Edgar Filing: KOOKMIN BANK

Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2004

Kookmin Bank

(Translation of registrant’s name into English)

9-1, 2-Ga, Namdaemun-Ro, Jung-Gu, Seoul, Korea 100-703

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F x Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ¨ No x

Kookmin Bank’s 2003 Audit Report

On March 3, 2004, Kookmin Bank released audit report for the fiscal year of 2003, which includes comparative non-consolidated financial statements for the years ended December 31, 2003 and 2002 and related notes to the statements.

Exhibit 99.1_ Kookmin Bank’s 2003 Audit Report

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Kookmin Bank
	(Registrant)

Date: March 3, 2004	By: /s/ Ki-Sup Shin

	(Signature)

	Name:	Ki-Sup Shin
	Title:	Executive Vice President & Chief Financial Officer

Exhibit 99.1

Kookmin Bank

Non-Consolidated Financial Statements

December 31, 2003 and 2002

Kookmin Bank

Contents

December 31, 2003 and 2002


		Page(s)

Report of Independent Auditors		1–3

Non-Consolidated Financial Statements

Balance Sheets		4

Statements of Operations		5

Statements of Appropriations of Retained Earnings (Dispositions of Accumulated Deficit)		6

Statements of Cash Flows		7–8

Notes to Financial Statements		9–57

LOGO


		Samil PricewaterhouseCoopers Kukje Center Building 191 Hankangro 2ga, Yongsanku Seoul 140-702, KOREA (Yongsan P.O. Box 266, 140-600)

Report of Independent Auditors

To the Board of Directors and Shareholders of

Kookmin Bank

We have audited the accompanying non-consolidated balance sheet of Kookmin Bank (“the Bank”) as of December 31, 2003 and 2002, and the related non-consolidated statements of operations, appropriations of retained earnings (dispositions of accumulated deficit) and cash flows for the year then ended, expressed in Korean Won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kookmin Bank as of December 31, 2003 and 2002, and the results of its operations, the changes in its retained earnings (accumulated deficit), and its cash flows for the year then ended in conformity with accounting principles generally accepted in the Republic of Korea.

Without qualifying our opinion, we draw your attention to the following matters.

As discussed in Note 33 to the financial statements, on May 30, 2003, the Bank obtained approval from the Board of Directors to enter into a merger agreement with Kookmin Credit Card Co., Ltd. (the “Subsidiary”), its majority-owned subsidiary. According to the resolution of the Board of Directors, the Bank merged with the Subsidiary on September 30, 2003. The merger was effected through an exchange of shares with the minority shareholders of the Subsidiary as of July 24, 2003, who received 0.442983 share of the Bank’s common stock for each share of the Subsidiary. The total assets and liabilities of the Subsidiary as of September 30, 2003 were (Won)10,595,409 million and (Won)9,391,897 million, respectively.

LOGO

As discussed in Note 2 to the financial statements, as of December 2002, the Bank changed the rates for determining the allowances for losses from consumer loans and credit card loans, in anticipation of the increasing risk of loan losses due to the increase in consumer loans and credit card loans, as follows:


Credit Risk Classification	Allowance Rates before Changes		Allowance Rates after Changes
Credit Risk Classification	Allowance Rates before Changes		Consumer		Credit Cards
Normal	0.50	%	0.75	%	1.00	%
Precautionary	2.00	%	8.00	%	12.00	%
Sub-standard	20.00	%	20.00	%	20.00	%
Doubtful	50.00	%	55.00	%	60.00	%
Estimated loss	100.00	%	100.00	%	100.00	%

As a result of the above change, the Bank’s allowances for loan losses as of December 31, 2003 are greater by (Won)336,265 million for consumer loans and (Won)314,701 million for credit card loans compared to the amounts that which would have been recorded under the previous rates.

As discussed in Note 20 to the financial statements, in accordance with the resolution made by the Board of Directors on December 26, 2003, the Bank acquired 27,423,761 of its own shares previously owned by the Korean government at (Won)43,700 per share through public bidding and intends to sell these shares of treasury stock depending on certain market conditions. As a result of the acquisition, the Bank holds 8.92 percent of the total common stock issued as treasury stock.

As discussed in Note 16 to the financial statements, the Bank’s total exposure (including debt securities, beneficiary certificates, and loans) related to domestic credit card companies and capital companies amounts to (Won)2,055,663 million as of December 31, 2003. Currently, securities issued by credit card companies and capital companies, which are experiencing liquidity problems, are not widely traded in the bond market. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying financial statements.

As discussed in Note 16 to the financial statements, in accordance with the agreement with the creditors’ committee of LG Card Co., Ltd. on November 24, 2003, the Bank provided additional loans of (Won)437.0 billion to LG Card Co., Ltd., which is currently experiencing a liquidity crisis. Also, on January 9, 2004, the Bank has agreed to a debt-equity swap of (Won)312.7 billion, to provide additional loans of (Won)205.9 billion (to be included in the debt-equity swap), and to extend the maturity of loans that will mature in 2004. The ability of LG Card Co., Ltd. to continue as a going concern depends on the effective execution of its restructuring plan and debt restructuring as well as the availability of financial aid from its financial institutional creditors. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying financial statements.

LOGO

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in conformity with accounting principles and practices generally accepted in countries and jurisdictions other than the Republic of Korea. In addition, the procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated financial statements are for use by those who are knowledgeable about Korean accounting principles or auditing standards and their application in practice.

Seoul, Korea

March 3, 2004

This report is effective as of March 3, 2004, 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 non-consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

Kookmin Bank

Non-Consolidated Balance Sheets

December 31, 2003 and December 31, 2002


*(in millions of Won)*
	2003			2002
Assets
Cash and due from banks (Note 3)	(Won)	6,526,345		(Won)	4,599,356
Securities (Note 4)		28,101,845			30,940,750
Loans (Notes 5 and 6)		139,920,521			126,730,561
Fixed assets (Note 7)		3,019,556			3,092,616
Other assets (Note 8)		6,484,239			6,135,558

Total assets	(Won)	184,052,506		(Won)	171,498,841

Liabilities and Shareholders’ Equity
Deposits (Note 9)	(Won)	132,180,272		(Won)	123,109,653
Borrowings (Note 10)		10,902,800			10,690,754
Debentures (Note 11)		19,192,581			17,539,007
Other liabilities (Note 13)		13,362,339			9,784,798

Total liabilities		175,637,992			161,124,212

Commitments and contingencies (Notes 14 and 16)
Common stock (5,000 Won par value per share, authorized 1 billion shares and 336,379,116 shares outstanding in 2003) (Notes 1 and 17)		1,681,896			1,641,293
Capital surplus (Note 18)		6,230,738			5,864,752
Retained earnings (Note 19)		1,662,119			2,742,335
Capital adjustments (Note 20)		(1,160,239	)		126,249

Total shareholders’ equity		8,414,514			10,374,629

Total liabilities and shareholders’ equity	(Won)	184,052,506		(Won)	171,498,841

The accompanying notes are an integral part of these non-consolidated financial statements.

Kookmin Bank

Non-Consolidated Statements of Operations

Years ended December 31, 2003 and 2002


*(in millions of Won except per share amounts)*
	2003			2002
Interest income
Interest on due from banks	(Won)	10,433		(Won)	51,580
Interest on trading securities		116,142			95,576
Interest on available-for-sale securities		958,665			652,423
Interest on held-to-maturity securities		626,552			834,895
Interest on loans		9,814,835			9,251,849
Other interest income		98,923			102,735

		11,625,550			10,989,058

Interest expenses
Interest on deposits		4,280,290			4,770,967
Interest on borrowings		410,746			415,938
Interest on debentures		1,143,228			830,219
Other interest expenses		68,570			58,068

		5,902,834			6,075,192

Net interest income		5,722,716			4,913,866
Provision for loan losses (Note 6)		4,040,536			1,593,479

Net interest income after provision for loan losses		1,682,180			3,320,387

Non-interest income
Fees & commission income		1,636,171			1,345,669
Dividends on trading securities		1,633			1,123
Dividends on available-for-sale securities		5,580			12,186
Gain on foreign currency transactions		287,501			202,367
Gain on derivatives transactions (Note 15)		1,131,711			1,760,743
Others (Note 22)		868,840			1,273,355

		3,931,436			4,595,443

Non-interest expenses
Fees and commission expenses		270,405			330,385
General and administrative expenses (Note 23)		2,704,148			2,551,426
Loss on foreign currency transactions		200,109			245,232
Loss on derivatives transactions (Note 15)		1,053,990			1,594,025
Others (Note 22)		1,308,880			928,997

		5,537,532			5,650,065

Operating income		76,084			2,265,765
Non-operating expenses, net (Note 24)		(1,222,528	)		(372,147	)

Net (loss) income before income tax expense		(1,146,444	)		1,893,618

Income tax (benefit) expense (Note 25)		(393,096	)		583,327

Net (loss) income	(Won)	(753,348	)	(Won)	1,310,291

Basic (loss) earnings per share (In Korean Won) (Note 26)	(Won)	(2,311	)	(Won)	4,123

The accompanying notes are an integral part of these non-consolidated financial statements.

Kookmin Bank

Non-Consolidated Statements of Appropriations of Retained Earnings

(Dispositions of Accumulated Deficit)

Years ended December 31, 2003 and 2002

(Date of Disposition : March 23, 2004 for the year ended December 31, 2003

Date of Appropriation : March 21, 2003 for the year ended December 31, 2002)


*(in millions of Won)*
	2003			2002
Retained earnings (accumulated deficit) before appropriations (dispositions)
Unappropriated retained earnings carried over from prior year	(Won)	410		(Won)	5,117
Adjustment on investment in associates (Note 19)		(1,917	)		4,562
Net income (loss)		(753,348	)		1,310,291

		(754,855	)		1,319,970

Transferred from prior years’ reserve (Note 19)
Reserves for overseas investment losses		—			5,417

		—			5,417

Dispositions (appropriations) (Note 19)
Transfer from (appropriations for) voluntary reserves		754,900			(867,000	)
Other reserves		—			(744	)
Legal reserves		—			(132,000	)
Cash dividends (20.0% for common stock in 2002)		—			(325,233	)

		754,900			(1,324,977	)

Unappropriated retained earnings carried over to the subsequent year	(Won)	45		(Won)	410

The accompanying notes are an integral part of these non-consolidated financial statements.

Kookmin Bank

Non-Consolidated Statements of Cash Flows

Years ended December 31, 2003 and 2002


*(in millions of Won)*
	2003			2002
Cash flows from operating activities
Net (loss) income	(Won)	(753,348	)	(Won)	1,310,291

Adjustments to reconcile net (loss) income to net cash provided by operating activities
Realized gain on trading securities, net		(71,899	)		(87,802	)
Unrealized gain on trading securities, net		(70,976	)		(167,366	)
Provision for loan losses due to merger		1,652,264			—
Gain (loss) on foreign currency transactions, net		(87,392	)		42,865
Provision for loan losses		4,040,536			1,593,479
Reversal of losses from guarantees and acceptances		(1,209	)		(37,436	)
Gain on derivatives transactions, net		(77,721	)		(166,718	)
Loss (gain) on valuation of derivatives, net		18,788			(41,884	)
Gain (loss) on fair value hedged items		(10,715	)		9,213
Retirement benefits		109,766			100,198
Depreciation and amortization		466,856			389,931
Loss on disposal of fixed assets, net		33,058			6,288
Impairment loss on fixed assets		22,228			—
Realized gain on available-for-sale securities, net		(493,993	)		(210,112	)
Impairment loss on available-for-sale securities, net		133,754			272,393
Realized gain on held-to-maturity securities		(2,771	)		(733	)
Unrealized gain (loss) on investment in associates, net		(267,870	)		273,620
Loss (gain) on sale of loans, net		31,340			(6,475	)
Stock compensation expense		12,130			11,333
Others, net		22,755			(33,116	)
Changes in assets and liabilities resulting from operations
Accrued income		118,796			3,238
Prepaid expenses		(255,957	)		14,037
Deferred tax assets		(399,310	)		(51,181	)
Other assets		(166	)		5,639
Accrued expenses		(593,967	)		(90,475	)
Unearned income		(28,019	)		(1,070	)
Withholding taxes		36,095			(54,343	)
Other liabilities		587,179			45,215
Retirement benefits		(18,637	)		(19,130	)
Accounts payable		(66,349	)		(60,268	)
Account for agency business		—			33
Deferred tax liabilities		(35,111	)		141,532

Net cash provided by operating activities		4,050,135			3,191,196

Kookmin Bank

Non-Consolidated Statements of Cash Flows

Years ended December 31, 2003 and 2002


*(in millions of Won)*
	2003			2002
Cash flows from investing activities
Increase (decrease) in due from banks	(Won)	(1,247,467	)	(Won)	2,839,245
Decrease in trading securities		1,336,940			992,343
Increase (decrease) in available-for-sale securities		(1,198,423	)		1,606,941
Decrease in held-to-maturity securities		5,119,423			—
Acquisition of investment in associates		(71,295	)		—
Dividend from investment in associates		11,392			—
Increase in loans granted, net		(12,580,451	)		(20,439,846	)
Proceeds from disposal of fixed assets		101,599			14,049
Acquisition of fixed assets		(316,890	)		(578,828	)
Acquisition of intangible assets		(705	)		(502	)
Proceeds from disposal of foreclosed assets		162			978
Acquisition of foreclosed assets		(166	)		—
Increase in guarantee deposits		(8,865	)		(56,619	)
Decrease (increase) in other accounts receivable		166,101			(338,569	)
Increase (decrease) in payments in advance		(28,328	)		55,723
Decrease in derivative assets, net		145,924			67,591
Collection of domestic exchange receivables		474,995			403,014
Collection of loans to trust accounts		37,882			229,452

Net cash used in investing activities		(8,058,172	)		(15,205,028	)


Cash flows from financing activities
Increase in deposits, net		9,076,415			7,948,349
Decrease in borrowings, net		(2,248,706	)		(2,846,629	)
Decrease (increase) in debentures, net		(3,278,588	)		8,697,080
Increase (decrease) in borrowings from trust accounts		3,248,649			(931,874	)
Decrease in dividend payable		(325,188	)		(29,967	)
Decrease (increase) in other accounts payable		(273,080	)		499,769
Increase (decrease) in advances received from customers		19,325			(57,825	)
Decrease in guarantee deposits received		(623	)		(41,516	)
Decrease in domestic exchange payables		(173,865	)		(901,723	)
Decrease in liabilities incurred by agency relationships		(171,172	)		(219,313	)
Stock options exercised		(35	)		(26,741	)
Acquisition of treasury stock		(1,227,876	)		(149,704	)
Sale of treasury stock		826			1,928
Increase in stock issuance cost		(212	)		(737	)

Net cash provided by financing activities		4,645,870			11,941,097

Net increase (decrease) in cash and cash equivalents		637,833			(72,735	)
Increase due to merger		33,343			—
Cash and cash equivalents, Beginning of year		3,100,581			3,173,316

End of year (Note 34)	(Won)	3,771,757		(Won)	3,100,581

The accompanying notes are an integral part of these non-consolidated financial statements.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

1. The Bank

Kookmin Bank (“the Bank”) was established in 1963 under the Citizens National Bank Act to provide and administer funds for financing the general public and small businesses. Pursuant to the repeal of the Citizens National Bank Act, effective January 5, 1995, the Bank has conducted its operations in accordance with the provisions of the General Banking Act.

The Bank merged with Korea Long Term Credit Bank (“KLB”) on December 31, 1998 and with Daegu, Busan, Jeonnam Kookmin Mutual Savings & Finance Co., Ltd. on August 22, 1999. Also, under the decision of the Financial Supervisory Commission in accordance with the Structural Improvement of the Financial Industry Act, the Bank purchased certain assets, including loans classified as normal or precautionary, and assumed most of the liabilities of Daedong Bank as of June 29, 1998. Also, the Bank completed the legal consolidation with H&CB as of October 31, 2001 (Note 32) and merged with Kookmin Credit Card Co., Ltd. (the “Subsidiary”), its majority-owned subsidiary, on September 30, 2003 (Note 33).

