IFRS No.1109 would potentially increase the portion of financial assets that are measured at FVPL, which would also increase the volatility in the Bank’s profit or loss.

Expected impacts on the classification and measurements of the non-derivative financial instruments as of December 31, 2017, based on the information from the revised accounting system were as follows (Korean won in millions):

 

   

Classification under
K-IFRS No.1039

  

Classification under
K-IFRS No.1109

   Amounts
under K-IFRS
No.1039 (*)		     Amounts
under K-IFRS
No.1109 (*)		  

Due from banks

   Loans and receivables   Amortized cost   ￦ 2,091,920     ￦ 2,091,920  

Loans

   Loans and receivables   FVPL     18,216       13,577  
  Loans and receivables   FVOCI     1,095,968       866,319  
  Loans and receivables   Amortized cost     70,371,948       70,371,948  

Other financial assets

   Loans and receivables   Amortized cost     1,102,062       1,102,062  

Trading assets (debt securities)

   FVTPL   FVPL     38,665       38,665  

Trading assets (equity securities)

   FVTPL   FVPL     725,613       725,613  

AFS financial assets (debt securities)

   AFS financial assets   FVOCI     911,518       911,518  

AFS financial assets (equity securities)

   AFS financial assets   FVPL     134,324       134,324  
  AFS financial assets   FVOCI     5,646,636       5,646,636  

HTM financial assets (debt securities)

   HTM financial assets   Amortized cost     89,477       89,477  
     

 

 

    

 

 

  

Total of the non-derivative financial instruments

   ￦ 82,226,347     ￦ 81,992,059  
 

 

 

    

 

 

  

 

(*)

These are amounts before deduction of allowance for loan loss, and exclude loan valuation adjustment related to fair value hedging amounting to ￦24,182 million.

Based on the management’s impact assessment to date, as of December 31, 2017, loans and receivables amounted to ￦ 18,216 million and AFS financial assets amounted to ￦ 134,324 million, previously measured at amortized cost, respectively, are expected to be classified as financial assets measured at FVPL upon adoption of K-IFRS No.1109 as of January 1, 2018. As a result, the portion of financial assets measured at FVPL in non-derivative financial assets is expected to increase from 0.93% under K-IFRS No.1039 as of December 31, 2017 to 1.13% under K-IFRS No.1109 as of January 1, 2018, which would increase the volatility in the Bank’s profit or loss.

☐ Classification and measurement of financial liabilities

According to K-IFRS No.1109, changes in fair value of the financial liability designated as at FVPL that is attributable to changes in the credit risk shall be presented as other comprehensive income, not recognized in profit or loss. Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss. However, if recognizing the changes in fair value as other comprehensive income creates or enlarges accounting mismatch, the amounts shall be recognized as profit or loss.

As a portion of the change in fair value which has been recognized in profit or loss under the existing standard, K-IFRS No.1039, will be presented in other comprehensive income under K-IFRS No.1109, profit or loss related to valuation of financial liabilities is likely to decrease.

Based on the management’s impact assessment to date, as of December 31, 2017, out of financial liability amounted to ￦ 78,450,674 million under K-IFRS No.1039, no financial liability was expected to be designated as at FVPL upon adoption of K-IFRS No.1109.

 

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☐ Impairment: Financial assets and contract assets

In accordance with the existing standard K-IFRS No.1039, impairment is recognized only if evidence of impairment based on ‘incurred loss model’ is identified. In accordance with K-IFRS No.1109, the new accounting standard, impairment shall be recognized based on ‘expected credit loss impairment model’ for debt instruments, lease receivables, contract assets, loan commitments and financial guarantee contracts, which are measured at amortized cost or FVOCI.

According to K-IFRS No.1109, a loss allowance shall be measured at the amounts of 12 month expected credit losses or lifetime expected credit losses, by the three stages in the table below depending on the extent of significant increase in credit risk since initial recognition. Hence, an early recognition of credit risk may be available compared to the ‘incurred loss model’ in the existing standard K-IFRS No.1039.

 

Stages (*1)

   

Loss allowance

Stage 1

    No significant increase in credit risk since initial recognition (*2)   

12-Month Expected Credit Losses: the portion of lifetime expected credit losses that represent the expected credit losses that result from default events on financial instruments that are possible within 12 months after the reporting date

Lifetime Expected Credit Losses: the expected credit losses that result from all possible default events over the expected life of a financial instrument

Stage 2

    Significant increase in credit risk since initial recognition

Stage 3

    Objective evidence of credit risk management

 

  (*1)

In cases of trade receivable or contract assets in scope of K-IFRS No.1115 ‘Revenue from Contracts with Customers’, if there is no significant financing component in contracts with customers, loss allowance for such assets shall be measured at lifetime expected credit losses. If a significant financing component exists, entities can elect to measure the loss allowance for trade receivable or contract assets at lifetime expected credit losses. In cases of lease receivable, entities can elect to measure the loss allowance at lifetime expected credit losses as well.

  (*2)

If financial instruments have low credit risk at the end of the reporting period, it is also considered that credit risk of such instruments has not increased significantly since initial recognition.

According to K-IFRS No.1109, the Bank only recognizes the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance for financial assets impaired at its initial recognition.

 

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Based on the management’s impact assessment to date, as of December 31, 2017, expected impacts on loss allowances based on information from the revised accounting system were as follows (Korean won in millions):

 

Detail

    Stages    Loans      Loss allowance
under K-IFRS
No.1039		      Loss allowance
under K-IFRS
No.1109		  

Loans and receivables

    Stage 1    ￦ 64,646,271      ￦ 209,161      ￦ 228,664  
   Stage 2      3,185,189        96,182        402,351  
   Stage 3      4,099,725        2,840,651        2,840,893  
   Reclassification      2,315,657        309,554        —    
     

 

 

     

 

 

     

 

 

  
   Subtotal      74,246,842        3,455,548        3,471,908  
     

 

 

     

 

 

     

 

 

  

Acceptances and guarantee contracts/ Commitments

    Stage 1      48,995,311        744,674        757,402  
   Stage 2      12,335,103        541,790        722,570  
   Stage 3      1,216,148        512,427        512,440  
     

 

 

     

 

 

     

 

 

  
   Subtotal      62,546,562        1,798,891        1,992,412  
     

 

 

     

 

 

     

 

 

  

Debt securities

    Stage 1      1,000,995        —          1,840  
     

 

 

     

 

 

     

 

 

  

Total

       ￦ 137,794,399      ￦ 5,254,439      ￦ 5,466,160  
     

 

 

     

 

 

     

 

 

  

☐ Hedge accounting

Although the new standard K-IFRS No.1109 maintains ‘Mechanics of hedging accounting’—fair value hedge, cash flow hedge and hedge of a net investment in a foreign operation—as defined in existing standard K-IFRS No.1039, the new standard replaces the complex and rule-based requirements for hedge accounting defined in existing standard K-IFRS No.1039 with a principle-based approach focusing an entity’s risk management activities. As a result of the changes, scope of hedged items and hedging instruments are expanded and qualifying criteria for hedge accounting are eased by removing criteria for evaluation of hedge effectiveness and quantitative evaluation (80~125%).

When applying hedge accounting under K-IFRS No.1109, hedge accounting to certain transactions that do not meet the requirements for hedge accounting under the existing standard K-IFRS No.1039 may be applicable, and the volatility of the profit or loss may be reduced.

According to the transitional provisions for hedge accounting, when initially applying K-IFRS No.1109, the Bank may adopt as its accounting policy to continue to apply the hedge accounting requirements of the existing standard K-IFRS No.1039.

The Bank plans to apply hedge accounting for the transactions that meet the requirements for hedge accounting under K-IFRS No.1109. As of December 31, 2017, there was no applicable transaction for hedge accounting under K-IFRS No.1109 which do not meet the requirements for hedge accounting under the existing standard K-IFRS No.1039.

2) Amendments to K-IFRS No.1115—Revenue from Contracts with Customers

The core principle under K-IFRS No.1115 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments introduces a five-step approach to revenue recognition and measurement: 1) Identify the contract with a customer, 2) Identify the performance obligations in the contract, 3) Determine the transaction price, 4) Allocate the transaction price to the performance obligations in the contract and, 5) Recognize revenue when (or as) the entity satisfies a performance obligation. This standard will supersede K-IFRS No.1011, ‘Construction Contracts’, K-IFRS

 

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No.1018, ‘Revenue’, K-IFRS No.2113, ‘Customer Loyalty Programmes’, K-IFRS No.2115, ‘Agreements for the Construction of Real Estate’, K-IFRS No.2118, ‘Transfers of Assets from Customers’, and K-IFRS No.2031, ‘Revenue-Barter Transactions Involving Advertising Services’. The amendments are effective for annual periods beginning on or after January 1, 2018.

The Bank does not expect the application of K-IFRS No.1115 will have a significant impact on the separate financial statements.

3) Amendments to K-IFRS No.1116—Leases

K-IFRS No.1116 replaces existing standards, including K-IFRS No.1017, ‘Leases’, K-IFRS No.2104, ‘Determining whether an Arrangement contains a Lease’, K-IFRS No.2015, ‘Operating Leases—Incentives’ and K-IFRS No.2027, ’Evaluating the Substance of Transactions Involving the Legal Form of a Lease’.

At inception of a contract, an entity shall assess whether the contract is, or contains, a lease. However, as a practical expedient, for the contracts previously identified as leases or not, an entity is not required to reassess whether the contract is, or contains, a lease at the date of initial application.

For a contract that is, or contains, a lease, a lessee or a lessor shall account for each lease component within the contract as a lease separately from non-lease components of the contract.

A lessee shall recognize a right-of-use asset, which indicates an asset that represents a lessee’s right to use an underlying asset for the lease term, and a lease liability, which indicates obligation to make lease payments. However, a lessee may elect not to apply the requirements to short-term leases and leases for which the underlying asset is of low value. Also, as a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component.

There has not been a material change in the accounting treatments for a lessor from the existing standard K-IFRS No.1017. K-IFRS No.1116 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted.

4. RISK MANAGEMENT:

4-1. Summary

(1) Overview of Risk Management Policy

The financial risks that the Bank is exposed to are credit risk, market risk, liquidity risk, operational risk, interest risk, credit concentration risk, strategy/reputational risk, outsourcing risk, settlement risk and others. Credit risk, market risk, liquidity risk, and operational risk have been recognized as the Bank’s key risks.

The Bank’s risk management system focuses on increasing transparency, developing risk management environment, and preemptive response to risks due to rapid changes in financial environment to support the Bank’s long-term strategy and business decision efficiently.

The Note regarding financial risk management provides information about the risks that the Bank is exposed to, the objective, policies and process for managing the risk, the methods used to measure the risk, and capital adequacy. Additional quantitative information is disclosed throughout the separate financial statements.

(2) Risk Management Group

1) Risk Management Committee

The Risk Management Committee establishes risk management strategies in accordance with the directives of the Board of Directors and determines the Bank’s target risk appetite, approves significant risk matters and reviews the level of risks that the Bank is exposed to and the appropriateness of the Bank’s risk management operations as an ultimate decision-making authority.

 

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2) Risk Management Council

The Risk Management Council is a consultative group which reviews and makes decisions on matters delegated by the Risk Management Committees and discusses the detailed issues relating to the Bank’s risk management.

3) Risk Management Practices Committee

The Risk Management Practices Committee assists the Risk Management Committee and the Risk Management Council. It performs practical work relating to risk management plan, risk management strategy, risk measurement, risk analysis, economic capital limit and others.

4-2. Credit risk

(1) Overview of Credit Risk

Credit risk is the risk of possible losses in an asset portfolio in the events of counterparty’s default, breach of contract and deterioration in the credit quality of the counterparty. For the risk management reporting purposes, the individual borrower’s default risk, country risk, specific risks and other credit risk exposure components are considered as a whole.

(2) Credit Risk Management

The Bank controls the credit concentration risk exposure by applying and managing total exposure limits to prevent the excessive risk concentration to specific industry and specific borrowers. The Bank maintains allowances for loan losses associated with credit risk on loans and receivables to manage its credit risk.

The Bank recognizes impairment loss on loans with carrying amount at amortized cost when there is any objective indication of impairment. Under K-IFRS, impairment loss is based on losses incurred at the end of the reporting period and the Bank should not recognize expected losses that are probable due to future events. The Bank measures inherent incurred losses on financial assets classified as loans and receivables and present it in the separate financial statements through the use of an allowances account which is charged against the related financial assets.

(3) Maximum exposure to credit risk

The Bank’s maximum exposure of financial instruments to credit risk as of December 31, 2017 and 2016 is as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  

Cash and due from financial institutions

    ￦ 2,091,920      ￦ 3,863,279  

Financial assets at FVTPL

      891,360        688,542  

Hedging derivative assets

      228,121        168,417  

Loans (*1)

      71,486,133        76,297,126  

Financial investments

      1,000,995        1,049,016  

Other financial assets

      1,102,062        1,034,028  

Acceptances and guarantee contracts

      42,808,774        59,679,048  

Commitments (*2)

      19,737,788        20,209,143  
  

 

 

     

 

 

  
   ￦ 139,347,153      ￦ 162,988,599  
  

 

 

     

 

 

  

 

(*1)

Loans exclude loans valuation adjusted related to fair value hedging.

(*2)

Commitments exclude commitments on purchase of beneficiary certificates which are included in other commitments in Note 36.

 

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(4) Credit risk of loans

The Bank maintains allowances for loan losses associated with credit risk on loans to manage its credit risk.

The Bank recognizes impairment loss on loans with carrying amount at amortized cost when there is any objective indication of impairment. Under K-IFRS, impairment loss is based on losses incurred at the end of the reporting period and the Bank should not recognize expected losses that are probable due to future events. The Bank measures inherent incurred losses on financial assets classified as loans and present them in the separate financial statements through the use of an allowances account which is charged against the related financial assets.

The Bank writes off on non-profitable loans, non-recoverable loans, loans classified as estimated loss by asset quality category, loans requested to be written off by Financial Supervisory Service (“FSS”) and others upon approval of Loan Management Committee.

 

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Loans are categorized as follows (Korean won in millions):

(December 31, 2017)

 

     Individual
assessment		     Collective
assessment		     Total     Ratio (%)  

Loans:

         

Normal

         

Not past due

    ￦ 2,123,302     ￦ 66,023,655     ￦ 68,146,957       94.79  

Past due

      —         30       30       0.01  

Impaired

      3,610,399       126,860       3,737,259       5.20  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      5,733,701       66,150,545       71,884,246       100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Net deferred origination fees and costs:

         

Normal

         

Not past due

      (37 )      (396,944 )      (396,981 )      99.72  

Past due

      —         —         —         —    

Impaired

      (1,138 )      6       (1,132 )      0.28  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      (1,175 )      (396,938 )      (398,113 )      100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Carrying amounts before deducting allowances:

         

Normal

         

Not past due

      2,123,265       65,626,711       67,749,976       94.77  

Past due

      —         30       30       0.01  

Impaired

      3,609,261       126,866       3,736,127       5.22  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      5,732,526       65,753,607       71,486,133       100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Allowances:

         

Normal

         

Not past due

      (368,644 )      (254,029 )      (622,673 )      18.94  

Percentage (%)

      17.36       0.39       0.92    

Past due

      —         (22 )      (22 )      0.01  

Percentage (%)

      —         73.33       73.33    

Impaired

      (2,601,057 )      (63,243 )      (2,664,300 )      81.05  

Percentage (%)

      72.07       49.85       71.31    
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      (2,969,701 )      (317,294 )      (3,286,995 ))      100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Percentage (%)

      51.80       0.48       4.60    

Carrying amounts:

         

Normal

         

Not past due

      1,754,621       65,372,682       67,127,303       98.43  

Past due

      —         8       8       0.01  

Impaired

      1,008,204       63,623       1,071,827       1.56  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 2,762,825     ￦ 65,436,313     ￦ 68,199,138       100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

 

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(December 31, 2016)

 

     Individual
assessment		     Collective
assessment		     Total     Ratio (%)  

Loans:

         

Normal

         

Not past due

    ￦ 241,823     ￦ 69,339,999     ￦ 69,581,822       90.68  

Past due

      —         653       653       0.01  

Impaired

      4,817,339       2,324,247       7,141,586       9.31  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      5,059,162       71,664,899       76,724,061       100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Net deferred origination fees and costs:

         

Normal

         

Not past due

      (330 )      (417,549 )      (417,879 )      97.88  

Past due

      —         —         —         —    

Impaired

      (9,097 )      41       (9,056 )      2.12  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      (9,427 )      (417,508 )      (426,935 )      100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Carrying amounts before deducting allowances:

         

Normal

         

Not past due

      241,493       68,922,450       69,163,943       90.65  

Past due

      —         653       653       0.01  

Impaired

      4,808,242       2,324,288       7,132,530       9.34  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      5,049,735       71,247,391       76,297,126       100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Allowances:

         

Normal

         

Not past due

      (17,998 )      (271,919 )      (289,917 )      9.91  

Percentage (%)

      7.44       0.39       0.42    

Past due

      —         (12 )      (12 )      0.01  

Percentage (%)

      —         1.84       1.84    

Impaired

      (2,210,717 )      (425,089 )      (2,635,806 )      90.08  

Percentage (%)

      45.98       18.29       36.95    
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      (2,228,715 )      (697,020 )      (2,925,735 )      100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

Percentage (%)

      44.14       0.98       3.83    

Carrying amounts:

         

Normal

         

Not past due

      223,495       68,650,531       68,874,026       93.87  

Past due

      —         641       641       0.01  

Impaired

      2,597,525       1,899,199       4,496,724       6.12  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 2,821,020     ￦ 70,550,371     ￦ 73,371,391       100.00  
  

 

 

    

 

 

    

 

 

    

 

 

  

The above carrying amounts exclude loan valuation adjustment related to fair value hedging amounting to ￦24,182 million and ￦47,397 million, as of December 31, 2017 and 2016, respectively.

 

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1) Credit quality of loans that are neither past due nor impaired

Credit quality of loans that are neither past due nor impaired as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

    Loans     Deferred loan
origination
fees and
costs		              

Criteria

   Loans in local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		     Allowances     Carrying
amount		  

Best

   ￦ 2,802,177     ￦ 9,769,413     ￦ 2,121,958     ￦ 14,693,548       21.56     ￦ (62,402 )    ￦ (9,752 )    ￦ 14,621,394  

Outstanding

     4,451,381       29,153,655       1,696,223       35,301,259       51.80       (318,151 )      (72,261 )      34,910,847  

Good

     6,485,730       7,888,486       1,226,780       15,600,996       22.90       (13,665 )      (144,840 )      15,442,491  

Below normal

     1,763,682       787,472       —         2,551,154       3.74       (2,763 )      (395,820 )      2,152,571  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 15,502,970     ￦ 47,599,026     ￦ 5,044,961     ￦ 68,146,957       100.00     ￦ (396,981 )    ￦ (622,673 )    ￦ 67,127,303  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(December 31, 2016)

 

    Loans     Deferred loan
origination
fees and
costs		              

Criteria

   Loans in local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		     Allowances     Carrying
amount		  

Best

   ￦ 924,617     ￦ 6,333,727     ￦ 1,131,151     ￦ 8,389,495       12.06     ￦ (27,901 )    ￦ (3,452 )    ￦ 8,358,142  

Outstanding

     5,397,037       37,044,358       2,423,723       44,865,118       64.48       (366,295 )      (89,116 )      44,409,707  

Good

     5,281,579       9,713,537       1,114,213       16,109,329       23.15       (23,141 )      (181,360 )      15,904,828  

Below normal

     56,897       160,983       —         217,880       0.31       (542 )      (15,989 )      201,349  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 11,660,130     ￦ 53,252,605     ￦ 4,669,087     ￦ 69,581,822       100.00     ￦ (417,879 )    ￦ (289,917 )    ￦ 68,874,026  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

2) Aging analysis of loans that are past due but not impaired

Aging analysis of loans that are past due but not impaired as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

    Loans     Deferred loan
origination
fees and
costs		              
    Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		     Allowances     Carrying
amount		  

Within one months

   ￦ 30     ￦ —       ￦ —       ￦ 30       100.00     ￦ —       ￦ (22 )    ￦ 8  

Within two months

     —         —         —         —         —         —         —         —    

Within three months

     —         —         —         —         —         —         —         —    

Over three months

     —         —         —         —         —         —         —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 30     ￦ —       ￦ —       ￦ 30       100.00     ￦ —       ￦ (22 )    ￦ 8  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

75

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(December 31, 2016)

 

    Loans     Deferred loan
origination
fees and
costs		              
    Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		     Allowances     Carrying
amount		  

Within one months

   ￦ —       ￦ 653     ￦ —       ￦ 653       100.00     ￦ —       ￦ (12 )    ￦ 641  

Within two months

     —         —         —         —         —         —         —         —    

Within three months

     —         —         —         —         —         —         —         —    

Over three months

     —         —         —         —         —         —         —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ —       ￦ 653     ￦ —       ￦ 653       100.00     ￦ —       ￦ (12 )    ￦ 641  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

3) Loans assessed for impairment on individual basis

Loans assessed for impairment on individual basis by country and industry of the Bank’s counterparties as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

    Loans     Allowance     Allowance ratio (%)  
    Domestic     Foreign     Total     Domestic     Foreign     Total     Domestic     Foreign     Total  

Manufacturing

   ￦ 3,449,650     ￦ 35,365     ￦ 3,485,015     ￦ (2,484,785 )    ￦ (35,365 )    ￦ (2,520,150 )      72.03       100.00       72.31  

Transportation

     —         17,218       17,218       —         —         —         —         —         —    

Construction

     1,187       —         1,187       (1,187 )      —         (1,187 )      100.00       —         100.00  

Public Sector & Others

     —         105,841       105,841       —         (79,720 )      (79,720 )      —         75.32       75.32  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 3,450,837     ￦ 158,424     ￦ 3,609,261     ￦ (2,485,972 )    ￦ (115,085 )    ￦ (2,601,057 )      72.04       72.64       72.07  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(December 31, 2016)

 

    Loans     Allowance     Allowance ratio (%)  
    Domestic     Foreign     Total     Domestic     Foreign     Total     Domestic     Foreign     Total  

Manufacturing

   ￦ 3,623,910     ￦ 793,121     ￦ 4,417,031     ￦ (1,732,272 )    ￦ (324,327 )    ￦ (2,056,599 )      47.80       40.89       46.56  

Transportation

     —         390,023       390,023       —         (153,153 )      (153,153 )      —         39.27       39.27  

Construction

     1,188       —         1,188       (965 )      —         (965 )      81.23       —         81.23  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 3,625,098     ￦ 1,183,144     ￦ 4,808,242     ￦ (1,733,237 )    ￦ (477,480 )    ￦ (2,210,717 )      47.81       40.36       45.98  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(5) Credit quality of securities (debt securities)

1) Securities (debt securities) exposed to credit risk as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  

Securities that are neither past due nor impaired

    ￦ 1,039,660      ￦ 1,090,209  

 

76

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2) Credit quality of securities (debt securities) that are neither past due nor impaired as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

     Credit quality (*)  
     Grade 1      Grade 2      Grade 3      Grade 4      Grade 5      Total  

Financial assets at FVTPL

    ￦ 38,665      ￦ —        ￦ —        ￦ —        ￦ —        ￦ 38,665  

AFS financial assets

      911,518        —          —          —          —          911,518  

HTM financial assets

      89,477        —          —          —          —          89,477  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 1,039,660      ￦ —        ￦ —        ￦ —        ￦ —        ￦ 1,039,660  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2016)

 

     Credit quality (*)  
     Grade 1      Grade 2      Grade 3      Grade 4      Grade 5      Total  

Financial assets at FVTPL

    ￦ 41,193      ￦ —        ￦ —        ￦ —        ￦ —        ￦ 41,193  

AFS financial assets

      937,682        —          —          —          —          937,682  

HTM financial assets

      111,334        —          —          —          —          111,334  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 1,090,209      ￦ —        ￦ —        ￦ —        ￦ —        ￦ 1,090,209  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(*)

Credit quality is classified based on internal credit quality grade as below.

 

     Credit rating

Grade 1

    AAA ~ BBB

Grade 2

    BBB- ~ BB

Grade 3

    BB- ~ B

Grade 4

    B- ~ C

Grade 5

    D

(6) Concentration of credit risk

The amounts disclosed below exclude loan valuation adjustment related to fair value hedging amounting to ￦24,182 million and ￦47,397 million, as of December 31, 2017 and 2016, respectively.

 

77

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1) Loans by country where the credit risk belongs to as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

    Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		     Deferred
loan
origination
fees		     Allowances  

Asia:

              

Korea

   ￦ 18,939,007     ￦ 5,315,232     ￦ 604,003     ￦ 24,858,242       34.58     ￦ (6,410 )    ￦ (2,995,149 ) 

China

     —         1,833,920       311,601       2,145,521       2.98       (366 )      (37,646 ) 

Saudi Arabia

     —         3,795,685       24,637       3,820,322       5.31       (52,670 )      (8,303 ) 

India

     —         2,743,764       26,628       2,770,392       3.85       (22,580 )      (4,003 ) 

Indonesia

     17,000       3,234,658       8,326       3,259,984       4.54       (70,546 )      (10,627 ) 

Vietnam

     —         3,250,478       16,027       3,266,505       4.54       (22,466 )      (20,972 ) 

Australia

     —         2,170,414       836       2,171,250       3.02       (19,996 )      (4,234 ) 

Philippines

     —         245,572       —         245,572       0.34       (50 )      (10,126 ) 

Qatar

     —         678,507       —         678,507       0.94       (2,832 )      (2,302 ) 

Singapore

     —         163,068       75,507       238,575       0.33       (851 )      (318 ) 

Oman

     —         975,651       10,707       986,358       1.37       (11,643 )      (3,121 ) 

Hong Kong

     —         999,457       387,148       1,386,605       1.93       (2,383 )      (2,491 ) 

The United Arab Emirates

     —         2,921,077       4,863       2,925,940       4.08       (27,197 )      (6,928 ) 

Others

     —         2,296,222       3,168,744       5,464,966       7.61       (53,012 )      (16,618 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     18,956,007       30,623,705       4,639,027       54,218,739       75.42       (293,002 )      (3,122,838 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Europe:

              

Russia

     —         362,699       —         362,699       0.50       (15 )      (1,208 ) 

United Kingdom

     —         444,050       66,542       510,592       0.71       (1,469 )      (433 ) 

France

     —         144,968       3,062       148,030       0.21       (2,188 )      (83 ) 

Netherlands

     —         2,642       12,918       15,560       0.02       —         (44 ) 

Malta

     —         125,602       —         125,602       0.17       (1,211 )      —    

Uzbekistan

     —         669,111       155,895       825,006       1.15       (6,263 )      (4,770 ) 

Greece

     —         237,504       —         237,504       0.33       (1,327 )      (114 ) 

Turkey

     —         659,824       2,802       662,626       0.92       (9,059 )      (1,999 ) 

Germany

     —         281,095       402       281,497       0.39       (478 )      (709 ) 

Ukraine

     —         119,102       —         119,102       0.17       (3,000 )      (91 ) 

Cyprus

     —         232,689       —         232,689       0.32       (2,354 )      —    

Hungary

     —         145,347       —         145,347       0.20       (1,095 )      (5,433 ) 

Others

     —         568,424       99,041       667,465       0.94       (3,692 )      (2,097 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         3,993,057       340,662       4,333,719       6.03       (32,151 )      (16,981 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

America:

              

Panama

     —         1,215,278       —         1,215,278       1.69       (3,273 )      (6,440 ) 

United States

     —         2,540,975       72,629       2,613,604       3.64       (7,733 )      (80,463 ) 

The British

Virgin Islands

     —         219,215       —         219,215       0.30       (2,363 )      (47 ) 

Mexico

     —         834,136       —         834,136       1.16       (6,167 )      (2,194 ) 

Bermuda

     —         819,398       —         819,398       1.14       (7,173 )      (16,533 ) 

Brazil

     —         2,097,645       —         2,097,645       2.92       (5,589 )      (4,117 ) 

Others

     —         1,426,809       3,299       1,430,108       1.99       (5,843 )      (23,511 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         9,153,456       75,928       9,229,384       12.84       (38,141 )      (133,305 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Africa:

              

Marshall Islands

     —         1,903,658       —         1,903,658       2.65       (11,349 )      (8,025 ) 

Liberia

     —         444,802       —         444,802       0.62       (3,344 )      (666 ) 

Madagascar

     —         371,684       —         371,684       0.52       (1,832 )      (1,200 ) 

Others

     —         1,382,260       —         1,382,260       1.92       (18,294 )      (3,980 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         4,102,404       —         4,102,404       5.71       (34,819 )      (13,871 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 18,939,007     ￦ 47,872,622     ￦ 5,055,617     ￦ 71,884,246       100.00     ￦ (398,113 )    ￦ (3,286,995 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

78

Table of Contents

(December 31, 2016)

 

    Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		     Deferred
loan
origination
fees		     Allowances  

Asia:

              

Korea

   ￦ 16,178,355     ￦ 7,433,406     ￦ 675,959     ￦ 24,287,720       31.66     ￦ (6,044 )    ￦ (2,255,609 ) 

China

     —         2,147,381       536,056       2,683,437       3.50       (375 )      (41,352 ) 

Saudi Arabia

     —         4,451,009       114,817       4,565,826       5.95       (57,984 )      (8,827 ) 

India

     —         3,170,986       23,457       3,194,443       4.16       (40,039 )      (4,729 ) 

Indonesia

     —         3,904,200       8,598       3,912,798       5.10       (75,269 )      (12,155 ) 

Vietnam

     —         3,604,195       5,322       3,609,517       4.70       (24,334 )      (19,593 ) 

Australia

     —         2,512,815       687       2,513,502       3.28       (22,004 )      (5,088 ) 

Philippines

     —         396,781       119,642       516,423       0.67       (342 )      (17,603 ) 

Qatar

     —         819,726       —         819,726       1.07       (3,108 )      (2,696 ) 

Singapore

     —         565,149       859,666       1,424,815       1.86       (7,331 )      (282,355 ) 

Oman

     —         1,015,439       499       1,015,938       1.32       (12,493 )      (3,300 ) 

Hong Kong

     —         818,417       452,790       1,271,207       1.66       (2,011 )      (2,383 ) 

The United Arab Emirates

     —         2,762,836       1,255       2,764,091       3.60       (31,206 )      (6,773 ) 

Others

     —         1,960,112       1,472,634       3,432,746       4.47       (17,173 )      (31,064 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     16,178,355       35,562,452       4,271,382       56,012,189       73.00       (299,713 )      (2,693,527 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Europe:

              

Russia

     —         300,311       —         300,311       0.39       (30 )      (1,215 ) 

United Kingdom

     —         273,722       47,954       321,676       0.42       (1,788 )      (529 ) 

France

     —         203,346       2,964       206,310       0.27       (3,323 )      (56 ) 

Netherlands

     —         56,519       17,993       74,512       0.10       (58 )      (72 ) 

Malta

     —         164,505       —         164,505       0.21       (1,578 )      —    

Uzbekistan

     —         792,432       —         792,432       1.03       (6,755 )      (3,605 ) 

Greece

     —         393,479       —         393,479       0.51       (2,546 )      (161 ) 

Ireland

     —         483,400       —         483,400       0.63       (120 )      (9,200 ) 

Turkey

     —         551,139       129       551,268       0.72       (8,749 )      (1,912 ) 

Germany

     —         256,316       10,802       267,118       0.35       (639 )      (854 ) 

Ukraine

     —         179,123       —         179,123       0.23       (5,439 )      (3,955 ) 