The Bank had its shares listed on the Korea Stock Exchange since September 1994. As a result of the business combination with H&CB, the former shareholders of the Bank and H&CB received new common shares of the Bank on the basis of a pre-determined ratio. The new common shares of the Bank were relisted on the Korea Stock Exchange as of November 9, 2001. As of December 31, 2003, the Bank’s paid-in capital amounts to (Won)1,681,896 million and 35,000,566 shares of the Bank are listed on the New York Stock Exchange as American Depositary Shares (“ADSs”).

The Bank engages in the banking and trust businesses according to the provisions of the General Banking Act and the Trust Business Act, and operates through 1,136 domestic branches and offices (excluding ATMs) and three overseas branches as of December 31, 2003.

2. Summary of Significant Accounting Policies

The Bank has adopted Statements of Korean Financial Accounting Standards (“SKFAS”) No. 1 as of January 1, 2001 and No. 2 to No. 9 as of January 1, 2002 to present its financial statements. Except for the adoption of these SKFAS, the same accounting policies are applied for the fiscal years 2002 and 2003. The significant accounting policies followed by the Bank in the preparation of its non-consolidated financial statements are summarized below.

Basis of Financial Statement Presentation

The Bank maintains its accounting records in Korean Won and prepares statutory financial statements in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Bank that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English from the Korean language non-consolidated financial statements. Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, results of operations, or cash flows, is not presented in the accompanying non-consolidated financial statements.

Accounting Estimates

The preparation of the non-consolidated financial statements requires management to make estimates and assumptions that affect amounts reported therein. Although these estimates are based on management’s best knowledge of current events and actions that the Bank may undertake in the future, actual results may be different from those estimates.

Application of the Statements of Korean Financial Accounting Standards

The Bank’s non-consolidated financial statements were prepared in accordance with financial accounting standards generally accepted in the Republic of Korea and Statements of Korean Financial Accounting Standards No. 2 through No. 9, in effect for the fiscal periods beginning after December 31, 2002.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Recognition of Interest Income

The Bank recognizes interest income on loans and debt securities on an accrual basis. However, interest income on delinquent and dishonoured loans and debt securities, other than those collateralized with security deposits or guaranteed by financial institutions, is recognized on a cash basis. As of December 31, 2003, the Bank has non-accrual loans and securities of (Won)10,677,822 million and (Won)620,929 million, respectively, with related foregone interest of (Won)638,079 million and (Won)150,492 million, respectively.

Securities

Securities that are bought and held principally for the purpose of generating profits on short-term differences in price, and which are actively and frequently bought and sold, are classified as trading securities. Debt securities with fixed or determinable payments and fixed maturity, and which the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities. Investments classified as neither trading securities nor held-to-maturity securities are classified as available-for-sale securities.

Securities are recognized initially at their fair value plus transaction costs that are directly attributable to the acquisition and the Bank uses the moving average method and specific identification method for determining the carrying value of equity securities and debt securities, respectively.

Trading and available-for-sale debt securities are carried at fair value using the average of quoted prices provided by bond pricing service institutions. Held-to-maturity debt securities are carried at amortized cost.

Marketable equity securities are carried at market prices and beneficiary certificates are carried at quoted prices provided by the beneficiary certificate dealers. However, non-marketable equity securities are carried at fair value only if the fair value is reasonably measurable and if otherwise, are carried at cost.

Unrealized holding gains or losses on trading securities are charged to current operations and those resulting from available-for-sale securities are recorded as capital adjustments. Premiums and discounts on debt securities are amortized over the maturity period using the effective interest method. Impairment losses are recognized in current operations when there is evidence of impairment and recoverable amounts of available-for-sale securities or held-to-maturity securities are less than the acquisition cost of equity securities or the amortized cost of debt securities. Unrealized holding gains or losses on available-for-sale or held-to-maturity securities that had not been recognized through income are realized when the related securities are disposed.

Investments in Associates

Investments in associate, over which the Bank exercises significant control or influence, are accounted for under the equity method. Under the equity method, the Bank records changes in its proportionate ownership of the associate in current operations, as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investment in associate.

The Bank discontinues the equity method of accounting for investments in associates when the Bank’s share of accumulated losses of the associates equals the costs of the investments and until the subsequent cumulative changes in its proportionate net income of the associate equal its cumulative proportionate net losses not recognized during the periods when the equity method was suspended.

Differences between the initial purchase price and the Bank’s initial proportionate ownership of the net book value of the associate are amortized or accreted using an appropriate method and the resulting amortization is charged to current operations.

Gains and losses recorded by the Bank from inter-company transactions with associates are fully eliminated. Gains and losses recorded by the associates from these transactions are proportionately eliminated, based on the Bank’s percentage of ownership.

Deferred loan origination fees and costs

The Bank defers loan origination fees associated with originating loans and loan origination costs that have future economic benefits. Loan balances are reported net of these loan origination fees and costs, and the deferred loan origination fees and costs are amortized using the effective interest method with the amortization recognized as adjustments to other interest income.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Allowances for Loan Losses

The Bank applies its internal credit rating system, the Forward Looking Criteria (“FLC”), to corporate loans in order to classify the borrowers and to determine the allowances for loan losses. According to the credit rating criteria, the allowance is determined according to the credit risk of corporate borrowers, which is evaluated based on financial and non-financial risks. The credit rating criteria is categorized into 12 categories (AAA, AA, A, BBB, BB, BB-, B, B-, CCC, CC, C, D) with additional consideration of the loan type, collateral and/or guarantees.

Allowances are determined by applying at minimum the following rates to the outstanding balances under each credit risk classification:


Credit Risk Classification	Credit Ratings	Allowance Rates
Normal	AAA~B	0.5	%
Precautionary	B-~CCC	2	%
Sub-standard	CC	20	%
Doubtful	C	50	%
Estimated loss	D	100	%

However, the Bank does not apply the FLC to small-sized corporate loans, consumer loans, and credit card loans. Alternatively, the bank classifies such loans by considering the current financial status of borrowers including delinquencies, bankruptcies and collateral value. As of December 2002, the rates used for determining the allowances for losses from corporate loans, consumer loans and credit card loans were changed as follows:


Credit Risk Classification	Allowance Rates before Changes		Allowance Rates after Changes
Credit Risk Classification	Allowance Rates before Changes		Consumer		Credit Card
Normal	0.50	%	0.75	%	1.00	%
Precautionary	2.00	%	8.00	%	12.00	%
Sub-standard	20.00	%	20.00	%	20.00	%
Doubtful	50.00	%	55.00	%	60.00	%
Estimated loss	100.00	%	100.00	%	100.00	%

As a result of the above change, the Bank’s allowances for loan losses as of December 31, 2003 are greater by (Won)336,265 million for consumer loans and (Won)314,701 million for credit card loans compared to the amounts which would have been recorded under the previous rates.

The Bank applies the credit risk classification used for loans to outstanding guarantees and acceptances, and provides allowances for losses of 20 percent, 50 percent and 100 percent of the outstanding guarantees and acceptances classified as sub-standard, doubtful, and estimated loss, respectively. In addition, the Bank provides allowances for losses of 19 percent of certain outstanding guarantees and acceptances classified as precautionary.

Present Value Discounts

Troubled debt restructuring loans, which are modified as to outstanding principal, interest rate, and/or maturity under programs such as workout, court receivership, court mediation, or debt restructuring agreements of parties concerned, are carried at present value if the difference between the nominal value and the present value of the restructured loan is significant. The present value discounts are recorded by reclassifying allowances for loan losses and if additional allowances need to be provided for, the additional allowances are provided and recognized as provision for loan losses of the current period. The difference between the nominal value and the present value is recorded as present value discount, which is shown as a deduction from the loan nominal value. These present value discounts are amortized using the effective interest method and are recognized as interest income. Allowances for loan losses on the restructured loans are provided for based on the loan balances, net of present value discounts.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Receivables and payables arising from long-term installment transactions, long-term cash loans or borrowings and other similar transactions shall be stated at present value, if the difference between nominal value and present value is material. The difference is accounted for as a present value discount and is deducted from the nominal value of the related receivable or payable. Present value discounts are amortized or reversed using the effective interest method, and the amortization is included in interest income or expense.

Fixed Assets and Related Depreciation

Tangible assets are recorded at cost, except for upward revaluation of certain assets in accordance with the Korean Asset Revaluation Law. Depreciation is calculated based on the estimated average useful lives of the assets and is presented as accumulated depreciation, which is a contra account of tangible assets in the financial statements.

The estimated useful lives and depreciation methods of the tangible assets are as follows:


Tangible assets	Depreciation Method	Estimated Useful Life
Buildings and structures	Straight-line method	40 years
Leasehold improvements	Declining balance method	4-5 years
Equipment and vehicles	Declining balance method	4-5 years

Expenditures that enhance the value or extend the useful life of the related assets are capitalized as additions to tangible assets. Routine maintenance and repairs are recognized as expenses when incurred.

Foreclosed assets acquired through, or in lieu of, loan redemption are stated at cost and are not depreciated. A valuation allowance is recorded where the latest bidding price at a public auction is below the book value, and is presented as a contra account of foreclosed assets in the financial statements

Intangible assets are amortized based on the following estimated average useful lives and are presented in the financial statements, net of accumulated amortization:


Intangible assets	Amortization Method	Estimated Useful Life
Goodwill	Straight-line method	9 years
Development costs	Straight-line method	5 years
Trademarks	Straight-line method	1-10 years
Others	Straight-line method	5-30 years

The Bank estimated the useful life of endowment assets that are beneficial upon usage, classified under other intangible assets, to be 30 years based on the term of the contract. The Bank recorded goodwill as a result of the merger with H&CB for the cost of the merger exceeding the fair value of the net assets acquired.

Development costs directly related to new technology or new products (including costs related to software development) are capitalized as intangible assets to the extent that the estimated future benefits are probable.

The Bank adjusts the book value of a fixed asset to its recoverable amount and recognizes the difference as an impairment loss when the recoverable amount is significantly below the book value due to obsolescence or decline in market value. The subsequent increase in recoverable amount in excess of the impaired book value is recognized, to the extent of the original book value before impairment, as a reversal of fixed asset impairment losses. For the year ended December 31, 2003, the Bank recognized an impairment loss of (Won)22,228 million for the difference between the book value of (Won)48,388 million and net realizable value of (Won)26,160 million of assets related to the expected closures of certain branch offices.

Stock Issuance Costs and Debenture Issuance Costs

Stock issuance costs are deducted from paid-in capital in excess of par value. Debenture issuance costs are recorded as discounts on debentures and amortized over the maturity period of the debentures using the effective interest method.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Accrued Retirement Benefits

Employees and directors with more than one year of service and temporary employees with a one-year contract, as of December 31, 2003, are entitled to receive a lump-sum payment upon termination of their employment with the Bank, based on their length of service and rate of pay at the time of termination.

Additionally, the Bank records the contributions to pension funds, which grant the payment rights to its employees, as contra accounts of accrued retirement benefits.

Deferred Income Taxes

The Bank records the future tax effects of temporary differences between the financial and tax bases of assets and liabilities as deferred income tax assets or liabilities. The tax effects of temporary differences arising from the cumulative effects of accounting changes are adjusted in retained earnings.

Bonds under Repurchase/Resale Agreements

Securities bought under resale agreements are recorded in loans as bonds purchased under resale agreements. Securities sold under repurchase agreements are recorded in borrowings as bonds sold under repurchase agreements. Interest from bonds purchased under resale agreements and bonds sold under repurchase agreements are recognized as interest income on loans and interest expense on borrowings, respectively.

Derivative Instruments

Derivative instruments for trading or hedging purpose are recorded at fair value and resulting unrealized gains and losses are recognized in current operations, except for the effective portion of derivative transactions entered into for the purpose of cash-flow hedges, which is recorded as an adjustment to shareholders’ equity.

Fair value hedge accounting is applied to a derivative instrument with the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment that is attributable to a particular risk. The gain or loss, both on the hedging derivative instrument and on the hedged item attributable to the hedged risk, is reflected in current operations

Cash flow hedge accounting is applied to a derivative instrument with the purpose of hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transaction that is attributable to a particular risk. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recognized in current operations. The effective portion of the gain or loss recorded as a capital adjustment is reclassified to current operations in the same period during which the hedged forecasted transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gain or loss recognized as a capital adjustment is added to or deducted from the asset or the liability.

Stock Options

Compensation costs for stock options granted to employees and executives are recognized using the fair value method. Under the fair value method, compensation costs for stock option plans are determined using an option-pricing model and are recognized over the vesting period (Note 21).

National Housing Fund

The Bank, as designated by the Korean Government under the Housing Construction Promotion Law, manages the sources and uses of funds of the National Housing Fund (the “NHF”) and records the related NHF account in other liabilities. In addition, the Bank pays interest, which is computed by multiplying the average balance of the NHF account by the passbook deposit interest rate, to the NHF.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Gains and Losses on Trust Management

The Bank’s trust accounts (“the Trust Accounts”) recognize as an expense the trust commissions paid to the banking accounts, which is equivalent to the total trust revenue less total trust expenses and trustee benefits (including the guaranteed principal and minimum rate of return). The Bank recognizes these trust commissions as a gain on trust management in other operating income. The trust fees on money trusts consist of base fees of 0.5 ~ 2.0 percent (depending on trust fund types) and special fees applied to the invested capital.

Under the Trust Business Act, reserves for future losses are set up in the trust accounts for losses related to those trust funds with a guarantee of the principal or of a certain minimum rate of return. The reserves are used to provide for the losses on such trust funds and, if the losses incurred are in excess of the reserves for future losses, the excess losses are compensated by the Bank. Accordingly, the banking accounts recognize the compensation paid as a loss on trust management in other operating expenses and the trust accounts recognize the corresponding compensation as compensation from banking accounts. There were no compensations paid for the years ended December 31, 2003 and 2002.

Foreign Currency Translation

All assets and liabilities denominated in foreign currencies are translated into Korean Won at the rates in effect at the balance sheet date (2003: (Won)1,197.8:US$1, 2002: (Won)1,200.4:US$1), and resulting translation gains and losses are recognized in the current period.

Accounting records of the overseas branches are maintained in the foreign currency prevailing in their respective countries. For the purpose of presentation in the accompanying financial statements, the financial statements of the branches have been translated into Korean Won, using exchange rates published by Seoul Money Brokerage Services, Ltd. as of the balance sheet dates.

Statement of Cash Flows

In the preparation of the statement of cash flows, the Bank has presented net amounts of cash inflows and cash outflows for items where the turnover is quick and the amounts are large.

Application of Korean Financial Accounting Standard No. 6

The Bank has adopted Statements of Korean Financial Accounting Standards (“SKFAS”) No. 6 ‘Subsequent Events’, for the fiscal year 2003 and presented retained earnings (accumulated deficit) as before appropriations (disposition) on the balance sheet. Accordingly, retained earnings as of December 31, 2002 were restated to amounts before appropriations, and the restatement resulted in a decrease in liabilities and an increase in net assets of (Won)325,233 million.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

3. Cash and Due from Banks

Cash and due from banks as of December 31, 2003 and 2002 are summarized as follows:


*(in millions of Won)*		2003			2002
Cash on hand
Cash in Won		(Won)	2,945,921		(Won)	2,392,346
Cash in foreign currencies			228,153			186,780

			3,174,074			2,579,126

Due from banks in Won
Bank of Korea	Reserve deposits in the Bank of Korea		2,612,248			1,340,482

Other banks	Time deposits		810			41,192
	Passbook deposits		8,185			392

			8,995			41,584

Other financial institutions	Deposits at Mutual Savings		140,000			140,000

Others	Futures margin accounts		1,560			1,336
	Market participation margin		454			458
	KOSPI futures margin accounts		200			—
	Other deposits		—			8,319

			2,214			10,113

			2,763,457			1,532,179
	Present value discounts ¹*		(12,810	)		(21,156	)

			2,750,647			1,511,023

Due from banks in foreign currencies
Bank of Korea	Demand deposits		12,415			25,677

Other banks	Demand deposits		71,879			104,073
	Time deposits		—			15,193

			71,879			119,266

Off-shore	Demand deposits		3,354			5,064

Others	Other deposits		513,976			359,200

			601,624			509,207

		(Won)	6,526,345		(Won)	4,599,356

¹*	Present value discounts are related to the (Won)140,000 million of time deposits (1% interest, five-year maturity at the point of deposit, uncallable for five years) placed with Hansol Mutual Savings & Finance Co., Ltd. (previously, Bukook Mutual Savings & Finance Co., Ltd.).