Cyprus

     —         308,763       —         308,763       0.40       (2,901 )      —    

Hungary

     —         188,796       981       189,777       0.25       (1,207 )      (208 ) 

Others

     —         680,658       549,512       1,230,170       1.60       (4,664 )      (1,733 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         4,832,509       630,335       5,462,844       7.11       (39,797 )      (23,500 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

America:

              

Panama

     —         2,023,831       —         2,023,831       2.64       (7,066 )      (165,235 ) 

United States

     —         2,511,557       114,805       2,626,362       3.42       (14,093 )      (9,299 ) 

The British

Virgin Islands

     —         556,399       —         556,399       0.73       (2,633 )      (132 ) 

Mexico

     —         975,627       —         975,627       1.27       (6,773 )      (2,361 ) 

Bermuda

     —         1,574,929       —         1,574,929       2.05       (11,823 )      (1,571 ) 

Brazil

     —         2,310,664       —         2,310,664       3.01       (6,320 )      (7,023 ) 

Others

     —         1,119,823       2,617       1,122,440       1.48       (5,800 )      (4,214 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         11,072,830       117,422       11,190,252       14.60       (54,508 )      (189,835 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Africa:

              

Marshall Islands

     —         2,311,812       —         2,311,812       3.01       (13,978 )      (13,869 ) 

Liberia

     —         553,247       —         553,247       0.72       (3,828 )      (423 ) 

Madagascar

     —         419,247       —         419,247       0.55       (2,114 )      (1,381 ) 

Others

     —         770,904       3,566       774,470       1.01       (12,997 )      (3,200 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     —         4,055,210       3,566       4,058,776       5.29       (32,917 )      (18,873 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 16,178,355     ￦ 55,523,001     ￦ 5,022,705     ￦ 76,724,061       100.00     ￦ (426,935 )    ￦ (2,925,735 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

79

Table of Contents

2) Loans by industry as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

    Loans     Deferred
loan
origination
fees		     Allowances  
  Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		  

Manufacturing

   ￦ 14,316,259     ￦ 21,739,146     ￦ 264,633     ￦ 36,320,038       50.53     ￦ (163,359 )    ￦ (3,090,742 ) 

Transportation

     273,905       6,663,808       —         6,937,713       9.65       (39,566 )      (27,784 ) 

Financial institutions

     2,477,740       4,929,310       4,762,571       12,169,621       16.93       (5,451 )      (17,960 ) 

Wholesale and retail

     691,117       1,212,952       25,590       1,929,659       2.68       (3,447 )      (8,444 ) 

Real estate

     9,000       318,201       —         327,201       0.46       (1,917 )      (801 ) 

Construction

     752,442       599,986       447       1,352,875       1.88       (588 )      (9,790 ) 

Public sector and others

     435,545       12,409,218       2,376       12,847,139       17.87       (183,785 )      (131,474 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 18,956,008     ￦ 47,872,621     ￦ 5,055,617     ￦ 71,884,246       100.00     ￦ (398,113 )    ￦ (3,286,995 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(December 31, 2016)

 

    Loans     Deferred
loan
origination
fees		     Allowances  
  Loans in
local
currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		  

Manufacturing

   ￦ 12,877,156     ￦ 26,376,000     ￦ 682,688     ￦ 39,935,844       52.05     ￦ (140,372 )    ￦ (2,638,379 ) 

Transportation

     118,280       8,544,474       5,349       8,668,103       11.30       (54,707 )      (193,863 ) 

Financial institutions

     1,083,455       5,029,908       4,247,297       10,360,660       13.50       (6,363 )      (22,269 ) 

Wholesale and retail

     587,628       1,298,182       86,383       1,972,193       2.57       (3,686 )      (6,897 ) 

Real estate

     14,000       479,473       —         493,473       0.64       (2,339 )      (351 ) 

Construction

     914,316       556,976       447       1,471,739       1.92       (501 )      (9,079 ) 

Public sector and others

     583,520       13,237,988       541       13,822,049       18.02       (218,967 )      (54,897 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 16,178,355     ￦ 55,523,001     ￦ 5,022,705     ￦ 76,724,061       100.00     ￦ (426,935 )    ￦ (2,925,735 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

80

Table of Contents

3) Concentration of credit risk of securities (debt securities) by industry as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  
   Amount      Ratio (%)      Amount      Ratio (%)  

Financial Assets at FVTPL

            

Government and government sponsored institutions

    ￦ —          —        ￦ 1        0.01  

Banking and insurance

      12,729        32.92        18,431        44.74  

Others

      25,936        67.08        22,761        55.25  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      38,665        100.00        41,193        100.00  
  

 

 

     

 

 

     

 

 

     

 

 

  

AFS financial assets

            

Government and government sponsored institutions

      165,117        18.11        57,881        6.17  

Banking and insurance

      370,859        40.69        521,069        55.57  

Others

      375,542        41.20        358,732        38.26  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      911,518        100.00        937,682        100.00  
  

 

 

     

 

 

     

 

 

     

 

 

  

HTM financial assets

            

Government and government sponsored institutions

      5,356        5.98        12,107        10.87  

Banking and insurance

      61,076        68.26        63,995        57.48  

Others

      23,045        25.76        35,232        31.65  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      89,477        100.00        111,334        100.00  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 1,039,660         ￦ 1,090,209     
  

 

 

        

 

 

     

4) Concentration of credit risk of securities (debt securities) by country as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  
     Amount      Ratio (%)      Amount      Ratio (%)  

Financial assets at FVTPL

            

United States

      24,895        64.39        14,805        35.94  

Others

      13,770        35.61        26,388        64.06  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      38,665        100.00        41,193        100.00  
  

 

 

     

 

 

     

 

 

     

 

 

  

AFS financial assets

            

Korea

      323,725        35.51        490,004        52.26  

United States

      427,449        46.89        312,020        33.28  

Others

      160,334        17.60        135,658        14.46  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      911,518        100.00        937,682        100.00  
  

 

 

     

 

 

     

 

 

     

 

 

  

HTM financial assets

            

Korea

      28,616        31.98        30,305        27.22  

China

      27,912        31.19        19,435        17.46  

Others

      32,949        36.83        61,594        55.32  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      89,477        100.00        111,334        100.00  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 1,039,660         ￦ 1,090,209     
  

 

 

        

 

 

     

 

81

Table of Contents

5) Credit enhancement and its financial effect as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

    Loans (*)     Acceptances
and guarantees		     Unused loan
commitments		     Total     Ratio
(%)		  

Maximum exposure to credit risk

   ￦ 71,486,133     ￦ 42,808,774     ￦ 19,737,788     ￦ 134,032,695       100.00  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Credit enhancement:

          

Deposits and savings

     93,112       93,168       7,840       194,120       0.15  

Export guarantee insurance

     —         884,694       1,806       886,500       0.66  

Guarantee

     3,851,033       1,902,263       1,381,731       7,135,027       5.32  

Securities

     149,004       410,282       17,450       576,736       0.43  

Real estate

     1,720,631       1,146,484       432,126       3,299,241       2.46  

Ships

     859,813       205,874       9,643       1,075,330       0.80  

Others

     1,515,638       23,402       9,838       1,548,878       1.16  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     8,189,231       4,666,167       1,860,434       14,715,832       10.98  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Exposure to credit risk after deducting credit enhancement

   ￦ 63,296,902     ￦ 38,142,607     ￦ 17,877,354     ￦ 119,316,863       89.02  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*) Loans exclude loans valuation adjusted related to fair value hedging.

(December 31, 2016)

 

    Loans (*)     Acceptances
and guarantees		     Unused loan
commitments		     Total     Ratio
(%)		  

Maximum exposure to credit risk

   ￦ 76,297,126     ￦ 59,679,048     ￦ 20,209,143     ￦ 156,185,317       100.00  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Credit enhancement:

          

Deposits and savings

     69,923       153,399       6,399       229,721       0.15  

Export guarantee insurance

     83,570       1,426,227       —         1,509,797       0.97  

Guarantee

     3,534,868       1,609,041       1,946,773       7,090,682       4.54  

Securities

     102,084       462,146       3,188       567,418       0.36  

Real estate

     1,606,953       1,026,476       162,671       2,796,100       1.79  

Ships

     964,495       142,389       61,996       1,168,880       0.75  

Others

     1,710,137       —         9,207       1,719,344       1.10  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     8,072,030       4,819,678       2,190,234       15,081,942       9.66  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Exposure to credit risk after deducting credit enhancement

   ￦ 68,225,096     ￦ 54,859,370     ￦ 18,018,909     ￦ 141,103,375       90.34  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*) Loans exclude loans valuation adjusted related to fair value hedging.

4-3. Liquidity risk

(1) Overview of liquidity risk

Liquidity risk is the risk that the Bank is unable to meet its payment obligations arising from financial liabilities as they become due. The Bank discloses all financial asset, financial liabilities and off-balance-sheet items, such as loan commitments and analysis of the contractual maturity, which are related to liquidity risk, into seven categories. The cash flows disclosed in the maturity analysis are undiscounted contractual amounts, including principal and future interest, which resulted in disagreement with the discounted cash flows included in the separate statements of financial position. However, for derivatives, each discounted cash flow consisting of current fair value is presented.

 

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(2) Principles of the liquidity risk management

1) Liquidity risk is managed with integration. The Bank measures, reports and controls liquidity risk by quantification with reasonable method.

2) Liquidity risk reflects financing plans and fund-using plans, and the Bank reports the liquidity risk with preciseness, timeliness and consistency.

3) The Bank establishes liquidity risk management strategy by analyzing liquidity maturity, liquidity gap structure and market environment.

(3) Liquidity risk management

Risk management department monitors changes by liquidity risk sources and compliance of risk limits. It notifies related departments to prepare countermeasures in case the measured liquidity risk is close to risk limits. Also, it analyzes crisis situations and effects of the crisis situations and reports to the Risk Management Committee on a regular basis. Each related department monitors changes of liquidity risk sources and compliance of risk limits by itself and if exposure to new risk is expected, it discusses the matter with the head of risk management department.

(4) Measurement of liquidity risk

The Bank measures liquidity ratio, liquidity gap ratio and others for local currency and foreign currencies and simulates analysis reflecting market environment, product features and the Bank’s strategies.

 

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(5) Analysis on remaining contractual maturity of financial liabilities and off-balance sheet items

Remaining contractual maturity and amount of financial liabilities and off-balance sheet items as of December 31, 2017 and 2016 is as follows (Korean won in millions):

(December 31, 2017)

 

    On demand     Within 1
month		     1 to 3
months		     3 to 6
Months		     6 to 12
months		     1 year to 5
years		     Over 5
years		     Total  

Financial liabilities:

                

Financial liabilities at FVTPL

   ￦ 911,778     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 911,778  

Hedging derivative liabilities

     —         206       57,322       91,587       45,610       449,538       413,933       1,058,196  

Borrowings

     —         216,013       15,770       1,139,708       424,604       3,936,528       575,566       6,308,189  

Debentures

     —         912,759       3,000,853       5,332,189       9,803,980       31,884,629       17,443,603       68,378,013  

Other financial liabilities

     —         985,367       —         —         65,689       34,810       708,632       1,794,498  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 911,778     ￦ 2,114,345     ￦ 3,073,945     ￦ 6,563,484     ￦ 10,339,883     ￦ 36,305,505     ￦ 19,141,734     ￦ 78,450,674  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Off-balance sheet items(*):

                

Commitments

   ￦ 19,737,788     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 19,737,788  

Financial guarantee contracts

     14,493,065       —         —         —         —         —         —         14,493,065  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 34,230,853     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 34,230,853  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*)

Guarantees and loan commitments and other credit facilities provided by the Bank have maturities. However, if the counterparty requests the payment immediately, the payment must be fulfilled.

(December 31, 2016)

 

    On demand     Within 1
month		     1 to 3
months		     3 to 6
Months		     6 to 12
months		     1 year to 5
years		     Over 5
years		     Total  

Financial liabilities:

                

Financial liabilities at FVTPL

   ￦ 852,699     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 852,699  

Hedging derivative liabilities

     —         77,926       140,842       23,318       492,940       1,129,531       470,973       2,335,530  

Borrowings

     —         35,518       939,079       2,242,728       590,711       5,421,887       849,677       10,079,600  

Debentures

     —         3,314,357       4,216,493       3,650,867       8,342,283       32,336,081       17,993,116       69,853,197  

Other financial liabilities

     —         674,028       358       —         191,671       57,685       717,276       1,641,018  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 852,699     ￦ 4,101,829     ￦ 5,296,772     ￦ 5,916,913     ￦ 9,617,605     ￦ 38,945,184     ￦ 20,031,042     ￦ 84,762,044  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Off-balance sheet items(*):

                

Commitments

   ￦ 20,209,143     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 20,209,143  

Financial guarantee contracts

     15,663,910       —         —         —         —         —         —         15,663,910  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  ￦ 35,873,053     ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ —       ￦ 35,873,053  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*)

Guarantees and loan commitments and other credit facilities provided by the Bank have maturities. However, if the counterparty requests the payment immediately, the payment must be fulfilled.

 

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4-4. Market risk

(1) Overview of market risk

1) Definition of market risk

Market risk is the risk of possible losses that arise from the changes of market factors, such as interest rate, stock price, foreign exchange rate, commodity value and other market factors related to the fair value or future cash flows of the financial instruments. The Bank classifies exposures to market risk into either foreign exchange rate risk or interest rate risk. Foreign exchange risk means that possible losses on assets and liabilities denominated in foreign currencies due to changes of foreign exchange rate. Interest rate risk means that possible losses on assets and liabilities due to changes of interest rate.

2) Market risk management group

The Bank operates the Risk Management Committee and the Risk Management Council for managing risks and risk limits. The Risk Management Practices Committee assists the Risk Management Committee and the Risk Management Council for practical matters, such as managing adequate assets and liabilities by analyzing foreign exchange risk, interest rate risk, liquidity risk, money balance plan and effects by initiating new product. Market risk is managed by product and currency for minimizing segments exposed to changes of foreign exchange, interest rate and securities’ price. Foreign exchange risk is measured by definite method and probabilistic method and definite method is used for limits management. Interest rate value at risk (“VaR”) and interest rate earning at risk (“EaR”) are measured by Bank for International Settlements (“BIS”) standards, definite method and probabilistic method and definite method is used for limits management. Meanwhile, the Bank performs financial crisis analysis supposing exceptional, but possible events for evaluating latent weakness. The analysis is used for important decision making, such as risk mitigation, emergency plan development and limit setup. The results of the analysis are reported to the board of directors and management on a quarterly basis.

(2) Foreign exchange risk

1) Management of foreign exchange risk

Foreign exchange risk management limit is set up and included in internal capital management limit. A risk management division head monitors changes of foreign exchange risk by source and compliance of risk limits regularly. A finance division head also monitors changes of foreign exchange risk by source and compliance of risk limits. The finance division head needs to cooperate with the risk management division head in case it is expected that the Bank will be exposed to a new risk. The risk management division head orders related divisions to prepare countermeasures in case it is apprehended that foreign exchange risk exceeds risk limit. If foreign exchange risk exceeds the risk limit, the risk management division head orders related divisions to prepare countermeasures and reports to Risk Management Committee after resolving the exceeded limit problem.

2) Measurement of foreign exchange risk

Foreign exchange risk is managed by foreign exchange VaR and foreign exchange position. Foreign exchange VaR is measured on a monthly basis and foreign exchange position is measured on a daily basis. It is measured separately by currency for assets and liabilities denominated in foreign currencies exceeding 5% of total assets and liabilities denominated in foreign currencies.

3) Measurement method

① VaR

The Bank uses a yearly VaR to measure market risk. The yearly VaR is a statistically estimated maximum amount of loss that could occur in one year under normal distribution of financial variables. The Bank calculates

 

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VaR using equal weighted-average method based on historical changes in market rates, prices and volatilities over the previous five years data and measures VaR at a 99% single tail confidence level. VaR is a commonly used market risk management technique. However, the method has some limitations.

VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movement, however, is not necessarily a good indicator of future events, as there may be conditions and circumstances in the future that the model does not anticipate. As a result, the timing and magnitude of the actual losses can be different, depending on the assumptions made at the time of calculation. In addition, the time periods used for the model, generally one day or 10 days, are assumed to be a sufficient holding period before liquidating the relevant underlying positions. If these holding periods are not sufficient, or too long, the VaR results may understate or overstate the potential loss.

② Stress testing

The stress testing is carried out to analyze the abnormal market situation reflecting intrinsic volatility of foreign exchange that has significant influent on the value of portfolio. The Bank mainly uses historical scenario tool and also uses hypothetical scenario tool for the analysis of an abnormal market situation. Stress testing is performed at least once in every quarter.

③ Results of measurement

Results of foreign exchange VaR as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

    December 31, 2017     December 31, 2016  
  Average     Minimum     Maximum     Ending     Average     Minimum     Maximum     Ending  

Foreign exchange risk

   ￦ 55,558     ￦ 6,117     ￦ 111,035     ￦ 37,718     ￦ 64,770     ￦ 39,693     ￦ 102,371     ￦ 39,693  

(3) Interest rate risk

1) Management of interest rate risk

Interest rate risk management limit is set up and included in internal capital management limit. A risk management division head monitors changes of interest rate risk by source and compliance of risk limits regularly. A finance division head also monitors changes of interest rate risk by source and compliance of risk limits. The finance division head needs to cooperate with the risk management division head in case it is expected that the Bank will be exposed to a new risk. The risk management division head orders related divisions to prepare countermeasures in case it is apprehended that interest rate risk exceeds risk limit. If interest rate risk exceeds the risk limit, the risk management division head orders related divisions to prepare countermeasures and reports to Risk Management Committee after resolving the exceeded limit problem.

2) Measurement of interest rate risk

Interest rate risk is managed by measuring interest rate EaR and interest rate VaR and uses interest rate sensitivity gap and duration gap as supplementary index. Interest rate EaR and interest rate VaR are measured on a monthly basis, and interest rate sensitivity gap and duration gap are measured on a daily basis. The Bank simulates analysis reflecting market environment, product features and the Bank’s strategies.

3) Measurement method

① VaR

The Bank uses a yearly VaR to measure market risk. The yearly VaR is a statistically estimated maximum amount of loss that could occur in one year under normal distribution of financial variables. The Bank calculates

 

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VaR using equal-weighted-average method based on historical changes in market rates, prices and volatilities over the previous 5 years data and measures VaR at a 99% single tail confidence level. This means the actual amount of loss may exceed the VaR, on average, once out of 100 business days. VaR is a commonly used market risk management technique. However, the method has some shortcomings.

VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movement, however, is not necessarily a good indicator of future events, as there may be conditions and circumstances in the future that the model does not anticipate. As a result, the timing and magnitude of the actual losses can be different depending on the assumptions made at the time of calculation. In addition, the time periods used for the model, generally one day or 10 days, are assumed to be a sufficient holding period before liquidating the relevant underlying positions. If these holding periods are not sufficient, or too long, the VaR results may understate or overstate the potential loss.

② Stress testing

The stress testing is carried out to analyze the abnormal market situation reflecting intrinsic volatility of interest rate that has significant influence on the value of portfolio. The Bank mainly uses historical scenario tool and also uses hypothetical scenario tool for the analysis of an abnormal market situation. Stress testing is performed at least once in every quarter.

③ Results of measurement

Results of interest rate VaR as of December 31, 2017 and 2016 is as follows (Korean won in millions):

 

    December 31, 2017     December 31, 2016  
  Average     Minimum     Maximum     Ending     Average     Minimum     Maximum     Ending  

Interest rate risk

   ￦ 112,024     ￦ 58,413     ￦ 179,886     ￦ 96,423     ￦ 105,424     ￦ 92,314     ￦ 155,703     ￦ 97,983  

4-5. Capital risk

The Bank follows the standard of capital adequacy established by the Financial Services Commission. The standard is based on Basel III, which was established by Basel Committee on Banking Supervision in BIS. According to the standard, domestic banks should maintain at least 8% or above of BIS capital ratio for risk-weighted asset, and quarterly report BIS capital ratio to the Financial Supervisory Service.

According to Korean Banking Supervision rules for operations, the Bank’s capitals are mainly divided into two categories:

1) Tier 1 capital (basic capital): Basic capital is composed of capital stock-common and other basic capital. Capital stock-common includes common stock satisfied with qualifications, capital surplus, retained earnings, accumulated other comprehensive income, other reserves and non-controlling interests among the common stock of consolidated subsidiaries. Other basic capital includes securities and capital surplus satisfied with qualifications

2) Tier 2 capital (supplementary capital): Supplementary capital is composed of the securities and capital surplus satisfied with qualifications, non-controlling interests among the securities of consolidated subsidiaries and the amounts of less than below 1.25% of credit risk-weighted asset like allowance for credit losses in respect of credits classified as normal or precautionary.

The risk-weighted asset includes intrinsic risks in total assets, errors of internal operation processes and loss risk from external events. It indicates a size of assets reflecting the level of risks that the Bank bears. The Bank computes the risk-weighted asset by risks (credit risk, market risk and operational risk) and uses it for calculation of BIS capital ratio.

 

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5. FINANCIAL ASSETS AND FINANCIAL LIABILITIES:

5-1. Classification and fair value

(1) Carrying amounts and fair values of financial instruments as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

    Classification     December 31, 2017     December 31, 2016  
  Carrying
amount		     Fair value     Carrying
amount		     Fair value  

Financial assets:

          

Cash and due from financial institutions

     Non-recurring     ￦ 2,091,920     ￦ 2,092,008     ￦ 3,863,279     ￦ 3,863,247  

Financial assets at FVTPL

     Recurring       1,616,973       1,616,973       1,899,065       1,899,065  

Hedging derivative assets

     Recurring       228,121       228,121       168,417       168,417  

Loans

     Non-recurring       68,223,320       69,459,210       73,418,788       75,098,073  

AFS financial assets

     Recurring       6,692,478       6,692,478       7,027,451       7,027,451  

HTM financial assets

     Non-recurring       89,477       89,119       111,334       111,131  

Other financial assets

     Non-recurring       933,510       933,510       983,090       983,090  
   

 

 

    

 

 

    

 

 

    

 

 

  
    ￦ 79,875,799     ￦ 81,111,419     ￦ 87,471,424     ￦ 89,150,474  
   

 

 

    

 

 

    

 

 

    

 

 

  

Financial liabilities:

          

Financial liabilities at FVTPL

     Recurring     ￦ 911,778     ￦ 911,778     ￦ 852,699     ￦ 852,699  

Hedging derivative liabilities

     Recurring       1,058,196       1,058,196       2,335,530       2,335,530  

Borrowings

     Non-recurring       6,013,457       5,985,700       9,761,389       9,762,894  

Debentures

     Non-recurring       60,685,098       61,193,068       62,119,016       62,917,874  

Other financial liabilities

     Non-recurring       1,794,498       1,794,498       1,641,018       1,641,018  
   

 

 

    

 

 

    

 

 

    

 

 

  
    ￦ 70,463,027     ￦ 70,943,240     ￦ 76,709,652     ￦ 77,510,015  
   

 

 

    

 

 

    

 

 

    

 

 

  

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For each class of financial assets and financial liabilities, the Bank discloses the fair value of that class of assets and liabilities in a way that permits them to be compared with their carrying amount at the end of each reporting period. The best evidence of fair value of financial instruments is quoted price in an active market.

 

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Methods for measuring fair value of financial instruments are as follows:

 

Financial instruments

   

Method of measuring fair value

Loans and receivables

   

As demand deposits and transferable deposits do not have maturity and are readily convertible to cash, the carrying amounts of these deposits approximate their fair values. Fair values of the deposits with the maturity of more than one year are determined by discounted cash flow model (“DCF model”).

 

DCF model is also used to determine the fair value of loans. Fair value is determined by discounting the cash flows expected from the each contractual period by applying the discount rates for each period.

Investment securities

    Trading financial assets and liabilities and AFS financial assets are measured at fair value using a quoted market price in an active market. If a quoted market price is not available, they are measured by using a price quoted by a third party, such as a pricing service or broker or using the DCF model.

Derivatives

    For exchange traded derivative, quoted price in active market is used to determine fair value and for OTC derivative, fair value is determined primarily using the DCF model. The Bank uses internally developed valuation models that are widely used by market participants to determine fair value of plain OTC derivatives including option, interest rate swap and currency swap based on observable market parameters. However, some complex financial instruments are valued using the results of independent pricing services, where part or all of the inputs are not observable in the market.

Borrowings

    Fair value is determined using DCF model discounting contractual future cash flows by appropriate discount rate.

Debentures

   

Fair value of debentures denominated in local currency is determined by using the valuation of independent third-party pricing services in accordance with the market prices that are quoted in active markets.

 

Fair value of debentures denominated in foreign currencies is determined by DCF model.

Fair values of financial assets and financial liabilities classified as fair value Level 3 of the fair value hierarchy are determined by using the valuation of independent third-party pricing services. Meanwhile, carrying amounts of other financial assets and financial liabilities are regarded as an approximation of fair values.

 

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(2) Fair value hierarchy

Fair value hierarchy of financial assets and liabilities which are not measured at fair value as of December 31, 2017 and 2016 is as follows (Korean won in millions):

(December 31, 2017)

 

     Level 1      Level 2      Level 3      Total  

Financial assets:

            

Cash and due from financial institutions

    ￦ 647,521      ￦ —        ￦ 1,444,487      ￦ 2,092,008  

Loans

      —          —          69,459,210        69,459,210  

HTM financial assets

      —          89,119        —          89,119  

Other financial assets

      —          —          933,510        933,510  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 647,521      ￦ 89,119      ￦ 71,837,207      ￦ 72,573,847  
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities:

            

Borrowings

    ￦ —        ￦ 5,985,700      ￦ —        ￦ 5,985,700  

Debentures

      —          61,193,068        —          61,193,068  

Other financial liabilities

      —          —          1,794,498        1,794,498  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ —        ￦ 67,178,768      ￦ 1,794,498      ￦ 68,973,266  
  

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2016)

 

     Level 1      Level 2      Level 3      Total  

Financial assets:

            

Cash and due from financial institutions

    ￦ 991,779      ￦ —        ￦ 2,871,468      ￦ 3,863,247  

Loans

      —          —          75,098,073        75,098,073  

HTM financial assets

      —          111,131        —          111,131  

Other financial assets

      —          —          983,090        983,090  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 991,779      ￦ 111,131      ￦ 78,952,631      ￦ 80,055,541  
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities:

            

Borrowings

    ￦ —        ￦ 9,762,894      ￦ —        ￦ 9,762,894  

Debentures

      —          62,917,874        —          62,917,874  

Other financial liabilities

      —          —          1,641,018        1,641,018  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ —        ￦ 72,680,768      ￦ 1,641,018      ￦ 74,321,786  
  

 

 

     

 

 

     

 

 

     

 

 

  

Fair value hierarchy of financial assets and liabilities measured at fair value as of December 31, 2017 and 2016 is as follows (Korean won in millions):

(December 31, 2017)

 

     Level 1      Level 2      Level 3      Total  

Financial assets:

            

Financial assets at FVTPL

    ￦ 725,613      ￦ 891,360      ￦ —        ￦ 1,616,973  

Hedging derivative assets

      —          228,121        —          228,121  

AFS financial assets

      319,416        812,471        3,906,416        5,038,303  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 1,045,029      ￦ 1,931,952      ￦ 3,906,416      ￦ 6,883,397  
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities:

            

Financial liabilities at FVTPL

    ￦ —        ￦ 911,778      ￦ —        ￦ 911,778  

Hedging derivative liabilities

      —          1,058,196        —          1,058,196  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ —        ￦ 1,969,974      ￦ —        ￦ 1,969,974  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

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(December 31, 2016)

 

     Level 1      Level 2      Level 3      Total  

Financial assets:

            

Financial assets at FVTPL

    ￦ 1,210,523      ￦ 688,542      ￦ —        ￦ 1,899,065  

Hedging derivative assets

      —          168,417        —          168,417  

AFS financial assets

      755,825        937,683        3,931,733        5,625,241  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 1,966,348      ￦ 1,794,642      ￦ 3,931,733      ￦ 7,692,723  
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities:

            

Financial liabilities at FVTPL

    ￦ —        ￦ 852,699      ￦ —        ￦ 852,699  

Hedging derivative liabilities

      —          2,335,530        —          2,335,530  
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ —        ￦ 3,188,229      ￦ —        ￦ 3,188,229  
  

 

 

     

 

 

     

 

 

     

 

 

  

The Bank classifies financial instruments as three level of fair value hierarchy as below;

 

Level 1:

Financial instruments measured at quoted prices from active markets are classified as fair value Level 1. This level includes listed equity securities, derivatives, and government bonds traded in an active exchange market.

 

Level 2:

Financial instruments measured using valuation techniques where all significant inputs are observable market data are classified as Level 2. This level includes the majority of debt and general OTC derivatives such as swap, futures and options

 

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. This level includes unlisted equity securities, structured bonds and OTC derivatives.

The valuation techniques and input variables of level 2 financial instruments subsequently not measured at fair value are as follows (Korean won in millions):

(December 31, 2017)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

HTM financial assets

         

Debt securities

    ￦ 89,119        DCF Model        Discount rate  

Financial liabilities

         

Borrowings

      5,985,700        DCF Model        Discount rate  

Debentures

      61,193,068        DCF Model        Discount rate  

(December 31, 2016)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

HTM financial assets

         

Debt securities

    ￦ 111,131        DCF Model        Discount rate  

Financial liabilities

         

Borrowings

      9,762,894        DCF Model        Discount rate  

Debentures

      62,917,874        DCF Model        Discount rate  

 

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Table of Contents

The valuation techniques and input variables of level 3 financial instruments subsequently not measured at fair value as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

Loans

    ￦ 69,459,210        DCF Model        Discount rate  

Other financial assets

      933,510        DCF Model        Discount rate  

Financial liabilities

         

Other financial liabilities

      1,794,498        DCF Model        Discount rate  

(December 31, 2016)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

Loans

    ￦ 75,098,073        DCF Model        Discount rate  

Other financial assets

      983,090        DCF Model        Discount rate  

Financial liabilities

         

Other financial liabilities

      1,641,018        DCF Model        Discount rate  

The valuation techniques and input variables of level 2 financial instruments, measured at fair value after initial recognition, as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

Financial assets at FVTPL

         

Debt securities

    ￦ 38,665        DCF Model        Discount rate  

Derivative assets for trading

      852,695        DCF Model        Discount rate  

Hedging derivative assets

      228,121        DCF Model        Discount rate  

AFS financial assets

         

Debt securities

      812,471        DCF Model        Discount rate  

Financial liabilities

         

Financial liabilities at FVTPL

         

Derivative liabilities for trading

      911,778        DCF Model        Discount rate  

Hedging derivative liabilities

      1,058,196        DCF Model        Discount rate  

 

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Table of Contents

(December 31, 2016)

 

     Fair value      Valuation
techniques		      Input variables  

Financial assets

         

Financial assets at FVTPL

         

Debt securities

    ￦ 41,193        DCF Model        Discount rate  

Derivative assets for trading

      647,349        DCF Model        Discount rate  

Hedging derivative assets

      168,417        DCF Model        Discount rate  

AFS financial assets

         

Debt securities

      937,683        DCF Model        Discount rate  

Financial liabilities

         

Financial liabilities at FVTPL

         

Derivative liabilities for trading

      852,699        DCF Model        Discount rate  

Hedging derivative liabilities

      2,335,530        DCF Model        Discount rate  

Below table accounts for quantitative information of fair value using input factor, which is significant but unobservable, and relation between unobservable input factor and estimate of fair value.

(December 31, 2017)

 

    Fair value
(Korean won
in millions)		    

Valuation
techniques

  

Significant
unobservable
input factors

  

Range

  

Relationship between

unobservable input factors and
fair value estimates

AFS financial assets:

      

Unlisted stock

   ￦ 3,906,416    

DCF Model

CCA Methods NAV Methods

FTE Methods

   Discount rate   5.49%~19.31%   If discount rate is decreased (increased)/if growth rate is increased (decrease), fair value is increased (decreased).
  Growth rate   —  

(December 31, 2016)

 

    Fair value
(Korean won
in millions)		    

Valuation
techniques

  

Significant
unobservable
input factors

  

Range

  

Relationship between

unobservable input factors and fair
value estimates

AFS financial assets:

      

Unlisted stock

   ￦ 3,931,733    

DCF Model

CCA Methods NAV Methods

   Discount rate   4.50%~20.04%   If discount rate is decreased (increased)/if growth rate is increased (decrease), fair value is increased (decreased).
  Growth rate   —

1) Changes in Level 3 financial assets that are measured at fair value for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

(2017)

 

     Beginning
balance		      Profit
(Loss)		     Other
comprehen-
sive income		     Purchases/
issues		      Sales/
settlements		     Transfers into
Level 3 /
Transfers out
of Level 3		      Ending
balance		  

Financial assets

                  

AFS financial assets

    ￦ 3,931,733      ￦ (80 )    ￦ (87,259 )    ￦ 64,366      ￦ (2,344 )    ￦ —        ￦ 3,906,416  

 

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Table of Contents

(2016)

 

     Beginning
balance		      Profit
(Loss)		     Other
comprehen-
sive income		      Purchases/
issues		      Sales/
settlements		     Transfers into
Level 3 /
Transfers out
of Level 3		      Ending
balance		  

Financial assets

                   

AFS financial assets

    ￦ 3,704,041      ￦ (114 )    ￦ 192,185      ￦ 34,434      ￦ (2,703 )    ￦ 3,890      ￦ 3,931,733  

2) In relation to changes in Level 3 of the fair value hierarchy, total gains or losses recognized in profit or loss for the period, and total gains or losses for financial instruments held at the end of the reporting period in the separate statement of comprehensive income for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017     2016  

Total gains (losses) for financial instruments held at the end of the reporting period

    ￦ (80 )    ￦ (114 ) 

Total losses included in profit or loss for the period

      (80 )      (114 ) 

3) The sensitivity of fair value analysis for the Level 3 financial instruments

The Bank performed the sensitivity analysis for the Level 3 financial instruments for which fair value would be measured differently upon reasonably possible alternative assumptions. The Bank classified the effect from changes upon the alternative assumptions into favorable effect and unfavorable effect and presented the most favorable effect or the most unfavorable effect in the table hereunder. Stocks are the financial instruments subject to sensitivity analysis, which are classified as Level 3 and of for which changes in fair value are recognized as other comprehensive income. Meanwhile, equity instruments which are recognized as cost among the financial instruments and are classified as Level 3 are excluded from the sensitivity analysis.

Sensitivity analysis details per market risk variable of each Level 3 financial instrument held and measured at fair value are as follows (Korean won in millions):

(December 31, 2017)

 

     Net income (loss)      Other comprehensive income (loss)  
       Favorable              Unfavorable              Favorable              Unfavorable      

Financial assets:

            

AFS Financial assets (*)

    ￦ —        ￦ —        ￦ 3,175,806      ￦ (936,590 ) 

 

(*)

Changes in fair value of stocks are computed along with the increases or decreases in either growth rate from nil to 1 % and discount rate or liquidation value from negative 1 % to 1 % and discount rate, which are unobservable inputs.

(December 31, 2016)

 

     Net income (loss)      Other comprehensive income (loss)  
       Favorable              Unfavorable              Favorable              Unfavorable      

Financial assets:

            

AFS Financial assets (*)

    ￦ —        ￦ —        ￦ 4,477,511      ￦ (1,106,192 ) 

 

(*)

Changes in fair value of stocks are computed along with the increases or decreases in either growth rate from nil to 1 % and discount rate or liquidation value from negative 1 % to 1 % and discount rate, which are unobservable inputs.

 

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Table of Contents

(3) The table below provides the Bank’s financial assets and financial liabilities that are carried at cost since the fair values of the financial instruments are not readily determinable in the separate statements of financial position. (Korean won in millions)

 

     Dec. 31, 2017      Dec. 31, 2016  

AFS financial assets

      

Unlisted securities (*)

    ￦ 1,648,692      ￦ 1,396,762  

Equity investments to unincorporated entities (*)

      5,483        5,448  
  

 

 

     

 

 

  
   ￦ 1,654,175      ￦ 1,402,210  
  

 

 

     

 

 

  

 

(*)

AFS financial assets are unlisted equity securities and equity investments and recorded as at cost since they do not have quoted prices in an active market and the fair values are not measured with reliability.

5-2. Carrying amounts of financial instruments

Carrying amounts of financial instruments as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

    Financial
assets at
FVTPL		     Loans     AFS financial
assets		     HTM
financial
assets		     Hedging
derivative
assets		     Total  

Financial assets:

            

Cash and due from financial institutions

   ￦ —       ￦ 2,091,920     ￦ —       ￦ —       ￦ —       ￦ 2,091,920  

Financial assets at FVTPL

     1,616,973       —         —         —         —         1,616,973  

Hedging derivative assets

     —         —         —         —         228,121       228,121  

Loans

     —         68,223,320       —         —         —         68,223,320  

Financial investments

     —         —         6,692,478       89,477       —         6,781,955  

Other financial assets

     —         933,510       —         —         —         933,510  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 1,616,973     ￦ 71,248,750     ￦ 6,692,478     ￦ 89,477     ￦ 228,121     ￦ 79,875,799  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

     Financial
liabilities at
FVTPL		      Financial
liabilities at
amortized cost		      Hedging
derivative
liabilities		      Total  

Financial liabilities:

            

Financial liabilities at FVTPL

    ￦ 911,778      ￦ —        ￦ —        ￦ 911,778  

Hedging derivative liabilities

      —          —          1,058,196        1,058,196  

Borrowings

      —          6,013,457        —          6,013,457  

Debentures

      —          60,685,098        —          60,685,098  

Other financial liabilities

      —          1,794,498        —          1,794,498  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 911,778      ￦ 68,493,053      ￦ 1,058,196      ￦ 70,463,027  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

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Table of Contents

(December 31, 2016)

 

    Financial
assets at
FVTPL		     Loans     AFS
financial
assets		     HTM financial
assets		     Hedging
derivative
assets		     Total  

Financial assets:

            

Cash and due from financial institutions

   ￦ —       ￦ 3,863,279     ￦ —       ￦ —       ￦ —       ￦ 3,863,279  

Financial assets at FVTPL

     1,899,065       —         —         —         —         1,899,065  

Hedging derivative assets

     —         —         —         —         168,417       168,417  

Loans

     —         73,418,788       —         —         —         73,418,788  

Financial investments

     —         —         7,027,451       111,334       —         7,138,785  

Other financial assets

     —         983,090       —         —         —         983,090  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 1,899,065     ￦ 78,265,157     ￦ 7,027,451     ￦ 111,334     ￦ 168,417     ￦ 87,471,424  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

     Financial
liabilities at
FVTPL		      Financial
liabilities at
amortized cost		      Hedging
derivative
liabilities		      Total  

Financial liabilities:

            

Financial liabilities at FVTPL

    ￦ 852,699      ￦ —        ￦ —        ￦ 852,699  

Hedging derivative liabilities

      —          —          2,335,530        2,335,530  

Borrowings

      —          9,761,389        —          9,761,389  

Debentures

      —          62,119,016        —          62,119,016  

Other financial liabilities

      —          1,641,018        —          1,641,018  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 852,699      ￦ 73,521,423      ￦ 2,335,530      ￦ 76,709,652  
  

 

 

     

 

 

     

 

 

     

 

 

  

5-3. Offset on financial instruments

The Bank has conditional rights of setoff that are enforceable and exercisable only in the events mentioned in agreements regardless of meeting some or all of the offsetting criteria in K-IFRS No.1032 for financial instruments. Cash collaterals do not meet the offsetting criteria in K-IFRS No.1032, but they can be set off with net amount of financial instruments.

The effects of netting agreements as of December 31, 2017 and 2016 are as follow (Korean won in millions):

(December 31, 2017)

 

     Gross amounts
of recognized
financial assets
(liabilities)		      Gross
amounts of
recognized
financial
liabilities
(assets) to be
setoff		      Net amounts of
financial assets
(liabilities)
presented in the
separate
statement of
financial
position		     

 

Amount that is not offset in
the financial statements

     Net
amount		  
   Financial
instruments		     Cash
collateral		  

Financial assets:

                

Derivatives

    ￦ 1,080,816      ￦ —        ￦ 1,080,816      ￦ (535,438 )    ￦ (38,009 )    ￦ 507,369  

Financial liabilities:

                

Derivatives

      1,969,974        —          1,969,974        (535,438 )      (667,220 )      767,316  

 

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Table of Contents

(December 31, 2016)

 

     Gross amounts
of recognized
financial assets
(liabilities)		      Gross
amounts of
recognized
financial
liabilities
(assets) to be
setoff		      Net amounts of
financial assets
(liabilities)
presented in the
separate
statement of
financial
position		     

 

Amount that is not offset in the
financial statements

     Net
amount		  
   Financial
instruments		     Cash
collateral		  

Financial assets:

                

Derivatives

    ￦ 815,766      ￦ —        ￦ 815,766      ￦ (371,033 )    ￦ —       ￦ 444,733  

Financial liabilities:

                

Derivatives

      3,188,229        —          3,188,229        (371,033 )      (1,638,738 )      1,178,458  

5-4. Transfer of financial assets

The Bank has securities sold under repurchase agreements (“RP”), and it refers to the financial assets that have been transferred, but presented in the separate financial statements since the assets do not meet the conditions of de-recognition. In case of securities sold under the RP, securities are disposed, but the Bank agrees to repurchase at the fixed amount, so that the Bank retains substantially all the risks and rewards of ownership of the securities. There are no carrying amounts of transferred assets and relevant liabilities as of December 31, 2017 and December 31, 2016.

6. OPERATING SEGMENT:

Though the Bank conducts business activities related to financial services, in accordance with relevant laws such as the Export-Import Bank of Korea Act, it does not report separate segment information, as management considers the Bank to be operating under one core business.

7. CASH AND DUE FROM FINANCIAL INSTITUTIONS:

(1) Cash and cash equivalents as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

    Dec. 31, 2017     Dec. 31, 2016  

Due from financial institutions in local currency

    ￦ 439,119     ￦ 441,618  

Due from financial institutions in foreign currencies

      1,652,801       3,421,661  
  

 

 

    

 

 

  

Subtotal

      2,091,920       3,863,279  
  

 

 

    

 

 

  

Restricted due from financial institutions

      (985,926 )      (2,178,585 ) 

Due from financial institutions with original maturities of more than three months at acquisition date

      (290,000 )      (330,000 ) 
  

 

 

    

 

 

  

Subtotal

      (1,275,926 )      (2,508,585 ) 
  

 

 

    

 

 

  

Total (*)

    ￦ 815,994     ￦ 1,354,694  
  

 

 

    

 

 

  

 

(*)

It is equal to the due from financial institutions as presented on the separate statements of cash flows.

 

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Table of Contents

(2) Details of due from financial institutions as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

    December 31, 2017      December 31, 2016  
   Amount      Interest
(%)		      Amount      Interest
(%)		  

Due from financial institutions in local currency:

            

Demand deposits

    ￦ 1,439        —        ￦ 1,857        —    

Time deposits

      430,000        1,60 ~ 2.15        330,000        1,60 ~ 1.94  

Others

      4,900        1.10        3,800        1.35  

Margin for derivatives

      2,780        —          105,961        —    
  

 

 

        

 

 

     

Subtotal

      439,119           441,618     
  

 

 

        

 

 

     

Due from financial institutions in foreign currencies:

            

Demand deposits

      44,057        —          39,892        —    

Time deposits

      28,473        —          682,502        0.00 ~ 0.66  

On demand

      572,133        —          362,884        —    

Offshore demand deposits

      24,993        —          46,230        —    

Others

      784,438        0.00 ~ 0.45        2,287,237        0.00 ~ 0.45  

Margin for derivatives

      198,707        —          2,916        —    
  

 

 

        

 

 

     

Subtotal

      1,652,801           3,421,661     
  

 

 

        

 

 

     

Total

    ￦ 2,091,920         ￦ 3,863,279     
  

 

 

        

 

 

     

(3) Restricted due from financial institutions as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

   

Financial Institution

    Dec. 31, 2017      Dec. 31, 2016     

Reason for restriction

Others

    DEUTSCHE BANK TRUST COMPANY AMERICAS and others    ￦ 985,926      ￦ 2,178,585      Credit support annex for derivative transactions

8. FINANCIAL ASSETS AT FVTPL:

Details of financial assets at FVTPL as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  

Equity securities

      

Beneficiary certificates

    ￦ 725,613      ￦ 1,210,523  
  

 

 

     

 

 

  

Debt securities

      

Debt securities in foreign currency

      38,665        41,193  

Derivative assets

      

Stocks

      1,444        2,151  

Interest product

      329,246        231,219  

Currency product

      521,982        413,979  

Others

      23        —    
  

 

 

     

 

 

  

Subtotal

      852,695        647,349  
  

 

 

     

 

 

  

Total

    ￦ 1,616,973      ￦ 1,899,065  
  

 

 

     

 

 

  

 

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Table of Contents

9. FINANCIAL INVESTMENTS:

Details of financial investments as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  

AFS securities in local currency

      

Equity securities

      

Marketable securities

    ￦ 220,370      ￦ 755,825  

Non-marketable securities

      5,410,644        5,248,767  

Equity investments in unincorporated entities

      62,117        41,822  

Others

      65,642        23,097  

Debt securities

      

Debt securities

      149,085        353,467  
  

 

 

     

 

 

  

Subtotal

      5,907,858        6,422,978  
  

 

 

     

 

 

  

AFS securities in foreign currencies

      

Equity securities

      

Stocks

      17,764        15,835  

Paid-in capital

      4,423        4,423  

Debt securities

      

Debt securities (*)

      762,433        584,215  
  

 

 

     

 

 

  

Subtotal

      784,620        604,473  
  

 

 

     

 

 

  

HTM securities in foreign currencies

      

Debt securities

      

Debt securities

      89,477        111,334  
  

 

 

     

 

 

  

Total

    ￦ 6,781,955      ￦ 7,138,785  
  

 

 

     

 

 

  

 

(*)

It includes securities, which are pledged as collateral amounting to ￦31,220 million and ￦11,651 million as of December 31, 2017, and 2016, respectively.

 

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Table of Contents

10. LOANS:

Loans as presented below exclude loan valuation adjustment related to fair value hedging amounting to ￦24,182 million and ￦47,397 million, as of December 31, 2017 and 2016, respectively.

(1) Details of loans as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

    

Detail

    Dec. 31, 2017     Dec. 31, 2016  

Loans in local currency

    Loans for export    ￦ 12,027,416     ￦ 10,590,820  
   Loans for foreign investments      797,992       798,796  
   Loans for import      1,959,237       1,391,905  
   Troubled Debt Restructuring (*1)      2,161,537       1,973,981  
   Others      2,009,825       1,422,853  
     

 

 

    

 

 

  
  

Subtotal

      18,956,007       16,178,355  
     

 

 

    

 

 

  

Loans in foreign currencies

    Loans for export      25,985,848       29,592,407  
   Loans for foreign investments      19,518,443       22,709,442  
   Loans for rediscounted trading notes      —         84,595  
   Loans for import      1,594,141       2,138,489  
   Overseas funding loans      546,938       590,133  
   Domestic usance bills (*2)      172,830       211,097  
   Others      54,422       196,838  
     

 

 

    

 

 

  
  

Subtotal

      47,872,622       55,523,001  
     

 

 

    

 

 

  

Others

    Foreign-currency bills bought      1,063,717       1,348,135  
  

Advance payments on acceptances and guarantees

      10,656       353,618  
   Call loans      2,056,086       2,765,307  
   Interbank loans in foreign currencies      1,925,158       555,645  
     

 

 

    

 

 

  
  

Subtotal

      5,055,617       5,022,705  
     

 

 

    

 

 

  
  

Total

      71,884,246       76,724,061  
  

Net deferred origination fees and costs

      (398,113 )      (426,935 ) 
  

Allowance for loan losses

      (3,286,995 )      (2,925,735 ) 
     

 

 

    

 

 

  
  

Total

    ￦ 68,199,138     ￦ 73,371,391  
     

 

 

    

 

 

  

 

(*1)

Representing loans originated by the Bank to companies that are undergoing debt restructuring activities.

(*2)

Representing receivables associated with letters of credit issued by domestic banks in Korea.

 

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(2) Loans classified by type of customers as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

    

Detail

   Loans in
local currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		  

Customer

    Large enterprise   ￦ 8,000,990     ￦ 29,003,791     ￦ 160,194     ￦ 37,164,975       60.29  
  

Small and medium sized enterprise

     8,511,777       6,207,018       132,851       14,851,646       24.09  
  

Public sector and others

     1,083,874       8,545,395       —         9,629,269       15.62  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  

Subtotal

     17,596,641       43,756,204       293,045       61,645,890       100.00  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  

Net deferred origination fees and costs

     (3,886 )      (392,432 )      —         (396,318 )   
  

Allowance for loan losses

     (2,891,976 )      (368,530 )      (9,700 )      (3,270,206 )   
    

 

 

    

 

 

    

 

 

    

 

 

    
  

Subtotal

     14,700,779       42,995,242       283,345       57,979,366    
    

 

 

    

 

 

    

 

 

    

 

 

    

Financial institution

    Bank     1,359,366       2,368,339       4,494,987       8,222,692       80.31  
   Others     —         1,748,079       267,585       2,015,664       19.69  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  

Subtotal

     1,359,366       4,116,418       4,762,572       10,238,356       100.00  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  

Net deferred origination fees and costs

     —         (1,795 )      —         (1,795 )   
  

Allowance for loan losses

     (800 )      (8,450 )      (7,539 )      (16,789 )   
    

 

 

    

 

 

    

 

 

    

 

 

    
  

Subtotal

     1,358,566       4,106,173       4,755,033       10,219,772    
    

 

 

    

 

 

    

 

 

    

 

 

    
  

Total

   ￦ 16,059,345     ￦ 47,101,415     ￦ 5,038,378     ￦ 68,199,138    
    

 

 

    

 

 

    

 

 

    

 

 

    

(December 31, 2016)

 

    

Detail

   Loans in
local currency		     Loans in
foreign
currencies		     Others     Total     Ratio
(%)		  

Customer

    Large enterprise   ￦ 7,423,734     ￦ 34,017,701     ￦ 569,826     ￦ 42,011,261       62.29  
  

Small and medium sized enterprise

     7,671,167       7,181,736       205,582       15,058,485       22.33  
  

Public sector and others

     419,103       9,938,046       8,494       10,365,643       15.38  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  

Subtotal

     15,514,004       51,137,483       783,902       67,435,389       100.00  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  

Net deferred origination fees and costs

     (3,193 )      (420,868 )      —         (424,061 )   
  

Allowance for loan losses

     (1,847,258 )      (913,829 )      (142,853 )      (2,903,940 )   
    

 

 

    

 

 

    

 

 

    

 

 

    
  

Subtotal

     13,663,553       49,802,786       641,049       64,107,388    
    

 

 

    

 

 

    

 

 

    

 

 

    

Financial institution

    Bank     664,351       2,787,481       3,929,626       7,381,458       79.47  
   Others     —         1,598,037       309,177       1,907,214       20.53  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  

Subtotal

     664,351       4,385,518       4,238,803       9,288,672       100.00  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  

Net deferred origination fees and costs

     —         (2,874 )      —         (2,874 )   
  

Allowance for loan losses

     (941 )      (17,198 )      (3,656 )      (21,795 )   
    

 

 

    

 

 

    

 

 

    

 

 

    
  

Subtotal

     663,410       4,365,446       4,235,147       9,264,003    
    

 

 

    

 

 

    

 

 

    

 

 

    
  

Total

   ￦ 14,326,963     ￦ 54,168,232     ￦ 4,876,196     ￦ 73,371,391    
    

 

 

    

 

 

    

 

 

    

 

 

    

 

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(3) Changes in allowance for loan losses for the year ended December 31, 2017 and 2016, are as follows (Korean won in millions):

(2017)

 

     Individual
assessment		     Collective
assessment		     Total  

Beginning balance

    ￦ 2,228,715     ￦ 697,020     ￦ 2,925,735  

Written-off

      (205,540 )      (79,080 )      (284,620 ) 

Collection of written-off loans

      445       18,094       18,539  

Loan-for-equity swap

      (48,404 )      (4,093 )      (52,497 ) 

Others

      —         (938,437 )      (938,437 ) 

Unwinding effect

      (74,103 )      (5,745 )      (79,848 ) 

Foreign exchange translation

      (10,137 )      (15,932 )      (26,069 ) 

Additional provisions, net of reversals

      706,250       1,017,942       1,724,192  

Transfer in (out)

      372,475       (372,475 )      —    
  

 

 

    

 

 

    

 

 

  

Ending balance

    ￦ 2,969,701     ￦ 317,294     ￦ 3,286,995  
  

 

 

    

 

 

    

 

 

  

(2016)

 

     Individual
assessment		     Collective
assessment		     Total  

Beginning balance

    ￦ 1,994,753     ￦ 410,543     ￦ 2,405,296  

Written-off

      (458,272 )      (94,618 )      (552,890 ) 

Collection of written-off loans

      48,043       16,971       65,014  

Loan-for-equity swap

      (749,980 )      (2,646 )      (752,626 ) 

Others

      —         (124,729 )      (124,729 ) 

Unwinding effect

      (39,148 )      (9,743 )      (48,891 ) 

Foreign exchange translation

      1,877       4,087       5,964  

Additional provisions, net of reversals

      1,077,240       851,357       1,928,597  

Transfer in (out)

      354,202       (354,202 )      —    
  

 

 

    

 

 

    

 

 

  

Ending balance

    ￦ 2,228,715     ￦ 697,020     ￦ 2,925,735  
  

 

 

    

 

 

    

 

 

  

 

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11. INVESTMENTS IN ASSOCIATES AND SUBSIDIARIES:

(1) Details of investments in associates and subsidiaries as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

Company (*1)

   Detail     Location     Business     Year-end     Ownership
(%)		     Net asset     Carrying
amount		  

KEXIM Bank UK Limited

     Subsidiary       United Kingdom      
 Financial
service		  
 		     December       100.00     ￦ 45,079     ￦ 48,460  

KEXIM Vietnam Leasing Co.

     Subsidiary       Vietnam      
 Financial
service		  
 		     December       100.00       15,568       10,275  

PT.KOEXIM Mandiri Finance

     Subsidiary       Indonesia      
 Financial
service		  
 		     December       85.00       27,359       25,270  

KEXIM Asia Limited

     Subsidiary       Hong Kong      
 Financial
service		  
 		     December       100.00       60,176       49,139  

Korea Asset Management Corporation

     Associate       Korea      
 Financial
service		  
 		     December       25.86       450,571       380,520  

Credit Guarantee and Investment Fund (*2,5)

     Associate       Philippines      
 Financial
service		  
 		     December       14.29       113,046       115,486  

Korea Marine Guarantee Inc.

     Associate       Korea      
 Financial
service		  
 		     December       41.88       130,788       135,000  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd. (*3,5)

     Associate       Korea       Shipbuilding       December       81.25       (972,550 )      —    

DAESUN Shipbuilding & Engineering Co.,
Ltd. (*3,5)

     Associate       Korea       Shipbuilding       December       67.30       (264,588 )      —    

KTB Newlake Global Healthcare PEF

     Associate       Korea      
 Financial
service		  
 		     December       25.00       2,010       2,570  

KBS-KDB Private Equity Fund

     Associate       Korea      
 Financial
service		  
 		     December       20.83       2,096       2,367  

Korea Shipping and Maritime Transportation

     Associate       Korea      
 Financial
service		  
 		     December       40.00       304,812       362,000  

Korea Aerospace Industries. Ltd.

     Associate       Korea       Manufacturing       December       26.41       301,181       1,467,520  
             

 

 

  

Total

               ￦ 2,598,607  
             

 

 

  

 

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Table of Contents

(December 31, 2016)

 

Company (*1)

   Detail     Location     Business     Year-end     Ownership
(%)		     Net asset     Carrying
amount		  

KEXIM Bank UK Limited

     Subsidiary       United Kingdom      
 Financial
service		  
 		     December       100.00     ￦ 44,107     ￦ 48,460  

KEXIM Vietnam Leasing Co.

     Subsidiary       Vietnam      
 Financial
service		  
 		     December       100.00       15,851       10,275  

PT.KOEXIM Mandiri Finance

     Subsidiary       Indonesia      
 Financial
service		  
 		     December       85.00       24,730       25,270  

KEXIM Asia Limited

     Subsidiary       Hong Kong      
 Financial
service		  
 		     December       100.00       65,709       49,139  

Korea Asset Management Corporation

     Associate       Korea      
 Financial
service		  
 		     December       25.86       446,956       380,520  

Credit Guarantee and Investment Fund (*2)

     Associate       Philippines      
 Financial
service		  
 		     December       14.29       127,209       115,486  

Korea Marine Guarantee Inc. (*4)

     Associate       Korea      
 Financial
service		  
 		     December       52.63       130,811       135,000  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd. (*3)

     Associate       Korea       Shipbuilding       December       70.71       (918,623 )      —    

DAESUN Shipbuilding & Engineering Co., Ltd. (*3)

     Associate       Korea       Shipbuilding       December       67.27       (262,593 )      —    

EQP Global Energy Infrastructure PEF

     Associate       Korea      
 Financial
service		  
 		     December       22.64       (417 )      280  

KTB Newlake Global Healthcare PEF

     Associate       Korea      
 Financial
service		  
 		     December       25.00       760       1,153  

KBS-KDB Private Equity Fund

     Associate       Korea      
 Financial
service		  
 		     December       20.83       421       501  
             

 

 

  

Total

               ￦ 766,084  
             

 

 

  

 

(*1)

In cases of associates, the amounts represent net asset after taking into account percentage of ownership.

(*2)

As of December 31, 2017 and 2016, Credit Guarantee and Investment Fund is classified into an associate because the Bank has significant influence in the way of representation on the board of directors or equivalent governing body of the investee.

(*3)

Those companies are under the creditor-led work out programs. The Bank should hold at least 75% of the voting rights to have substantive control based on the creditor’s agreement. As the Bank holds only 69.01% and 70.06% of the voting rights, respectively, those are classified into associates.

(*4)

Based on the stockholders’ agreement, the Bank does not have substantial control over the entity, thereby classifying the entity as an associate.

(*5)

Financial statements as of September 30, 2017 are using (due to the unavailability of the ones as of December 31, 2017) in which the significant transactions or events, which occurred between the end of preceding reporting period of an associate and that of the Bank, had been reflected.

 

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(2) Changes in investments in associates and subsidiaries for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

(2017)

 

Company

   Detail     Beginning
balance		     Acquisition     Disposals     Impairment
loss		     Ending
balance		  

KEXIM Bank UK Limited

     Subsidiary     ￦ 48,460     ￦ —       ￦ —       ￦ —       ￦ 48,460  

KEXIM Vietnam Leasing Co.

     Subsidiary       10,275       —         —         —         10,275  

PT.KOEXIM Mandiri Finance

     Subsidiary       25,270       —         —         —         25,270  

KEXIM Asia Limited

     Subsidiary       49,139       —         —         —         49,139  

Korea Asset Management Corporation

     Associate       380,520       —         —         —         380,520  

Credit Guarantee and Investment Fund

     Associate       115,486       —         —         —         115,486  

Korea Marine Guarantee Inc.

     Associate       135,000       —         —         —         135,000  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

     Associate       —         236       —         (236 )      —    

DAESUN Shipbuilding & Engineering Co., Ltd.

     Associate       —         —         —         —         —    

EQP Global Energy Infrastructure PEF

     Associate       280       —         (280 )      —         —    

KTB Newlake Global Healthcare PEF

     Associate       1,153       1,417       —         —         2,570  

KBS-KDB Private Equity Fund

     Associate       501       1,866       —         —         2,367  

Korea Shipping and Maritime Transportation

     Associate       —         362,000       —         —         362,000  

Korea Aerospace Industries. Ltd.

     Associate       —         1,467,520       —         —         1,467,520  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

     ￦ 766,084     ￦ 1,833,039     ￦ (280 )    ￦ (236 )    ￦ 2,598,607  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(2016)

 

Company

    Detail      Beginning
balance		      Acquisition      Impairment
loss		     Ending
balance		  

KEXIM Bank UK Limited

      Subsidiary      ￦ 48,460      ￦ —        ￦ —       ￦ 48,460  

KEXIM Vietnam Leasing Co.

      Subsidiary        10,275        —          —         10,275  

PT.KOEXIM Mandiri Finance

      Subsidiary        25,270        —          —         25,270  

KEXIM Asia Limited

      Subsidiary        49,139        —          —         49,139  

Korea Asset Management Corporation

      Associate        380,520        —          —         380,520  

Credit Guarantee and Investment Fund

      Associate        115,486        —          —         115,486  

Korea Marine Guarantee Inc.

      Associate        50,000        85,000        —         135,000  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      Associate        —          3,382        (3,382 )      —    

DAESUN Shipbuilding & Engineering Co., Ltd.

      Associate        —          1,033        (1,033 )      —    

EQP Global Energy Infrastructure PEF

      Associate        175        105        —         280  

KTB Newlake Global Healthcare PEF

      Associate        —          1,153        —         1,153  

KBS-KDB Private Equity Fund

      Associate        —          501        —         501  
     

 

 

     

 

 

     

 

 

    

 

 

  

Total

       ￦ 679,325      ￦ 91,174      ￦ (4,415 )    ￦ 766,084  
     

 

 

     

 

 

     

 

 

    

 

 

  

 

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Table of Contents

(3) Summarized financial information of associates and subsidiaries as of and for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

Company

    Assets      Liabilities      Operating
income (loss)		     Net income
(loss)		     Comprehensive
net income
(loss)		  

KEXIM Bank UK Limited

    ￦ 453,479      ￦ 408,400      ￦ 3,470     ￦ 2,831     ￦ (1,129 ) 

KEXIM Vietnam Leasing Co.

      144,783        129,216        1,786       1,599       (2,166 ) 

PT.KOEXIM Mandiri Finance

      176,436        149,077        2,769       2,397       (5,003 ) 

KEXIM Asia Limited

      423,166        362,989        3,452       3,094       (13,969 ) 

Korea Asset Management Corporation

      3,567,608        1,825,259        60,350       45,137       33,104  

Credit Guarantee and Investment Fund

      837,193        46,106        12,234       12,310       15,269  

Korea Marine Guarantee Inc.

      331,270        18,978        (849 )      (1,863 )      (1,785 ) 

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      1,294,318        2,703,607        43,967       7,976       15,412  

DAESUN Shipbuilding & Engineering Co., Ltd.

      420,575        795,346        (10,398 )      (143 )      (143 ) 

KTB Newlake Global Healthcare PEF

      8,279        239        (671 )      (671 )      (671 ) 

KBS-KDB Private Equity Fund

      10,516        454        (915 )      (915 )      (915 ) 

Korea Shipping and Maritime Transportation

      764,796        2,767        27,646       (153,589 )      (142,856 ) 

Korea Aerospace Industries. Ltd.