The maturities of the due from banks as of December 31, 2003 are as follows:


*(in millions of Won)*	Due from Banks in Won		Due from Banks in Foreign Currencies		Total
Due in 3 months or less	(Won)	2,622,647	(Won)	523,767	(Won)	3,146,414
Due after 3 months through 6 months		—		77,857		77,857
Due after 6 months through 1 year		50,154		—		50,154
Due after 1 year through 2 years		90,000		—		90,000
Due after 2 years through 3 years		—		—		—
Due after 5 years		656		—		656

	(Won)	2,763,457	(Won)	601,624	(Won)	3,365,081

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Included in cash and due from banks as of December 31, 2003 and 2002 are the following restricted deposits:


*(in millions of Won)*	2003			2002			Restrictions
Reserve deposits in the Bank of Korea	(Won)	2,612,248		(Won)	1,340,482		General Banking Act
Deposits at Hansol Mutual Savings & Finance Co., Ltd.		140,000			140,000		Withdrawal at maturity
Due from banks in foreign currency		12,415			37,409		General Banking Act
Other deposits		2,735			2,040		Futures guarantee deposits

		2,767,398			1,519,931

Present value discounts		(12,810	)		(21,156	)

	(Won)	2,754,588		(Won)	1,498,775

4. Securities

Securities as of December 31, 2003 and 2002 are as follows:


*(in millions of Won)*	2003		2002
Trading	(Won)	4,482,948	(Won)	5,676,973
Available-for-sale		17,088,357		13,173,700
Held-to-maturity		5,979,341		10,986,915
Investment in associates		551,199		1,103,162

	(Won)	28,101,845	(Won)	30,940,750

Trading, available-for-sale, and held-to-maturity securities as of December 31, 2003 are as follows:


*(in millions of Won)*	Unrealized
	Gain		Loss		Book Value		Fair value
Trading
Equity securities	(Won)	12,760	(Won)	767	(Won)	113,171	(Won)	113,171
Beneficiary certificates		69,554		240		1,686,754		1,686,754
Government and municipal bonds		1,164		3,621		1,076,427		1,076,427
Corporate bonds		929		7,953		1,365,060		1,365,060
Asset-backed securities		197		1,047		241,536		241,536

	(Won)	84,604	(Won)	13,628	(Won)	4,482,948	(Won)	4,482,948


*(in millions of Won)*	Impairment				Capital Adjustments
	Reversal of		Loss		Gain		Loss		Book Value		Fair value¹*
Available-for-Sale
Equity securities	(Won)	—	(Won)	45,214	(Won)	25,292	(Won)	14,873	(Won)	439,791	(Won)	439,791
Investment in funds		—		3		3,513		—		30,872		30,872
Beneficiary certificates		47,730		271,019		67,839		43		5,569,200		5,569,200
Government and municipal bonds		—		—		7,532		22,906		2,322,889		2,322,889
Foreign government bonds		—		—		2,402		—		28,153		28,153
Corporate bonds		5,364		42,267		90,629		21,768		8,228,640		8,228,640
Asset-backed securities		22,459		56,006		370		—		468,669		468,669
Other debt securities		—		—		—		—		143		143

	(Won)	75,553	(Won)	414,509	(Won)	197,577	(Won)	59,590	(Won)	17,088,357	(Won)	17,088,357

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002


*(in millions of Won)*	Impairment				Unrealized Holding
	Reversal of		Loss		Gain		Loss		Book Value		Fair value
Held-to-Maturity
Government and municipal bonds	(Won)	—	(Won)	—	(Won)	87,993	(Won)	4,061	(Won)	2,489,998	(Won)	2,573,930
Corporate bonds		—		—		76,464		3,510		3,163,020		3,235,974
Asset-backed securities		—		—		3,307		90		326,323		329,540

	(Won)	—	(Won)	—	(Won)	167,764	(Won)	7,661	(Won)	5,979,341	(Won)	6,139,444

¹*	Non-marketable equity securities and investment in funds are included at book value.

Due to the merger with Kookmin Credit Card Co., Ltd. on September 30, 2003, the above impairment loss on available-for-sale securities includes (Won)2,178 million of impairment loss recognized before the merger date as part of ‘net unrealized gain on investments in associates’, and (Won)203,024 million of impairment loss recognized as ‘provision for loan losses due to merger’ as of the merger date.

Beneficiary certificates classified as available-for-sale include (Won)2,402 million of beneficiary certificates that have been reclassified from trading securities due to restrictions on redemption. (Won)413 million of unrealized gain on these beneficiary certificates that has been recognized as of the reclassification date is included in the unrealized gain on trading beneficiary certificates.

Trading, available-for-sale, and held-to-maturity securities as of December 31, 2002 are as follows:


*(in millions of Won)*	Unrealized
	Gain		Loss		Book Value		Fair value
Equity securities	(Won)	545	(Won)	4,002	(Won)	55,674	(Won)	55,674
Beneficiary certificates		166,078		5,429		3,844,380		3,844,380
Government and municipal bonds		5,600		—		644,435		644,435
Corporate bonds		5,136		562		1,092,674		1,092,674
Asset-backed securities		—		—		39,810		39,810

	(Won)	177,359	(Won)	9,993	(Won)	5,676,973	(Won)	5,676,973


*(in millions of Won)*	Impairment				Capital Adjustments
	Reversal of		Loss		Gain		Loss		Book Value		Fair value¹*
Available-for-Sale
Equity securities	(Won)	15,318	(Won)	222,309	(Won)	20,317	(Won)	34,416	(Won)	646,114	(Won)	646,114
Investment in funds		—		—		—		—		36,152		36,152
Beneficiary certificates		—		—		62,246		5,662		3,231,853		3,231,853
Government and municipal bonds		—		—		40,609		184		2,278,144		2,278,144
Foreign government bonds		—		—		2,864		374		20,007		20,007
Corporate bonds		—		68,468		103,710		10,325		6,441,979		6,441,979
Asset-backed securities		12,380		9,314		1,664		—		519,371		519,371
Other debt securities		—		—		—		—		80		80

	(Won)	27,698	(Won)	300,091	(Won)	231,410	(Won)	50,961	(Won)	13,173,700	(Won)	13,173,700

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002


*(in millions of Won)*	Impairment				Unrealized Holding
	Reversal of		Loss		Gain		Loss		Book Value		Fair value
Held-to-Maturity
Government and municipal bonds	(Won)	—	(Won)	—	(Won)	108,236	(Won)	92	(Won)	2,381,372	(Won)	2,489,516
Foreign government bonds		—		—		—		—		19,143		19,143
Corporate bonds		—		—		176,778		2,082		7,461,864		7,636,560
Asset-backed securities		—		—		14,693		—		1,124,536		1,139,229

	(Won)	—	(Won)	—	(Won)	299,707	(Won)	2,174	(Won)	10,986,915	(Won)	11,284,448

¹*	Non-marketable equity securities and investment in funds are included at book value.

As of December 31, 2003 and 2002, investments in associates are as follows:


*(in millions of Won)*	Owner- ship (%)	Acquisition Cost		Beginning Balance¹*		Equity Method²*									Book Value
	Owner- ship (%)	Acquisition Cost		Beginning Balance¹*		N/I			R/E			C/A			2003		2002
Domestic Associates
Kookmin Credit Card³*	74.27	(Won)	272,274	(Won)	681,960	(Won)	211,202		(Won)	—		(Won)	—		(Won)	—	(Won)	681,960
KB Investment	99.89		155,311		67,289		5,295			(2,334	)		7,023			77,273		67,289
Kookmin Data System	99.98		7,998		13,616		1,031			—			—			14,647		14,416
Kookmin Futures	99.98		19,996		24,093		1,428			—			—			25,521		25,092
KLB Securities	36.41		10,316		—		—			—			—			—		—
KB Investment Trust Mgt.	80.00		39,015		36,667		8,336			—			48			45,051		45,868
Jooeun Industrial	99.99		23,994		—		—			—			—			—		—
KB Real Estate Trust	99.99		76,103		87,727		10,402			(336	)		336			98,129		87,727
KB Credit Information	66.34		8,444		9,106		2,746			—			11			11,863		8,991
ING Life Korea	20.00		21,769		21,613		22,278			—			(46	)		43,845		21,613
Korea Mortgage	26.67		30,629		33,566		2,475			(57	)		(196	)		35,788		33,566

			665,849		975,637		265,193			(2,727	)		7,176			352,117		986,522

Foreign Associates
KB Int’l Ltd. (London)	100.00		42,585		52,803		3,264			—			688			56,755		47,739

KB Luxembourg S.A	100.00		26,295		6,102		(1,275	)		—			1,123			5,950		5,106

Kookmin Singapore Ltd.	100.00		14,096		2,080		—			—			—			2,080		2,084

Kookmin Finance Asia Ltd.	100.00		8,385		279		7			—			—			286		279

Kookmin Finance HK Ltd.	100.00		23,956		61,299		681			—			736			62,716		61,432

Sorak Financial Holdings	25.00		71,295		71,295		—			—			—			71,295		—

			186,612		193,858		2,677			—			2,547			199,082		116,640

		(Won)	852,461	(Won)	1,169,495	(Won)	267,870		(Won)	(2,727	)	(Won)	9,723		(Won)	551,199	(Won)	1,103,162

¹*	The beginning balance is the prior year’s book value adjusted by dividends, changes in foreign exchange rates, and acquisition during current year.

²*	The investment in associates are accounted for under the equity method and changes in net assets of the associates are recognized in net income (N/I), retained earnings (R/E), and/or in capital adjustment (C/A) according to the source of the changes in net assets.

³*	As a result of the merger with Kookmin Credit Card Co., Ltd. on September 30, 2003, there is no balance for investments in associates related to Kookmin Credit Card Co., Ltd as of December 31,2003.

The Bank sold to Sun Capital Inc., 70.46 percent of its 85.43 percent investment in, and (Won)172,024 million of its loans to, Alpha Capital Corp., for (Won)145,000 million on August 30, 2002. The Bank also sold an additional 5.03 percent of its investment in Alpha Capital Corp. to Sun Capital Inc. for (Won)900 million on October 28, 2002. The Bank sold its 87.00 percent investment in Kookmin Investment Trust Management Co., Ltd. to Morgan Stanley Private Equity (the M&A private funds led by Morgan Stanley Global Emerging Markets Inc. and affiliated funds) on May 29, 2002 and sold its 88.66 percent investment in Kookmin Leasing Co., Ltd. to Sun Capital Inc. on December 27, 2002.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

KB Investment Co., Ltd. merged with Frontier Investment Corp. and Kookmin Investment Co., Ltd., on December 31, 2001 and June 27, 2002, respectively. KB Credit Information Co., Ltd. merged with KM Credit Information Co., Ltd., effective as of May 2, 2002.

KLB Securities Co., Ltd., Jooeun Industrial Co., Ltd., Kookmin Singapore (Merchant Bank), Ltd. and Kookmin Finance Asia, Ltd. (HK) are in the process of liquidation. Consequently, accounting under the equity method is no longer applied to investments in KLB Securities Co., Ltd. and Jooeun Industrial Co., Ltd. due to accumulated deficits resulting to a decrease of the investment value below zero . Accordingly, the total accumulative estimated loss that has not been recognized by the Bank amounts to (Won)43,695 million.

The Bank applies the equity method accounting to a subsidiary based on its adjusted financial statements that are, in turn, based on most recent available audited or reviewed financial statements adjusted for changes in net assets using the unaudited financial statements as of December 31, 2003. In the case of ING Life Korea Co., Ltd., adjustment for income tax expenses of (Won)37,609 million has been additionally made to the adjusted financial statements.

As a means to create a Pan-Asian strategic management, in accordance with the resolution of the Board of Directors on October 24, 2003, the Bank invested (Won)71,295 million for a 25 percent ownership of Sorak Financial Holdings in connection with the acquisition of Bank Internasional Indonesia (“BII”). Sorak Financial Holdings entered into a contract to purchase 51 percent equity interest in BII from Indonesian Bank Restructuring Agency (IBRA). BII’s total assets and total liabilities reported under Indonesian GAAP as of September 30, 2003 translated into Korean Won at year-end rates, amounts to (Won)4,910,369 million and (Won)4,439,624 million, respectively.

Due to its determination to maximize efficient asset management, certain assets, comprising mostly of securities and loans, held by overseas subsidiaries with a total book value of (Won)118,720 million were purchased by the Bank for a total acquisition cost of (Won)115,046 million.

The maturities of the available-for-sale and held-to-maturity debt securities except for equity securities and investment in funds as of December 31, 2003 are summarized as follows:


*(in millions of Won)*	Available-for-sale				Held-to-maturity
	Book Value		Fair value		Book Value		Fair value
Maturities
Due in 1 year or less	(Won)	9,622,944	(Won)	9,622,944	(Won)	1,815,377	(Won)	1,827,931
Due after 1 year through 5 years		6,534,806		6,534,806		3,911,985		4,043,934
Due after 5 years through 10 years		445,043		445,043		251,979		267,579
Thereafter		14,901		14,901		—		—

	(Won)	16,617,694	(Won)	16,617,694	(Won)	5,979,341	(Won)	6,139,444

Investment securities risk concentrations as of December 31, 2003 and 2002 are as follows:


*(in millions of Won)*	2003			2002
	Book Value		Ratio(%)	Book Value		Ratio(%)
By Country
Korea	(Won)	27,784,440	98.87	(Won)	30,684,000	99.17
Singapore		79,309	0.28		9,892	0.03
USA		63,920	0.23		66,826	0.22
Philippines		45,921	0.16		63,323	0.20
Germany		29,961	0.11		30,010	0.10
Others		98,294	0.35		86,699	0.28

	(Won)	28,101,845	100.00	(Won)	30,940,750	100.00

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002


*(in millions of Won)*	2003			2002
	Book Value		Ratio(%)	Book Value		Ratio(%)
By Type
Fixed rate bonds	(Won)	16,114,291	57.34	(Won)	15,860,479	51.26
Floating rate bonds		2,397,728	8.53		5,443,478	17.59
Subordinated bonds		767,418	2.73		574,727	1.86
Convertible bonds		422,278	1.51		142,817	0.46
Beneficiary certificates		7,255,954	25.82		7,076,233	22.87
Equity securities		1,104,161	3.93		1,804,950	5.84
Others		40,015	0.14		38,066	0.12

	(Won)	28,101,845	100.00	(Won)	30,940,750	100.00


*(in millions of Won)*	2003			2002
	Book Value		Ratio(%)	Book Value		Ratio(%)
By Industry
Government and municipalities	(Won)	9,870,850	35.13	(Won)	13,582,679	43.90
Financial institutions		16,670,041	59.32		13,465,699	43.52
Manufacturing industries		583,986	2.08		245,255	0.79
Others		976,968	3.47		3,647,117	11.79

	(Won)	28,101,845	100.00	(Won)	30,940,750	100.00

Available-for-sale equity securities of which the fair value cannot reasonably be measured as of December 31, 2003 are as follows:


*(in millions of Won)*	Acquisition Cost		Net Asset Value ¹*		Book Value
Korea Housing Guarantee Co., Ltd.	(Won)	68,648	(Won)	119,991	(Won)	68,648
Dongbu Electronics Co., Ltd.		30,000		22,059		22,059
Mastercard, Inc.		11,118		6,524		11,118
The Korea Securities Finance Corp.		8,160		11,003		8,160
Asia Credit		11,978		8,014		8,014
Korea Asset Management Corp.		7,827		12,436		7,827
Samsung Life Insurance Co., Ltd.		7,479		9,062		7,479
Daewoo Electronics Corp.		9,862		7,293		7,109
Korea Highway Corp.		6,248		5,892		6,248
BC Card Co., Ltd.		5,738		7,630		5,738
Daewoo Motor Co., Ltd.		5,633		11,768		5,633
E Mirae Asset Securities Co., Ltd.		5,000		8,302		5,000
Hanwha Investment Trust Management Co., Ltd.		3,487		3,503		3,487
Korea Vilene Co., Ltd.		3,000		3,662		3,000
Hyundai Home Shopping Network Corp.		2,680		915		2,680
National Information & Credit Evaluation, Inc.		2,668		4,209		2,668
Nanjing Kumho Tire Co., Ltd.		2,548		2,678		2,548
Baring Communication		5,588		2,282		2,282
Korea Digital Satellite Broadcasting Co., Ltd.		2,157		550		2,157
Kyobo Investment Trust Management Co., Ltd.		2,100		3,417		2,100
Others		90,866		67,123		38,235

	(Won)	292,785	(Won)	318,313	(Won)	222,190

¹*	Net asset values are calculated using the unaudited financial statements of the investees as of December 31, 2003 when available, otherwise, the most recent financial information is used.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

As of December 31, 2003, the following investment securities are pledged at various institutions:


Restrictions					Restricted securities
Related Transactions	Placed with	Amount			Book Value		Pledge Value
Bonds sold under REPO agreements	Customers	(Won)	3,623,156		(Won)	4,224,282	(Won)	4,188,660
Leased securities	KCFC					4,626		4,500
Borrowings from the Bank of Korea	Bank of Korea		992,433			1,229,621		1,214,400
Bank of Korea settlements	Bank of Korea		(balance limits	)		170,200		170,200
Derivatives transactions	Samsung Futures, etc.		(balance limits	)		112,069		120,500
Securities Finance Funds	Korea Securities Finance Corp.					998		1,000
ADB collateral	KDB					1,894		1,900

					(Won)	5,743,690	(Won)	5,701,160

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

5. Loans

Loans as of December 31, 2003 and 2002 are summarized as follows:


*(in millions of Won)*		2003			2002
Loans in Won
Corporate loans	Operation loans
	General operation loans	(Won)	28,884,554		(Won)	28,904,621
	Notes discounted		1,415,445			1,851,133
	Overdraft accounts		447,992			568,702
	Trading notes		809,921			814,759
	Other operation loans		3,793,594			3,229,851

			35,351,506			35,369,066

	Facility loans
	General facility loans		5,413,333			4,676,506
	Other facility loans		1,218,370			1,287,125

			6,631,703			5,963,631

			41,983,209			41,332,697

Consumer loans	General consumer loans		41,951,219			39,713,543
	Consumer housing loans		38,199,290			33,731,435
	Remunerations on mutual installment savings		297,868			131,768
	Other consumer loans		635,218			632,172

			81,083,595			74,208,918

Public loans	Public operation loans		526,227			738,632
	Public facility loans		42,473			39,414

			568,700			778,046

Other loans	Property formation loans		62,963			95,252
	Inter-bank loans		12,815			20,941
	Others		3,962			5,449

			79,740			121,642

			123,715,244			116,441,303

Loans in foreign currencies	Domestic funding loans		1,165,988			1,052,800
	Overseas funding loans		887,018			933,010
	Inter-bank loans		767,884			1,094,119
	Domestic usance bills		1,197,563			1,334,006
	Government funding loans		1,477			3,241

			4,019,930			4,417,176

Call loans	In Won		1,640,000			33,600
	In foreign currencies		5,351			248,857
	Inter-bank reconciliation funds		—			89,287

			1,645,351			371,744

Privately placed debentures			1,787,131			1,276,080

Other loans			12,457,419			6,633,396

Allowances for loan losses (Note 6)			(3,690,341	)		(2,378,696	)

Present value discounts			(22,780	)		(30,442	)

Net deferred loan origination fees and costs			8,567			—

		(Won)	139,920,521		(Won)	126,730,561

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

As of December 31, 2003, restructured loans due to workout plans or other similar restructuring programs are as follows:


*(in millions of Won)*	Period (years)	Balances Before Restructuring		Exemption		Equity Conversion		CB Conversion		Restructured Amount		Present Value Discounts
Workout	1 - 6	(Won)	696,945	(Won)	—	(Won)	—	(Won)	581,075	(Won)	115,870	(Won)	6,229
Court receivership	5 -10		41,426		154		—		27,009		14,263		3,502
Court mediation	5 - 6		40,750		—		—		—		40,750		2,391
Others¹*	2 - 7		520,873		326,456		134		3,668		190,615		10,658

		(Won)	1,299,994	(Won)	326,610	(Won)	134	(Won)	611,752	(Won)	361,498	(Won)	22,780

¹*	The Bank wrote off (Won)237,316 million of loans to SK Networks, (formerly, SK Global) in expectation of a cash buy out restructuring. The resulting SK Networks loan balances as of December 31, 2003 amounts to (Won)88,960 million.

The loans, or portions thereof, that are approved for debt restructuring by issuance or grant of equity are separately classified as loans due for equity conversion as of the agreement date. The loans due for equity conversion are stated at the lower of nominal amount or the fair value of the to-be-converted equity interest. The difference between the nominal amount and the fair value of the equity interest is adjusted in the related allowance for loan losses.

The movements in present value discounts and net deferred loan origination fees and costs for the year ended December 31, 2003 are as follows :


*(in millions of Won)*	WACC(%)	Beginning Balance			Increase			Decrease			Ending Balance
Present value discounts	6.10 - 17.00	(Won)	(30,442	)	(Won)	(11,767	)	(Won)	(19,429	)	(Won)	(22,780	)
Deferred loan incidental income			—			9,161			594			8,567

		(Won)	(30,442	)	(Won)	(2,606	)	(Won)	(18,835	)	(Won)	(14,213	)

The maturities of loans as of December 31, 2003 are as follows:


*(in millions of Won)*	Loans in Won		Loans in Foreign Currencies		Bills Bought		Credit Card		Call Loans		Privately placed Debentures		Others		Total
Due in 3 months or less	(Won)	16,278,866	(Won)	1,123,619	(Won)	496,406	(Won)	6,549,874	(Won)	1,645,351	(Won)	561,682	(Won)	1,600,828	(Won)	28,256,626
Due after 3 months through 6 months		15,567,961		905,409		53,382		1,098,040		—		166,238		37		17,791,067
Due after 6 months through 1 year		30,819,742		432,113		7,589		1,280,289		—		295,587		606		32,835,926
Due after 1 year through 2 years		26,540,976		178,374		7,153		615,736		—		502,979		4,594		27,849,812
Due after 2 years through 3 years		19,012,065		332,104		6,191		334,413		—		259,995		—		19,944,768
Due after 3 years through 4 years		2,758,133		116,051		—		15,051		—		650		30,802		2,920,687
Due after 4 years through 5 years		2,533,010		103,718		—		318,037		—		—		—		2,954,765
Thereafter		10,204,491		828,542		—		38,391		—		—		—		11,071,424

	(Won)	123,715,244	(Won)	4,019,930	(Won)	570,721	(Won)	10,249,831	(Won)	1,645,351	(Won)	1,787,131	(Won)	1,636,867	(Won)	143,625,075

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Loan risk concentrations by country as of December 31, 2003 are as follows:


*(in millions of Won)*	Loans in Won		Loans in Foreign Currencies		Others		Total		Percentage(%)
Korea	(Won)	123,715,244	(Won)	2,770,237	(Won)	15,847,217	(Won)	142,332,698	99.10
Southeast Asia		—		636,560		304		636,864	0.45
Russia		—		131,758		—		131,758	0.09
China		—		29,466		1		29,467	0.02
Japan		—		278,109		42		278,151	0.19
Others		—		173,800		42,337		216,137	0.15

	(Won)	123,715,244	(Won)	4,019,930	(Won)	15,889,901	(Won)	143,625,075	100.00

Loan risk concentrations by industry as of December 31, 2003 are as follows:


*(in millions of Won)*	Loans in Won		Loans in Foreign Currencies		Others		Total		Percentage(%)
Industrial loans
Financial institutions	(Won)	620,339	(Won)	817,750	(Won)	2,355,417	(Won)	3,793,506	2.64
Manufacturing companies		13,900,021		1,575,108		1,177,859		16,652,988	11.59
Service companies		23,068,546		568,034		557,602		24,194,182	16.85
Others		4,850,951		124,443		1,397,943		6,373,337	4.44

		42,439,857		3,085,335		5,488,821		51,014,013	35.52

Household loans		81,150,520		914,545		8,897,467		90,962,532	63.33

Public and other loans		124,867		20,050		1,503,613		1,648,530	1.15

	(Won)	123,715,244	(Won)	4,019,930	(Won)	15,889,901	(Won)	143,625,075	100.00

6. Allowances for Loan Losses

As of December 31, 2003 and 2002, allowances for loan losses are as follows:


*(in millions of Won)*	2003		2002
Loans in Won	(Won)	2,271,198	(Won)	1,905,065
Loans in foreign currencies		68,045		103,838
Bills bought in Won and foreign currencies		16,928		20,213
Payments on guarantees		19,967		18,382
Factoring receivable		16,486		143
Credit card accounts		1,187,616		284,491
Privately placed debentures		87,513		28,210
Loans due for equity conversion		—		5,373
Suspense receivables		17,186		11,022
Others		5,402		1,959

	(Won)	3,690,341	(Won)	2,378,696

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

As of December 31, 2003, allowances for loan losses by credit risk classification are as follows:


*(in millions of Won)*		Normal		Pre-cautionary		Substandard		Doubtful		Estimated Loss		Total
Loans in Won	Balance	(Won)	114,948,955	(Won)	5,342,015	(Won)	2,264,071	(Won)	935,330	(Won)	206,411	(Won)	123,696,782
	Allowances		773,958		297,883		491,148		501,798		206,411		2,271,198

	Ratio (%)		0.67		5.58		21.69		53.65		100.00		1.84

Loans in foreign currencies	Balance		3,681,484		263,168		40,037		31,500		803		4,016,992
	Allowances		14,568		17,072		16,252		19,350		803		68,045

	Ratio (%)		0.40		6.49		40.59		61.43		100.00		1.69

Bills bought	Balance		507,729		54,354		1,850		3,030		3,757		570,720
	Allowances		2,539		8,687		430		1,515		3,757		16,928

	Ratio (%)		0.50		15.98		23.24		50.00		100.00		2.97

Payments on guarantees	Balance		42,754		6,347		19,539		10,903		9,896		89,439
	Allowances		214		498		3,908		5,451		9,896		19,967

	Ratio (%)		0.50		7.85		20.00		50.00		100.00		22.32

Credit card accounts	Balance		7,239,554		1,626,508		400		1,158,525		224,844		10,249,831
	Allowances		72,396		195,181		80		695,115		224,844		1,187,616

	Ratio (%)		1.00		12.00		20.00		60.00		100.00		11.59

Bonds purchased under resale agreements	Balance		1,500,000		—		—		—		—		1,500,000
	Allowances		—		—		—		—		—		—

	Ratio (%)		0.00		0.00		0.00		0.00		0.00		0.00

Call loans	Balance		1,645,351		—		—		—		—		1,645,351
	Allowances		—		—		—		—		—		—

	Ratio (%)		0.00		0.00		0.00		0.00		0.00		0.00

Privately placed debentures	Balance		1,363,209		409,352		7,555		6,811		168		1,787,095
	Allowances		6,816		75,048		2,064		3,417		168		87,513

	Ratio (%)		0.50		18.33		27.32		50.17		100.00		4.90

Factoring receivables	Balance		29,685		—		—		125		16,275		46,085
	Allowances		148		—		—		63		16,275		16,486

	Ratio (%)		0.50		0.00		0.00		50.40		100.00		35.77

Total	Balance ¹*	(Won)	130,958,721	(Won)	7,701,744	(Won)	2,333,452	(Won)	2,146,224	(Won)	462,154	(Won)	143,602,295
	Allowances ²*		870,639		594,369		513,882		1,226,709		462,154		3,667,753

	Ratio (%)		0.66		7.72		22.02		57.16		100.00		2.55

¹*	The above amounts of loan balances are net of present value discounts.

²*	The above amounts of allowances for loan losses do not include the allowances for suspense receivables and other allowances

For the years ended December 31, 2003 and 2002, the movements in allowances for loan losses are as follows:


*(in millions of Won)*	2003			2002
Beginning balance	(Won)	2,378,696		(Won)	2,271,179
Provision for loan losses		4,040,536			1,593,479
Increase due to merger with Kookmin Credit Card Co., Ltd. (Note 33)		1,388,854			—
Collection of written-off loans		767,718			269,533
Repurchase of loans sold		327,921			6,424
Sale of loans		(388,322	)		(65,174	)
Write-off of loans		(4,509,979	)		(1,527,311	)
Conversion of loans into equity securities		(43,996	)		(136,185	)
Exemption of loans		(263,233	)		(8,364	)
Offset with present value discounts from troubled debt restructuring		(7,482	)		(165	)
Changes in exchange rates and others		(372	)		(24,720	)

Ending balance	(Won)	3,690,341		(Won)	2,378,696

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

As of December 31, 2003, 2002 and 2001, the ratios of allowances for loan losses to loans are as follows:


	2003		2002		2001
Loans ¹*	(Won)	143,602,295	(Won)	129,109,257	(Won)	109,301,138
Allowances for loan losses²*		3,667,753		2,365,715		2,235,801

Ratio (%)		2.55		1.83		2.05

¹*	The above amounts of loans are net of present value discounts.

²*	The above amounts of allowances for loan losses do not include the allowances for suspense receivables and other allowances.

7. Fixed Assets

Fixed assets as of December 31, 2003 and 2002 are as follows:


	2003		2002
Tangible assets	(Won)	2,469,353	(Won)	2,477,147
Intangible assets		549,427		614,457
Foreclosed and other properties		776		1,012

	(Won)	3,019,556	(Won)	3,092,616

Movements in tangible assets for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Land			Buildings and structures			Leasehold improvement			Equipment and vehicle			Construction in-progress			Total
Acquisition cost
Beginning balances	(Won)	1,175,682		(Won)	848,746		(Won)	98,117		(Won)	1,043,969		(Won)	1,195		(Won)	3,167,709
Acquisition		3,350			8,898			6,898			201,254			97,112			317,512
Transfer		—			37,466			48,517			—			(85,983	)		—
Increase due to merger		55,529			71,024			4,805			263,897			—			395,255
Disposal		(128,692	)		(2,838	)		(1,106	)		(60,058	)		—			(192,694	)

Ending balances		1,105,869			963,296			157,231			1,449,062			12,324			3,687,782

Accumulated depreciation
Beginning balances		—			108,723			48,164			533,675			—			690,562
Depreciation expense		—			20,583			40,594			326,248			—			387,425
Increase due to merger		—			12,976			2,786			160,380			—			176,142
Disposal		—			(179	)		(736	)		(57,013	)		—			(57,928	)

Ending balances		—			142,103			90,808			963,290			—			1,196,201

Impairment		—			22,228			—			—			—			22,228

Book Value	(Won)	1,105,869		(Won)	798,965		(Won)	66,423		(Won)	485,772		(Won)	12,324		(Won)	2,469,353

Tangible assets covered by insurance policies as of December 31, 2003 are as follows:


*(in millions of Won)*	Amount Insured		Insurance Company	Type of Insurance
Buildings and structures	(Won)	655,890	Samsung Fire & Marine Insurance Co., Ltd	General property insurance
Leasehold improvement		52,612	Samsung Fire & Marine Insurance Co., Ltd	General property insurance
Equipment and vehicles		274,671	Samsung Fire & Marine Insurance Co., Ltd	General property insurance
Construction in-progress		9,860	Samsung Fire & Marine Insurance Co., Ltd	General property insurance

	(Won)	993,033

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Movements in intangible assets for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Goodwill		Development Costs		Rights to Income on Donated Asset		Store Possessory Right		Trademarks		Others		Total
Beginning balances	(Won)	613,705	(Won)	—	(Won)	110	(Won)	161	(Won)	11	(Won)	470	(Won)	614,457
Acquisition		—		—		—		—		96		609		705
Increase due to merger		—		13,634		—		—		62		—		13,696
Amortization		78,345		872		8		22		19		165		79,431

Ending balances	(Won)	535,360	(Won)	12,762	(Won)	102	(Won)	139	(Won)	150	(Won)	914	(Won)	549,427

The Bank recorded (Won)106,844 million and (Won)158,895 million of current development costs under general and administrative expenses for the years ended December 31, 2003 and 2002.

The total government-posted prices of land, used for tax imposition and compensation for confiscation, as of December 31, 2003 and 2002 are as follows:


*(in millions of Won)*	2003				2002
	Book Value		Appraisal Value		Book Value		Appraisal Value
Lands included in tangible assets	(Won)	1,105,869	(Won)	986,382	(Won)	1,175,681	(Won)	986,885
Lands included in foreclosed assets		1,315		591		1,923		931

	(Won)	1,107,184	(Won)	986,973	(Won)	1,177,604	(Won)	987,816

8. Other Assets

Other assets as of December 31, 2003 and 2002 are as follows:


*(in millions of Won)*	2003		2002
Guarantee deposits paid	(Won)	1,336,639	(Won)	1,235,362
Accounts receivable		1,715,100		1,877,645
Accrued income		1,080,057		981,141
Payments in advance		92,217		48,390
Prepaid expenses		307,154		12,646
Deferred tax assets (Note 25)		552,133		170,624
Derivative assets (Note 15)		751,252		660,791
Unsettled domestic exchange assets		612,592		1,087,587
Loans to trust accounts		—		37,882
Others		36,592		23,490

	(Won)	6,483,736	(Won)	6,135,558

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

9. Deposits

Deposits as of December 31, 2003 and 2002 are as follows:


*(in millions of Won)*	Annual interest (%) December 31, 2003	2003		2002
Deposits in Won
Demand deposits
- Checking deposits	—	(Won)	125,533	(Won)	134,222
- Household checking deposits	0.10		476,132		469,866
- Passbook deposits	0.10		10,001,043		8,586,219
- Temporary deposits	—		3,292,770		3,577,243
- Public fund deposits	0.10		190,593		207,695
- Others	0.10		24,218		12,497

			14,110,289		12,987,742

Time deposits and savings deposits
- Time deposits	2.90 - 4.40		62,247,870		58,187,286
- Installment savings deposits	3.60 - 4.30		1,306,793		1,422,532
- Property formation savings	8.50		1,870		2,221
- Time and savings deposits of non-residents in Won	2.90 - 4.40		340,388		151,124
- General savings deposits	0.10 - 3.30		21,644,066		21,346,223
- Corporate free savings deposits	0.10 - 3.20		7,800,122		6,556,979
- Long-term savings deposits for workers	8.79		69,031		297,272
- Long-term housing savings deposits	5.00		983,684		538,782
- Long-term savings for households	4.89		494,606		2,250,457
- Worker’s preferential savings deposits	5.35		2,728,236		2,877,467
- Worker’s savings for housing	2.50		81		79
- Mutual installment deposits	3.20 - 4.50		7,054,752		7,491,115
- Mutual installment for housing	2.95 - 4.30		5,423,853		4,872,637

			110,095,352		105,994,174

			124,205,641		118,981,916

Deposits in foreign currencies
Demand deposits
- Checking deposits	0.00 - 1.32		40,778		29,629
- Passbook deposits	0.08 - 0.11		787,798		549,646
- Notice deposits	0.00 - 0.22		410		2,725
- Temporary deposits	—		1,049		3,796

			830,035		585,796

Time deposits and savings deposits
- Time deposits	0.16 - 1.57		642,039		496,359
- Others	0.00 - 4.45		3,299		1,493

			645,338		497,852

			1,475,373		1,083,648

Certificates of deposit	3.45 - 3.95		6,499,258		3,044,089

		(Won)	132,180,272	(Won)	123,109,653

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

The maturities of deposits as of December 31, 2003 are as follows:


*(in millions of Won)*	Deposits in Won		Deposits in foreign currencies		Certificates of deposit		Total
Due in 3 months or less	(Won)	68,329,205	(Won)	1,241,166	(Won)	4,011,260	(Won)	73,581,631
Due after 3 months through 6 months		13,002,110		123,327		1,634,701		14,760,138
Due after 6 months through 1 year		31,128,277		61,249		853,297		32,042,823
Due after 1 year through 2 years		7,566,819		47,095		—		7,613,914
Due after 2 years through 3 years		2,832,771		2,463		—		2,835,234
Due after 3 years through 4 years		483,407		73		—		483,480
Due after 4 years through 5 years		298,259		—		—		298,259
Thereafter		564,793		—		—		564,793

	(Won)	124,205,641	(Won)	1,475,373	(Won)	6,499,258	(Won)	132,180,272

10. Borrowings

Borrowings as of December 31, 2003 and 2002 are as follows:


*(in millions of Won)*	Annual Interest (%) December 31, 2003	2003		2002
Borrowings in Won
Borrowings from the Bank of Korea	2.50	(Won)	992,433	(Won)	671,854
Borrowings from the government	0.00 - 8.00		920,589		1,056,480
Borrowings from banking institutions	3.54 - 8.55		253,822		318,702
Borrowings from National Housing Fund	8.00		8,553		9,192
Borrowings from other financial institutions	2.00 - 5.00		5,688		6,211
Other borrowings	2.00 - 7.00		1,173,284		1,129,305

			3,354,369		3,191,744

Borrowings in foreign currencies
Due to banks	—		189,976		528,991
Borrowings from domestic banks	0.09 - 7.40		2,360,652		1,875,119
Borrowings from other financial institutions	5.13		19,486		23,092
Borrowings from foreign banks	—		752,803		981,328

			3,322,917		3,408,530

Bonds sold under repurchase agreements
In Won	2.50 - 4.10		3,613,505		3,050,179
In foreign currencies	1.54		9,651		23,982

			3,623,156		3,074,161

Bills sold	3.40 - 3.85		44,239		72,860

Due to the Bank of Korea in foreign currencies	—		12,608		37,493

Call money
In Won	3.25 - 3.40		55,800		829,300
In foreign currencies	0.88 - 5.15		193,700		76,666
Inter-bank borrowings	—		296,011		—

			545,511		905,966

		(Won)	10,902,800	(Won)	10,690,754

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

The maturities of borrowings as of December 31, 2003 are as follows:


*(in millions of Won)*	Borrowings in Won		Borrowings in Foreign Currencies		Others		Total
Due in 3 months or less	(Won)	1,178,738	(Won)	429,162	(Won)	2,372,717	(Won)	3,980,617
Due after 3 months through 6 months		149,891		1,264,287		762,272		2,176,450
Due after 6 months through 1 year		203,153		861,126		1,080,874		2,145,153
Due after 1 year through 2 years		409,384		417,546		9,651		836,581
Due after 2 years through 3 years		372,400		256,541		—		628,941
Due after 3 years through 4 years		304,801		—		—		304,801
Due after 3 years through 4 years		254,063		50,773		—		304,836
Thereafter		481,939		43,482		—		525,421

	(Won)	3,354,369	(Won)	3,322,917	(Won)	4,225,514	(Won)	10,902,800

11. Debentures

Debentures as of December 31, 2003 and 2002 are as follows:


*(in millions of Won)*		Annual Interest (%) December 31, 2003	2003			2002
In Won	Hybrid debentures	6.00 - 7.00	(Won)	903,668		(Won)	—
	Subordinated fixed rate debentures	6.07 - 15.66		4,896,072			4,753,285
	Fixed rate debentures	2.25 - 8.15		3,970,000			—
	Floating rates debentures	3.92 - 8.71		8,609,663			12,269,023

				18,379,403			17,022,308
	Discounts on debentures			(83,443	)		(270,924	)

				18,295,960			16,751,384

In foreign currencies	Floating rates debentures	0.60 - 1.99		196,211			350,589
	Fixed rates debentures	1.08 - 4.63		613,549			438,538
		1.82 - 1.92		78,695			—

				888,455			789,127
	Premiums on debentures			9,639			—
	Discounts on debentures			(1,473	)		(1,504	)

				896,621			787,623

			(Won)	19,192,581		(Won)	17,539,007

¹*	The hybrid debenture are perpetual type debts in which the Bank retains the early redemption option after 5 years from issuance date and the term extending option on maturity date. Hybrid debentures are senior to common stock but subordinated to other subordinated debentures.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

As of December 31, 2003, subordinated debentures and hybrid debentures comprise the following:


*(In hundred millions of Won)*
Type	Issue date	Amount		Annual interest (%)	Maturity
Subordinated fixed rate debentures	97.12.29 - 98.8.27	(Won)	2,653	15.02 - 16.00	03.01.27 - 09.11.15
	2000.03.27		2,000	9.65	2005.03.27
”	2000.06.28		2,540	9.04 - 9.10	2006.01.28
”	2000.09.27		3,000	8.99	2006.01.27
”	2000.09.28		1,500	8.79 - 8.85	2006.01.28
”	2000.11.28		1,000	8.65 - 8.71	2006.02.28
”	2000.11.28		1,620	9.57 - 9.65	2010.11.28
”	2000.12.27		2,000	8.71	2006.01.27
”	2001.05.28		2,000	7.60 - 7.65	2007.02.28
”	2001.06.27		1,600	7.68	2008.03.27
”	2001.06.27		2,175	7.86	2009.03.27
”	2001.08.28		1,000	6.69 - 6.73	2007.08.28
”	2001.09.28		1,500	6.69 - 6.73	2008.03.28
”	2002.03.27		2,417	7.06 - 7.10	2008.01.27
”	2002.07.27		3,024	6.96 - 7.00	2008.01.27
”	2002.09.27		2,574	6.27 - 6.30	2008.03.27
”	2002.09.27		1,500	6.51 - 6.55	2010.03.27
”	2002.09.27		926	6.66 - 6.70	2013.03.27
”	2002.11.27		4,007	6.07 - 6.10	2008.05.27
”	2002.11.27		578	6.27 - 6.30	2010.05.27
”	2002.11.27		1,003	6.51 - 6.55	2013.05.27
”	2002.12.18		1,100	8.00	2008.01.18
”	2002.12.27		304	6.55	2014.12.27
”	2002.12.27		100	6.20	2008.06.27
”	2002.12.27		900	6.40	2010.06.27
”	2002.12.27		500	6.65	2013.06.27
”	2003.01.21		500	7.65	2008.02.21
”	2003.03.10		450	7.10	2008.04.10
”	2003.10.27		3,565	5.18 - 5.20	2009.01.27
”	2003.10.27		888	5.33 - 5.35	2011.01.27
”	2003.10.27		37	5.58 -5.60	2014.01.27

			48,961

Hybrid debentures	2003.06.27		1,051	6.00	2033.06.27
”	2003.08.27		5,334	7.00	2033.08.27
”	2003.10.27		2,652	6.80	2033.10.27

			9,037

		(Won)	57,998

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

The maturities of debentures as of December 31, 2003 are as follows:


*(in millions of Won)*	Won		Foreign currencies		Total
Due in 3 months or less	(Won)	4,441,531	(Won)	—	(Won)	4,441,531
Due after 3 months through 6 months		1,825,241		85,044		1,910,285
Due after 6 months through 1 year		3,956,555		80,566		4,037,121
Due after 1 year through 2 years		2,078,640		87,627		2,166,267
Due after 2 years through 3 years		1,327,851		—		1,327,851
Due after 3 years through 4 years		374,712		597,377		972,089
Due after 4 years through 5 years		2,049,213		37,841		2,087,054
Thereafter		2,325,660		—		2,325,660

	(Won)	18,379,403	(Won)	888,455	(Won)	19,267,858

12. Accrued Retirement Benefits

The movements in accrued retirement benefits for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Beginning Balance			Amounts Provided			Amounts Paid Out		Increase Due to Merger			Ending Balance
Accrued retirement benefits	(Won)	42,773		(Won)	43,417		(Won)	18,637	(Won)	3,530		(Won)	71,083
Contributed retirement benefits		88,682			66,349			—		8,318			163,349

Total accrued retirement benefits		131,455			109,766			18,637		11,848			234,432
Contribution to pension funds		(88,682	)		(66,349	)		—		(8,318	)		(163,349	)

	(Won)	42,773		(Won)	43,417		(Won)	18,637	(Won)	3,530		(Won)	71,083

As of December 31, 2003, approximately 69.68 percent of total accrued retirement benefits are contributed to pension funds, to which the Bank’s employees hold the right of payment, placed at two insurance companies, including Korea Life Insurance Co., Ltd.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

13. Other Liabilities

Other liabilities as of December 31, 2003 and 2002 are as follows:


*(in millions of Won)*
Account	2003		2002
Accrued retirement benefits (Note 12)	(Won)	71,083	(Won)	42,773
Allowance for losses on guarantees and acceptances (Note 14)		1,074		2,287
Due to trust accounts		3,983,295		734,646
Accounts payable		1,886,446		1,868,692
Accrued expenses		4,418,940		4,656,225
Advances from customers		109,675		48,745
Unearned income		130,778		147,623
Withholding taxes		123,455		85,841
Guarantee deposits received		120,437		112,732
Derivative liabilities (Note 15)		686,271		522,286
Unsettled domestic exchange liabilities		400,445		541,757
Accounts for agency business		337,624		395,678
Other allowances¹		647,393		48,876
Liabilities incurred by agency relationship		315,241		486,413
Others		130,182		90,224

	(Won)	13,362,339	(Won)	9,784,798

¹*	Other allowances are as follows:


*(in millions of Won)*
Allowances for	Amounts		Remarks
Suspense receivables	(Won)	7,249	Allowances for frauds/accidents and litigation fee
Loss on branch closure		287	Allowances for closure of the Buenos Aires branch
Uncollected leasehold deposits		8,854	Allowances for uncollected leasehold deposits
Credit card receivables		33,105	Allowances for unused cash advance credit lines
Mileage rewards		37,938	Allowances for mileage on credit cards and currency exchange rates
Claimed assets		27,291	Allowances for credit card claimed assets
Credit commitments to SPC		141,175	Allowances for the credit line commitment to SPC (Note 16)
Securitization allowances		19,284	Allowances for repurchase obligations from asset securitization (Note 16)
KAMCO loans sold		589	Allowances for loans under repurchase agreements to KAMCO (Note 16)
Supplementary payments for income taxes		142,021	Allowances for supplementary payments for income taxes (Note 16)
Others		229,600

	(Won)	647,393

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

14. Guarantees and Acceptances

Guarantees and acceptances as of December 31, 2003 and 2002 are summarized as follows:


*(in millions of Won)*
	2003		2002
Guarantees and acceptances outstanding in
Won
Guarantees on debentures	(Won)	541	(Won)	571
Guarantees on loan collateral		34,112		39,234
Guarantees on commercial bills		—		646
Others		235,843		248,457

		270,496		288,908

Foreign Currencies
Acceptances on letters of credit		134,888		190,775
Acceptances for letters of guarantee for importers		88,743		111,016
Guarantees for performance of contracts		16,689		71,577
Guarantees for bids		1,067		1,077
Guarantees for borrowings		37,843		31,055
Guarantees for repayment of advances		10,004		25,707
Others		240,567		311,583

		529,801		742,790

		800,297		1,031,698

Contingent guarantees and acceptances
Letters of credit		1,200,228		1,243,354
Others		81,290		63,524