      3,166,223        2,025,818        (208,873 )      (235,186 )      (239,776 ) 

(December 31, 2016)

 

Company

    Assets      Liabilities      Operating
income
(loss)		     Net income
(loss)		     Comprehensive
net income
(loss)		  

KEXIM Bank UK Limited

    ￦ 525,225      ￦ 481,117      ￦ 2,881     ￦ 1,759     ￦ (11,236 ) 

KEXIM Vietnam Leasing Co.

      167,145        151,294        1,835       1,515       2,504  

PT.KOEXIM Mandiri Finance

      172,187        143,093        3,492       3,419       6,177  

KEXIM Asia Limited

      422,804        357,094        3,284       2,736       7,240  

Korea Asset Management Corporation

      2,546,010        817,641        57,506       97,236       98,095  

Credit Guarantee and Investment Fund

      940,953        50,755        10,892       10,805       13,531  

Korea Marine Guarantee Inc.

      259,610        11,061        (4,569 )      (4,181 )      (4,327 ) 

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      1,896,604        3,195,746        25,475       154,866       151,407  

DAESUN Shipbuilding & Engineering Co., Ltd.

      387,613        777,970        (25,466 )      39,452       39,428  

EQP Global Energy Infrastructure PEF

      1        1,845        (1,846 )      (1,846 )      (1,846 ) 

KTB Newlake Global Healthcare PEF

      3,327        286        (1,002 )      (1,002 )      (1,002 ) 

KBS-KDB Private Equity Fund

      2,325        303        (384 )      (384 )      (384 ) 

 

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12. TANGIBLE ASSETS:

(1) Details of tangible assets for the year ended December 31,2017, and 2016, are as follows (Korean won in millions):

(December 31, 2017)

 

Detail

    Acquisition cost      Accumulated
depreciation		     Government
grants		     Book value  

Lands

    ￦ 190,807      ￦ —       ￦ —       ￦ 190,807  

Buildings

      97,539        (33,834 )      (17 )      63,688  

Vehicles

      3,961        (3,088 )      —         873  

Furniture and fixture

      35,014        (21,917 )      —         13,097  
  

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ 327,321      ￦ (58,839 )    ￦ (17 )    ￦ 268,465  
  

 

 

     

 

 

    

 

 

    

 

 

  

(December 31, 2016)

 

Detail

    Acquisition cost      Accumulated
depreciation		     Government
grants		     Book value  

Lands

    ￦ 190,807      ￦ —       ￦ —       ￦ 190,807  

Buildings

      97,539        (31,139 )      (17 )      66,383  

Vehicles

      4,087        (2,809 )      —         1,278  

Furniture and fixture

      36,199        (21,530 )      —         14,669  
  

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ 328,632      ￦ (55,478 )    ￦ (17 )    ￦ 273,137  
  

 

 

     

 

 

    

 

 

    

 

 

  

(2) Changes in tangible assets for the year ended December 31, 2017, and 2016, are as follows (Korean won in millions):

(2017)

 

Detail

    Beginning
balance		      Acquisitions      Disposals     Depreciation     Ending
balance		  

Lands

    ￦ 190,807      ￦ —        ￦ —       ￦ —       ￦ 190,807  

Buildings

      66,383        —          —         (2,696 )      63,687  

Vehicles

      1,278        230        (41 )      (593 )      874  

Furniture and fixture

      14,669        4,084        (5 )      (5,651 )      13,097  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ 273,137      ￦ 4,314      ￦ (46 )    ￦ (8,940 )    ￦ 268,465  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

(2016)

 

Detail

    Beginning
balance		      Acquisitions      Disposals     Depreciation     Ending
balance		  

Lands

    ￦ 191,193      ￦ —        ￦ (386 )    ￦ —       ￦ 190,807  

Buildings

      69,268        —          (186 )      (2,699 )      66,383  

Vehicles

      1,355        538        (12 )      (603 )      1,278  

Furniture and fixture

      9,682        9,343        (3 )      (4,353 )      14,669  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ 271,498      ￦ 9,881      ￦ (587 )    ￦ (7,655 )    ￦ 273,137  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

 

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13. INTANGIBLE ASSETS:

(1) Details of intangible assets for the year ended December 31,2017, and 2016, are as follows (Korean won in millions):

(December 31, 2017)

 

Detail

    Acquisition cost      Accumulated
Depreciation		     Accumulated
Impairment Losses		     Book value  

Computer software

    ￦ 22,206      ￦ (9,169 )    ￦ —       ￦ 13,037  

System development fees

      46,405        (15,566 )      —         30,839  

Memberships

      4,501        —         (755 )      3,746  
  

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ 73,112      ￦ (24,735 )    ￦ (755 )    ￦ 47,622  
  

 

 

     

 

 

    

 

 

    

 

 

  

(December 31, 2016)

 

Detail

    Acquisition cost      Accumulated
Depreciation		     Accumulated
Impairment Losses		     Book value  

Computer software

    ￦ 20,836      ￦ (8,436 )    ￦ —       ￦ 12,400  

System development fees

      45,906        (19,840 )      —         26,066  

Memberships

      4,671        —         (538 )      4,133  
  

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ 71,413      ￦ (28,276 )    ￦ (538 )    ￦ 42,599  
  

 

 

     

 

 

    

 

 

    

 

 

  

(2) Changes in intangible assets for the year ended December 31, 2017, and 2016, are as follows (Korean won in millions):

(2017)

 

Detail

    Beginning
balance		      Acquisitions      Disposals     Amortization     Impairment     Ending
balance		  

Computer software

    ￦ 12,400      ￦ 3,939      ￦ —       ￦ (3,302 )    ￦ —       ￦ 13,037  

System development fees

      26,066        10,690        —         (5,917 )      —         30,839  

Memberships

      4,133        336        (506 )      —         (217 )      3,746  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 42,599      ￦ 14,965      ￦ (506 )    ￦ (9,219 )    ￦ (217 )    ￦ 47,622  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

(2016)

 

Detail

    Beginning
balance		      Acquisitions      Disposals      Amortization     Impairment     Ending
balance		  

Computer software

    ￦ 5,419      ￦ 8,766      ￦ —        ￦ (1,785 )    ￦ —       ￦ 12,400  

System development fees

      18,449        10,885        —          (3,268 )      —         26,066  

Memberships

      4,671        —          —          —         (538 )      4,133  
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ 28,539      ￦ 19,651      ￦ —        ￦ (5,053 )    ￦ (538 )    ￦ 42,599  
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

 

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14. OTHER ASSETS:

(1) Details of other assets as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017     Dec. 31, 2016  

Other financial assets:

     

Guarantee deposits

    ￦ 38,153     ￦ 37,933  

Accounts receivable

      238,046       196,474  

Accrued income

      825,800       799,443  

Receivable spot exchange

      63       178  

Allowances for loan losses on other assets

      (168,552 )      (50,938 ) 
  

 

 

    

 

 

  

Subtotal

      933,510       983,090  
  

 

 

    

 

 

  

Other assets :

     

Advance payments

      1       14,843  

Prepaid expenses

      2,048       17,080  

Current income tax asset

      4,703       2,942  

Sundry assets

      10,269       27,813  
  

 

 

    

 

 

  

Subtotal

      17,021       62,678  
  

 

 

    

 

 

  

Total

    ￦ 950,531     ￦ 1,045,768  
  

 

 

    

 

 

  

(2) Changes in allowances for loan losses on other assets for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017     2016  

Beginning balance

    ￦ 50,938     ￦ 43,120  

Write-off

      —         (7,521 ) 

Collection of written-off loans

      15       58  

Foreign exchange translation

      (8 )      2  

Additional provisions

      117,622       7,815  

Others

      (15 )      7,464  
  

 

 

    

 

 

  

Ending balance

    ￦ 168,552     ￦ 50,938  
  

 

 

    

 

 

  

 

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15. BORROWINGS:

(1) Details of borrowings as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

Detail

   

Lender

   

Interest rate (%)

    Amount  

Borrowings in foreign currencies:

         

Borrowings from the Government

   

MINISTRY OF STRATEGY AND FINANCE

    LIBOR 3M+0.50 ~ LIBOR 3M+0.78    ￦ 2,976,435  

Long term borrowings from foreign financial institutions

   

BANK OF AMERICA N.A and others

    LIBOR 3M+0.40 ~ LIBOR 3M+0.85      2,678,500  

Discount on borrowings

            (2,224 ) 

Commercial papers

   

BRED BANQUE POPULAIRE

    (-)0.40      42,727  

Offshore commercial papers denominated in foreign currency

   

BARCLAYS BANK PLC LONDON and others

    (-)0.39 ~ 1.69      72,999  

Others (Foreign banks)

   

DBS BANK LTD, SINGAPORE BRANCH and others

    0.00 ~ 0.06      172,830  

Others (CSA)

   

CITIBANK N.A., HONG KONG and others

    —        72,190  
        

 

 

  

Total

          ￦ 6,013,457  
        

 

 

  

(December 31, 2016)

 

Detail

   

Lender

   

Interest rate (%)

    Amount  

Borrowings in foreign currencies:

         

Borrowings from the Government

   

MINISTRY OF STRATEGY AND FINANCE

    LIBOR 3M+0.50 ~ LIBOR 3M+0.78    ￦ 3,199,262  

Long term borrowings from foreign financial institutions

   

BANK OF AMERICA N.A and others

    LIBOR 3M+0.40 ~ LIBOR 3M+1.10      3,746,350  

Discount on borrowings

            (5,507 ) 

Commercial papers

   

CITIBANK N.A.,

HONG KONG and others

    0.27 ~ 2.00      2,433,674  

Offshore commercial papers denominated in foreign currency

   

BARCLAYS BANK PLC LONDON

    0.52 ~ 1.48      164,646  

Others (Foreign banks)

   

DBS BANK LTD, SINGAPORE BRANCH and others

    0.16 ~ 3.69      211,097  

Others (CSA)

   

JP MORGAN CHASE and others

    —        11,867  
        

 

 

  

Total

          ￦ 9,761,389  
        

 

 

  

(2) Details of borrowings from other financial institutions as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

Detail

    Call money      Borrowings in foreign
currency		      Total  

General bank

    ￦ —        ￦ 3,037,022      ￦ 3,037,022  

 

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(December 31, 2016)

 

Detail

    Call money      Borrowings in foreign
currency		      Total  

General bank

    ￦ —        ￦ 6,562,127      ￦ 6,562,127  

Borrowings presented above exclude present value discounts.

16. DEBENTURES:

Details of debentures as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

    December 31, 2017     December 31, 2016  
     Interest rate (%)      Amount     Interest rate (%)      Amount  

Local currency:

           

Floating rate

      1.67 ~ 1.83      ￦ 1,100,000       1.49 ~1.65      ￦ 2,070,000  

Fixed rate

      1.35 ~ 4.70        13,020,000       1.26 ~ 4.50        10,010,000  
     

 

 

       

 

 

  

Subtotal

         14,120,000          12,080,000  
     

 

 

       

 

 

  

Fair value hedging income

         (80,211 )         (48,530 ) 

Discount on debentures:

         (78,861 )         (47,354 ) 
     

 

 

       

 

 

  

Subtotal

         13,960,928          11,984,116  
     

 

 

       

 

 

  

Foreign currencies

           

Floating rate

     

 LIBOR+0.30

~ LIBOR +1.00

  

 

      7,685,330      

 LIBOR +0.30

~ LIBOR +1.00

  

 

      9,427,017  

Fixed rate

      0.17 ~ 9.32        39,253,997       0.12 ~ 9.32        40,876,373  
     

 

 

       

 

 

  

Subtotal

         46,939,327          50,303,390  
     

 

 

       

 

 

  

Fair value hedging income

         (98,744 )         (27,290 ) 

Discount on debentures

         (116,413 )         (141,200 ) 
     

 

 

       

 

 

  

Subtotal

         46,724,170          50,134,900  
     

 

 

       

 

 

  

Total

       ￦ 60,685,098        ￦ 62,119,016  
     

 

 

       

 

 

  

17. PROVISIONS:

(1) Details of provisions as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  

Provisions for acceptances and guarantees

    ￦ 509,038      ￦ 1,407,910  

Provisions for unused loan commitments

      166,080        228,839  

Provisions for others

      —          15,198  
  

 

 

     

 

 

  

Total

    ￦ 675,118      ￦ 1,651,947  
  

 

 

     

 

 

  

 

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(2) Changes in provisions for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

(2017)

 

Detail

   Acceptances and guarantees     Unused loan
commitments		     Provision for
others		     Total  
  Individual
assessment		     Collective
assessment		     Subtotal  

Beginning balance

   ￦ 403,504     ￦ 1,004,406     ￦ 1,407,910     ￦ 228,839     ￦ 15,198     ￦ 1,651,947  

Foreign exchange translation

     (5,572 )      (14,047 )      (19,619 )      (104 )      —         (19,723 ) 

Additional provisions (Reversal of provision)

     (314,764 )      (564,489 )      (879,253 )      (62,655 )      1,344       (940,564 ) 

Transfers in (out)

     370,270       (370,270 )      —         —         (14,818 )      (14,818 ) 

Payment

     —         —         —         —         (1,724 )      (1,724 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance

   ￦ 453,438     ￦ 55,600     ￦ 509,038     ￦ 166,080     ￦ —       ￦ 675,118  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(2016)

 

Detail

   Acceptances and guarantees     Unused loan
commitments		     Provision for
others		     Total  
  Individual
assessment		     Collective
assessment		     Subtotal  

Beginning balance

   ￦ 50,761     ￦ 190,958     ￦ 241,719     ￦ 151,618     ￦ —       ￦ 393,337  

Foreign exchange translation

     876       116       992       51       —         1,043  

Additional provisions (Reversal of provision)

     351,808       813,391       1,165,199       77,170       16,317       1,258,686  

Transfers in (out)

     59       (59 )      —         —         —         —    

Payment

     —         —         —         —         (1,119 )      (1,119 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance

   ￦ 403,504     ￦ 1,004,406     ￦ 1,407,910     ￦ 228,839     ￦ 15,198     ￦ 1,651,947  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

18. RETIREMENT BENEFIT PLAN:

The Bank operates both defined benefit plan and defined contribution plan.

 

  (1)

Defined benefit plan

The Bank operates defined benefit plans which have the following characteristics:

 

  •  

The entity has the obligation to pay the agreed benefits to all its current and past employees.

 

  •  

The entity is liable for actuarial risk (excess of actual payment against expected amount) and investment risk.

The present value of the defined benefit obligation recognized in the separate statements of financial position is calculated annually by independent actuaries in accordance with actuarial valuation method. The present value of the defined benefit obligation is calculated using the Projected Unit Credit method (the ‘PUC’). The data used in the PUC such as interest rates, future salary increase rate, mortality rate, consumer price index and expected return on plan asset are based on observable market data and historical data which are annually updated.

 

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Actuarial assumptions may differ from actual results due to change in the market, economic trend and mortality trend which may affect defined benefit obligation liabilities (assets) and future payments. Actuarial gains and losses arising from changes in actuarial assumptions are recognized in the period incurred through other comprehensive income or loss.

(2) Details of net defined benefit obligation as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017     Dec. 31, 2016  

Present value of defined benefit obligations

    ￦ 79,956     ￦ 72,105  

Fair value of plan assets

      (92,183 )      (70,013 ) 
  

 

 

    

 

 

  

Defined benefit liabilities (assets), net

    ￦ (12,227 )    ￦ 2,092  
  

 

 

    

 

 

  

(3) Changes in net defined benefit obligations for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

(2017)

 

     Present value of the
defined benefit
obligation		     Plan assets     Net defined
benefit obligation		  

Beginning balance

    ￦ 72,105     ￦ (70,013 )    ￦ 2,092  

Contributions from the employer

      —         (27,100 )      (27,100 ) 

Current service cost

      8,912       —         8,912  

Interest expense (income)

      2,612       (2,548 )      64  

Return on plan assets, excluding the interest expense (income)

      —         1,258       1,258  

Actuarial gains and losses arising from changes in financial assumptions

      (3,081 )      —         (3,081 ) 

Actuarial gains and losses arising from experience adjustments

      5,029       —         5,029  

Management fee on plan assets

      —         122       122  

Benefits paid

      (5,621 )      6,098       477  
  

 

 

    

 

 

    

 

 

  

Ending balance

    ￦ 79,956     ￦ (92,183 )    ￦ (12,227 ) 
  

 

 

    

 

 

    

 

 

  

(2016)

 

     Present value of the
defined benefit
obligation		     Plan assets     Net defined
benefit obligation		  

Beginning balance

    ￦ 82,504     ￦ (34,716 )    ￦ 47,788  

Contributions from the employer

      —         (37,693 )      (37,693 ) 

Current service cost

      10,605       —         10,605  

Interest expense (income)

      2,955       (1,246 )      1,709  

Return on plan assets, excluding the interest expense (income)

      —         622       622  

Actuarial gains and losses arising from changes in financial assumptions

      (5,127 )      —         (5,127 ) 

Actuarial gains and losses arising from experience adjustments

      (16,414 )      —         (16,414 ) 

Management fee on plan assets

      —         76       76  

Benefits paid

      (2,418 )      2,944       526  
  

 

 

    

 

 

    

 

 

  

Ending balance

    ￦ 72,105     ￦ (70,013 )    ￦ 2,092  
  

 

 

    

 

 

    

 

 

  

 

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(4) Details of plan assets as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  

Cash and cash equivalent

    ￦ 3      ￦ —    

Debt securities

      15,073        17,337  

Others

      77,107        52,676  
  

 

 

     

 

 

  

Total

    ￦ 92,183      ￦ 70,013  
  

 

 

     

 

 

  

(5) Actuarial assumptions used in retirement benefit obligation assessment as of December 31, 2017 and 2016 are as follows:

 

     Dec. 31, 2017     Dec. 31, 2016  

Discount rate

      3.89 %      3.64 % 

Expected wage growth rate

      2.43 %      2.16 % 

(6) Assuming that all the other assumptions remain unchanged, the effect of changes in the significant actuarial assumptions which were made within the reasonable limit on retirement benefit obligations as of December 31, 2017 and 2016 are as follows:

(December 31, 2017)

 

Detail

    1%p Increase     1%p Decrease  

Change of discount rate

    ￦ (9,081 )    ￦ 10,819  

Change of future salary increase rate

      10,883       (9,290 ) 

(December 31, 2016)

 

Detail

    1%p Increase     1%p Decrease  

Change of discount rate

    ￦ (8,745 )    ￦ 10,520  

Change of future salary increase rate

      10,575       (8,941 ) 

The above sensitivity analysis does not present any actual changes in the retirement benefit obligations as there is no change in actuarial assumptions which is independently made due to the correlation among the assumptions. In addition, the actuarial present value of promised retirement benefits in the sensitivity analysis is determined using the projected unit credit method, which is used in the calculation of the retirement benefit obligations in the separate financial statements.

(7) Retirement benefit cost incurred from the defined contribution plan for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Retirement benefits

    ￦ 677      ￦ 562  

 

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19. OTHER LIABILITIES:

Details of other liabilities as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  

Other financial liabilities:

      

Financial guarantee contract liabilities

    ￦ 1,123,773      ￦ 969,765  

Foreign exchanges payable

      213        43,178  

Accounts payable

      57,022        18,463  

Accrued expenses

      613,328        609,449  

Guarantee deposit received

      162        163  
  

 

 

     

 

 

  

Subtotal

      1,794,498        1,641,018  
  

 

 

     

 

 

  

Other liabilities:

      

Allowance for credit loss in derivatives

      69,910        38,232  

Unearned income

      220,441        145,060  

Sundry liabilities

      4,101        8,334  
  

 

 

     

 

 

  

Subtotal

      294,452        191,626  
  

 

 

     

 

 

  

Total

    ￦ 2,088,950      ￦ 1,832,644  
  

 

 

     

 

 

  

20. DERIVATIVES:

The Bank operates derivatives both for trading and hedging purposes. Derivatives held for trading purpose are included in financial assets and liabilities at FVTPL.

(1) Details of derivative assets and liabilities as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

            Derivative assets  

Detail

    Notional      Fair value
hedge		      Cash flow
hedge		      Trading      Total  

Interest:

               

Interest rate swaps

    ￦ 38,780,733      ￦ 89,305      ￦ —        ￦ 329,246      ￦ 418,551  

Currency:

               

Currency forwards

      6,451,057        —          —          113,466        113,466  

Currency swaps

      24,518,828        138,816        —          408,516        547,332  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      30,969,885        138,816        —          521,982        660,798  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Stock:

               

Stock options

      2,298,275        —          —          1,444        1,444  

Other:

               

Other derivative

      —          —          —          23        23  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 72,048,893      ￦ 228,121      ￦ —        ￦ 852,695      ￦ 1,080,816  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

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            Derivative liabilities  

Detail

    Notional      Fair value
hedge		      Cash flow
hedge		      Trading      Total  

Interest:

               

Interest rate swaps

    ￦ 38,780,733      ￦ 369,290      ￦ —        ￦ 311,850      ￦ 681,140  

Currency:

               

Currency forwards

      6,451,057        —          —          152,478        152,478  

Currency swaps

      24,518,828        688,906        —          447,433        1,136,339  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      30,969,885        688,906        —          599,911        1,288,817  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Stock:

               

Stock options

      2,298,275        —          —          —          —    

Other:

               

Other derivative

      —          —          —          17        17  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 72,048,893      ￦ 1,058,196      ￦ —        ￦ 911,778      ￦ 1,969,974  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2016)

 

            Derivative assets  

Detail

    Notional      Fair value
hedge		      Cash flow
hedge		      Trading      Total  

Interest:

               

Interest rate swaps

    ￦ 34,406,712      ￦ 163,959      ￦ —        ￦ 231,219      ￦ 395,178  

Currency:

               

Currency forwards

      5,581,111        —          —          145,185        145,185  

Currency swaps

      23,132,311        4,458        —          268,794        273,252  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      28,713,422        4,458        —          413,979        418,437  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Stock:

               

Stock options

      1,012,200        —          —          2,151        2,151  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 64,132,334      ￦ 168,417      ￦ —        ￦ 647,349      ￦ 815,766  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

            Derivative liabilities  

Detail

    Notional      Fair value
hedge		      Cash flow
hedge		      Trading      Total  

Interest:

               

Interest rate swaps

    ￦ 34,406,712      ￦ 281,054      ￦ —        ￦ 249,051      ￦ 530,105  

Currency:

               

Currency forwards

      5,581,111        —          —          157,340        157,340  

Currency swaps

      23,132,311        2,054,476        —          446,308        2,500,784  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      28,713,422        2,054,476        —          603,648        2,658,124  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Stock:

               

Stock options

      1,012,200        —          —          —          —    
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 64,132,334      ￦ 2,335,530      ￦ —        ￦ 852,699      ￦ 3,188,229  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

(2) Gains and losses from fair value hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Fair value hedge—hedged items

    ￦ 93,296      ￦ 447,638  

Fair value hedge—hedging instruments

      1,208,424        (656,561 ) 

 

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(3) The Bank recognized ￦(467) million and ￦1,298 million as other comprehensive income (loss) (before tax effect), and no amount was recognized as the ineffectiveness of cash flow hedge in earnings for the years ended December 31, 2017, and ￦(95) thousand was for the years ended December 31, 2016.

21. CAPITAL STOCK:

As of December 31, 2017, the authorized capital and paid-in capital of the Bank are ￦15,000,000 million and ￦11,814,963 million, respectively. The Bank does not issue share certificates.

Changes in capital stock for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Beginning balance

    ￦ 10,398,055      ￦ 8,878,055  

Paid-in capital increase

      1,416,908        1,520,000  
  

 

 

     

 

 

  

Ending balance

    ￦ 11,814,963      ￦ 10,398,055  
  

 

 

     

 

 

  

22. OTHER COMPONENTS OF EQUITY:

(1) Details of other components of equity as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  

Gain on valuation of AFS securities

    ￦ 101,985      ￦ 259,564  

Gain on valuation of cash flow hedge

      586        854  

Remeasurement elements of net defined benefit obligation

      17,168        19,599  
  

 

 

     

 

 

  

Total

    ￦ 119,739      ￦ 280,017  
  

 

 

     

 

 

  

(2) Changes in other reserves for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

(2017)

 

     Beginning
balance		      Increase
(Decrease)		     Tax effect      Ending
balance		  

Gain on valuation of AFS securities

    ￦ 259,564      ￦ (179,477 )    ￦ 21,898      ￦ 101,985  

Gain on valuation of cash flow hedge

      854        (467 )      199        586  

Remeasurement of net defined benefit obligation

      19,599        (3,207 )      776        17,168  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total

    ￦ 280,017      ￦ (183,151 )    ￦ 22,873      ￦ 119,739  
  

 

 

     

 

 

    

 

 

     

 

 

  

(2016)

 

     Beginning
balance		     Increase
(Decrease)		      Tax effect     Ending
balance		  

Gain on valuation of AFS securities

    ￦ 116,369     ￦ 188,913      ￦ (45,718 )    ￦ 259,564  

Gain (Loss) on valuation of cash flow hedge

      (131 )      1,299        (314 )      854  

Remeasurement of net defined benefit obligation

      3,742       20,918        (5,061 )      19,599  
  

 

 

    

 

 

     

 

 

    

 

 

  

Total

    ￦ 119,980     ￦ 211,130      ￦ (51,093 )    ￦ 280,017  
  

 

 

    

 

 

     

 

 

    

 

 

  

 

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23. RETAINED EARNINGS:

(1) Details of retained earnings as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  

Legal reserve (*1)

    ￦ 328,856      ￦ 328,856  

Voluntary reserve (*2)

      —          1,216,737  

Reserve for bad loan

      206,330        476,882  

Unappropriated retained earnings (deficit)

      172,794        (1,487,289 ) 
  

 

 

     

 

 

  

Total

    ￦ 707,980      ￦ 535,186  
  

 

 

     

 

 

  

 

(*1)

Pursuant to the EXIM Bank Act, the Bank appropriates 10% of net income for each accounting period as legal reserve, until the accumulated reserve equals to its paid-in capital.

(*2)

The Bank appropriates the remaining balance of net income, after the appropriation of legal reserve and declaration of dividends, to voluntary reserve.

(2) Changes in retained earnings for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Beginning balance

    ￦ 535,186      ￦ 2,027,863  

Net income (loss) for the period

      172,794        (1,487,289 ) 

Dividends

      —          (5,388 ) 
  

 

 

     

 

 

  

Ending balance

    ￦ 707,980      ￦ 535,186  
  

 

 

     

 

 

  

(3) Details of dividends for the year ended December 31, 2017, and 2016, are as follows (Korean won in millions):

 

     2017      2016  

The Government

    ￦ —        ￦ 3,981  

BOK

      —          707  

Korea Development Bank

      —          700  
  

 

 

     

 

 

  

Total

    ￦ —        ￦ 5,388  
  

 

 

     

 

 

  

 

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(4) Statements of appropriations of retained earnings (deficit) for the years ended December 31, 2017 and 2016 are as follows (Korean Won in millions):

 

    2017
(Expected date of
appropriation: Mar. 30, 2018)		     2016
(Date of appropriation:
Mar. 29, 2017)		  

I.Retained earnings (deficit) before appropriations:

     ￦ 172,794       ￦ (1,487,288 ) 

1.Unappropriated retained earnings carried over from prior years

   ￦ —         ￦ —      

2.Net income (loss)

     172,794         (1,487,288 )   

II.Other reserve transferred

       —           —    

III.Appropriations:

       172,794         (1,487,288 ) 

1.Legal reserve

     17,280         —      

2.Dividend

     59,596         —      

3.Other reserve

     —           (1,216,737 )   

4.Reserve for bad loans

     95,918         (270,552 )   
   

 

 

      

 

 

  

IV.Unappropriated Retained earnings (deficit) at the end of the period

     ￦ —         ￦ —    
   

 

 

      

 

 

  

(5) Reserve for bad loans

Reserve for bad loans is calculated and disclosed according to Article 29 (1) and (2), Regulation on Supervision of Banking Business. In accordance with Regulation on Supervision of Banking Business etc., if the estimated allowance for credit loss determined by K-IFRS for the accounting purpose is lower than those for the regulatory purpose required by Regulation on Supervision of Banking Business, the Bank should reserve such difference as the regulatory reserve for bad loans. Due to the fact that regulatory reserve for bad loans is a voluntary reserve, the amounts that exceed the existing reserve for bad loans over the compulsory reserve for bad loans at the period-end date are reversed in profit. In case of accumulated deficit, the Bank should recommence setting aside reserve for bad loans at the time when accumulated deficit reduced to zero.

1) Reserve for bad loans

Details of reserve for bad loans as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     Dec. 31, 2017      Dec. 31, 2016  

Accumulated reserve for bad loans

    ￦ 206,330      ￦ 476,882  

Expected reserve for bad loans

      95,918        —    

Expected deficit recovery

      —          (270,552 ) 
  

 

 

     

 

 

  

Reserve for bad loans

    ￦ 302,248      ￦ 206,330  
  

 

 

     

 

 

  

2) Required reserve for bad loans and net income after adjusting reserve for bad loans.

Details of required reserve for bad loans and net income after adjusting the reserve for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Net income (loss) for the period

    ￦ 172,794      ￦ (1,487,289 ) 

Required reserve for (reversal of) bad loans

      423,002        (552,906 ) 
  

 

 

     

 

 

  

Net profit (loss) after adjusting the reserve for bad loans(*)

    ￦ 595,796      ￦ (2,040,195 ) 
  

 

 

     

 

 

  

 

(*)

Adjusted profit (loss) considering reserves for bad debt as above is calculated by assuming that the provision in reserves for bad debt before income tax is reflected in net income.

 

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24. NET INTEREST INCOME:

Net interest income is the amount after deduction of interest expenses from interest income, and the details are as follows:

(1) Details of interest income for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Interest of due from financial institutions:

      

Due from financial institutions in local currency

    ￦ 3,318      ￦ 2,158  

Due from financial institutions in foreign currencies

      15,195        8,410  
  

 

 

     

 

 

  

Subtotal

      18,513        10,568  
  

 

 

     

 

 

  

Interest of financial assets at FVTPL:

      

Interest of trading securities

      1,554        1,855  

Interest of investments:

      

Interest of AFS securities

      17,760        13,275  

Interest of HTM securities

      2,045        2,350  
  

 

 

     

 

 

  

Subtotal

      19,805        15,625  
  

 

 

     

 

 

  

Interest of loans:

      

Interest of loans in local currency

      713,638        503,531  

Interest of loans in foreign currencies

      1,856,733        1,662,002  

Interest of bills bought

      25,373        15,011  

Interest of advances for customers

      151        140  

Interest of call loans

      30,817        13,948  

Interest of interbank loans

      12,511        3,587  
  

 

 

     

 

 

  

Subtotal

      2,639,223        2,198,219  
  

 

 

     

 

 

  

Interest of others

      4,633        5,207  
  

 

 

     

 

 

  

Total

    ￦ 2,683,728      ￦ 2,231,474  
  

 

 

     

 

 

  

(2) Details of interest expenses for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Interest of borrowings:

      

Borrowings in local currency

    ￦ 2      ￦ —    

Borrowings in foreign currencies

      142,225        111,543  
  

 

 

     

 

 

  

Subtotal

      142,227        111,543  
  

 

 

     

 

 

  

Interest of call money

      4,462        2,894  

Interest of debentures:

      

Interest of debentures in local currency

      205,939        185,960  

Interest of debentures in foreign currencies

      1,233,202        1,098,592  
  

 

 

     

 

 

  

Subtotal

      1,439,141        1,284,552  
  

 

 

     

 

 

  

Interest of others

      17,923        17,830  
  

 

 

     

 

 

  

Total

    ￦ 1,603,753      ￦ 1,416,819  
  

 

 

     

 

 

  

 

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25. NET COMMISSION INCOME:

Net commission income is the amount after deduction of commission expenses from commission income, and the details are as follows.