		1,281,518		1,306,878

	(Won)	2,081,815	(Won)	2,338,576

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

As of December 31, 2003, the allowances for losses on guarantees and acceptances outstanding according to credit risk classifications are as follows:


*(in millions of Won)*
		Normal		Precautionary		Sub-standard		Doubtful		Estimated loss		Total
Guarantees and Acceptances Outstanding in
Won	Balance	(Won)	252,130	(Won)	18,106	(Won)	80	(Won)	—	(Won)	180	(Won)	270,496
	Allowance		—		—		16		—		180		196

	Ratio (%)		—		—		20.00		—		100.00		0.07

Foreign currencies	Balance		462,396		66,333		300		654		118		529,801
	Allowance		—		314		119		327		118		878

	Ratio (%)		—		0.47		39.67		50.00		100.00		0.17

Total	Balance	(Won)	714,526	(Won)	84,439	(Won)	380	(Won)	654	(Won)	298	(Won)	800,297
	Allowance		—		314		135		327		298		1,074

	Ratio (%)		—		0.37		35.53		50.00		100.00		0.13

For the years ended December 31, 2003 and 2002, the changes in allowances for losses on guarantees and acceptances outstanding are as follows:


*(in millions of Won)*	2003			2002
Beginning balance	(Won)	2,287		(Won)	43,823
Reversal of losses from guarantees and acceptances		(1,209	)		(37,436	)
Changes in foreign exchange rates		(4	)		(4,100	)

Ending balance	(Won)	1,074		(Won)	2,287

The allowance ratios for guarantees and acceptances outstanding as of December 31, 2003, 2002 and 2001 are as follows:


*(in millions of Won)*	2003		2002		2001
Guarantees and acceptances outstanding	(Won)	800,297	(Won)	1,031,698	(Won)	3,521,970
Allowance		1,074		2,287		43,823

Ratio (%)		0.13		0.22		1.24

The guarantees and acceptances risk concentration by country as of December 31, 2003 are as follows:


*(in millions of Won)*	Guarantees and Acceptances Outstanding			Contingent Guarantees and Acceptances			Total
	Balance		Percentage (%)	Balance		Percentage (%)	Balance		Percentage (%)
Korea	(Won)	739,249	92.37	(Won)	1,280,941	99.95	(Won)	2,020,190	97.04
USA		61,048	7.63		577	0.05		61,625	2.96

	(Won)	800,297	100.00	(Won)	1,281,518	100.00	(Won)	2,081,815	100.00

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

The guarantees and acceptances risk concentration by industry and customer as of December 31, 2003 are as follows:


*(in millions of Won)*	Guarantees and Acceptances Outstanding			Contingent Guarantees and Acceptances			Total
	Balance		Percentage (%)	Balance		Percentage (%)	Balance		Percentage (%)
Manufacturing	(Won)	279,431	34.92	(Won)	726,023	56.65	(Won)	1,005,454	48.30
Service		436,908	54.59		477,938	37.29		914,846	43.94
Finance		56,912	7.11		472	0.04		57,384	2.76
Others		27,046	3.38		77,085	6.02		104,131	5.00

	(Won)	800,297	100.00	(Won)	1,281,518	100.00	(Won)	2,081,815	100.00

15. Derivatives

The Bank’s derivative instruments are divided between hedge derivatives and trading derivatives based on the purpose of the transaction. The Bank enters into hedge transactions mainly for purposes of hedging fair value risks related to its assets and liabilities.

Trading derivatives include future contracts, forward contracts, swaps, and options entered into by the Bank to meet the financing needs of its customers and to gain profit from arbitrage transactions between customers and other banks. The Bank also uses derivative instruments in managing its own trading and asset-liability management exposures to fluctuations in interest rates and foreign exchange risks.

Hedge derivatives mainly comprise of interest rate swaps to hedge the fair value changes of debentures arising from the interest rate fluctuations. Some hedging transactions do not qualify for hedge accounting and are thus accounted for as trading derivatives. These transactions include the hedge relationships where the hedged item is an asset or liability that is re-measured with the changes in fair value attributable to the hedged risk reported in current operations or where the hedged item cannot be specifically identified.

The notional amounts outstanding for derivative contracts as of December 31, 2003 as follows:


*(in millions of Won)*	2003						2002
	Trading		Hedge		Total		Trading		Hedge		Total
Interest related
-Future	(Won)	519,665	(Won)	—	(Won)	519,665	(Won)	365,513	(Won)	—	(Won)	365,513
-Swap		26,773,100		598,900		27,372,000		15,944,472		360,120		16,304,592
-Option		2,340,000		—		2,340,000		310,700		—		310,700

		29,632,765		598,900		30,231,665		16,620,685		360,120		16,980,805

Currency related
-Forward		25,870,850		—		25,870,850		13,186,586		—		13,186,586
-Future		967,823		—		967,823		739,386		—		739,386
-Swap		4,136,776		—		4,136,776		3,254,755		—		3,254,755
-Option bought		28,148		—		28,148		48,616		—		48,616
-Option sold		81,450		—		81,450		127,863		—		127,863

		31,085,047		—		31,085,047		17,357,206		—		17,357,206

Stock related
-Option bought		1,964,870		—		1,964,870		137,147		—		137,147
-Option sold		1,954,093		—		1,954,093		100,000		—		100,000

		3,918,963		—		3,918,963		237,147		—		237,147

	(Won)	64,636,775	(Won)	598,900	(Won)	65,235,675	(Won)	34,215,038	(Won)	360,120	(Won)	34,575,158

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Gains and losses on derivatives as of and for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Amount
Gain on derivatives
Gain on derivatives transactions	(Won)	1,131,711
Gain on valuation of derivatives		400,397
Gain on fair value hedged items		10,715

	(Won)	1,542,823

Loss on derivatives
Loss on derivatives transactions	(Won)	1,053,990
Loss on valuation of derivatives		419,185
Loss on fair value hedged items		—

	(Won)	1,473,175

Gains and losses on derivatives as of and for the year ended December 31, 2003 are as follows:


	Valuation Gains (P/L)						Valuation Losses (P/L)						Fair Value (B/S)
	Trading		Hedge		Total		Trading		Hedge		Total		Asset		Liability
Interest related
-Option	(Won)	2,982	(Won)	—	(Won)	2,982	(Won)	10,178	(Won)	—	(Won)	10,178	(Won)	6,487	(Won)	13,942
-Swap		97,875		—		97,875		81,785		10,715		92,500		142,201		228,885

		100,857		—		100,857		91,963		10,715		102,678		148,688		242,827

Currency related
-Forward		149,056		—		149,056		156,773		—		156,773		152,104		178,064
-Option bought		94		—		94		—		—		—		94		—
-Option sold		358		—		358		581		—		581		130		615
-Swap		31,005		—		31,005		50,423		—		50,423		258,136		82,827

		180,513		—		180,513		207,777		—		207,777		410,464		261,506

Stock related
-Option bought		105,536		—		105,536		15,184		—		15,184		192,100		—
-Option sold		13,491		—		13,491		93,546		—		93,546		—		181,938

		119,027		—		119,027		108,730		—		108,730		192,100		181,938

	(Won)	400,397	(Won)	—	(Won)	400,397	(Won)	408,470	(Won)	10,715	(Won)	419,185	(Won)	751,252	(Won)	686,271

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

16. Commitments and Contingencies

As of December 31, 2003, 235 pending legal actions with an aggregate amount of damages of (Won)138,367 million are charged against the Bank and the Bank had also filed 176 lawsuits, which are still pending with an aggregate amount of claims of (Won)203,760 million. Management believes that the actions against the Bank are without merit and that the ultimate liability, if any, will not materially affect the Bank’s financial position.

Details of the material legal actions charged against the Bank are as follows:


			Results
	Exposure to possible loss		1^st trial	2^nd trial	3^rd trial
Details
Cancellation of a registered mortgage (3 cases)	(Won)	30,822	in progress
Claim for return of trust accounts		11,474	in progress
Confirmation of obligations		7,148	closed ¹*	closed¹*	in progress
Transfer of Kookmin Mutual Savings & Finance Co., Ltd		5,000	in progress
Claim related to deposits		4,026	in progress
Claim for return of unfair gains		3,912	closed ¹*	in progress
Claim related to loans		2,883	closed ²*	in progress

¹*	The Bank (partially) won the case.

²*	The Bank partially lost the case.

The Bank, under the Mutual Savings & Finance Company Act, is liable for the payment of the deposits of Orange Mutual Savings & Finance Co., Ltd. (previously, Kookmin Mutual Savings & Finance Co., Ltd.) and Hansol Mutual Savings & Finance Co., Ltd. (previously, Bukook Mutual Savings & Finance Co., Ltd.), previously the Bank’s subsidiaries but were sold during 1999, if they enter into bankruptcy within three years of sale. Orange Mutual Savings & Finance Co., Ltd. is currently undergoing bankruptcy procedures due to the disapproval of its business by the Financial Supervisory Commission. Korea Deposit Insurance Corporation (KDIC) has paid for the deposit money subject to the Depositor Protection Act. As of December 31, 2003, despite the fact that Resolution and Finance Corp. (a subsidiary of KDIC) has filed a lawsuit against the Bank for the recovery of the repayment, such lawsuit is not expected to cause losses that would materially affect the Bank’s financial position.

The Bank has entered into commitments to provide a credit line of (Won)5,628,000 million, and to purchase commercial paper amounting to (Won)1,334,000 million, with asset securitization companies. Under these commitments, the Bank provides money, in case of a temporary fund shortage, for the principal and interest repayment of these companies’ senior bonds and subordinated bonds within the contracted term and amounts. Commitments to provide a credit line and to purchase commercial paper with a 1-year term amounted to (Won)123,500 million, (Won)1,000,000 million, respectively.

As of December 31, 2003, loans outstanding under the credit line commitment amounted to (Won)38,898 million, and the balance for commercial papers purchased under the purchase commitment amounted to (Won)10,600 million . The Bank has arranged various methods to compensate for losses on these credit line commitments including payment guarantees, repurchase contracts, surety certificate guarantees, and cash reserves. As of December 31, 2003, the Bank provided (Won)141,175 million in other allowances for its expected losses related to these commitments.

Pursuant to its asset securitization plans, the Bank has an outstanding obligation to repurchase and/or indemnify for losses on the loans sold to Jooeun 2nd-ABS Specialty Co., Ltd. and Kookmin Credit Card 14th-ABS Specialty Co., Ltd. (collectively, “the SPEs”) with a ceiling of (Won)36,957 million and (Won)20,163 million, respectively. As of December 31, 2003, the Bank provided (Won)19,284 million in other allowances for its expected losses related to these commitments.

As of December 31, 2003, post settlements on the loan sales transaction with Korea Asset Management Corporation (“KAMCO”) have been completed and the Bank has provided allowances of (Won)589 million for losses from possible future repurchase of loans from KAMCO under the repurchase agreement on loans amounting (Won)3,192 million.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

The Bank has an off-shore loan commitment, limited to USD 23,385 thousand, and the loan balance under the commitment as of December 31, 2003 is USD 12,195 thousand.

Tax investigations of the Bank by the National Tax Administration for the fiscal years 1998, 1999, 2000 and 2001 are in process, but as of March 3, 2004, the results have not been notified. Based on estimations, the Bank provided (Won)142,021 million as allowance for supplementary payments for income taxes.

As of December 31, 2003, the Bank holds the unexpired rights to claim from borrowers or guarantors for loans, in accordance with the relevant law, which have already been written off, amounting to (Won)4,446,110 million. Also, as of December 31, 2003, the Bank holds endorsed bills amounting to (Won)6,385 million.

As of December 31, 2003, the Bank recorded receivables amounting to (Won)1,588,996 million and payables amounting to (Won)1,558,798 million for unsettled foreign currency spot transactions.

The Bank entered into on alliance with Koram Bank, Woori Credit Card, Citibank, The Fisheries Cooperative Union and Nonghyup for the operation of a credit card business. Accordingly, the Bank shares the related revenue from such operation.

As of December 31, 2003, the Bank has provided three blank notes to financial institutions including Korea Securities Finance Corporation as collateral for borrowings and etc.

In accordance with the agreement with the creditors’ committee of LG Card Co., Ltd. on November 24, 2003, the Bank provided additional loans of (Won)437.0 billion to LG Card Co., Ltd., which is currently experiencing liquidity crisis. Also, on January 9, 2004, the Bank has agreed to a debt-equity swap of (Won)312.7 billion, to provide additional loans of (Won)205.9 billion (to be included in the debt-equity swap), and to extend the maturity of loans that will mature in 2004. As of December 31, 2003, the Bank’s total exposure related to LG Card Co., Ltd. includes loans, debt securities and customer financing amounting to (Won)487.0 billion, (Won)26.8 billion and (Won)75.3 billion, respectively. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying financial statements.

In common with certain other Asian countries, the economic environment in the Republic of Korea continues to be volatile. In addition, the Korean government and the private sector continue to implement structural reforms to historical business practices including corporate governance. The Bank may be either directly or indirectly affected by these volatile economic conditions and the reform program described above. The accompanying financial statements reflect management’s assessment of the impact to date of the economic environment on the financial position and results of operations of the Bank. Actual results may differ materially from management’s current assessment.

As of December 31, 2003, the Bank’s total exposure (including debt securities, beneficiary certificates, and loans) related to domestic credit card companies and capital companies amounts to (Won)2,055,663 million. Currently, securities related to credit card companies and capital companies, which are experiencing liquidity problems, are not widely traded in the bond market. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying financial statements.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

17. Capital

As of December 31, 2003, the Bank has 1,000,000,000 common shares (par value per share: (Won)5,000) authorized and 336,379,116 shares issued. ING Insurance International B.V. own 3.78 percent of the total issued shares. As of December 31, 2003, 35,000,566 common shares, equivalent to 10.40 percent of the total issued shares, are listed on the New York Stock Exchange as ADSs and are managed by the Bank of New York, the trustee of the Bank.

As a result of the legal consolidation with H&CB, the shareholders of the Bank and H&CB, listed on the Register of Shareholders at October 31, 2001, received 179,775,233 new shares and 119,922,229 new shares of the Bank, respectively, at the exchange ratio of one new common share of the Bank for 1.688346 old shares of the Bank and 1 share of H&CB, respectively. The new shares of the Bank were relisted on the Korea Stock Exchange as of November 9, 2001. In addition, the Bank issued 8,120,431 shares as a result of the merger with Kookmin Credit Card Co., Ltd.

Under the General Banking Act, if a single entity, other than the government or a foreign investor, owns more than 4 percent of total outstanding voting shares, the entity’s voting rights are limited to those of 4 percent shareholders.

The Bank is authorized to issue to non-shareholders convertible bonds and bonds with stock purchase warrants up to total par value amounts of (Won)2,500 billion and (Won)500 billion, respectively.

18. Capital Surplus

The movements in capital surplus for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Beginning Balance		Changes			Ending Balance
Paid-in capital in excess of par value	(Won)	5,287,708	(Won)	368,132		(Won)	5,655,840
Gain on business combination		397,669		—			397,669
Revaluation increment		177,229		—			177,229
Others		2,146		(2,146	)		—

	(Won)	5,864,752	(Won)	365,986		(Won)	6,230,738

The increase in paid-in capital in excess of par value is the difference between the net asset value of Kookmin Credit Card Co., Ltd. and the total par value of the shares issued by the Bank for the merger with Kookmin Credit Card Co., Ltd.

The gain on business combination is due to the difference between the business combination consideration and the net asset value acquired from the merger with KLB on December 31, 1998, and the current period change in other capital surplus is due to the loss on disposal of treasury stock.

19. Retained Earnings

The General Banking Act requires the Bank to appropriate as a legal reserve a minimum of 10 percent of annual net income until the legal reserve equals paid in capital. This reserve is not available for payment of cash dividends but may be transferred to capital stock by an appropriate resolution by the Bank’s Board of Directors or used to reduce accumulated deficit, if any, by an appropriate resolution of the Bank’s shareholders.