(1) Details of commission income for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Commission income in local currency:

      

Commissions income on management of EDCF

    ￦ 15,383      ￦ 14,645  

Commissions income on management of IKCF

      2,279        2,277  

Other commission income in local currency

      —          4  
  

 

 

     

 

 

  

Subtotal

      17,662        16,926  
  

 

 

     

 

 

  

Commission income in foreign currency:

      

Commissions income on letter of credit

      2,239        1,788  

Commissions income on confirmation on export letter of credit

      713        184  

Commissions income on loans commitment

      38,027        40,826  

Arrangement fee

      7,223        7,294  

Advisory fee

      2,002        803  

Cancelation fee

      22        —    

Prepayment fee

      5,299        13,854  

Brokerage fee for foreign currency exchange funds

      2,681        2,724  

Sundry commissions income on foreign exchange

      139        464  

Structuring fee

      9,914        3,643  

Other commission income in foreign currency

      2,477        304  
  

 

 

     

 

 

  

Subtotal

      70,736        71,884  
  

 

 

     

 

 

  

Others:

      

Other commission income

      5,984        8,230  

Guarantee fees on local currency:

      

Guarantee fees on local currency

      21,795        —    

Guarantee fees on foreign currency:

      

Guarantee fees on foreign currency

      224,281        288,046  

Premium for guarantee

      60,644        71,622  
  

 

 

     

 

 

  

Subtotal

      284,925        359,668  
  

 

 

     

 

 

  

Total

    ￦ 401,102      ￦ 456,708  
  

 

 

     

 

 

  

 

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(2) Details of commission expenses for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Commission expenses in local currency:

      

Commissions expenses on domestic transaction

    ￦ 447      ￦ 443  

Commission expenses in foreign currency:

      

Service fees paid to credit-rating agency

      3,458        3,155  

Sundry commission expenses on foreign exchange

      1,267        795  

Sundry commissions expenses on offshore transaction

      1        11  
  

 

 

     

 

 

  

Subtotal

      4,726        3,961  
  

 

 

     

 

 

  

Others:

      

Other commissions expenses

      4,200        4,044  
  

 

 

     

 

 

  

Total

    ￦ 9,373      ￦ 8,448  
  

 

 

     

 

 

  

26. DIVIDEND INCOME:

Details of dividend income for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

AFS securities

    ￦ 35,352      ￦ 23,060  

Investment in associates (*)

      9,905        7,999  
  

 

 

     

 

 

  

Total

    ￦ 45,257      ￦ 31,059  
  

 

 

     

 

 

  

 

(*)

Classified as income from investments in associates.

27. GAIN (LOSS) ON FINANCIAL ASSETS AT FVTPL:

Details of gain (loss) on financial assets at FVTPL for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017     2016  

Trading securities:

     

Gain on valuation

    ￦ 5,046     ￦ 12,574  

Loss on valuation

      (808 )      (2,670 ) 

Gain on disposal

      13,742       12,804  

Loss on disposal

      (322 )      (2,540 ) 
  

 

 

    

 

 

  

Subtotal

      17,658       20,168  
  

 

 

    

 

 

  

Trading derivatives:

     

Gain on valuation

      988,657       493,518  

Loss on valuation

      (845,063 )      (518,897 ) 

Gain on transaction

      635,756       878,785  

Loss on transaction

      (533,026 )      (679,161 ) 
  

 

 

    

 

 

  

Subtotal

      246,324       174,245  
  

 

 

    

 

 

  

Total

    ￦ 263,982     ￦ 194,413  
  

 

 

    

 

 

  

 

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28. GAIN (LOSS) ON HEDGING DERIVATIVES:

Details of gain (loss) on hedging derivatives for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017     2016  

Gain on hedging derivatives

    ￦ 1,456,521     ￦ 308,363  

Loss on hedging derivatives

      (248,247 )      (964,924 ) 
  

 

 

    

 

 

  

Total

    ￦ 1,208,274     ￦ (656,561 ) 
  

 

 

    

 

 

  

29. GAIN (LOSS) ON FINANCIAL INVESTMENTS:

(1) Details of gain (loss) on financial investments for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017     2016  

AFS securities:

     

Gain on disposal

    ￦ 20,865     ￦ 7,561  

Loss on disposal

      (1,128 )      (80 ) 

Impairment loss

      (3,594 )      (8,646 ) 
  

 

 

    

 

 

  

Total

    ￦ 16,143     ￦ (1,165 ) 
  

 

 

    

 

 

  

(2) There is no gain or loss on HTM securities for the years ended December 31, 2017 and 2016, respectively. In addition, details of interest income of HTM securities are stated in Note 24.

30. OTHER OPERATING INCOME (EXPENSES):

Details of other operating income (expenses) for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Other operating income:

      

Gain on disposal of loans

    ￦ 1,655      ￦ —    

Gain on fair value hedged items

      277,508        541,626  

Others

      1,064        1,888  
  

 

 

     

 

 

  

Subtotal

      280,227        543,514  
  

 

 

     

 

 

  

Other operating expenses:

      

Loss on fair value hedged items

      184,212        93,988  

Contribution to miscellaneous funds

      5,177        5,424  

Loss on redemption

      2,455        45  

Transfer of other provisions

      1,344        16,316  

Others

      32,769        37,373  
  

 

 

     

 

 

  

Subtotal

      225,957        153,146  
  

 

 

     

 

 

  

Total

    ￦ 54,270      ￦ 390,368  
  

 

 

     

 

 

  

 

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31. IMPAIRMENT LOSS ON CREDIT:

Details of (reversal of) impairment loss on credit for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017     2016  

Loans

    ￦ 1,724,192     ￦ 1,928,597  

Other financial assets

      117,622       7,815  

Guarantees

      (879,253 )      1,165,199  

Unused loan commitments

      (62,655 )      77,170  

Financial guarantee contract

      180,922       54,898  
  

 

 

    

 

 

  

Total

    ￦ 1,080,828     ￦ 3,233,679  
  

 

 

    

 

 

  

32. GENERAL AND ADMINISTRATIVE EXPENSES:

Details of general and administrative expenses for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

    

Detail

    2017      2016  

General and administrative

    Short-term employee benefits    ￦ 99,072      ￦ 105,026  

Expenses in financing department

    Office expenses      56,026        56,144  
     

 

 

     

 

 

  
  

Subtotal

      155,098        161,170  
     

 

 

     

 

 

  

Office expenses of EDCF

         1,731        1,636  
     

 

 

     

 

 

  

General and administrative—Others

   

Retirement benefits (defined contributions)

      677        562  
   Retirement benefits (defined benefits)      9,098        12,390  
   Depreciation of tangible assets      8,940        7,655  
   Amortization of intangible assets      9,219        5,053  
   Taxes and duties      25,952        14,673  
     

 

 

     

 

 

  
  

Subtotal

      53,886        41,969  
     

 

 

     

 

 

  
  

Total

    ￦ 210,715      ￦ 203,139  
  

 

 

     

 

 

  

 

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33. NON-OPERATING INCOME (EXPENSES):

Details of non-operating income (expenses) for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

    

Detail

   2017     2016  

Gain (Loss) on investments in associates and subsidiaries

    Dividend income   ￦ 9,905     ￦ 7,999  
   Impairment loss     (235 )      (4,415 ) 
    

 

 

    

 

 

  
  

Subtotal

     9,670       3,584  
    

 

 

    

 

 

  

Others income

    Gain on disposal of land     —         373  
   Gain on disposal of building     —         346  
   Gain on disposal of tangible assets     60       63  
  

Reversal of impairment loss on intangible assets

     50       —    
   Rent income     156       159  
   Interest on other loans     85       85  
   Income on research project     2,912       2,110  
   Indemnity received for breach of contact A/C     5       1  
   Other miscellaneous Income     1,790       11,982  
    

 

 

    

 

 

  
  

Subtotal

     5,058       15,119  
    

 

 

    

 

 

  

Others expenses

    Loss on disposal of tangible assets     5       14  
   Loss on disposal of intangible assets     20       —    
   Impairment loss on intangible assets     217       538  
   Expenses for contribution     3,117       3,235  
   Court cost     3,571       3,002  
   Expenses on research project     7,202       4,944  
   Other miscellaneous expenses     1,082       7,350  
    

 

 

    

 

 

  
  

Subtotal

     15,214       19,083  
    

 

 

    

 

 

  
  

Total

   ￦ (10,156 )    ￦ (3,964 ) 
    

 

 

    

 

 

  

34. INCOME TAX EXPENSE (BENEFIT):

(1) Details of income tax expense (benefit) for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

     2017      2016  

Current income tax payable

    ￦ 8      ￦ —    

Adjustment recognized in the period for current tax of prior periods

      —          (4,203 ) 

Changes in deferred income taxes due to temporary differences

      33,177        (415,599 ) 

Changes in deferred income taxes directly recognized in equity

      22,873        (51,094 ) 
  

 

 

     

 

 

  

Income tax expense (benefit)

    ￦ 56,058      ￦ (470,896 ) 
  

 

 

     

 

 

  

 

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(2) Changes in temporary differences and deferred income tax assets (liabilities) for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

(2017)

 

Detail

   

 

Temporary differences

     Deferred tax
assets
(liabilities)—
ending balance		  
   Beginning
balance		     Increase
(Decrease)		     Ending balance  

Depreciation

    ￦ 82     ￦ —       ￦ 82     ￦ 20  

Fair value hedging income (loss)

      (123,217 )      (79,921 )      (203,138 )      (49,159 ) 

Financial guarantee contract liability

      805,555       137,961       943,516       228,331  

Loans

      (196,157 )      (181,567 )      (377,724 )      (91,409 ) 

Allowance for loan losses

      208,405       463,449       671,854       162,589  

Unused commitment provisions

      228,839       (62,759 )      166,080       40,191  

Net deferred origination fees and costs

      426,935       (28,822 )      398,113       96,343  

Long-term income in advance

      (6,216 )      309       (5,907 )      (1,430 ) 

Provisions for acceptances and guarantees

      1,407,910       (898,873 )      509,037       123,187  

Loan-for-equity swap

      1,723,573       (3,734 )      1,719,839       416,201  

Loss on valuation of derivatives

      (2,286,929 )      1,354,342       (932,587 )      (225,686 ) 

Gain on valuation of derivatives

      2,375,073       (1,493,790 )      881,283       213,271  

Defined benefit liability

      (1,061 )      (14,979 )      (16,040 )      (3,882 ) 

Accrued interest and interest receivables related to swap transaction

      (293,700 )      74,517       (219,183 )      (53,042 ) 

Tangible assets

      (176,588 )      1,430       (175,158 )      (42,388 ) 

Others

      215,931       11,215       227,146       54,968  

Loss carried forward

      851,792       490,078       1,341,870       324,733  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      5,160,227       (231,144 )      4,929,083       1,192,838  
  

 

 

    

 

 

    

 

 

    

 

 

  

Deferred income tax assets (liabilities) directly adjusted in equity

            (66,639 ) 
        

 

 

  

Total

          ￦ 1,126,199  
        

 

 

  

 

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(2016)

 

Detail

   

 

Temporary differences

     Deferred tax
assets
(liabilities)—
ending balance		  
   Beginning
balance		     Increase
(Decrease)		     Ending balance  

Depreciation

    ￦ —       ￦ 82     ￦ 82     ￦ 20  

Fair value hedging income (loss)

      307,106       (430,323 )      (123,217 )      (29,818 ) 

Financial guarantee contract liability

      660,653       144,902       805,555       194,944  

Loans

      —         (196,157 )      (196,157 )      (47,470 ) 

Allowance for loan losses

      662,184       (453,779 )      208,405       50,434  

Unused commitment provisions

      151,618       77,221       228,839       55,379  

Net deferred origination fees and costs

      446,118       (19,183 )      426,935       103,318  

Long-term income in advance

      (16,534 )      10,318       (6,216 )      (1,504 ) 

Provisions for acceptances and guarantees

      241,719       1,166,191       1,407,910       340,714  

Loan-for-equity swap

      1,203,226       520,347       1,723,573       417,105  

Loss on valuation of derivatives

      (3,081,608 )      794,679       (2,286,929 )      (553,437 ) 

Gain on valuation of derivatives

      2,803,407       (428,334 )      2,375,073       574,768  

Defined benefit liability

      43,282       (44,343 )      (1,061 )      (257 ) 

Accrued interest and interest receivables related to swap transaction

      (294,246 )      546       (293,700 )      (71,075 ) 

Tangible assets

      (178,007 )      1,419       (176,588 )      (42,734 ) 

Others

      213,179       2,752       215,931       52,254  

Loss carried forward

      69,646       782,146       851,792       206,134  
  

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

      3,231,743       1,928,484       5,160,227       1,248,775  
  

 

 

    

 

 

    

 

 

    

 

 

  

Deferred income tax assets (liabilities) directly adjusted in equity

            (89,399 ) 
        

 

 

  

Total

          ￦ 1,159,376  
        

 

 

  

(3) Details of the reconciliation between net income (loss) before income tax and income tax expense (benefit) for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

    2017     2016  

Income (Loss) before income tax

   ￦ 228,852     ￦ (1,958,185 ) 

Income tax expense (benefit) calculated at statutory tax rate (Corporate tax rate: 11% up to ￦200 million, 22% over ￦200 million to ￦20 billion and 24.2% over ￦20 billion)

     54,920       (473,418 ) 

Adjustments:

    

Non-taxable income

     (1,215 )      (342 ) 

Non-deductible expense

     362       6,198  

Unrecognized temporary differences

     57       1,068  

Others

     6,302       318  
 

 

 

    

 

 

  
    5,506       7,242  
 

 

 

    

 

 

  

Adjustment recognized in the period for current tax of prior periods

     (4,368 )      (4,720 ) 
 

 

 

    

 

 

  

Income tax expense (benefit)

   ￦ 56,058     ￦ (470,896 ) 
 

 

 

    

 

 

  

Effective tax rate (*)

     24.50 %      —    

 

(*)

The Bank had net loss before income tax during the year ended December 31, 2016, hence the Bank did not calculate the average effective tax rate from operation.

 

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(4) Details of deferred tax relating to items that are recognized directly in equity as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

    Dec. 31, 2017     Dec. 31, 2016  

Loss on valuation of AFS securities

    ￦ (60,971 )    ￦ (82,869 ) 

Loss on valuation of cash flow hedge

      (187 )      (272 ) 

Remeasurement of net defined benefit liability

      (5,481 )      (6,257 ) 
  

 

 

    

 

 

  

Total

    ￦ (66,639 )    ￦ (89,398 ) 
  

 

 

    

 

 

  

(5) Unrecognized deferred tax assets and liabilities

The Bank does not recognize deferred tax liabilities for taxable temporary difference of ￦48,818 million related to investments in associates and subsidiaries as of December 31, 2017 because the Bank is able to 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 also does not recognize deferred tax assets for deductible temporary differences of ￦4,469 million related to impairment loss of AFS securities as of December 31, 2017 because the realizable period has already passed.

35. STATEMENTS OF CASH FLOWS:

(1) Details of non-cash flow transactions for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

    2017     2016  

Loan-for-equity swap

    ￦ —       ￦ 35,009  

Investment in kind

      1,416,908       500,000  

Gain (Loss) on valuation of AFS securities

      (179,477 )      188,914  

Remeasurement of net defined benefit liability

      3,207       21,740  

(2) Changes in liabilities arising from financing activities for the year ended December 31, 2017 are as follows (Korean won in millions):

 

Detail

    Borrowings     Debentures     Total  

Beginning balance

    ￦ 9,761,389     ￦ 62,119,016     ￦ 71,880,405  

Change in cash flows

      (2,739,482 )      3,285,396       545,914  

Amortization

      3,137       161,295       164,432  

Foreign exchange transaction

      (1,011,587 )      (4,781,714 )      (5,793,301 ) 

Change in fair value hedged items

      —         (98,895 )      (98,895 ) 
  

 

 

    

 

 

    

 

 

  

Ending balance

    ￦ 6,013,457     ￦ 60,685,098     ￦ 66,698,555  
  

 

 

    

 

 

    

 

 

  

 

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36. CONTINGENT LIABILITIES AND COMMITMENTS:

(1) Details of contingent liabilities and commitments as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

    Dec. 31, 2017      Dec. 31, 2016  

Guarantees

    Confirmed    ￦ 38,960,799      ￦ 53,615,073  
   Unconfirmed      3,847,975        6,063,975  
     

 

 

     

 

 

  
  

Subtotal

      42,808,774        59,679,048  
     

 

 

     

 

 

  

Loan commitments

   

Local currency, foreign currency loan commitments

      17,996,772        18,571,869  
   Others      1,825,727        1,758,176  
     

 

 

     

 

 

  
  

Subtotal

      19,822,499        20,330,045  
     

 

 

     

 

 

  
  

Total

    ￦ 62,631,273      ￦ 80,009,093  
     

 

 

     

 

 

  

(2) Details of guarantees that have been provided for others as of December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

    Dec. 31, 2017      Dec. 31, 2016  

Confirmed guarantees

    Local currency:      
  

Performance of contracts

    ￦ 50,709      ￦ 71,301  
  

Repayment of advances

      227,091        43,536  
  

Others

      602,187        384,223  
     

 

 

     

 

 

  
  

Subtotal

      879,987        499,060  
     

 

 

     

 

 

  
   Foreign currency:      
  

Performance of contracts

      10,096,151        13,989,701  
  

Repayment of advances

      11,091,318        20,239,595  
  

Acceptances of imported goods

      3,277        1,245  
  

Acceptances of import letter of credit outstanding

      89,480        172,857  
  

Foreign liabilities

      10,964,999        11,547,142  
  

Others

      5,835,587        7,165,473  
     

 

 

     

 

 

  
  

Subtotal

      38,080,812        53,116,013  
     

 

 

     

 

 

  

Unconfirmed guarantees

    Foreign liabilities      1,569,782        1,337,732  
   Repayment of advances      2,243,202        4,549,899  
   Performance of contracts      33,793        159,687  
   Underwriting of import credit      1,163        16,617  
   Others      35        40  
     

 

 

     

 

 

  
  

Subtotal

      3,847,975        6,063,975  
     

 

 

     

 

 

  
  

Total

    ￦ 42,808,774      ￦ 59,679,048  
     

 

 

     

 

 

  

 

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(3) Details of guarantees classified by country as of December 31. 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

    Confirmed guarantees     Unconfirmed guarantees     Total  

Detail

   Amount     Ratio (%)     Amount     Ratio (%)     Amount     Ratio (%)  

Asia

   Korea   ￦ 26,140,921       67.10     ￦ 2,197,447       57.11     ￦ 28,338,368       66.20  
  Saudi Arabia     1,914,178       4.91       —         —         1,914,178       4.47  
  India     441,562       1.13       78,704       2.05       520,266       1.22  
  Indonesia     970,827       2.49       122,053       3.17       1,092,880       2.55  
  Vietnam     960,748       2.47       301,267       7.83       1,262,015       2.95  
  Australia     697,324       1.79       50,666       1.32       747,990       1.75  
  Philippines     126,536       0.32       8,614       0.22       135,150       0.32  
  Qatar     290,789       0.75       —         —         290,789       0.68  
  Oman     326,291       0.84       75,970       1.97       402,261       0.94  
  Others     983,640       2.52       117,139       3.04       1,100,779       2.56  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     32,852,816       84.32       2,951,860       76.71       35,804,676       83.64  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Europe

   United Kingdom     329,506       0.85       —         —         329,506       0.77  
  France     394,781       1.01       52,095       1.35       446,876       1.04  
  Uzbekistan     280,884       0.72       1,163       0.03       282,047       0.66  
  Others     449,278       1.15       184,849       4.80       634,127       1.48  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     1,454,449       3.73       238,107       6.18       1,692,556       3.95  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

America

   United States     2,348,208       6.03       194,670       5.06       2,542,878       5.94  
  Brazil     471,757       1.21       —         —         471,757       1.10  
  Mexico     265,381       0.68       1,942       0.05       267,323       0.62  
  Bermuda     191,686       0.49       —         —         191,686       0.45  
  Others     281,531       0.72       33,958       0.88       315,489       0.74  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     3,558,563       9.13       230,570       5.99       3,789,133       8.85  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Africa

   Madagascar     159,293       0.41       —         —         159,293       0.37  
  Marshall Islands     568,553       1.46       —         —         568,553       1.33  
  Others     367,125       0.95       427,438       11.12       794,563       1.86  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     1,094,971       2.82       427,438       11.12       1,522,409       3.56  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Total

   ￦ 38,960,799       100.00     ￦ 3,847,975       100.00     ￦ 42,808,774       100.00  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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(December 31, 2016)

 

    Confirmed guarantees     Unconfirmed guarantees     Total  

Detail

   Amount     Ratio (%)     Amount     Ratio (%)     Amount     Ratio (%)  

Asia

   Korea   ￦ 39,410,253       73.51     ￦ 4,706,038       77.61     ￦ 44,116,291       73.92  
  Saudi Arabia     2,279,926       4.25       —         —         2,279,926       3.82  
  India     550,354       1.03       49,334       0.81       599,688       1.00  
  Indonesia     1,145,558       2.14       15,579       0.26       1,161,137       1.95  
  Vietnam     1,042,485       1.94       442,065       7.29       1,484,550       2.49  
  Australia     839,002       1.56       57,149       0.94       896,151       1.50  
  Philippines     347,199       0.65       3,588       0.06       350,787       0.59  
  Qatar     351,311       0.66       —         —         351,311       0.59  
  Singapore     18,629       0.03       —         —         18,629       0.03  
  Oman     306,690       0.57       157,827       2.60       464,517       0.78  
  Others     566,106       1.06       144,818       2.39       710,924       1.19  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     46,857,513       87.40       5,576,398       91.96       52,433,911       87.86  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Europe

   United Kingdom     409,953       0.76       —         —         409,953       0.69  
  France     484,456       0.90       103,897       1.71       588,353       0.99  
  Uzbekistan     397,164       0.74       50,318       0.83       447,482       0.75  
  Others     196,489       0.37       71,302       1.18       267,791       0.45  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     1,488,062       2.77       225,517       3.72       1,713,579       2.88  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

America

   United States     2,659,726       4.96       191,982       3.17       2,851,708       4.78  
  Brazil     566,466       1.06       532       0.01       566,998       0.95  
  Mexico     315,010       0.59       2,191       0.04       317,201       0.53  
  Bermuda     235,275       0.44       —         —         235,275       0.39  
  Others     347,805       0.65       45,998       0.76       393,803       0.66  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     4,124,282       7.70       240,703       3.98       4,364,985       7.31  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Africa

   Madagascar     179,677       0.33       —         —         179,677       0.30  
 

Marshall Islands

     657,903       1.23       —         —         657,903       1.10  
  Others     307,636       0.57       21,357       0.34       328,993       0.55  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Subtotal

     1,145,216       2.13       21,357       0.34       1,166,573       1.95  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
 

Total

   ￦ 53,615,073       100.00     ￦ 6,063,975       100.00     ￦ 59,679,048       100.00  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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(4) Details of guarantees classified by industry as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

     Confirmed guarantees      Unconfirmed guarantees      Total  

Detail

    Amount      Ratio (%)      Amount      Ratio (%)      Amount      Ratio (%)  

Manufacturing

    ￦ 18,577,567        47.68      ￦ 3,087,986        80.25      ￦ 21,665,553        50.61  

Transportation

      1,850,655        4.75        56,203        1.46        1,906,858        4.45  

Finance

      2,051,157        5.26        1,163        0.03        2,052,320        4.79  

Wholesale and retail

      863,844        2.22        217,253        5.65        1,081,097        2.53  

Property related business

      353,741        0.91        59,345        1.54        413,086        0.96  

Construction

      9,251,902        23.75        22,135        0.58        9,274,037        21.67  

Public and others

      6,011,933        15.43        403,890        10.49        6,415,823        14.99  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 38,960,799        100.00      ￦ 3,847,975        100.00      ￦ 42,808,774        100.00  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2016)

 

     Confirmed guarantees      Unconfirmed guarantees      Total  

Detail

    Amount      Ratio (%)      Amount      Ratio (%)      Amount      Ratio (%)  

Manufacturing

    ￦ 26,653,851        49.71      ￦ 4,992,780        82.34      ￦ 31,646,631        53.03  

Transportation

      2,176,509        4.06        159,308        2.63        2,335,817        3.91  

Finance

      2,166,443        4.04        16,777        0.28        2,183,220        3.66  

Wholesale and retail

      1,593,684        2.97        61,393        1.01        1,655,077        2.77  

Property related business

      540,841        1.01        —          —          540,841        0.91  

Construction

      12,489,998        23.30        107,003        1.76        12,597,001        21.11  

Public and others

      7,993,747        14.91        726,714        11.98        8,720,461        14.61  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 53,615,073        100.00      ￦ 6,063,975        100.00      ￦ 59,679,048        100.00  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

(5) Global Medium-Term Note Program (“GMTN”) and Commercial Paper (“CP”) programs

The Bank has been establishing the following programs regarding the issue of foreign currency bonds and CPs:

 

  1)

Established on August 1, 1991, initially, and annually renewed, U.S. Shelf Registration to issue foreign bonds under the Securities and Exchange Commission rule of the United States of America with an issuance limit of USD 50 billion;

 

  2)

Established on May 14, 1997 and May 16, 1997, initially, and annually renewed, CP program to issue CPs with issuance limits of USD 6 billion and USD 2 billion, respectively;

 

  3)

Established on November 6, 1997, initially, and annually renewed, Euro Medium-Term Note Program to issue mid-to-long-term foreign currency bonds with an issuance limit of USD 25 billion;

 

  4)

Established on March 12, 2008 and February 2, 2012, initially, and renewed, MYR MTN program to issue Malaysian Ringgit-denoted bonds with issuance limits of MYR 3 billion and 1 billion respectively.

 

  5)

Established on 1995, initially, and renewed every two years, Yen Shelf Registration to issue Samurai bond with an issuance limit of JPY 500 billion;

 

  6)

Established on May 31, 2010, Australian Domestic Debt Issuance Program to issue Kangaroo bond with limit of AUD 4 billion;

 

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  7)

Established on January 17, 2011, and renewed every two years, Uridashi Shelf Registration to issue Uridashi bond with an issuance limit of JPY 500 billion.

(6) Pending litigations

As of December 31, 2017, 10 lawsuits (aggregated claim amount: ￦162,892 million) were filed as a plaintiff and 9 pending litigations as a defendant were filed (aggregated claim amount: ￦124,535 million). The Bank’s management expects that there is no significant impact on the financial statements due to these lawsuits but it is possible to make additional loss to the Bank due to the results of future litigation.

(7) Written-off loans

The Bank manages written-off loans that have claims on debtors due to the limitation of statute, uncollected after write-off, etc. The written-off loans as of December 31, 2017 and 2016 are ￦1,385,885 million and ￦1,300,714 million, respectively.

37. TRANSACTIONS AND BALANCES WITH RELATED PARTIES:

Related parties consist of entities related to the Bank, post-employment benefits, a key management personnel and a close member of that person’s family, an entity controlled or jointly controlled and an entity influenced significantly.

(1) Details of related parties as of December 31, 2017 are as follows:

 

Detail

    Relationship      Percentage (%)  

Parent:

      

Korean government

      Parent        66.27  

Subsidiaries and Associates:

      

KEXIM Bank UK Limited

      Subsidiary        100.00  

PT.KOEXIM Mandiri Finance

      Subsidiary        85.00  

KEXIM Vietnam Leasing Co.

      Subsidiary        100.00  

KEXIM Asia Limited

      Subsidiary        100.00  

Korea Asset Management Corporation

      Associate        25.86  

Credit Guarantee and Investment Fund

      Associate        14.29  

Korea Marine Guarantee Inc.

      Associate        41.88  

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      Associate        81.25  

DAESUN Shipbuilding & Engineering Co., Ltd.

      Associate        67.30  

KTB Newlake Global Healthcare PEF

      Associate        25.00  

KBS-KDB Private Equity Fund

      Associate        20.83  

Korea Shipping and Maritime Transportation

      Associate        40.00  

Korea Aerospace Industries. Ltd.

      Associate        26.41  

 

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(2) Significant balances of receivables, payables and guarantees with the related parties

 

  1)

Significant balances of receivables and payables with the related parties as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

Detail

    Receivables      Allowance
/Provisions		      Payables  

Subsidiaries:

         

KEXIM Bank UK Limited

    ￦ 136,805      ￦ —        ￦ 93  

PT.KOEXIM Mandiri Finance

      145,109        227        —    

KEXIM Vietnam Leasing Co.

      122,994        195        —    

KEXIM Asia Limited

      121,267        58        59  
  

 

 

     

 

 

     

 

 

  

Subtotal

      526,175        480        152  
  

 

 

     

 

 

     

 

 

  

Associates:

         

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      1,931,974        1,590,951        —    

DAESUN Shipbuilding & Engineering Co., Ltd.

      459,156        284,443        41,743  
  

 

 

     

 

 

     

 

 

  

Subtotal

      2,391,130        1,875,394        41,743  
  

 

 

     

 

 

     

 

 

  

Total

    ￦ 2,917,305      ￦ 1,875,874      ￦ 41,895  
  

 

 

     

 

 

     

 

 

  

(December 31, 2016)

 

Detail

    Receivables      Allowance
/Provisions		      Payables  

Subsidiaries:

         

KEXIM Bank UK Limited

    ￦ 146,398      ￦ —        ￦ 12  

PT.KOEXIM Mandiri Finance

      139,349        231        —    

KEXIM Vietnam Leasing Co.

      144,758        217        —    

KEXIM Asia Limited

      139,390        —          55  
  

 

 

     

 

 

     

 

 

  

Subtotal

      569,895        448        67  
  

 

 

     

 

 

     

 

 

  

Associates:

         

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      2,067,494        752,585        —    

DAESUN Shipbuilding & Engineering Co., Ltd.

      387,691        239,280        25,266  
  

 

 

     

 

 

     

 

 

  

Subtotal

      2,455,185        991,865        25,266  
  

 

 

     

 

 

     

 

 

  

Total

    ￦ 3,025,080      ￦ 992,313      ￦ 25,333  
  

 

 

     

 

 

     

 

 

  

 

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  2)

Guarantees provided to the related parties as of December 31, 2017 and 2016 are as follows (Korean won in millions):

(December 31, 2017)

 

Detail

    Confirmed
guarantees		      Unconfirmed
guarantees		      Loans
commitments		      Other
commitments		  

Subsidiaries:

            

KEXIM Bank UK Limited

    ￦ —        ￦ —        ￦ 202,495      ￦ 15,000  

PT.KOEXIM Mandiri Finance

      —          —          16,071        —    

KEXIM Vietnam Leasing Co.

      —          —          16,071        —    

KEXIM Asia Limited

      —          —          88,766        20,892  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      —          —          323,403        35,892  
  

 

 

     

 

 

     

 

 

     

 

 

  

Associates:

            

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      25,997        98,061        210,000        —    

DAESUN Shipbuilding & Engineering Co., Ltd.

      92,812        77,425        —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      118,809        175,486        210,000        —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 118,809      ￦ 175,486      ￦ 533,403      ￦ 35,892  
  

 

 

     

 

 

     

 

 

     

 

 

  

(December 31, 2016)

 

Detail

    Confirmed
guarantees		      Unconfirmed
guarantees		      Loans
commitments		      Other
commitments		  

Subsidiaries:

            

KEXIM Bank UK Limited

    ￦ 24,170      ￦ —        ￦ 238,075      ￦ 16,919  

PT.KOEXIM Mandiri Finance

      —          —          42,298        —    

KEXIM Vietnam Leasing Co.