Under the guidance provided by Financial Supervisory Services, the Company is required to appropriate, as a reserve for improvement of financial structure, a minimum of 10 percent of its annual income less carried over accumulated deficits, until its capital adequacy ratio equals 5.5 percent. As of December 31, 2003, the Bank has no reserve for improvement of financial structure.

Pursuant to the Tax Exemption and Reduction Control Law, the Bank was previously required to appropriate, as a reserve for business rationalization, amounts equal to tax reductions arising from tax exemptions and tax credits up to December 31, 2001. However, as of January 1, 2002, the requirement is no longer effective.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

The Bank, at its own options, also appropriated a portion of retained earnings as other reserves for the operations of overseas branches.

There were no dividends declared for the year ended December 31, 2003, while for the year ended December 31, 2002, cash dividends were declared as follows:


		2002
Shares outstanding		328,258,685
Treasury stock		3,026,089

Shares entitled to dividends		325,232,596

Dividend rate(%)		20.00

Dividend amount (unit:millions of Won)		325,233

Dividend payout ratio(%)		24.82
Dividend profit ratio(%)		2.38

A deduction amounting to (Won)1,917 million has been made from the beginning balance of retained earnings in connection with the accounting for investments under the equity method,

20. Capital Adjustments

The movements in capital adjustments for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Beginning Balance			Increase			Decrease			Ending Balance
Treasury stock	(Won)	(148,973	)	(Won)	(1,227,876	)	(Won)	(48,537	)	(Won)	(1,328,312	)
Unrealized gain on available-for-sale securities		180,449			87,488			129,950			137,987
Unrealized gain on investment in associates		94,773			9,723			99,872			4,624
Stock options		—			26,211			—			26,211
Loss on disposal of treasury stock		—			(749	)		—			(749	)

	(Won)	126,249		(Won)	(1,105,203	)	(Won)	181,285		(Won)	(1,160,239	)

The Bank, with the approval of the Board of Directors on July 26, 2002, established an employee stock option plan for the welfare of the employees and purchased 3,000,000 shares of treasury stock under the plan. During the year ended December 31, 2003, the Bank contributed 1,000,000 shares to the Employee Stock Ownership Association.

In accordance with the resolution made by the Board of Directors on December 26, 2003, the Bank acquired 27,423,761 of its own shares previously owned by the Korean government at (Won)43,700 per share through public bidding and intends to sell these shares depending on certain market conditions. As a result of the acquisition, the Bank holds 8.92 percent of the total common stock issued as treasury stock.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

21. Employee Stock Options

As of December 31, 2003, the stock options granted to the Bank’s executives and chief executive officer are as follows:


Series	Grant Date	Shares Granted	Shares Expired to Date	Shares Exercised	Shares Outstanding	Exercise Price		Exercise Period
Series 1	00.03.18	233,940	121,411	10,183	102,346	(Won)	23,469	03.03.19 - 05.03.18
Series 2	01.03.15	214,975	16,882	—	198,093		28,027	04.03.16 - 09.03.15
Series 3	98.10.31	400,000	—	390,000	10,000		5,000	01.11.01 - 04.10.31
Series 4	99.02.27	280,000	59,892	220,108	—		13,900	02.02.28 - 05.02.27
Series 5	00.02.28	267,000	65,218	11,100	190,682		27,600	03.03.01 - 06.02.28
Series 6	01.03.24	111,000	38,624	—	72,376		25,100	04.03.25 - 07.03.24
Series 7¹²	01.11.16	850,000	—	—	850,000		51,200	04.11.17 - 09.11.16
Series 8-1²*	02.03.22	132,000	89,753	—	42,247		57,100	05.03.23 - 10.03.22
Series 8-1³*	02.03.22	490,000	119,326	—	370,674		57,100	05.03.23 - 10.03.22
Series 9³*	02.07.26	30,000	—	—	30,000		58,800	05.07.27 - 10.07.26
Series 10-1²*	03.03.21	140,000	—	—	140,000		41,200	06.03.22 - 11.03.21
Series 10-1³*	03.03.21	180,000	—	—	180,000		35,500	06.03.22 - 11.03.21
Series 11³*	03.08.27	30,000	—	—	30,000		40,500	06.08.28 - 11.08.27
Increase due to merger-1⁴*	01.03.22	22,146	—	—	22,146		71,538	04.03.23 - 11.03.22
Increase due to merger-2²⁴	02.03.29	9,990	—	—	9,990		129,100	04.03.30 - 11.03.29

¹*	The stock options include the 200,000 shares which are to be additionally granted if the three-month weighted average stock price of the Bank prior to the beginning of the exercise date is higher than that of any other listed banks and the Bank achieves total market value and ROE target.

²*	The exercise price may be affected by the fluctuations in the stock price index of the banking industry.

³*	The number of shares to be granted will be determined by the results of the evaluation of the grantees after 3 years from grant date. Shares granted are calculated under the assumption that the grantees performed well on their evaluation.

⁴*	The Bank took over stock options which Kookmin Credit Card Co., Ltd. granted to its employees in proportion to the share exchange rate.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Compensation costs for stock options granted to employees and executives are recognized on the basis of fair value. Assumptions used under the fair value basis method are summarized as follows:


Series	Stock price as of grant date (Won)		Risk free interest rate ¹* (%)	Expected exercise period (years) ²*	Volatility of underlying stock price ³*(%)	Expected dividend rate ⁴* (%)	Compensation cost (Won)
Series 1	(Won)	21,441	9.32	4.00	71.14	2.25	(Won)	12,638
Series 2		25,156	6.06	5.50	70.30	2.47		15,987
Series 3		5,430	9.74	3.00	59.06	1.14		1,395
Series 4⁵*		33,750	4.74	0.33	73.30	1.93		19,850
Series 5⁵*		33,750	4.74	1.33	73.30	1.93		13,320
Series 6⁵*		33,750	4.74	2.42	73.30	1.93		17,117
Series 7		45,800	4.91	3.00	58.90	—		18,364
Series 8-1		58,000	6.14	3.00	53.56	—		24,496
Series 8-2		58,000	6.14	3.00	53.56	—		24,496
Series 9		53,900	5.73	3.00	43.09	—		17,333
Series 10-1		36,500	4.74	3.00	48.77	—		12,204
Series 10-2		36,500	4.74	3.00	48.77	—		14,073
Series 11		41,100	5.75	3.00	44.48	—		15,098
Increase due to merger-1		27,200	5.17	3.00	46.02	—		8,447
Increase due to merger-2		55,900	6.39	2.00	49.24	20		6,536

¹*	Interest rate of government bond as of grant date.

²*	The average of vesting period and exercise period was applied for series 1 and 2. Vesting period was applied for series 3-11 and stock options succeeded from Kookmin Credit Card Co., Ltd.

³*	Annualized stock volatility for the past one-year period before the grant date was applied for series 1-2, and the average of stock volatility of banking industries and the Bank were applied for series 3-11 and stock options succeeded from Kookmin Credit Card Co., Ltd

⁴*	Average historical dividend rate for the past period from grant date that equals the expected exercise period, were assumed.

⁵*	Compensation costs were recalculated to reflect the effects of merger with H&CB.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

The compensation costs to be recognized in the future as of December 31, 2003, are as follows:


	Compensation cost recognized						Compensation cost to be recognized
Series	Prior period compensation cost		Current period compensation cost		Accumulated compensation cost		Within 1 year		More than 1 year to 2 years		More than 2 years to 3 years		Total		Total compensation cost
Series 1	(Won)	1,184	(Won)	109	(Won)	1,293	(Won)	—	(Won)	—	(Won)	—	(Won)	—	(Won)	1,293
Series 2		1,847		1,056		2,903		264		—		—		264		3,167
Series 3		14		—		14		—		—		—		—		14
Series 5		2,399		141		2,540		—		—		—		—		2,540
Series 6		722		414		1,136		103		—		—		103		1,239
Series 7		5,637		5,203		10,840		4,769		—		—		4,769		15,609
Series 8-1		2,270		3,027		5,297		3,027		756		—		3,783		9,080
Series 8-2		259		345		604		345		86		—		431		1,035
Series 9		72		173		245		174		101		—		275		520
Series 10-1		—		633		633		844		844		212		1,900		2,533
Series 10-2		—		427		427		570		570		142		1,282		1,709
Series 11		—		50		50		151		151		101		403		453
Increase due to merger-1		—		172		172		15		—		—		15		187
Increase due to merger-2		—		57		57		8		—		—		8		65

	(Won)	14,404	(Won)	11,807	(Won)	26,211	(Won)	10,270	(Won)	2,508	(Won)	455	(Won)	13,233	(Won)	39,444

As of December 31, 2003, the weighted average exercise price per stock option granted is (Won)43,020 and weighted average compensation cost per stock option granted is (Won)16,887.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

22. Other Non-Interest Income (Expenses)

Other non-interest income (expenses) for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Amount
Other non-interest income
- Realized gain on trading securities	(Won)	119,168
- Unrealized gain on trading securities		70,976
- Gain on trust management		247,639
- Reversal of losses from guarantees and acceptances		1,209
- Gain on valuation of derivatives		400,397
- Others		29,451

	(Won)	868,840

Other non-interest expenses
- Realized loss on trading securities	(Won)	47,269
- Contributions to special funds		178,094
- Provision for allowance		—
- Loss on valuation of derivatives		419,185
- Loss on fair value hedged items		—
- Others		664,332

	(Won)	1,308,880

23. General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Amount
Salaries and wages	(Won)	1,149,816
Retirement benefits (Note 12)		109,766
Other employee benefits		317,550
Rent		65,046
Depreciation		387,425
Amortization		79,431
Taxes and dues		125,717
Advertising		67,317
Ordinary R&D		106,844
Fees and commissions		87,690
Others		207,546

	(Won)	2,704,148

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

24. Non-Operating Income (Expenses)

Non-operating income (expenses) for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Amount
Non-operating income
- Gain on disposal of fixed assets	(Won)	2,229
- Rent income		2,692
- Unrealized gain on investment in associates		267,870
- Realized gain on available-for-sale securities		554,203
- Realized gain on held-to-maturity securities		2,771
- Reversal of impairment loss on available-for-sale securities		75,553
- Gain on sale of loans		60,957
- Others		122,828

		1,089,103

Non-operating expenses
- Loss on disposal of fixed assets		35,287
- Impairment loss on fixed assets		22,228
- Loss on investment in associates		—
- Realized loss on available-for-sale securities		60,210
- Realized loss on held-to-maturity securities		—
- Impairment loss on available-for-sale securities		209,307
- Loss on sale of loans		92,297
- Provision for loan losses due to merger		1,652,264
- Others		240,038

		2,311,631

	(Won)	(1,222,528	)

25. Income Tax Expense

Income tax expense for the years ended December 31, 2003 and 2002 is as follows:


*(in millions of Won)*	2003			2002
Income tax payable	(Won)	23		(Won)	652,583
Deferred income taxes from temporary differences		(226,212	)		(96,258	)
Deferred income taxes from accumulated deficit ¹*		(168,645	)		28,929
Deferred tax credit¹*		(3,951	)		—
Change in temporary differences due to tax adjustments		3,656			—
Retained earnings and other capital surplus adjustments ²*		2,033			(1,927	)

Income tax (benefit) expense	(Won)	(393,096	)	(Won)	583,327

¹*	The Bank recognized a deferred income tax asset because it has incurred a gain before extraordinary gains/losses and income tax since the merger with H&CB.

²*	Income tax effect from the change in retained earnings from the application of equity method on investments and loss on disposal of treasury stock.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

The statutory income tax rate applicable to the Bank, including resident tax surcharges, is 29.7 percent for the years ended December 31, 2002 and 2003. However, due to tax adjustments, the effective tax rate for the years ended December 31, 2002 and 2003 are 39.12 percent and 30.8 percent, respectively. The statutory income tax rate of 29.7 percent is applied for deferred income tax assets (liabilities) that will be realized before 2005 and statutory income tax rate of 27.5 percent is applied for deferred income tax assets (liabilities) that will be realized after 2005 reflecting the 2percent corporate tax rate cut from 2005. The basis for calculating the effective tax rate is as follows:


*(in millions of Won)*	2003			2002
Net income (loss) before income taxes	(Won)	(1,146,444	)	(Won)	1,893,618

Income tax expense based on the effective tax rate		(340,493	)		562,405
Tax effects on adjustments
Adjustments to increase taxable income		97,458			39,625
Adjustments to decrease taxable income		(166,668	)		(18,703	)
Discount effect		16,607			—

Income tax benefit per statements of operations	(Won)	(393,096	)	(Won)	583,327

The significant changes in accumulated temporary differences and deferred income taxes for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Beginning balance			Increase due to merger			Increase			Decrease			Ending balance			Deferred tax asset (liability)
Allowance for loan losses	(Won)	314,081		(Won)	—		(Won)	221,016		(Won)	236,074		(Won)	299,023		(Won)	87,094
Accrued interest		(350,798	)		(60,931	)		(349,915	)		(412,209	)		(349,435	)		(96,095	)
Unrealized loss on securities		602,646			4,456			(175,092	)		(330,256	)		762,266			212,255
Unrealized loss on derivatives		(100,086	)		(3,530	)		(35,045	)		(103,616	)		(35,045	)		(9,637	)
Present value discounts		28,001			—			14,691			27,918			14,774			4,270
Allowance for losses on guarantees and acceptances		5,278			—			1,074			5,278			1,074			295
Accrued severance benefits		—			—			(14,500	)		(14,500	)		—			—
Stock options		10,116			552			26,211			10,668			26,211			7,208
Loss on fair value hedges		—			—			(10,715	)		(9,213	)		(1,502	)		(413	)
Accumulated depreciation		820			—			16,406			8,913			8,313			2,286
Other allowances		48,876			—			505,372			48,876			505,372			144,029
Others		15,559			1,209			99,847			12,144			104,471			28,748
Net operating loss carry-forward		—			—			567,825			—			567,825			168,645

	(Won)	574,493		(Won)	(58,244	)	(Won)	867,175		(Won)	(519,923	)	(Won)	1,903,347		(Won)	548,685

Deferred tax credit																	3,951

																(Won)	552,636

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

26. Earnings (Loss) Per Share

The weighted average number of common shares outstanding for the years ended December 31, 2003 and 2002 are calculated as follows:


	2003		2002
Number of common shares outstanding-beginning balance	330,327,726		318,750,038
Weighted average number of treasury common shares	(4,327,815	)	(963,166	)

Weighted average number of common shares outstanding	325,999,911		317,786,872

Details of the computation of the basic earnings (loss) per share (“EPS”) and basic ordinary income (loss) per share for the years ended December 31, 2003, and 2002 are shown below.


	2003			2002
Net income (loss) (in millions of Won)	(Won)	(753,348	)	(Won)	1,310,291
Weighted average number of common shares outstanding		325,999,911			317,786,872

Basic earnings (loss) per share and basic ordinary income (loss) per share (in Won)		(2,311	)		4,123

Since there are no dilutive potential common shares, diluted EPS and diluted basic income per share are the same as basic EPS and basic ordinary income per share.