      —          —          12,085        —    

KEXIM Asia Limited

      —          —          77,765        42,902  
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      24,170        —          370,223        59,821  
  

 

 

     

 

 

     

 

 

     

 

 

  

Associates:

            

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

      714,437        144,446        44,000        —    

DAESUN Shipbuilding & Engineering Co., Ltd.

      88,731        54,477        13,671        —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      803,168        198,923        57,671        —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 827,338      ￦ 198,923      ￦ 427,894      ￦ 59,821  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

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(3) Profit and loss on transactions with related parties

Profit and loss on transactions with related parties for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

   2017     2016  
  Revenue     Provision
for
allowance		     Expenses     Revenue     Provision
for
allowance		     Expenses  

Subsidiaries:

            

KEXIM Bank UK Limited

   ￦ 2,149     ￦ —       ￦ 535     ￦ 2,394     ￦ —       ￦ 363  

PT.KOEXIM Mandiri Finance

     2,293       (4 )      —         1,603       4       —    

KEXIM Vietnam Leasing Co.

     2,191       (22 )      1       1,832       1       —    

KEXIM Asia Limited

     2,385       58       116       2,152       —         448  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     9,018       32       652       7,981       5       811  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Associates:

            

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

     82,413       887,790       —         210,703       440,713       2,743  

DAESUN Shipbuilding & Engineering Co., Ltd.

     49,297       49,047       59       7,042       9,089       8  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     131,710       936,837       59       217,745       449,802       2,751  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 140,728     ￦ 936,869     ￦ 711     ￦ 225,726     ￦ 449,807     ￦ 3,562  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

(4) Money dealing with related parties

Money dealing with related parties for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

   2017     2016  
  Financing transaction     Financing transaction  
  Loan     Collection     Loan     Collection  

Subsidiaries:

        

KEXIM Bank UK Limited

   ￦ 240,458     ￦ 231,744     ￦ 304,543     ￦ 316,538  

PT.KOEXIM Mandiri Finance

     297,385       275,019       268,612       270,885  

KEXIM Vietnam Leasing Co.

     209,031       214,802       355,063       359,067  

KEXIM Asia Limited

     320,952       315,549       314,651       314,859  

Associates:

        

SUNGDONG Shipbuilding & Marine Engineering Co., Ltd.

     34,000       216,503       884,377       10,000  

DAESUN Shipbuilding & Engineering Co., Ltd.

     99,450       —         16,701       12,810  
 

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 1,201,276     ￦ 1,253,617     ￦ 2,143,947     ￦ 1,284,159  
 

 

 

    

 

 

    

 

 

    

 

 

  

(5) Details of compensation to key management for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):

 

Detail

    2017      2016  

Short-term employee benefits

    ￦ 2,418      ￦ 2,473  

Retirement benefits

      162        153  
  

 

 

     

 

 

  

Total

    ￦ 2,580      ￦ 2,626  
  

 

 

     

 

 

  

38. APPROVAL OF FINANCIAL STATEMENTS:

The financial statements of the Bank were approved by board of directors on March 29, 2018, and were finally approved by the Operations Committee on March 30, 2018.

 

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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

 

LOGO

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 government under Prime Minister Choi Kyu Hah, who became the next President. After clashes between the

 

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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 (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 December 9, 2016, the National Assembly voted in favor of impeaching President Park for a number of alleged 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. President Park was suspended from power immediately, with the prime minister simultaneously taking over the role of acting President. On March 10, 2017, the Constitutional Court unanimously upheld the parliamentary vote to impeach President Park, triggering her immediate dismissal. In connection with its investigation of former President Park, the special independent prosecutor also conducted related investigations of several large Korean business groups and members of their senior management for bribery, embezzlement and other possible misconduct, which the Korean prosecutor’s office has continued following the end of the special independent prosecutor’s term. On April 17, 2017, the Korean prosecutor’s office indicted former President Park on 18 charges including bribery, abuse of power and coercion. On April 6, 2018, the Seoul Central District Court found former President Park guilty of 16 counts of corruption, including bribery, abuse of power and coercion, and sentenced her to 24 years in prison and assessed a fine of Won 18 billion.

 

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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);

 

  •  

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;

 

  •  

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 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 5 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.

 

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Administratively, the Republic comprises eight provinces, one special autonomous province (Jeju), one special city (Seoul), six metropolitan cities (Busan, Daegu, Incheon, Gwangju, Daejon 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.

Political Parties

The 20th legislative general election was held on April 13, 2016 and the term of the National Assembly members elected in the 20th legislative general election commenced on May 30, 2016. Currently, there are four major political parties: The Minjoo Party of Korea, or MPK, the Liberty Korea Party, or LKP, the Bareun Future Party, or BFP, and the Party for Democracy and Peace, or PDP

As of March 31, 2018, the parties control the following number of seats in the National Assembly:

 

     MPK      LKP      BFP      PDP      Others      Total  

Number of seats

      121        116        30        14        12        293  

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 7 million reserves. The Republic’s military forces, composed of approximately 630,000 regular troops and 3 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.

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 a bilateral summit between the two Koreas was held on April 27, 2018 and a summit between the United States and North Korea was held on June 12, 2018, 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 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 Trade Organization, or WTO;

 

  •  

the Inter-American Development Bank, or IDB; and

 

  •  

the Organization for Economic Cooperation and Development, or OECD.

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,  
     2013     2014     2015     2016     2017 (6)  
     (billions of dollars and trillions of Won, except percentages)  

GDP Growth (at current prices)

      3.8 %      4.0 %      5.3 %      5.0 %      5.4 %(6) 

GDP Growth (at chained 2010 year prices)

      2.9 %      3.3 %      2.8 %      2.9 %      3.1 %(6) 

Inflation

      1.3 %      1.3 %      0.7 %      1.0 %      1.9 % 

Unemployment (1)

      3.1 %      3.5 %      3.6 %      3.7 %      3.7 % 

Trade Surplus (2)

    $ 44.0     $ 47.2     $ 90.3     $ 89.2     $ 95.2  

Foreign Currency Reserves

    $ 346.5     $ 363.6     $ 368.0     $ 371.1     $ 389.3  

External Liabilities(3)

    $ 423.5     $ 424.3     $ 396.1     $ 384.1     $ 418.8 (6)  

Fiscal Balance

    ￦ 14.2     ￦ 8.5     ￦ (0.2 )    ￦ 16.9     ￦ 24.0 (6)  

Direct Internal Debt of the Government(4)
(as % of GDP(5))

      32.8 %      34.6 %      37.3 %      38.5 %(6)      N/A %(7) 

Direct External Debt of the Government(4)
(as % of GDP(5))

      0.6 %      0.5 %      0.5 %      0.4 %(6)      N/A %(7) 

 

(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 Balance of Payment Manual, or BPM6, 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 2010 year prices.

(6)

Preliminary.

(7)

Not available.

Source: The Bank of Korea

Worldwide Economic and Financial Difficulties

In recent years, the global financial markets have experienced significant volatility as a result of, among other things:

 

  •  

the financial difficulties affecting many governments worldwide, in particular in southern Europe and Latin America;

 

  •  

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

 

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  •  

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

 

  •  

political and social instability in various countries in the Middle East and Northern Africa, including Iraq, Syria and Yemen, as well as in the Ukraine and Russia; and

 

  •  

fluctuations in oil and commodity prices.

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.

As a result of adverse global financial and economic conditions, there has been significant volatility in the Korea Composite Stock Index in recent years. See “—The Financial System—Securities Markets”. There is no guarantee that the stock prices of Korean companies will not decline again in the future. Future 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 continue to 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. In addition, the value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has fluctuated widely in recent years. A depreciation of the Won 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 the event that difficult conditions in the global credit markets continue or the global economy deteriorates 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.

In addition to the global developments, domestic developments that could lead or contribute to a material adverse effect on the Korean economy include, among other things, the following:

 

  •  

steadily rising household debt consisting of housing loans and merchandise credit, which increased to approximately ￦1,450.9 trillion as of December 31, 2017 from ￦843.2 trillion as of December 31, 2010, primarily due to increases in mortgage loans and purchases with credit cards;

 

  •  

a slowdown in consumer spending and depressed consumer sentiment, due in part to national tragedies including the sinking of the Sewol passenger ferry in April 2014, which led to the death of hundreds of passengers, and the outbreak of infectious diseases, such as the outbreak of the Middle East Respiratory Syndrome (“MERS”) in May 2015, which resulted in the death of over 30 people and the quarantine of thousands;

 

  •  

a substantial increase in the Korean government’s expenditures for 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 13.8% of the Republic’s total population as of December 31, 2017, an increase from 7.2% as of December 31, 2000, and is expected to surpass 15% in 2020 and 20% in 2026, which could lead to the Korean government’s budget deficit;

 

  •  

increasing delinquencies and credit defaults by consumer and small- and medium-sized enterprise borrowers;

 

  •  

decreases in the market prices of Korean real estate;

 

  •  

the occurrence of severe health epidemics, including epidemics that affect the livestock industry; and

 

  •  

deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the ongoing controversy between Korea and China regarding the decision to allow the United States to deploy the Terminal High Altitude Area Defense system in Korea).

 

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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.

 

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The following table sets out the composition of the Republic’s GDP at current market and chained 2010 year prices and the annual average increase in the Republic’s GDP.

Gross Domestic Product

 

    2013     2014     2015     2016     2017 (1)     As % of GDP
2017 (1)		  
    (billions of Won)  

Gross Domestic Product at Current Market Prices:

            

Private

     727,799.9       748,200.8       771,239.2       798,728.9       832,234.7       48.1  

Government

     214,467.3       224,724.2       234,766.4       249,166.9       265,347.0       15.3  

Gross Capital Formation

     416,000.3       435,078.1       452,315.1       480,261.6       537,732.6       31.1  

Exports of Goods and Services

     770,114.8       747,134.3       709,122.0       694,216.1       745,645.6       43.1  

Less Imports of Goods and Services

     (698,936.9 )      (669,058.0 )      (600,239.3 )      (581,662.3 )      (652,156.8 )      (37.7 ) 

Statistical Discrepancy

     —         —         (3,079.4 )      1,074.9       1,595.5       0.1  

Expenditures on Gross Domestic Product

     1,429,445.4       1,486,079.3       1,564,123.9       1,641,786.0       1,730,398.5       100.0  

Net Factor Income from the Rest of the World

     10,199.0       4,684.5       4,259.2       4,422.8       62.9       0.0  

Gross National Income (2)

     1,439,644.4       1,490,763.9       1,568,383.1       1,646,208.9       1,730,461.4       100.0  

Gross Domestic Product at Chained 2010 Year Prices:

            

Private

     680,349.5       692,236.0       707,492.7       725,362.3       744,284.4       47.8  

Government

     199,783.4       205,869.2       212,021.6       221,514.2       229,100.7       14.7  

Gross Capital Formation

     409,153.8       430,685.5       462,114.3       488,039.9       537,370.0       34.5  

Exports of Goods and Services

     788,788.0       804,797.1       803,746.1       824,330.0       840,019.9       54.0  

Less Imports of Goods and Services

     (696,724.6 )      (706,938.4 )      (721,740.4 )      (755,861.0 )      (808,985.5 )      (52.0 ) 

Statistical Discrepancy

     (172.8 )      1,019.1       2,481.2       3,261.9       3,366.9       0.2  

Expenditures on Gross Domestic Product (3)

     1,380,832.6       1,426,972.4       1,466,788.3       1,509,755.0       1,555,995.3       100.0  

Net Factor Income from the Rest of the World in the Terms of Trade

     10,037.5       4,706.4       4,249.8       4,293.6       261.0       0.0  

Trading Gains and Losses from Changes in the Terms of Trade

     (19,138.8 )      (14,000.4 )      38,787.9       59,90505       65,729.0       4.2  

Gross National Income (4)

     1,371,733.1       1,417,814.2       1,510,005.6       1,574,137.3       1,622,212.6       104.3  

Percentage Increase (Decrease) of GDP over Previous Year At Current Prices

     3.8       4.0       5.3       5.0       5.4    

At Chained 2010 Year Prices

     2.9       3.3       2.8       2.9       3.1    

 

(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 to the total GDP.

(4)

Under the “chain-linked” measure of Gross National Income, the components of Gross National Income will not necessarily add 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)

 

    2013     2014     2015     2016     2017 (1)     As % of GDP
2017 (1)		  
    (billions of Won)  

Industrial Sectors:

     531,054.1       547,231.2       578,352.0       608,403.1       654,616.6       37.8  

Agriculture, Forestry and Fisheries

     30,437.2       31,560.3       32,612.2       31,647.0       33,935.4       2.0  

Mining and Manufacturing

     406,127.7       411,030.4       426,228.8       442,502.4       479,927.3       27.7  

Mining and Quarrying

     2,471.0       2,520.2       2,577.1       2,802.1       2,815.2       0.2  

Manufacturing

     403,656.7       408,510.2       423,651.7       439,700.3       477,112.1       27.6  

Electricity, Gas and Water Supply

     30,238.7       37,373.8       44,988.9       49,879.4       47,531.0       2.7  

Construction

     64,250.5       67,266.7       74,522.1       84,374.3       93,222.9       5.4  

Services:

     772,184.1       807,624.1       845,294.8       882,458.9       914,424.9       52.8  

Wholesale and Retail Trade, Restaurants and Hotels

     150,251.9       152,205.2       156,363.1       164,350.4       168,423.0       9.7  

Transportation and Storage

     46,772.0       50,306.8       56,154.6       59,230.7       56,987.2       3.3  

Finance and Insurance

     72,478.1       75,859.8       78,699.7       81,075.7       85,784.4       5.0  

Real Estate and Leasing

     103,527.1       109,549.0       114,618.7       118,359.9       122,262.5       7.1  

Information and Communication

     50,589.2       52,510.8       54,257.2       56,710.7       57,581.0       3.3  

Business Activities

     94,758.4       100,936.7       106,944.2       110,894.2       115,417.2       6.7  

Public Administration and Defense

     93,776.3       98,333.5       102,848.3       107,601.0       114,832.9       6.6  

Education

     71,599.3       74,007.8       76,237.2       77,664.4       79,432.7       4.6  

Health and Social Work

     52,851.5       57,129.7       61,980.4       68,100.9       74,356.4       4.3  

Cultural and Other Services

     35,580.3       36,784.7       37,191.4       38,471.0       39,347.6       2.3  

Taxes Less Subsidies on Products

     126,207.2       131,224.0       140,477.2       150,924.2       161,356.9       9.3  

Gross Domestic Product at Current Market Prices

     1,429,445.4       1,486,079.3       1,564,123.9       1,641,786.0       1,730,398.5       100.0  

Net Factor Income from the Rest of the World

     10,199.0       4,684.5       4,259.2       4,422.8       62.9       0.0  

Gross National Income at Current Market Price

     1,439,644.4       1,490,763.9       1,568,383.1       1,646,208.9       1,730,461.4       100.0  

 

(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)

 

     2012      2013      2014      2015      2016 (1)  

GDP per capita (thousands of Won)

      27,439        28,346        29,284        30,660        31,952  

GDP per capita (U.S. dollar)

      24,350        25,886        27,805        27,097        27,533  

Average Exchange Rate (in Won per U.S. dollar)

      1,126.9        1,095.0        1,053.2        1,131.5        1,160.5  

 

(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)

 

     2012      2013      2014      2015      2016 (1)  

GNI per capita (thousands of Won)

      27,721        28,548        29,377        30,744        31,984  

GNI per capita (U.S. dollar)

      24,600        26,070        27,892        27,171        27,561  

Average Exchange Rate (in Won per U.S. dollar)

      1,126.9        1,095.0        1,053.2        1,131.5        1,160.5  

 

(1)

Preliminary.

Source: The Bank of Korea.

 

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The following table sets out the Republic’s GDP by economic sector at chained 2010 year prices:

Gross Domestic Product by Economic Sector

(at chained 2010 year prices)

 

    2013     2014     2015     2016     2017 (1)     As % of GDP
2017 (1)		  
    (billions of Won)  

Industrial Sectors:

     510,804.1       527,016.1       538,722.4       554,601.8       578,793.5       37.2  

Agriculture, Forestry and Fisheries

     28,357.7       29,378.2       29,251.4       28,441.6       28,530.8       1.8  

Mining and Manufacturing

     399,773.1       413,839.1       421,057.7       430,968.9       449,524.2       28.9  

Mining and Quarrying

     2,347.1       2,344.40       2,314.5       2,357.1       2,261.5       0.1  

Manufacturing

     397,426.0       411,494.7       418,743.2       428,611.8       447,262.7       28.7  

Electricity, Gas and Water Supply

     26,629.2       27,327.9       28,722.1       29,495.0       30,399.3       2.0  

Construction

     56,044.1       56,470.9       59,691.2       65,696.3       70,339.2       4.5  

Services:

     739,463.1       763,853.5       785,323.3       806,312.4       823,800.7       52.9  

Wholesale and Retail Trade, Restaurants and Hotels

     145,620.3       149,150.5       152,013.0       156,323.0       157,472.7       10.1  

Transportation and Storage

     47,556.1       48,646.9       49,486.3       50,616.8       51,765.3       3.3  

Finance and Insurance

     78,583.9       83,020.5       88,568.7       90,844.7       94,249.9       6.1  

Real Estate and Leasing

     93,999.5       97,112.9       98,773.8       99,559.1       100,496.5       6.5  

Information and Communication

     52,773.2       55,164.8       56,532.2       58,282.1       59,743.4       3.8  

Business Activities

     87,244.6       91,424.0       95,713.9       97,986.2       99,948.1       6.4  

Public Administration and Defense

     85,024.5       87,052.8       88,495.2       90,625.4       93,008.8       6.0  

Education

     64,773.0       64,865.2       65,158.4       65,234.3       65,574.5       4.2  

Health and Social Work

     51,247.1       54,740.1       58,653.1       63,157.9       67,738.3       4.4  

Cultural and Other Services

     32,683.2       33,106.0       32,999.7       33,682.9       33,803.2       2.2  

Taxes Less Subsidies on Products

     130,627.4       136,454.6       142,688.3       149,817.1       154,793.8       9.9  

Gross Domestic Product at Chained 2010 Year Prices(2)

     1,380,832.6       1,426,972.4       1,466,788.3       1,509,755.0       1,555,995.3       100.0  

 

(1)

Preliminary.

(2)

Under the “chain-linked” measure of GDP, the components of GDP will not necessarily add to the total GDP.

Source: The Bank of Korea.

GDP growth in 2012 was 2.3% at chained 2010 year prices, as aggregate private and general government consumption expenditures increased by 2.2% and exports of goods and services increased by 5.1%, which more than offset a decrease in gross domestic fixed capital formation by 0.5% and an increase in imports of goods and services by 2.4%, each compared with 2011.

GDP growth in 2013 was 2.9% at chained 2010 year prices, as aggregate private and general government consumption expenditures increased by 2.2%, exports of goods and services increased by 4.3% and gross domestic fixed capital formation increased by 3.3%, which more than offset an increase in imports of goods and services by 1.7%, each compared with 2012.

GDP growth in 2014 was 3.3% at chained 2010 year prices, as aggregate private and general government consumption expenditures increased by 2.0%, exports of goods and services increased by 2.0% and gross

 

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domestic fixed capital formation increased by 3.4%, which more than offset an increase in imports of goods and services by 1.5%, each compared with 2013.

GDP growth in 2015 was 2.8% at chained 2010 year prices, as aggregate private and general government consumption expenditures increased by 2.4% and gross domestic fixed capital formation increased by 5.1%, which more than offset a decrease in exports of goods and services by 0.1% and an increase in imports of goods and services by 2.1%, each compared with 2014.

GDP growth in 2016 was 2.9% at chained 2010 year prices, as aggregate private and general government consumption expenditures increased by 3.0%, gross domestic fixed capital formation increased by 5.6% and exports of goods and services increased by 2.6%, which more than offset an increase in imports of goods and services by 4.7%, each compared with 2015.

Based on preliminary data, GDP growth in 2017 was 3.1% at chained 2010 year prices, as aggregate private and general government consumption expenditures increased by 2.8%, gross domestic fixed capital formation increased by 8.6% and exports of goods and services increased by 1.9%, which more than offset an increase in imports of goods and services by 7.0%, each compared with 2016.

 

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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)		     2013     2014     2015     2016     2017 (2)  

All Industries

     10,000.0       100.1       100.3       100.0       102.3       104.2  

Mining and Manufacturing

     9,611.6       100.0       100.2       100.0       102.4       104.0  

Mining

     33.9       106.9       98.5       100.0       101.4       107.9  

Petroleum, Crude Petroleum and Natural Gas

     8.7       145.9       120.4       100.0       96.8       86.8  

Metal Ores

     0.9       124.7       126.6       100.0       95.0       84.0  

Non-metallic Minerals

     24.3       99.1       93.6       100.0       102.7       113.3  

Manufacturing

     9,577.7       100.0       100.3       100.0       102.4       104.0  

Food Products

     434.4       97.2       98.2       100.0       102.4       103.0  

Beverage Products

     82.4       96.1       97.2       100.0       103.7       105.3  

Tobacco Products

     43.2       100.2       107.9       100.0       113.0       122.4  

Textiles

     160.6       108.7       106.6       100.0       98.0       94.9  

Wearing Apparel, Clothing Accessories and Fur Articles

     145.2       111.0       104.0       100.0       95.9       96.8  

Tanning and Dressing of Leather, Luggage and Footwear

     42.1       107.4       105.9       100.0       93.1       81.5  

Wood and Products of Wood and Cork (Except Furniture)

     31.7       100.4       96.4       100.0       101.6       106.2  

Pulp, Paper and Paper Products

     126.8       99.4       101.1       100.0       99.4       97.5  

Printing and Reproduction of Recorded Media

     50.2       102.9       102.7       100.0       101.7       101.4  

Coke, hard-coal and lignite fuel briquettes and Refined Petroleum Products

     471.0       89.7       94.3       100.0       106.3       110.9  

Chemicals and Chemical Products

     847.5       97.0       97.8       100.0       105.6       109.2  

Pharmaceuticals, Medicinal Chemicals and Botanical Products

     144.1       96.7       98.1       100.0       109.2       117.8  

Rubber and Plastic Products

     421.1       99.4       100.1       100.0       100.5       99.9  

Non-metallic Minerals

     271.7       97.4       93.8       100.0       109.2       111.3  

Basic Metals

     827.6       98.1       101.7       100.0       100.7       100.8  

Fabricated Metal Products

     557.8       100.9       104.6       100.0       99.3       94.3  

Electronic Components, Computer, Radio, Television and Communication Equipment and Apparatuses

     1,794.3       100.4       98.7       100.0       107.0       110.9  

Medical, Precision and Optical Instruments, Watches and Clocks

     148.1       115.2       104.2       100.0       101.0       118.1  

Electrical Equipment

     479.5       101.4       103.4       100.0       103.3       106.5  

Other Machinery and Equipment

     803.6       102.8       103.2       100.0       101.4       115.5  

Motor Vehicles, Trailers and Semitrailers

     1,076.4       96.1       98.7       100.0       97.7       94.9  

Other Transport Equipment

     506.5       123.7       109.9       100.0       89.0       68.7  

Furniture

     69.5       88.4       94.7       100.0       107.0       112.5  

Other Products

     42.4       104.0       103.8       100.0       104.4       108.3  

Electricity, Gas

     388.4       100.0       100.7       100.0       100.8       106.3  

Total Index

     10,000.0       100.1       100.3       100.0       102.3       104.2  

 

(1)

Index weights were established on the basis of an industrial census in 2010 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 0.7% in 2013, primarily due to increased exports. Industrial production increased by 0.2% in 2014, primarily due to increased exports. Industrial production decreased by 0.3% in 2015,

 

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primarily due to decreased exports. Industrial production increased by 2.3% in 2016, primarily due to increased domestic consumption. Based on preliminary data, industrial production increased by 1.9% in 2017, primarily due to increased domestic consumption and exports.

Manufacturing

The manufacturing sector increased production by 0.6% in 2013, primarily due to increased demand for consumer electronics products, electronic equipment, chemical products, medical equipment and transport equipment, and by 0.3% in 2014, primarily due to increased demand for basic metals, machinery and equipment and motor vehicles, trailers and semitrailers. The manufacturing sector decreased production by 0.3% in 2015, primarily due to decreased demand for other transport equipment, fabricated metal products, other machinery and equipment, and basic metals. The manufacturing sector increased production by 2.4% in 2016 and by 1.6% in 2017 (based on preliminary data), primarily due to increased demand for consumer electronics products, electronic components, communication equipment and chemical products, which more than offset decreased demand for motor vehicles, trailers and semitrailers.

Automobiles. In 2013, automobile production decreased by 0.9%, domestic sales volume recorded a decrease of 2.0% and export sales volume recorded a decrease of 2.6%, compared with 2012, primarily due to decreased supply of automobiles resulting mainly from partial strikes by unionized workers of automobile manufacturers in August 2013 and the appreciation of the Won against the U.S. dollar and the Japanese Yen. In 2014, automobile production increased by 0.1% and domestic sales volume recorded an increase of 4.6%, compared with 2013, primarily due to increased domestic demand for recreational vehicles, and export sales volume recorded a decrease of 0.8%, compared with 2013, primarily due to decreased demand for automobiles in Eastern Europe and South America. In 2015, automobile production increased by 0.7% and domestic sales volume recorded an increase of 7.7%, compared with 2014, primarily due to continued increase in domestic demand for recreational vehicles, and export sales volume recorded a decrease of 2.9%, compared with 2014, primarily due to decreased demand for automobiles in China, Russia, Eastern Europe and South America. 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. Based on preliminary data, 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 US and China.

Electronics. In 2012, electronics production amounted to ￦314,558 billion, an increase of 0.1% from the previous year, primarily due to increased domestic demand for mobile phones and non-memory semiconductors, and exports amounted to US$155.2 billion, a decrease of 0.9% from the previous year, primarily due to adverse economic conditions in European countries. In 2012, export sales of semiconductor memory chips constituted approximately 9.2% of the Republic’s total exports. In 2013, electronics production amounted to ￦325,684 billion, an increase of 3.5% from the previous year, and exports amounted to US$169.4 billion, an increase of 9.1% from the previous year, primarily due to increases in demand for mobile phones in emerging markets and global demand for non-memory semiconductors. In 2013, export sales of semiconductor memory chips constituted approximately 10.2% of the Republic’s total exports. In 2014, electronics production amounted to ￦329,460 billion, an increase of 1.2% from the previous year, and exports amounted to US$173.9 billion, an increase of 2.7% from the previous year, primarily due to increases in demand for mobile phones and semiconductors. In 2014, export sales of semiconductor memory chips constituted approximately 10.9% of the Republic’s total exports. In 2015, electronics production amounted to ￦324,162 billion, a decrease of 1.6% from the previous year, and exports amounted to US$172.9 billion, a decrease of 0.6% from the previous year, primarily due to adverse global economic conditions and the expansion of overseas production. In 2015, export sales of semiconductor memory chips constituted approximately 11.9% of the Republic’s total exports. Based on preliminary data, in 2016, electronics production amounted to ￦306,331 billion, a decrease of 5.5% from the

 

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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.

Iron and Steel. In 2013, crude steel production totaled 66.1 million tons, a decrease of 4.4% from 2012, and domestic sales volume and export sales volume of iron and steel products decreased by 4.2% and 4.2%, respectively, primarily due to the appreciation of the Won against the U.S. dollar and the Japanese Yen and excess supply from China. In 2014, crude steel production totaled 71.5 million tons, an increase of 8.3% from 2013, and domestic sales volume and export sales volume of iron and steel products increased by 7.3% and 10.5%, respectively, primarily due to the recovery of domestic and global demand for crude steel products. In 2015, crude steel production totaled 69.7 million tons, a decrease of 2.6% from 2014, and domestic sales volume of iron and steel products increased by 0.6% but export sales volume of iron and steel products decreased by 2.2%, primarily due to excess supply from China and adverse conditions in the global shipbuilding and construction industries. 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. Based on preliminary data, 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.

Shipbuilding. In 2013, the Republic’s shipbuilding orders amounted to approximately 19 million compensated gross tons, an increase of 137.5% compared to 2012, primarily due to increased demand for LNG carriers, bulk carriers and container carriers. In 2014, the Republic’s shipbuilding orders amounted to approximately 13 million compensated gross tons, a decrease of 31.6% compared to 2013, primarily due to a downturn in the domestic and global shipbuilding industry. In 2015, the Republic’s shipbuilding orders amounted to approximately 11 million compensated gross tons, a decrease of 15.4% compared to 2014, primarily due to the continued downturn in the domestic and global shipbuilding industry. 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. Based on preliminary data, in 2017, the Republic’s shipbuilding orders amounted to approximately 6 million compensated gross tons, an increase of 200% compared to 2016, primarily due to increased demand for LNG carriers, bulk carriers and container carriers.

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.

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.

 

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In 2012, rice production decreased 4.7% from 2011 to 4.0 million tons. In 2013, rice production increased 5.0% from 2012 to 4.2 million tons. In 2014, rice production remained at 4.2 million tons. In 2015, rice production increased 2.4% from 2014 to 4.3 million tons. In 2016, rice production decreased 2.3% from 2015 to 4.2 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 2013, the agriculture, forestry and fisheries industry increased by 3.1% compared to 2012, primarily due to an increase in the cultivation and livestock industry. In 2014, the agriculture, forestry and fisheries industry increased by 2.6% compared to 2013, primarily due to increases in the price of certain livestock items, which led to increases in production and the establishment of new agriculture and fishery companies. In 2015, the agriculture, forestry and fisheries industry decreased by 0.4% compared to 2014, primarily due to unfavorable weather conditions. In 2016, the agriculture, forestry and fisheries industry decreased by 2.9% compared to 2015, primarily due to unfavorable weather conditions and a decrease in fishing catch. Based on preliminary data, in 2017, the agriculture, forestry and fisheries industry increased by 0.4% compared to 2016, primarily due to an increase in aquafarming production.

Construction

In 2013, the construction industry increased by 3.0% compared to 2012, primarily due to an increase in the construction of residential and commercial buildings. In 2014, the construction industry increased by 0.6% compared to 2013, primarily due to an increase in the construction of private residential buildings. In 2015, the construction industry increased by 5.7% compared to 2014, primarily due to an increase in the construction of private residential and commercial buildings. In 2016, the construction industry increased by 10.5% compared to 2015, primarily due to an increase in the construction of private residential and commercial buildings. Based on preliminary data, in 2017, the construction industry increased by 7.2% compared to 2016, primarily due to an increase in the construction of residential and commercial 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, except ratios)  

2013

      280.4        268.3        95.7  

2014

      283.1        269.5        95.2  

2015

      287.7        272.7        94.8  

2016

      294.7        279.1        94.7  

2017(1)

      301.1        283.6        94.2  

 

(1)

Preliminary.

Source: Korea Energy Economics Institute; Korea National Statistical Office.

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.

 

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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, except percentages)  

2013

      82.1        29.3        105.8        37.7        29.3        10.4        63.2        22.5        280.4        100.0  

2014

      84.8        30.0        104.9        37.1        33.0        11.7        60.4        21.3        283.1        100.0  

2015

      85.7        29.8        109.6        38.1        34.8        12.1        57.6        20.0        287.7        100.0  

2016

      81.9        27.8        118.1        40.1        34.2        11.6        60.5        20.5        294.7        100.0  

2017(2)

      86.3        28.7        119.6        39.7        31.6        10.5        63.6        21.1        301.1        100.0  

 

(1)

Includes natural gas, hydroelectric power and renewable energy.

(2)

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, 2017, the Republic had 24 nuclear plants with a total estimated nuclear power installed generating capacity of 22,529 megawatts and five nuclear plants under construction. In December 2017, the Government released the “Eighth Basic Plan relating to the Long-Term Supply and Demand of Electricity” which serves as the guideline for stable medium- and long-term supply of electric power. The objectives of the Eighth Basic Plan include, 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 including through suspension of construction of new nuclear power plants, permanent closing of old coal-fired generation units and converting coal-fired generation units into LNG-fired generation units, (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 Government plans to expand infrastructure to supply natural gas to households, pursue a long-term strategy of overseas energy development projects to ensure supply stability, increase clean and renewable energy and provide support for research and development pertaining to green technologies.

Services Sector

In 2013, the service industry increased by 2.8% compared to 2012 as the business activities sector increased by 4.7%, the finance and insurance sector increased by 3.6% and the health and social work sector increased by 5.2%, each compared with 2012. In 2014, the service industry increased by 3.1% compared to 2013 as the health and social work sector increased by 7.5%, the finance and insurance sector increased by 5.7% and the business activities sector increased by 4.1%, each compared with 2013. In 2015, the service industry increased by 3.0% compared to 2014 as the finance and insurance sector increased by 6.7%, the business activities sector increased by 4.7% and the health and social work sector increased by 7.1%, each compared with 2014. In 2016, the service industry increased by 2.3% compared to 2015 as the health and social work sector increased by 7.8%, the wholesale and retail trade, restaurants and hotels sector increased by 2.7% and the finance and insurance sector increased by 2.3%, each compared with 2015. Based on preliminary data, in 2017, the service industry increased by 2.1% compared to 2016 as the health and social work sector increased by 7.9%, the finance and insurance sector increased by 3.5% and the public administration and defense sector increased by 2.5%, each compared with 2016.

 

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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)		  
     (2010=100)      (%)     (2015=100)      (%)      (2010=100)     (%)     (%)  

2013

      105.7        (1.6 )      98.0        1.3        116.4       6.7       3.1  

2014

      105.2        (0.5 )      99.3        1.3        124.3       6.8       3.5  

2015

      101.0        (4.0 )      100.0        0.7        138.0       11.1       3.6  

2016

      99.1        (1.8 )      101.0        1.0        143.6       4.0       3.7  

2017

      102.5        3.5       102.9        1.9        N/A (4)       N/A (4)       3.7  

 

(1)

Average for year.

(2)

Nominal wage index of average earnings in manufacturing industry.

(3)

Expressed as a percentage of the economically active population.

(4)

Not available.

Source: The Bank of Korea; Korea National Statistical Office.

In 2013, the inflation rate decreased to 1.3%, primarily due to increased supply of agricultural goods. In 2014, the inflation rate remained at 1.3%, primarily due to increases in the prices of electricity, gas, water supply, food products and education, which were offset by lower oil prices. In 2015, the inflation rate decreased to 0.7%, primarily due to lower oil prices. 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 2013, the unemployment rate decreased to 3.1%, primarily due to the continued increase in the number of workers employed in the service industry. In 2014, the unemployment rate increased to 3.5%, primarily due to the sluggishness of the domestic economy. In 2015, the unemployment rate increased to 3.6%, primarily due to the continued sluggishness of the domestic economy. 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%.

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 60% and 64% over the past decade. Literacy among workers under 50 is almost universal. As of December 31, 2017, the economically active population of the Republic was 27.8 million and the number of employees was 26.7 million.

 

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The following table shows selected employment information by industry and by gender:

 

    2013     2014     2015     2016     2017  
    (all figures in percentages, except as indicated)  

Labor force (in thousands of persons)

     25,299       25,897       26,178       26,409       26,725  

Employment by Industry:

          

Agriculture, Forestry and Fishing

     6.0       5.6       5.1       4.9       4.8  

Mining and Manufacturing

     17.1       17.3       17.6       17.2       17.2  

S.O.C & Services

     76.9       77.1       77.2       77.9       78.0  

Electricity, Transport, Communication and Finance

     12.2       11.8       11.8       11.8       11.4  

Business, Private & Public Service and Other Services

     35.3       35.3       35.4       36.3       36.4  

Construction

     7.0       7.1       7.0       7.0       7.4  

Wholesale & Retail Trade, Hotels and Restaurants

     22.4       23.0       23.0       22.9       22.8  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Employed

     100.0       100.0       100.0       100.0       100.0  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Employment by Gender:

          

Male

     58.3       58.0       57.7       57.6       57.5  

Female

     41.7       42.0       42.3       42.4       42.5  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total Employed

     100.0       100.0       100.0       100.0       100.0  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

Source: The Bank of Korea

On February 28, 2018, the Korean National Assembly passed a bill to amend the Labor Standards Act, pursuant to which the maximum working hours of employees will be 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 will apply to workplaces with 300 or more workers from July 1, 2018, will be extended to workplaces with 50 or more workers from July 1, 2020, and will be further extended to workplaces with 5 or more workers from July 1, 2021

Approximately 10.3% of the Republic’s workers were unionized as of December 31, 2016. 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 August 2013, unionized workers at Hyundai Motor and Kia Motors Corporation (“Kia Motors”) went on partial strikes demanding higher wages.

 

  •  

In December 2013, unionized workers at the state owned Korea Railroad Corporation (“Korail”) went on strike against Korail’s plan to establish a separate company to operate a new bullet train line fearing that such plan would eventually lead to privatization of Korail and layoffs of existing workers.

 

  •  

In November 2014, unionized workers at Hyundai Heavy Industries went on a series of partial strikes demanding higher wages.

 

  •  

In April 2015, tens of thousands of members of the Korean Confederation of Trade Unions, which includes teacher and civil servant union groups, went on general strike demanding that the Government scrap its plans to reform the labor market and pension program for public workers.

 

  •  

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 Motors went on partial strike protesting the wage gap between workers at Kia Motors and workers at Hyundai Motor.

 

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  •  

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.

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 (“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.

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. To ease the liquidity crisis, the Government altered the real-name financial transactions system during 1998, to allow the sale or deposit of foreign currencies through domestic financial institutions and the purchase of certain bonds, including Government bonds, without identification. The Government also strengthened confidentiality protection for private financial transactions.

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.

 

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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, “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, 2017, there were six nationwide banks, six regional banks, two internet banks and 38 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 contributions to its capital of ￦2,055 billion in 2015, ￦308 billion in 2016 and ￦395 billion in 2017. Taking into account these capital contributions, its total paid-in capital was ￦17,938 billion as of December 31, 2017.

 

  •  

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 ￦1,130 billion in 2015, ￦1,620 billion in 2016 and ￦1,417 billion in 2017. Taking into account these capital contributions, its total paid-in capital was ￦11,815 billion as of December 31, 2017.

 

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  •  

The Industrial Bank of Korea: the Government owned, directly and indirectly, 55.2% of its common shares and all of its preferred shares as of December 31, 2017. 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 2014, the Industrial Bank of Korea issued an aggregate of 3,022,240 new common shares to the Government for ￦36 billion in cash and the Government sold 49,009,880 common shares of the Industrial Bank of Korea for ￦675 billion in cash. In addition, in April 2014, the Industrial Bank of Korea disposed of 26,200,882 of its common shares held as treasury shares through an international offering for ￦294 billion. In 2015, the Industrial Bank of Korea issued an aggregate of 3,184,713 new common shares to the Government for ￦40 billion in cash. In March 2016, the Industrial Bank of Korea issued an aggregate of 3,576,857 new common shares to the Government for ￦40 billion in cash. Taking into account such transactions, the Government’s total paid-in capital was ￦1,674 billion as of December 31, 2017.

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, 2013

      1,441.6        25.7        1.8  

December 31, 2014

      1,557.9        24.2        1.6  

December 31, 2015

      1,664.3        30.0        1.8  

December 31, 2016

      1,732.9        24.7        1.4  

December 31, 2017(2)

      1,775.9        21.0        1.2  

 

(1)

Assets classified as substandard or below.

(2)

Preliminary.

Source: Financial Supervisory Service.

In 2013, these banks posted an aggregate net profit of ￦3.9 trillion, compared to an aggregate net profit of ￦8.7 trillion in 2012, primarily due to decreased net interest income and increased loan loss provisions. In 2014, these banks posted an aggregate net profit of ￦6.0 trillion, compared to an aggregate net profit of ￦3.9 trillion in 2013, primarily due to decreased loan loss provisions. In 2015, these banks posted an aggregate net profit of ￦3.4 trillion, compared to an aggregate net profit of ￦6.0 trillion in 2014, primarily due to increased loan loss provisions. In 2016, these banks posted an aggregate net profit of ￦1.6 trillion, compared to an aggregate net profit of ￦3.4 trillion in 2015, primarily due to increased loan loss provisions. Based on preliminary data, in 2017, these banks posted an aggregate net profit of ￦10.7 trillion, compared to an aggregate net profit of ￦1.6 trillion in 2016, primarily due to decreased loan loss provisions and increased net interest income.

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.

 

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As of December 31, 2017, 79 mutual savings banks, 23 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 30, 2013

      2,011.3  

January 29, 2014

      1,941.2  

February 28, 2014

      1,980.0  

March 31, 2014

      1,985.6  

April 30, 2014

      1,961.8  

May 30, 2014

      1,995.0  

June 30, 2014

      2,002.2  

July 31, 2014

      2,076.1  

August 29, 2014

      2,068.5  

September 30, 2014

      2,020.1  

October 31, 2014

      1,964.4  

November 28, 2014

      1,980.8  

December 31, 2014

      1,915.6  

January 30, 2015

      1,949.3  

February 27, 2015

      1,985.8  

March 31, 2015

      2,041.0  

April 30, 2015

      2,127.2  

May 29, 2015

      2,114.8  

June 30, 2015

      2,074.2  

July 31, 2015

      2,030.2  

August 29, 2015

      1,941.5  

September 30, 2015

      1,962.8  

October 30, 2015

      2,029.5  

November 30, 2015

      1,992.0  

December 30, 2015

      1,960.3  

January 29, 2016

      1,912.1  

February 29, 2016

      1,916.7  

March 31, 2016

      1,995.8  

April 29, 2016

      1,994.2  

May 31, 2016

      1,983.4  

June 30, 2016

      1,970.4  

July 29, 2016

      2,016.2  

August 31, 2016

      2,034.7  

September 30, 2016

      2,043.6  

October 31, 2016

      2,008.2  

November 30, 2016

      1,983.5  

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  
 

 

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. The index was 2,468.9 on June 12, 2018.

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 Services Commission. 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 Strategy 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 ￦50 million per person regardless of the amount deposited.

 

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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 October 9, 2008, The Bank of Korea cut its policy rate to 5.0% from 5.25%, and continued to lower it further to 4.25% on October 27, 2008, 4.0% on November 7, 2008, 3.0% on December 11, 2008, 2.5% on January 9, 2009 and 2.0% on February 12, 2009, in order to address financial market instability and to help combat the slowdown of the domestic economy. 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 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%, in response to signs of inflationary pressures and the continued growth of the global and domestic economy.

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,  
     2013     2014     2015     2016     2017  
     (billions of Won)  

Money Supply (M1) (1)

      515,643.4       585,822.6       708,452.9       795,531.1       849,862.4  

Quasi-money (2)

      1,405,151.6       1,491,411.4       1,538,922.1       1,611,928.0       1,680,491.2  

Money Supply (M2) (3)

      1,920,795.0       2,077,234.0       2,247,375.0       2,407,459.1       2,530,353.6  

Percentage Increase Over Previous Year

      4.6 %      8.1 %      8.2 %      7.1 %      5.1 % 

 

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(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 Strategy 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 Strategy 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.

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 Strategy 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.

 

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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 31, 2013

      1,055.3  

January 29, 2014

      1,079.2  

February 28, 2014

      1,067.7  

March 31, 2014

      1,068.8  

April 30, 2014

      1,031.7  

May 30, 2014

      1,021.6  

June 30, 2014

      1,014.4  

July 31, 2014

      1,024.3  

August 29, 2014

      1,013.6  

September 30, 2014

      1,050.6  

October 31, 2014

      1,054.0  

November 28, 2014

      1,101.1  

December 31, 2014

      1,099.2  

January 30, 2015

      1,090.8  

February 27, 2015

      1,099.2  

March 31, 2015

      1,105.0  

April 30, 2015

      1,068.1  

May 29, 2015

      1,108.0  

June 30, 2015

      1,124.1  

July 31, 2015

      1,166.3  

August 31, 2015

      1,176.3  

September 30, 2015

      1,194.5  

October 30, 2015

      1,142.3  

November 30, 2015

      1,150.4  

December 31, 2015

      1,172.0  

January 29, 2016

      1,208.4  

February 29, 2016

      1,235.4  
     Won/U.S. Dollar
Exchange Rate		  

March 31, 2016

      1,153.5  

April 29, 2016

      1,143.9  

May 31, 2016

      1,190.6  

June 30, 2016

      1,164.7  

July 31, 2016

      1,125.7  

August 31, 2016

      1,118.5  

September 30, 2016

      1,096.3  

October 31, 2016

      1,145.2  

November 30, 2016

      1,168.5  

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  

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  
 

 

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. The market average exchange rate was ￦1,073.5 to US$1.00 on June 12, 2018.

 

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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

    2013     2014     2015     2016     2017 (4)  
     (millions of dollars)  

Current Account

      81,148.2       84,373.0       105,939.6       99,243.0       78,460.2  

Goods

      82,781.0       88,885.4       122,269.2       118,895.4       119,888.7  

Exports (2)

      618,156.9       613,020.6       542,881.2       511,947.3       577,381.4  

Imports (2)

      535,375.9       524,135.2       420,612.0       393,051.9       457,492.7  

Services

      (6,499.2 )      (3,678.5 )      (14,916.8 )      (17,737.4 )      (34,472.2 ) 

Income

      9,055.7       4,150.8       3,572.4       3,851.7       122.0  

Current Transfers

      (4,189.3 )      (4,984.7 )      (4,985.2 )      (5,766.7 )      (7,078.3 ) 

Capital and Financial Account

      80,077.6       89,325.1       106,239.0       102,520.6       87,069.1  

Capital Account

      (27.0 )      (8.9 )      (60.2 )      (46.2 )      (31.3 ) 

Financial Account (3)

      80,104.6       89,334.0       106,299.2       102,566.8       87,100.4  

Net Errors and Omissions

      (1,016.6 )      4,969.9       419.8       3,370.0       8,671.5  

 

(1)

Figures are prepared based on the sixth edition of Balance of Payment Manual, or BPM6, published by International Monetary Fund in December 2010 and implemented by the Government in December 2013.

(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 Republic recorded a current account surplus of approximately US$105.9 billion in 2015. The current account surplus in 2015 increased from the current account surplus of US$84.4 billion in 2014, primarily due to an increase in surplus from the goods account which more than offset an increase in deficit from the services account. The Republic recorded a current account surplus of approximately US$99.2 billion in 2016. The current account surplus in 2016 decreased from the current account surplus of US$105.9 billion in 2015, primarily due to a decrease in surplus from the goods account and an increase in deficit from the service account. Based on preliminary data, the Republic recorded a current account surplus of approximately US$78.5 billion in 2017. The current account surplus in 2017 decreased from the current account surplus of US$99.2 billion in 2016, primarily due to an increase in deficit from the service account which more than offset an increase in surplus from the goods account.

 

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Foreign Direct Investment

Since 1960, the Government has adopted a broad range of related laws, administrative rules and regulations, providing 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

 

     2013      2014      2015      2016      2017  
     (billions of dollars)  

Contracted and Reported Investment

               

Greenfield Investment(1)

      9.6        11.0        14.1        15.0        15.7  

Merger & Acquisition

      5.0        8.0        6.8        6.3        7.2  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

      14.5        19.0        20.9        21.3        22.9  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Actual Investment

      9.9        12.1        16.5        10.6        13.3 (2)  

 

(1)

Includes building new factories and operational facilities.

(2)

Preliminary.

Source: Ministry of Trade, Industry and Energy

In 2016, the contracted and reported amount of foreign direct investment in the Republic increased to US$21.3 billion from US$20.9 billion in 2015, primarily due to an increase in foreign investment in (i) the service sector to US$15.5 billion in 2016 from US$14.7 billion in 2015 and (ii) the manufacturing sector to US$5.0 billion in 2016 from US$4.6 billion in 2015, which more than offset a decrease in foreign investment in the electricity, gas and construction sector to US$0.7 billion in 2016 from US$1.6 billion in 2015.

In 2017, the contracted and reported amount of foreign direct investment in the Republic increased to US$22.9 billion from US$21.3 billion in 2016, primarily due to an increase in foreign investment in the manufacturing sector to US$7.2 billion in 2017 from US$5.0 billion in 2016, which more than offset a decrease in foreign investment in the electricity, gas and construction sector to US$0.3 billion in 2017 from US$0.7 billion in 2016.

 

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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

 

     2013      2014      2015      2016      2017  
     (billions of dollars)  

North America

               

U.S.A.

      3.5        3.6        5.5        3.9        4.7  

Others

      1.1        1.4        2.9        1.4        1.6  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
     4.6        5.0        8.4        5.3        6.3  

Asia

               

Japan

      2.7        2.5        1.7        1.2        1.8  

Hong Kong

      1.0        1.1        1.5        2.1        1.8  

Singapore

      0.4        1.7        2.5        2.3        1.8  

China

      0.5        1.2        2.0        2.0        0.8  

Others

      0.4        0.3        0.7        0.5        2.0  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
     5.0        6.8        8.4        8.1        8.2  

European Union

               

Malta

      1.8        0.4        0.7        4.1        1.1  

Netherlands

      0.6        2.4        0.5        1.5        1.7  

England

      0.1        0.4        0.3        0.4        2.2  

Germany

      0.4        0.2        0.5        0.3        0.7  

France

      0.5        0.2        0.1        0.2        0.3  

Luxembourg

      0.7        1.9        0.2        0.2        0.2  

Others

      0.8        1.2        0.4        0.8        1.1  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
     4.9        6.7        2.7        7.5        7.3  

Others regions and countries

      0.0        0.5        1.4        0.4        1.1  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

      14.5        19.0        20.9        21.3        22.9  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

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.

The following table summarizes the Republic’s trade balance for the periods indicated:

Trade Balance

 

     Exports(1)      As %
of
GDP(2)		     Imports(3)      As %
of
GDP(2)		     Balance of
Trade		      Exports as %
of Imports		  
     (billions of dollars, except percentages)  

2013

      559.6        44.4 %      515.6        40.9 %      44.0        108.5  

2014

      572.7        44.1 %      525.5        40.5 %      47.2        109.0  

2015

      526.8        42.1 %      436.5        34.9 %      90.3        120.7  

2016

      495.4        39.7 %      406.2        32.5 %      89.2        122.0  

2017(4)

      573.7        36.9 %      478.5        30.8 %      95.2        119.9  

 

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(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 chained 2010 year prices.

(3)

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.

(4)

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.

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)

 

    2013     As % of
2013
Total		     2014     As % of
2014
Total		     2015     As % of
2015
Total		     2016     As % of
2016
Total		     2017(2)     As % of
2017
Total(2)		  
    (billions of dollars, except percentages)  

Foods & Consumer Goods

     6.7       1.1       7.0       1.2       6.8       1.3       7.4       1.5       7.8       1.4  

Raw Materials and Fuels

     61.2       10.9       59.2       10.3       39.5       7.5       33.0       6.7       43.1       7.5  

Petroleum & Derivatives

     53.2       9.5       51.2       8.9       32.4       6.1       26.8       5.4       35.4       6.2  

Others

     8.0       1.4       8.0       1.4       7.1       1.3       6.2       1.3       7.7       1.3  

Light Industrial Products

     39.0       6.9       38.6       6.7       35.4       6.7       35.4       7.1       36.0       6.3  

Heavy & Chemical Industrial Products

     452.8       77.8       467.9       81.7       445.1       84.5       419.7       84.7       486.8       84.9  

Electronic & Electronic Products

     171.2       30.6       174.4       30.5       170.5       32.4       159.4       32.2       192.0       33.5  

Chemicals & Chemical Products

     64.4       11.5       65.6       11.5       55.9       10.6       55.3       11.2       65.7       11.5  

Metal Goods

     43.6       7.8       47.5       8.3       41.4       7.9       39.9       8.1       46.9       8.2  

Machinery & Precision Equipment

     55.3       9.9       57.9       10.1       57.3       10.9       55.2       11.1       63.3       11.0  

Transport Equipment

     113.1       20.2       116.5       20.3       112.8       21.4       101.0       20.4       108.8       19.0  

Passenger Cars

     44.3       7.9       44.8       7.8       41.7       7.9       37.5       7.6       38.8       6.8  

Ship & Boat

     36.2       6.5       38.7       6.8       38.8       7.4       33.5       6.8       41.4       7.2  

Others

     32.6       5.8       33.0       5.8       32.3       6.1       30.0       6.1       28.6       5.0  

Others

     5.2       0.9       6.0       1.0       7.2       1.4       8.9       1.8       10.1       1.8  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

     559.6       100.0       572.7       100.0       526.8       100.0       495.4       100.0       573.7       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)

 

    2013     As % of
2013
Total		     2014     As % of
2014
Total		     2015     As % of
2015
Total		     2016     As % of
2016
Total		     2017(2)     As % of
2017
Total(2)		  
    (billions of dollars, except percentages)              

Industrial Materials and Fuels

     313.8       60.9       311.2       59.2       219.0       50.2       191.0       47.0       233.1       48.7  

Crude Petroleum

     99.4       19.3       94.9       18.1       55.1       12.6       44.3       10.9       59.6       12.5  

Mineral

     24.7       4.8       24.6       4.7       17.6       4.0       15.5       3.8       20.3       4.2  

Chemicals

     43.2       8.4       43.9       8.4       39.6       9.1       39.1       9.6       44.0       9.2  

Iron & Steel Products

     24.6       4.8       27.0       5.1       21.2       4.9       18.9       4.7       20.3       4.2  

Non-ferrous Metal

     12.5       2.4       12.8       2.4       11.6       2.7       10.7       2.6       12.1       2.5  

Others

     109.4       21.2       108.0       20.5       74.0       16.9       62.5       15.4       76.8       16.1  

Capital Goods

     144.2       28.0       149.0       28.3       150.8       34.5       147.8       36.4       171.8       35.9  

Machinery & Precision Equipment

     50.1       9.7       50.8       9.7       49.1       11.2       47.8       11.8       63.1       13.2  

Electric & Electronic Machines

     80.9       15.7       84.5       16.1       87.5       20.0       84.9       20.9       95.8       20.0  

Transport Equipment

     11.3       2.2       11.6       2.2       12.4       2.8       13.0       3.2       10.8       2.3  

Others

     1.9       0.4       2.1       0.4       1.9       0.4       2.1       0.5       2.1       0.4  

Consumer Goods

     58.2       11.3       65.3       12.4       66.7       15.3       67.4       16.6       73.6       15.4  

Cereals

     8.5       1.6       7.9       1.5       6.9       1.6       6.2       1.5       6.0       1.3  

Goods for Direct Consumption

     14.5       2.8       16.7       3.2       17.1       3.9       17.8       4.4       19.7       4.1  

Consumer Durable Goods

     21.0       4.1       24.7       4.7       26.6       6.1       27.0       6.6       30.0       6.3  

Consumer Nondurable Goods

     14.3       2.8       16.0       3.0       16.0       3.7       16.4       4.0       17.9       3.7  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

     515.6       100.0       525.5       100.0       436.5       100.0       406.2       100.0       478.5       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 2013, the Republic recorded a trade surplus of US$44.1 billion. Exports increased by 2.1% to US$559.7 billion in 2013 from US$547.9 billion in 2012, primarily due to increased demand for wireless communication devices, semiconductors and other information technology related products from the United States, China and the Southeast Asian nations. Imports decreased by 0.8% to US$515.6 billion in 2013 from US$519.6 billion in 2012, primarily due to decreased imports of oil, iron and steel.

In 2014, the Republic recorded a trade surplus of US$47.2 billion. Exports increased by 2.3% to US$572.7 billion in 2014 from US$559.6 billion in 2013, primarily due to increased demand for semiconductors, wireless communication devices, iron and steel from the United States, the EU and the Southeast Asian nations. Imports increased by 1.9% to US$525.5 billion in 2014 from US$515.6 billion in 2013, primarily due to increased imports of cars, components for wireless communication devices and beef.

In 2015, the Republic recorded a trade surplus of US$90.3 billion in 2015. Exports decreased by 8.0% to US$526.8 billion in 2015 from US$572.7 billion in 2014, primarily due to adverse global economic conditions. Imports decreased by 16.9% to US$436.5 billion in 2015 from US$525.5 billion in 2014, primarily due to a decrease in oil prices, which also decreased unit prices of major raw materials.

In 2016, the Republic recorded a trade surplus of US$89.2 billion in 2016. 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.

Based on preliminary data, the Republic recorded a trade surplus of US$95.2 billion in 2017. Exports increased by 15.8% to US$573.7 billion in 2017 from US$495.4 billion in 2016, primarily due to increased

 

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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.

The following table sets forth the Republic’s exports trading partners:

Exports

 

    2013     As % of
2013
Total		     2014     As % of
2014
Total		     2015     As % of
2015
Total		     2016     As % of
2016
Total		     2017(1)     As % of
2017
Total(1)		  
    (millions of dollars, except percentages)  

China

     145,869.5       26.1       145,287.7       25.4       137,123.9       26.0       124,432.9       25.1       142,120.0       24.8  

United States

     62,052.5       11.1       70,284.9       12.3       69,832.1       13.3       66,462.3       13.4       68,609.7       12.0  

Japan

     34,662.3       6.2       32,183.8       5.6       25,576.5       4.9       24,355.0       4.9       26,816.1       4.7  

Hong Kong

     27,756.3       5.0       27,256.4       4.8       30,418.2       5.8       32,782.4       6.6       39,112.3       6.8  

Singapore

     22,289.0       4.0       23,749.9       4.1       15,011.2       2.8       12,458.9       2.5       11,651.9       2.0  

Vietnam

     21,087.6       3.8       22,351.7       3.9       27,770.8       5.3       32,630.5       6.6       47,753.8       8.3  

Taiwan

     15,699.1       2.8       15,077.4       2.6       12,004.3       2.3       12,220.5       2.5       14,898.4       2.6  

India

     11,375.8       2.0       12,782.5       2.2       12,029.6       2.3       11,596.3       2.3       15,055.5       2.6  

Indonesia

     11,568.2       2.1       11,360.7       2.0       7,872.4       1.5       6,608.5       1.3       8,403.7       1.5  

Mexico

     9,727.4       1.7       10,846.0       1.9       10,891.9       2.1       9,720.8       2.0       10,932.6       1.9  

Australia

     9,563.1       1.7       10,282.5       1.8       10,830.6       2.1       7,500.7       1.5       19,861.6       3.5  

Russia

     11,149.1       2.0       10,129.2       1.8       4,685.7       0.9       4,768.8       1.0       6,906.6       1.2  

Germany

     7,907.9       1.4       7,570.9       1.3       6,220.2       1.2       6,443.0       1.3       8,483.8       1.5  

Others (2)

     168,924.6       30.2       173,501.0       30.3       156,489.1       29.7       143,445.3       29.0       153,088.4       26.7  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

     559,632.4       100.0       572,664.6       100.0       526,756.5       100.0       495,425.9       100.0       573,694.4       100.0  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1)

Preliminary.

(2)

Includes more than 200 countries and regions.

Source: The Bank of Korea; Korea Customs Service.

The following table sets forth the Republic’s imports trading partners:

Imports

 

    2013     As % of
2013
Total		     2014     As % of
2014
Total		     2015     As % of
2015
Total		     2016     As % of
2016
Total		     2017(1)     As % of
2017
Total(1)		  
    (millions of dollars, except percentages)  

China

     83,052.9       16.1       90,082.2       17.1       90,250.3       20.7       86,980.1       19.9       97,860.1       20.5  

Japan

     60,029.4       11.6       53,768.3       10.2       45,853.8       10.5       47,466.6       10.9       55,124.7       11.5  

United States

     41,511.9       8.1       45,283.3       8.6       44,024.4       10.1       43,215.9       9.9       50,749.4       10.6  

Saudi Arabia

     37,665.2       7.3       36,694.5       7.0       19,561.5       4.5       15,741.7       3.6       19,590.5       4.1  

Qatar

     25,873.8       5.0       25,723.1       4.9       16,474.8       3.8       10,081.3       2.3       11,267.1       2.4  

Australia

     20,784.6       4.0       20,413.0       3.9       16,437.8       3.8       15,175.9       3.5       19,159.7       4.0  

Germany

     19,336.0       3.8       21,298.8       4.0       20,956.5       4.8       18,917.0       4.3       19,748.7       4.1  

Kuwait

     18,725.1       3.6       16,892.0       3.2       8,973.4       2.1       7,262.3       1.7       9,594.0       2.0  

Taiwan

     14,632.6       2.8       15,689.8       3.0       16,653.9       3.8       16,403.1       3.8       18,073.0       3.8  

United Arab Emirates

     18,122.9       3.5       16,194.3       3.1       8,614.7       2.0       6,941.1       1.6       9,557.1       2.0  

Indonesia

     13,190.0       2.6       12,266.3       2.3       8,850.4       2.0       8,285.3       1.9       9,571.0       2.0  

Malaysia

     11,095.8       2.2       11,097.9       2.1       8,609.4       2.0       7,507.8       1.7       8,714.7       1.8  

Others (2)

     151,565.3       29.4       160,111.0       30.5       131,238.1       30.1       122,214.8       34.9       149,468.3       31.2  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

     515,585.5       100.0       525,514.5       100.0       436,499.0       100.0       406,192.9       100.0       478,478.3       100.0  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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(1)

Preliminary.

(2)

Includes more than 200 countries and regions.

Source: The Bank of Korea; Korea Customs Service.

In the past, the outbreak of severe health epidemics in Korea and various parts of the world increased uncertainty about prospects for international trade and economic growth for affected countries, as well as world economic prospects in general. In response to these outbreaks, the Government issued advisories on disease prevention and conducted special monitoring. In May 2015, an outbreak of Middle East Respiratory Syndrome, or MERS, resulted in the death of over 30 people and the quarantine of thousands. The Government continues to cooperate with regional and international efforts to develop and implement additional measures to contain and prevent MERS and other diseases. Another outbreak of MERS or similar incidents in the future, however, may have an adverse effect on Korean and world economies and on international trade.

In recent years, the value of the Won relative to the U.S. dollar and Japanese Yen has fluctuated widely. 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.

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 and Colombia since July 2016. In March 2017, the Republic signed a regional FTA with each of Panama, Costa Rica, Guatemala, Honduras, El Salvador and Nicaragua. 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 and the European Union since 2011 and is currently negotiating additional regional FTAs, including one with China and Japan. The Republic is also currently negotiating revisions to the bilateral FTA with the United States.

Non-Commodities Trade Balance

The Republic had a non-commodities trade deficit of US$1.6 billion in 2013, a non-commodities trade deficit of US$4.5 billion in 2014, a non-commodities trade deficit of US$16.3 billion in 2015 and a non-commodities trade deficit of US$19.7 billion in 2016. Based on preliminary data, the Republic had a non-commodities trade deficit of US$41.4 billion in 2017.

 

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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,  
     2013      2014      2015      2016      2017  
     (millions of dollars)  

Gold

    $ 4,794.5      $ 4,794.7      $ 4,794.7      $ 4,794.7      $ 4,794.7  

Foreign Exchange (1)

      335,647.5        353,600.5        358,513.8        361,701.4        379,476.6  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total Gold and Foreign Exchange

      340,442.0        358,395.2        363,308.5        366,496.1        384,271.3  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Reserve Position at IMF

      2,527.7        1,917.1        1,411.8        1,727.5        1,621.1  

Special Drawing Rights

      3,489.9        3,280.5        3,241.4        2,878.0        3,374.3  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total Official Reserves

    $ 346,459.6      $ 363,592.7      $ 367,961.9      $ 371,101.6      $ 389,266.7  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(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$346.5 billion as of December 31, 2013, US$363.6 billion as of December 31, 2014, US$368.0 billion as of December 31, 2015, US$371.1 billion as of December 31, 2016 and US$389.3 billion as of December 31, 2017, primarily due to continued trade surpluses and capital inflows. The amount of the Government’s foreign currency reserve was US$396.8 billion as of March  31, 2018.

Government Finance

The Ministry of Strategy 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 Strategy 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.

2016 budgeted revenues increased by 6.8% to ￦369.9 trillion from ￦346.4 trillion in 2015, led by an increase in budgeted tax revenues (including revenues from social security contributions and income tax). 2016 budgeted expenditures and net lending increased by 4.0% to ￦367.4 trillion from ￦353.4 trillion in 2015, led by increases in budgeted expenditures on economic growth (including research and development), welfare services for senior citizens, unemployed people and temporary workers, promotion of cultural industries, military services, public assistance, child care and education. The 2016 budget anticipated a ￦2.5 billion budget surplus.

2017 budgeted revenues increased by 5.8% to ￦391.2 trillion from ￦369.9 trillion in 2016, led by an increase in budgeted tax revenues (including revenues from social security contributions, taxes on goods and services and taxes on income, profits and capital gains). 2017 budgeted expenditures and net lending increased

 

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by 2.9% to ￦378.2 trillion from ￦367.4 trillion in 2016, led by increases in budgeted expenditures on welfare services for senior citizens, children, unemployed people and temporary workers, military services, infrastructure and community development. The 2017 budget anticipated a ￦13.0 billion budget surplus.

2018 budgeted revenues increased by 6.4% to ￦416.1 trillion from ￦391.2 trillion in 2017, led by an increase in budgeted tax revenues (including revenues from social security contributions, taxes on goods and services and taxes on income, profits and capital gains). 2018 budgeted expenditures and net lending increased by 5.2% to ￦397.7 trillion from ￦378.2 trillion in 2017, led by increases in budgeted expenditures on the agriculture, forestry and fisheries industry, welfare services for senior citizens, children, unemployed people and temporary workers, health and medical services, education services and military services. The 2018 budget anticipated a ￦18.4 billion budget surplus.

The following table shows consolidated Government revenues and expenditures:

Consolidated Central Government Revenues and Expenditures

 

    Actual     Budget  
    2013     2014     2015     2016     2017(1)     2016     2017     2018  
    (billions of Won)  

Total Revenues

     314,438       320,895       339,186       371,264       403,839       369,913       391,175       416,085  

Current Revenues

     311,136       318,185       335,911       367,888       400,659       365,782       387,376       413,304  

Total Tax Revenues

     248,046       255,313       270,974       299,451       325,845       293,269       313,086       337,402  

Taxes on income, profits and capital gains

     91,674       95,976       105,751       120,612       134,242       114,680       126,847       135,942  

Social security contributions

     46,140       49,793       53,089       56,889       60,460       60,530       62,010       69,273  

Tax on property

     8,591       9,054       11,113       11,112       12,945       10,303       11,459       11,931  

Taxes on goods and services

     77,642       79,055       79,442       89,221       95,535       86,549       90,282       97,390  

Taxes on international trade and transaction

     10,562       8,721       8,495       8,045       8,529       8,292       8,991       9,418  

Other tax

     13,438       12,715       13,084       13,571       14,133       12,915       13,498       13,450  

Non-Tax Revenues

     63,089       62,872       64,936       68,437       74,814       72,513       74,290       75,902  

Operating surpluses of departmental enterprise sales and property income

     24,591       23,112       22,129       24,489       27,692       25,920       26,981       27,154  

Administration fees & charges and non-industrial sales

     8,537       7,997       8,664       8,469       9,067       8,578       8,978       9,460  

Fines and forfeits

     18,164       19,556       20,777       22,266       23,769       23,484       22,879       23,140  

Contributions to government employee pension fund

     8,776       9,915       10,929       11,289       12,311       11,372       12,370       13,200  

Current revenue of non-financial public enterprises

     3,021       2,292       2,437       1,924       1,974       3,159       3,082       2,947  

Capital Revenues

     3,302       2,710       3,276       3,376       3,180       4,131       3,800       2,781  

Total Expenditures and Net Lending

     300,238       312,394       339,351       354,354       379,809       367,413       378,196       397,739  

Total Expenditures

     302,036       311,507       330,537       342,612       363,671       352,710       367,705       388,134  

Current Expenditures

     268,019       280,466       296,216       309,981       332,719       320,293       336,209       358,912  

Expenditure on goods and service

     57,769       59,616       63,160       65,145       67,536       70,166       71,542       75,281  

Interest payment

     13,386       14,057       14,056       13,964       13,976       14,434       14,486       14,334  

Subsidies and other current transfers

     193,451       203,649       216,189       228,349       248,513       232,033       246,987       265,631  

Current expenditure of non-financial public enterprises

     3,414       3,143       2,810       2,524       2,694       3,661       3,193       3,666  

Capital Expenditures

     34,017       31,041       34,322       32,631       30,952       32,417       31,496       29,222  

Net Lending

     (1,798 )      888       8,814       11,741       16,138       14,703       10,490       9,605  

 

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(1)

Preliminary.

Source: Ministry of Strategy 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 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 2013, the Republic recorded total revenues of ￦314.4 trillion and total expenditures and net lending of ￦300.2 trillion. The Republic had a fiscal surplus of ￦14.2 trillion in 2013.

For 2014, the Republic recorded total revenues of ￦320.9 trillion and total expenditures and net lending of ￦312.4 trillion. The Republic had a fiscal surplus of ￦8.5 trillion in 2014.

For 2015, the Republic recorded total revenues of ￦339.2 trillion and total expenditures and net lending of ￦339.4 trillion. The Republic had a fiscal deficit of ￦0.2 trillion in 2015.

For 2016, the Republic recorded total revenues of ￦371.3 trillion and total expenditures and net lending of ￦354.4 trillion. The Republic had a fiscal surplus of ￦16.9 trillion in 2016.

Based on preliminary data, the Republic recorded total revenues of ￦403.8 trillion and total expenditures and net lending of ￦379.8 trillion in 2017. The Republic had a fiscal surplus of ￦24 trillion in 2017.

Debt

The Government estimates that the total outstanding debt of the Government (including guarantees by the Government) as of December 31, 2016 amounted to approximately ￦616.1 trillion, an increase of 5.7% over the previous year. The Government estimates that the total outstanding debt of the Government (including guarantees by the Government) as of December 31, 2017 amounted to approximately ￦648.5 trillion, an increase of 5.3% over the previous year. The Ministry of Strategy and Finance administers the national debt of the Republic.

 

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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, 2017:

Direct External Debt of the Government

 

     Amount in
Original
Currency		      Equivalent
Amount in
U.S. Dollars(1)		  
     (millions)  

US$

      US$ 4,900.0      US$ 4,900.0  

Chinese Yuan (CNY)

      CNY3,000.0        458.2  

Euro (EUR)

      EUR1,125.0        1,343.2  
     

 

 

  

Total

       US$ 6,701.4  
     

 

 

  

 

(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, 2017.

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)  

2013

      453,674.0  

2014

      493,584.9  

2015

      547,625.6  

2016

      584,785.0  

2017

      619,971.9  

The following table sets out all guarantees by the Government of indebtedness of others:

Guarantees by the Government

 

     December 31,  
     2013      2014      2015      2016      2017  
     (billions of Won)  

Domestic

      32,978.5        29,158.4        26,393.8        24,241.6        21,130.5  

External (1)

      —        —        —        —        —  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

      32,978.5        29,158.4        26,393.8        24,241.6        21,130.5  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(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 Balance of Payment Manual, or BPM6, 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,  
     2013      2014      2015      2016      2017(1)  
     (billions of dollars)  

Long-term Liabilities

      311.7        307.9        291.7        279.4        302.9  

General Government

      63.0        65.2        62.8        64.5        78.0  

Monetary Authorities

      29.2        25.9        20.1        10.8        14.5  

Banks

      102.2        104.0        103.1        93.8        91.7  

Other Sectors

      117.4        112.9        105.7        110.3        118.7  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Short-term Liabilities

      111.8        116.4        104.3        104.7        115.9  

General Government

      0.0        1.8        2.3        2.5        2.0  

Monetary Authorities

      10.8        12.2        12.0        6.9        8.1  

Banks

      77.9        79.9        74.8        78.4        85.1  

Other Sectors

      23.0        22.5        15.2        16.9        20.7  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total External Liabilities

      423.5        424.3        396.1        384.1        418.8  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

Preliminary.

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.

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, 2017		  

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  

2009-001

     April 16, 2009       April 16, 2019       7.125       USD       1,500,000,000       1,500,000,000  

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  

2015-003

     December 16, 2015       December 16, 2018       3.000       CNY       3,000,000,000       3,000,000,000  

2017-001

     January 19, 2017       January 19, 2027       2.750       USD       1,000,000,000       1,000,000,000  
           

 

 

  

Total External Bonds in Original Currencies

 

     USD 4,900,000,000  
    EUR 1,125,000,000  
    CNY 3,000,000,000  
 

 

 

  

Total External Bonds in Equivalent Amount of Won(1)

 

   ￦ 7,179,966,250,000  
 

 

 

  

 

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(1)

U.S. dollar amounts are converted to Won amounts at the rate of US$1.00 to ￦1,071.40, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd. Euro amounts are converted to Won amounts at the rate of EUR1.00 to ￦1,279.25, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd. CNY amounts are converted to Won amounts at the rate of CNY1.00 to ￦163.65, the market average exchange rate in effect on December 31, 2017, as announced by Seoul Money Brokerage Services, Ltd.

(2) External Borrowings of the Government

None.

B. External Guaranteed Debt of the Government

None.

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,
2017		  
    (%)                 (billions of Won)  

1. Bonds

        

Interest-Bearing Treasury Bond for Treasury Bond Management Fund

     1.00-5.75       2006-2017       2018-2066       546,715.2  

Interest-Bearing Treasury Bond for National Housing I

     1.25-3.00       2007-2017       2012-2022       68,635.3  

Interest-Bearing Treasury Bond for National Housing II

     0.0-3.0       1992-2017       2012-2030       779.2  

Interest-Bearing Treasury Bond for National Housing III

     0       2005       2015       1.6  

Non-interest-Bearing Treasury Bond for Contribution to International Organizations(1)

     0       1968-1985       —       9.4  
       

 

 

  

Total Bonds

           616,140.6  
       

 

 

  

2. Borrowings

        

Borrowings from The Bank of Korea

     1.362-1.453     2016-2017       2018       1,336.2  

Borrowings from the Sports Promotion Fund

     1.205-1.265       2016       2019       100.0  

Borrowings from The Korea Foundation Fund

     1.515-1.73       2016-2017       2018-2019       40.0  

Borrowings from the Korea Credit Guarantee Fund

     2.305-2.755       2014       2018       455.0  

Borrowings from Korea Technology Finance Corporation

     1.215-2.755       2014-2016       2018       195.0  

Borrowings from the Credit Guarantee Fund for Agriculture, Forestry and Fisheries Suppliers

     1.875-3.215       2014-2015       2018-2020       1,100.0  

Borrowings from the Government Employees’ Pension Fund

     1.467       2015       2018       10.0  

Borrowings from the Film Industry Development Fund

     1.385-2.16       2015-2017       2018-2020       69.0  

Borrowings from the Housing Finance Credit Guarantee Fund

     1.385-1.67       2016       2019-2021       526.1  
       

 

 

  

Total Borrowings

           3,831.3  
       

 

 

  

Total Internal Funded Debt

           619,971.9  
       

 

 

  

 

(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,
2017		  
    (%)                 (billions of Won)  

1. Bonds of Government-Affiliated Corporations

        

Korea Deposit Insurance Corporation

     1.34-3.38       2013-2017       2018-2020       9,680.0  

Korea Student Aid Foundation

     Floating-5.07       2010-2017       2018-2037       11,430.0  
       

 

 

  

Total Bonds

           21,110.0  
       

 

 

  

2. Borrowings of Government-Affiliated Corporations

        

Rural Development Corporation and Federation of Farmland

     5.5       1989       2023       20.5  

Total Borrowings

           20.5  
       

 

 

  

Total Internal Guaranteed Debt

           21,130.5  
       

 

 

  

 

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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 laws concerning prescriptive periods for filing claims, as generally interpreted, 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 three 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 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

 

  •  

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 our any other debt securities.

 

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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 Long-Term External Indebtedness or guarantees issued by us, unless the security interest also secures our obligations under the debt securities. “Long-Term 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 and which has a final maturity of one year or more from its date of issuance.

We may, however, create or permit a security interest:

 

  •  

in favor of the Government or The Bank of Korea or any other agency or instrumentality of or controlled by the Government;

 

  •  

arising from, or any deposit or other arrangement made or entered into in connection with, the sale, assignment or other disposition or the discounting of any of our notes or receivables, or any other transaction in the ordinary course of our business; 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.

Events of Default

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, except in any such case where such External Indebtedness or guarantee is being contested in good faith by appropriate proceedings.

 

  4.

Moratorium/Default:

 

  •  

we declare a general moratorium on the payment of our External Indebtedness, including obligations under guarantees;

 

  •  

the Republic declares a general moratorium on the payment of its External Indebtedness, including obligations under guarantees;

 

  •  

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.

 

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  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;

 

  •  

we are wound up or dissolved; or

 

  •  

we cease to conduct the banking business.

 

  6.

Failure of Support: the Republic fails to provide financial support for us as required under Article 37 of the KEXIM Act as of the date of the debt securities of such series.

 

  7.

Control of Assets: the Republic ceases to control us (directly or indirectly).

 

  8.

IMF Membership/World Bank Membership: the Republic ceases to be a member in good standing of the IMF or the International Bank for Reconstruction and Development (World Bank).

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.

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;

 

  •  

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.

 

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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.

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 the first interest payment and for the interest paid on the series of debt securities prior to the issuance of the additional debt securities); provided that if any such additional debt securities are not fungible with the outstanding series of debt securities for U.S. federal income tax purposes, they will be issued under a separate CUSIP or other identifying number. 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 the Securities—Description of Debt Securities—General Terms of the Debt Securities”;

 

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  •  

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 board of directors and executive officers and some of the experts named in this prospectus are residents of Korea. In addition, all or most 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 U.S. court a U.S.-court judgment based on the U.S. federal securities laws. Our Korean counsel has informed us that there is doubt 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 us 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) we were duly served with service of process (otherwise than by publication or similar means) in sufficient time to enable us 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 Chief Representative of our New York Representative Office, Mr. Dong Hoon Lee, and a Senior Representative of our New York Representative Office, Mr. Young-rok Kim, 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 Representative Office is located at

 

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460 Park Avenue, 8th Floor, New York, NY 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 Strategy and Finance of Korea must receive a report with respect to the issuance by us of debt securities having a maturity of more than one year (if the issue amount is more than US$50 million or the equivalent thereof) in accordance with the Foreign Exchange Transaction Act and Regulation of Korea. After issuance of debt securities outside the Republic, we are required to notify the Minister of Strategy 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

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 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 company having its head office, principal place of business or place of effective management in Korea (a “Korean company”); or

 

  •  

engaging 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 the Special Tax Treatment Control Law (the “STTCL”), when we make payments of interest to you on the debt securities, 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 debt securities are deemed to be foreign currency denominated bonds issued outside of Korea for the purpose of the STTCL.

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 a debt security, provided that the disposition does not involve a transfer of the debt security to a Korean resident (or the Korean permanent establishment of a non-resident). In addition, the STTCL exempts you from Korean taxation on any capital gains that you earn from the transfer of the debt securities outside of Korea; provided that the offering of the debt securities is deemed to be an overseas issuance for the purpose of the STTCL. If you sell or otherwise dispose of debt securities to a Korean resident and such disposition or sale is made within Korea, any gain realized on the transaction will be taxable at ordinary Korean withholding tax rates at the lower of 22% (including local income surtax) of net gain (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs) or 11% (including local income surtax) of gross sale proceeds with respect to transactions, 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 a debt security, regardless of whether the disposition is to a Korean resident. For more information regarding tax treaties, please refer to the heading “Tax Treaties” below.

With respect to computing the above-mentioned 22% withholding taxes (including local income surtax) on net gain, please note that there is no provision under relevant Korean law for offsetting gains and losses or otherwise aggregating transactions for the purpose of computing the net gain attributable to sales of the debt securities. The purchaser of the debt securities or, in the case of the sale of the debt securities through a securities

 

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company in Korea, the securities company through which such sale is effected, is required under Korean law to withhold the applicable amount of Korean tax and make payment thereof to the relevant Korean tax authority. Unless you, as the seller, can either claim the benefit of an exemption or a reduced rate of tax under an applicable tax treaty or produce satisfactory evidence of your acquisition cost and certain direct transaction costs in relation to the debt securities being sold, the purchaser or the securities company, as applicable, must withhold an amount equal to 11% of the gross sale proceeds. Any withheld tax must be paid no later than the tenth day of the month following the month in which the payment for the purchase of the relevant debt securities occurred. Failure to timely transmit the withheld tax to the Korean tax authorities technically subjects the purchaser or the securities company to penalties under Korean tax laws.

Inheritance Tax and Gift Tax

If you die while domiciled in Korea, Korean inheritance tax will be imposed upon the transfer by succession of any of the debt securities, wherever located, that you own at the time of death. Furthermore, regardless of where you are domiciled when you die, Korean inheritance tax will be imposed upon the transfer by succession of any of the debt securities you own that are located in Korea at the time of death. Similarly, if you give the debt securities as a gift to any other person, the donee will be subject to Korean gift tax, based on where the donee or you are domiciled or where the debt securities are located at the time that you make the gift. The amount, if any, of the applicable inheritance or gift tax imposed in specific cases depends on the value of the debt securities (or other property) and the identities of the parties involved.

Under Korean inheritance and gift tax laws, debt securities issued by Korean companies are deemed to be located in Korea irrespective of where they are physically located or by whom they are owned.

Stamp Duty

You will not be subject to any Korean stamp duty, registration duty 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 or rulings specific to the payment under the guarantee herein, we believe any payments of interest on and principal amount of the debt securities (or the issued 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 and issued by us are not subject to withholding tax, provided that the debt securities are deemed to be foreign currency denominated bonds issued outside of Korea for the purpose of the STTCL. Further details of the tax consequences of the holders of our debt securities guaranteed by the Republic 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, Hong Kong, 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 16.5%, and the tax on capital gains is often eliminated.

With respect to any gains subject to Korean withholding tax, as described under the heading “Tax on Capital Gains” above, you should inquire for yourself whether you are entitled to the benefit of a tax treaty with Korea. It

 

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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 through which the transfer of the debt securities is effected, 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 normal rates.

In addition, subject to certain exceptions, in order to receive the benefit of a tax exemption available under any applicable tax treaty, you may also be required to submit to the payer of such Korean source income an application for tax exemption under a tax treaty, together with a certificate as to your country of tax residence. Subject to certain exceptions, the Korean tax laws also require an overseas investment vehicle (which is defined as an organization established in a foreign jurisdiction that manages funds collected through investment solicitation by way of acquiring, disposing or otherwise investing in proprietary targets and then distributes the outcome of such management to investors) to obtain the application for tax exemption from the beneficial owners together with a certificate of tax residence of the beneficial owner and submit a report of overseas investment vehicle to the payer, together with a detailed statement on the beneficial owner of the income and the obtained application for exemption from the beneficial owner. The payer of such Korean source income, in turn, will be required to submit such exemption application to the relevant district tax office in Korea by the ninth day of the month following the date of the first payment of such income. Even if the beneficial owner was unable to receive the benefit of a tax exemption due to his or her failure to timely submit such application, the beneficial owner may still receive tax treaty benefits by claiming tax refund with evidentiary documents to the relevant tax office within five years of the last day of the month during which the payment of such income occurred. Furthermore, the Corporation Income Tax Law (the “CITL”) and Individual Income Tax Law (the “IITL”) require the beneficial owner to submit an application for entitlement to a preferential tax rate together with evidence of tax residence (including a certificate of tax residence of the beneficial owner issued by a competent authority of the country of tax residence of the beneficial owner) to a withholding obligor paying Korean source income in order to benefit from the available reduced tax rate pursuant to the relevant tax treaty. Subject to certain exceptions, the CITL and IITL also require an overseas investment vehicle to obtain the application for entitlement to a preferential tax rate from the beneficial owners and submit a report of overseas investment vehicle to the withholding obligor, together with a detailed statement on the beneficial owner of the income.

At present, Korea has not entered into any tax treaties regarding inheritance or gift tax.

United States 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. You will be a U.S. holder if you are the beneficial owner of a debt security and you 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;

 

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  •  

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.

This summary is based on the Internal Revenue Code of 1986, as amended (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.

Any special U.S. federal income tax considerations relevant to a particular issuance of debt securities will be discussed in the applicable prospectus supplement. This discussion does not address U.S. state, local and non-U.S. tax consequences, the Medicare tax on certain investment income or the alternative minimum tax. 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.

U.S. holders that use an accrual method of accounting for tax purposes (“accrual method holders”) generally are required to include certain amounts in income no later than the time such amounts are reflected on certain financial statements (the “book/tax conformity rule”). The application of the book/tax conformity rule thus may require the accrual of income earlier than would be the case under the general tax rules described below, although it is not clear to what types of income the book/tax conformity rule applies. This rule generally is effective for tax years beginning after December 31, 2017 or, for notes issued with original issue discount, for tax years beginning after December 31, 2018. Accrual method holders should consult with their tax advisors regarding the potential applicability of the book/tax conformity rule to their particular situation.

Payments or Accruals of Interest

Payments or accruals of “qualified stated interest” (as defined below) on a debt security 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 method 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 method 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 United States Internal Revenue Service (the “IRS”). If you are an accrual method holder, 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

 

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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 use the cash method of tax accounting, or if you are an accrual method holder 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 that you hold 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. 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 of the foreign currency that you received on the debt security 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, exchange or retirement of a debt security, the amount you realize will include the gross amount of the proceeds of that sale or exchange before deduction of the Korean tax.

The special election available to you if you are an accrual method holder 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 U.S. holders. 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, 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, redemption 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, you may not be able to claim a credit for any Korean tax imposed upon the sale or exchange 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 their 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 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

 

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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 Original Issue Discount Debt Securities will be the first price at which a substantial amount of the Original Issue Discount Debt Securities are sold to the public (i.e., excluding sales of Original Issue Discount Debt Securities to underwriters, placement agents, wholesalers, or similar persons). The “stated redemption price at maturity” will include all payments under the Original Issue Discount 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 us, at least annually during the entire term of an Original Issue Discount 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 U.S. Treasury regulations (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 may have received the cash attributable to that income.

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 Original Issue Discount Debt Security for all days during the taxable year that you own the Original Issue Discount 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 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 Original Issue Discount 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 Original Issue Discount Debt Security at the beginning of the accrual period by a fraction, the numerator of which is the annual yield to maturity (as defined below) of the Original Issue Discount 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 Original Issue Discount 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 Original Issue Discount 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 Original Issue Discount 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

 

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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 Original Issue Discount 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 an Original Issue Discount 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 Original Issue Discount 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 lesser 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 respect of all other premium or market discount debt securities that you hold.

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 that 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 have made the election described under the caption “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 Original Issue Discount 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

 

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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 Original Issue Discount 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 applicable 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 applicable 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 Original Issue Discount 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.

The book/tax conformity rule, discussed above under “United States Tax Considerations,” applies to original issue discount in some cases, and therefore if you are an accrual method holder you may be required to include original issue discount on Original Issue Discount Debt Securities in a more accelerated manner than described above if you do so for financial accounting purposes. It is uncertain what adjustments, if any, should be made in later accrual periods when taxable income exceeds income reflected on your financial statements to reflect the accelerated accrual of income in earlier periods. In addition, it is possible, although less likely, that if you are an accrual method holder you may be required to include original issue discount that would otherwise fall under the de minimis threshold in gross income as such original issue discount accrues on your financial statements. The application of the book-tax conformity rule to original issue discount, including original issue discount that would otherwise fall under the de minimis threshold, is uncertain, and accrual method taxpayers should consult with their tax advisors on how the rule may apply to their investment in the debt securities.

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 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 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 short-term debt security as ordinary income to the extent such gain does not exceed the original issue discount accrued with respect to the short-term debt security during the period you held the short-term 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 short-term 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

 

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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 certain 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 short-term debt security on a current basis. Acquisition discount is the excess of the remaining redemption amount of the short-term debt security at the time of acquisition 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 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 maintained 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

 

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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).

Under the book/tax conformity rule, discussed above under “United States Tax Considerations,” if you are an accrual method holder that makes the election described in the paragraph above you may be required to accrue market discount in a more accelerated manner than described therein if you do so for financial accounting purposes. It is also possible, although less likely, that if you are an accrual method holder that has not made the election and you accrue market discount on a current basis on your financial statements, you may be required to accrue market discount—including de minimis market discount—currently for U.S. federal income tax purposes. The application of the book/tax conformity rule to debt instruments with market discount is uncertain, and accrual method taxpayers should consult with their tax advisors on how the rule may apply to their investment in the debt securities.

Warrants

A description of the tax consequences of an investment in warrants will be provided in the applicable prospectus supplement.

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.

Information Reporting and Backup Withholding

Information returns are required to be filed 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 United States backup withholding tax on such payments if you provide your taxpayer identification number to the withholding 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 U.S. holder, 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 U.S. holder.

Information with Respect to Foreign Financial Assets

Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of $50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at

 

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a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer (which would include the debt securities) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. In addition, the statute of limitations for assessment of tax would be suspended, in whole or part. You should consult your own tax advisors regarding the possible application of these rules to your investment in the debt securities, including the application of the rules to your particular circumstances.

Reportable Transactions

A U.S. taxpayer that participates in a “reportable transaction” will be required to disclose its participation to the IRS. Under the relevant rules, if the debt securities are denominated in a foreign currency, a U.S. holder may be required to treat a foreign currency exchange loss from the debt securities as a reportable transaction if this loss exceeds the relevant threshold in the regulations ($50,000 in a single taxable year, if the U.S. holder is an individual or trust, or higher amounts for other non-individual U.S. holders), and to disclose its investment by filing Form 8886 with the IRS. A penalty in the amount of $10,000 in the case of a natural person and $50,000 in all other cases is generally imposed on any taxpayer that fails to timely file an information return with the IRS with respect to a transaction resulting in a loss that is treated as a reportable transaction. You are urged to consult your tax advisors regarding the application of these rules.

 

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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 or 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 or 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.

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 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. Dong Hoon Lee, Chief Representative of our New York Representative Office, and Mr. Young-rok Kim, Senior Representative of our New York Representative Office. The address of our New York Representative Office is 460 Park Avenue, 8th Floor, New York, NY 10022. The authorized representative of the Republic in the United States is Mr. Seong-Wook Kim, Financial Attaché, Korean Consulate General in New York, located at 460 Park Avenue, 9th Floor, New York, NY 10022.

OFFICIAL STATEMENTS AND DOCUMENTS

Our Chairman and President, in his official capacity, has supplied the information set forth under “The Export-Import Bank of Korea” (except for the information set out under “The Export-Import Bank of Korea—Business—Government Support and Supervision”). Such information is stated on his authority.

The Minister of Strategy and Finance of The Republic of Korea, in his official capacity, has supplied the information set out under “The Export-Import Bank of Korea—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

The separate financial statements of The Export-Import Bank of Korea as of and for the year ended December 31, 2017 have been included in this Prospectus in reliance upon the report of KPMG Samjong Accounting Corp., independent auditor, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

The separate financial statements of The Export-Import Bank of Korea as of and for the year ended December 31, 2016 included in this Prospectus have been audited by Deloitte Anjin LLC, independent auditor, as stated in their report appearing herein. Such separate financial statements are included in reliance upon the report of such auditor given upon their authority 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 (“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:

 

  •  

difficulties in the financial sectors in Europe and elsewhere and increased sovereign default risks in selected countries and the resulting adverse effects on the global financial markets;

 

  •  

adverse conditions or uncertainty 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, as well as increased uncertainty in the wake of a referendum in the United Kingdom in June 2016, in which the majority of voters voted in favor of an exit from the European Union (“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 renminbi and the overall impact of Brexit on the value of the Korean Won), interest rates, inflation rates or stock markets;

 

  •  

declines in consumer confidence and a slowdown in consumer spending;

 

  •  

increasing levels of household debt;

 

  •  

increasing delinquencies and credit defaults by consumer and small- and medium-sized enterprise borrowers;

 

  •  

further decreases in the market prices of Korean real estate;

 

  •  

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;

 

  •  

the investigations of large Korean conglomerates and their senior management for bribery, embezzlement and other possible misconduct relating to the recent impeachment and dismissal of former President Park Guen-hye;

 

  •  

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

 

  •  

the economic impact of any pending or future free trade agreements;

 

  •  

social and labor unrest;

 

  •  

a 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 that, together, would lead to an increased Government budget deficit;

 

  •  

financial problems or lack of progress in the restructuring of Korean conglomerates, other large troubled companies, their suppliers or the financial sector;

 

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  •  

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;

 

  •  

the occurrence of severe health epidemics in Korea or other parts of the world, including an outbreak of severe acute respiratory syndrome, swine or avian flu, Ebola or Middle East respiratory syndrome.

 

  •  

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

 

  •  

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 or North Africa and any material disruption in the supply of oil or sudden increase in the price of oil; and

 

  •  

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

 

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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

 

38 Eunhaeng-ro

Yeongdeungpo-gu

Seoul 07242

Korea

 

FISCAL AGENT AND PRINCIPAL PAYING AGENT

 

The Bank of New York Mellon

Global Finance Americas

101 Barclay St, 4E

New York, NY 10286

United States of America

 

LEGAL ADVISORS TO THE BANK

 

as to Korean law   as to U.S. law

Shin & Kim

   Cleary Gottlieb Steen & Hamilton LLP

9th Floor, State Tower Namsan

100 Toegyo-ro, Jung-gu

Seoul 04631

Korea

  

c/o 19th Floor, Ferrum Tower

19 Eulji-ro 5-gil, Jung-gu

Seoul 04539

Korea

 

LEGAL ADVISOR TO THE UNDERWRITERS

 

as to Korean law   as to U.S. law
Lee & Ko   Davis Polk & Wardwell LLP

Hanjin Building

63 Namdaemun-ro, Jung-gu

Seoul 04532

Korea

  

c/o 18th Floor

The Hong Kong Club Building

3A Chater Road

Hong Kong

 

AUDITOR OF THE BANK

 

KPMG Samjong Accounting Corp.

10th Floor, Gangnam Finance Center

152 Tehran-ro, Gangnam-gu

Seoul 06236

Korea

 

SINGAPORE LISTING AGENT

 

Shook Lin & Bok LLP

1 Robinson Road

#18-00 AIA Tower

Singapore 048542

Table of Contents

 

 

LOGO

 

 

 

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