Potential common shares as of December 31, 2003 are as follows:


	Exercise Period	Shares Outstanding	Exercise Price
Stock options	2001.11.01 - 2011.08.27	2,248,554	(Won)	5,000 – (Won)129,100

27. Assets and Liabilities Denominated in Foreign Currencies:

Significant assets and liabilities denominated in foreign currencies as of December 31, 2003 comprise the following :


	Total Balances				Major Denomination Currencies
	Millions of Won		Thousands of US Dollars¹*		Thousands of US Dollars		Thousands of EC Euro		Thousands of Japanese Yen
Assets
Cash	(Won)	228,153	$	190,476	$	76,612	€	22,070	¥	7,223,564
Due from banks		601,624		502,275		478,539		3,015		1,798,015
Securities		1,350,145		1,127,187		969,825		3,960		3,674,314
Loans in foreign currencies		4,019,930		3,356,094		2,464,055		37,850		79,081,632
Bills bought		533,294		445,228		415,863		15,003		817,496
Advances to customers		4,593		3,835		3,835		—		—
Call loans		5,351		4,467		4,000		—		50,000
Liabilities
Deposits		1,475,373		1,231,736		843,970		14,493		27,863,430
Borrowings		3,322,917		2,774,184		2,138,815		39,595		60,834,504
Due to BOK		12,608		10,526		10,526		—		—
Call money		193,700		161,713		157,600		—		300,000
Debentures		896,621		748,557		741,129		—		—
Unsettled foreign exchange liabilities		22,600		18,868		11,569		161		89,793

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Significant assets and liabilities denominated in foreign currencies as of December 31, 2002 comprise the following :


	Total Balances				Major Denomination Currencies
	Millions of Won		Thousands of US Dollars¹*		Thousands of US Dollars		Thousands of EC Euro		Thousands of Japanese Yen
Assets
Cash	(Won)	186,780	$	155,598	$	63,914	€	15,676	¥	7,450,032
Due from bank		509,207		424,197		348,007		2,567		6,062,350
Securities		1,216,627		1,013,518		922,604		4,061		4,427,023
Loans in foreign currencies		4,417,176		3,679,753		2,827,489		68,754		65,532,564
Bills bought		756,300		630,040		588,877		25,336		840,286
Advances to customers		2,223		1,852		1,852		—		—
Call loans		248,857		207,312		202,700		4,000		50,000
Liabilities
Deposits		1,083,648		902,738		654,567		12,012		17,863,339
Borrowings		3,408,530		2,839,494		2,407,624		58,893		46,007,284
Due to BOK		37,493		31,234		31,234		—		—
Call money		76,666		63,867		14,500		—		5,679,100
Debentures		789,127		657,387		495,962		—		—
Unsettled foreign exchange liabilities		20,895		17,407		12,772		939		138,208

¹*	Foreign currencies other than US dollars are converted into US dollar amounts using the exchange rates provided by Seoul Money Brokerage Services, Ltd. at the balance sheet date.

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

28. Related Party Transactions

Significant transactions with related parties for the years ended December 31, 2003 and 2002 are as follows:


*(in millions of Won)*		2003			2002
	Account	Balances	Transactions		Balances	Transactions
KB Investment Co., Ltd.	Loans	—			—	4,115
	Deposits	9,624	(484	)	16,142	(1,025	)
	Other liabilities	191			—	—
Kookmin Data System Corp.	Other assets	34			—	—
	Deposits	5,582	(265	)	6,903	(187	)
	Other liabilities	2,832	(15,925	)	879	—
	Commissions income	—	53		—	—
Kookmin Futures Co., Ltd.	Due from banks	40	3		379	5
	Other assets	26	77		—	—
	Deposits	9,793	(497	)	18,860	(567	)
	Other liabilities	1,663			620	—
	Commissions income	—	9		—	—
	Commissions expenses	—	(187	)	—	—
KB Luxembourg S.A.	Due from banks	51,784	2,215		48,337	148
	Loans	76,659	739		139,702	4,789
	Other assets	176	2,900		815	3,131
	Borrowings	140,880	(193	)	177,873	(80	)
	Other liabilities	—	(1,352	)	11,077	(922	)
KB International Ltd. (London)	Due from banks	33,754	904		24,490	70
	Loans	95,824	1,765		186,062	3,576
	Other assets	405	477		—	359
	Borrowings	108,272	(501	)	198,663	(308	)
	Other liabilities	1,203	(4,011	)	13,245	(2,691	)
	Commissions expenses	—	(1,398	)	—	—
Kookmin Finance H.K. Ltd.	Due from banks	372	857		6,318	22
	Loans	98,579	1,802		175,850	4,721
	Other assets	152	109		—	—
	Borrowings	173,121	(4	)	159,715	(161	)
	Other liabilities	—	—		5,424	(232	)
	Commissions expenses	—	(1,777	)
Kookmin Investment Trust Mgt.	Deposits	46,244	(1,250	)	1,348	(802	)
	Other liabilities	234	(5	)	—	—
KB Real Estate Co., Ltd.	Loans	25,000	2,578		30,000	3,005
	Deposits	1,838	(27	)	104,754	(4	)
	Other liabilities	1,755	—		1,782	—
Jooeun Industrial Co., Ltd.	Loans	139,425	—		—	—
KB Credit Information Co., Ltd.	Deposits	11,446	(457	)	9,496	(444	)
	Other liabilities	8,482	—		5,388	176
	Commissions expenses	—	(38,481	)	—	(26,894	)
	Rent	—	—		—	—

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

29. Transactions with Financial Institutions

The assets and liabilities related to transactions with financial institutions for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Description	Bank of Korea		Other banks		Other financial institutions		Total
Cash and due from banks	In Won	(Won)	2,612,248	(Won)	8,994	(Won)	140,200	(Won)	2,761,442
	In foreign currencies		12,415		585,855		3,355		601,625

			2,624,663		594,849		143,555		3,363,067

Loans	In Won		—		12,815		607,524		620,339
	In foreign currencies		—		767,884		49,866		817,750
	Others		1,500,000		1,560,702		794,715		3,855,417

			1,500,000		2,341,401		1,452,105		5,293,506

Deposits	In Won		—		975,372		4,342,075		5,317,447
	In foreign currencies		—		—		2,400,000		2,400,000

			—		975,372		6,742,075		7,717,447

Borrowings	In Won		992,433		253,822		5,688		1,251,943
	In foreign currencies		—		2,360,652		19,486		2,380,138
	Others		12,608		499,362		55,800		567,770

			1,005,041		3,113,836		80,974		4,199,851

Debentures	In Won		—		—		260,900		260,900
	In foreign currencies		—		888,455		—		888,455

			—		888,455		260,900		1,149,355

30. Interest Bearing Assets and Liabilities

Interest bearing assets and liabilities and related interest income and interest expenses for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Average Balance		Interest Income		Average Yield (%)
Assets
Due from banks	(Won)	799,353	(Won)	10,433	1.31
Securities		29,812,029		1,701,359	5.71
Loans		135,541,332		9,814,835	7.24

	(Won)	166,152,714	(Won)	11,526,627

Liabilities
Deposits	(Won)	126,320,535	(Won)	4,280,290	3.39
Borrowings		12,547,750		410,746	3.27
Debentures		18,617,620		1,143,228	6.14

	(Won)	157,485,905	(Won)	5,834,264

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

31. Operations of the Trust Accounts

The summarized statement of assets and liabilities of the trust accounts as of December 31, 2003 are categorized into principal or dividend guaranteed money trusts, performance money trusts and property trusts, as follows:


*(in millions of Won)*	Guaranteed Money Trusts			Performance Money Trusts			Property Trusts		Total
Securities	(Won)	2,797,148		(Won)	5,943,898		(Won)	936,128	(Won)	9,677,174
Loans		134,984			354,804			—		489,788
Receivables		—			—			20,228,649		20,228,649
Due from banking accounts		470,647			913,624			183,672		1,567,943
Present value discounts		(771	)		—			—		(771	)
Allowance for loan losses		(69,839	)		(69,930	)		—		(139,769	)
Other assets		73,048			179,211			262,054		514,313

Total assets	(Won)	3,405,217		(Won)	7,321,607		(Won)	21,610,503	(Won)	32,337,327

Trusts	(Won)	3,190,062		(Won)	7,088,295		(Won)	21,453,761	(Won)	31,732,118
Reserves for future losses		56,128			—			—		56,128
Borrowings		—			—			—		—
Other liabilities		159,027			233,312			156,742		549,081

Total liabilities	(Won)	3,405,217		(Won)	7,321,607		(Won)	21,610,503	(Won)	32,337,327

The Bank is liable as of December 31, 2003 for the following portion of the difference between the book value and fair value of principal and/or dividend guaranteed money trusts:


*(in millions of Won)*	Book Value		Fair Value		Liability
Principal guaranteed money trusts	(Won)	3,298,269	(Won)	3,374,990	(Won)	—
Principal and dividend guaranteed money trusts		106,948		114,835		—

	(Won)	3,405,217	(Won)	3,489,825	(Won)	—

The key results of operations from transactions between bank accounts and trust accounts (excluding securities investment trust) for the year ended December 31, 2003 are as follows:


*(in millions of Won)*	Trust Account Related Income			Trust Account Related Expenses
Gain on trust management	(Won)	232,361	Interest expense on borrowings from trust accounts	(Won)	36,970
Early withdrawal penalties		172	Loss on trust management		—
Interest income on loans to trust accounts		548

	(Won)	233,081		(Won)	36,970

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

32. Business Combination with H&CB

The Bank entered into a business combination contract (“the Contract”) with H&CB on April 23, 2001 and obtained approval from the shareholders for such combination on September 29, 2001. In accordance with the Contract, the Bank completed the legal consolidation with H&CB as of October 31, 2001. Under the Contract, the shareholders of the Bank and H&CB received 1 new common share of the Bank for 1.688346 old shares of the Bank and 1 share of H&CB, respectively. The new common shares of the Bank were listed on the Korea Stock Exchange on November 9, 2001. Despite the legal form of consolidation, the business combination was accounted for as an acquisition with the Bank as acquirer of H&CB’s total assets of (Won)67,742,958 million and liabilities of (Won)64,381,185 million.

The Bank’s registration statement with the Securities and Exchange Commission of the United States of America was declared effective on September 10, 2001, and the new shares of the Bank are listed on the New York Stock Exchange as ADSs since November 1, 2001.

33. Merger with Kookmin Credit Card Co., Ltd.

The Bank obtained approval from its Board of Directors on May 30, 2003 to merge with Kookmin Credit Card Co., Ltd., (the “Subsidiary”) of which the Bank previously owned 74.27 percent, and merged with the Subsidiary on September 30, 2003.

The merger was effected through the issuance of common shares of 8,120,431 by the Bank to the shareholders of Subsidiary as of July 24, 2003, besides the Bank, at a ratio of 0.442983 share of the Bank’s common stock for each share of the Subsidiary. The newly issued common share due the transaction constituted 2.4 percent of total out standing shares of the Bank as of September 30, 2003.

The merger was accounted for as a transaction between entities under common control and therefore the Bank recognized the assets and liabilities transferred at their carrying amounts in the accounts of Kookmin Credit Card Co., Ltd. at the date of transfer. In addition, the accounting method for loans and securities of the Subsidiary were conformed to that of the Bank and consequently, a provision for losses due to the merger amounting (Won)1,652,264 million, comprised of a provision for loan losses of (Won)1,437,961 million and loss on valuation of securities of (Won)214,303 million, was recorded in non-operating expenses.

Kookmin Credit Card Co., Ltd. was established on September 25, 1987, separating its operations from the Bank, and has been conducting its operations including credit card operations, factoring, and consumer financing, under the Credit Card Act. Kookmin Credit Card Co., Ltd. had merged with Kookmin Mutual Savings & Finance Co., Ltd. on August 22, 1998 and with Jang-Eun Credit Card Co., Ltd. on December 30, 1998, and had extended its operations to installment financing and rental business. As of September 30, 2003, Kookmin Credit Card has 12.33 million cardholders, 1.55 million merchants and 45 branches. Kookmin Credit Card Co. Ltd. had its shares registered with KOSDAQ since July 4, 2000.

As of September 30, 2003, the shareholders of Kookmin Credit Card Co. were as follows:


	Number of Shares	Percentage of Ownership
Kookmin Bank	54,365,028	74.27
Others	18,331,248	25.04

	72,696,276	99.31
Treasury stock	503,724	0.69

	73,200,000	100.00

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

The summary balance sheets of the Bank and Kookmin Credit Card Co., Ltd. as of December 31, 2002 and the related statements of operations for the year then ended are as follows:


*(in millions of won)*	Kookmin Bank			Kookmin Credit Card			Total ¹*
Cash and due from banks	(Won)	4,599,356		(Won)	103,505		(Won)	4,702,861
Securities²*		30,940,750			3,112,127			34,052,877
Loans		126,730,561			9,256,060			135,986,621
Fixed assets		3,092,616			260,600			3,353,216
Other assets		6,135,558			648,956			6,784,514

Total assets	(Won)	171,498,841		(Won)	13,381,248		(Won)	184,880,089

Deposits	(Won)	123,109,653		(Won)	—		(Won)	123,109,653
Borrowings		10,690,754			5,629,389			16,320,143
Debentures		17,539,007			5,934,298			23,473,305
Other liabilities		10,110,031			899,334			11,009,365

Total liabilities		161,449,445			12,463,021			173,912,466

Capital stock		1,641,293			366,000			2,007,293
Capital surplus		5,864,752			146,591			6,011,343
Retained earnings		2,417,102			407,596			2,824,698
Capital adjustments		126,249			(1,960	)		124,289

Total shareholders’ equity		10,049,396			918,227			10,967,623

Total liabilities and shareholders’ equity	(Won)	171,498,841		(Won)	13,381,248		(Won)	184,880,089


	Kookmin Bank			Kookmin Credit Card			Total¹*
Operating income (loss)	(Won)	2,265,765			(306,146	)	(Won)	1,959,619
Non-operating income		525,280			67,017			592,297
Non-operating expenses²*		(897,427	)		(21,759	)		(919,186	)

Net income (loss) before income tax expense		1,893,618			(260,888	)		1,632,730
Income tax expense		(583,327	)		—			(583,327	)

Net income (loss)	(Won)	1,310,291		(Won)	(260,888	)	(Won)	1,049,403

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

The summary balance sheets of the Bank and Kookmin Credit Card Co., Ltd. as of September 30, 2003, the merger date, and the related statements of operations for the nine-month period then ended are as follows:


*( in millions of won )*	Kookmin Bank			Kookmin Credit Card^3*			Total ¹*
Cash and due from banks	(Won)	7,543,522		(Won)	39,139		(Won)	7,582,661
Securities²*		29,062,866			2,969,080			32,031,946
Loans		133,299,297			6,854,723			140,154,020
Fixed assets		2,836,450			325,220			3,161,670
Other assets		8,895,431			407,247			9,302,678

Total assets	(Won)	181,637,566		(Won)	10,595,409		(Won)	192,232,975

Deposits	(Won)	128,106,542		(Won)	—		(Won)	128,106,542
Borrowings		11,691,597			3,240,752			14,932,349
Debentures		17,181,146			4,951,891			22,133,037
Other liabilities		14,858,438			1,199,254			16,057,692

Total liabilities		171,837,723			9,391,897			181,229,620

Capital stock		1,641,293			366,000			2,007,293
Capital surplus		5,864,679			146,591			6,011,270
Retained earnings		2,033,157			691,969			2,725,126
Capital adjustments		260,714			(1,048	)		259,666

Total shareholders’ equity		9,799,843			1,203,512			11,003,355

Total liabilities and shareholders’ equity	(Won)	181,637,566		(Won)	10,595,409		(Won)	192,232,975


	Kookmin Bank			Kookmin Credit Card³*			Total
Operating income (loss)	(Won)	478,392		(Won)	301,213		(Won)	779,605
Non-operating income		670,656			27,656			698,312
Non-operating expenses²*		(1,885,784	)		(18,646	)		(1,904,430	)

Net income (loss) before income tax		(736,736	)		310,223			(426,513	)
Income tax expense		354,627			(25,850	)		328,777

Net income (loss)	(Won)	(382,109	)	(Won)	284,373		(Won)	(97,736	)

¹*	Inter-company transactions have not been eliminated in the above summary balance sheets and statements of operations.

²*	The amount of investments accounted for under the equity method of accounting of Kookmin Credit Card Co., Ltd has been recognized by the Bank under securities and non-operating expenses.

³*	Balance sheet of Kookmin Credit Card Co., Ltd and its statements of operations is unaudited.

34. Statement of Cash Flows

Cash and cash equivalents as of December 31, 2003 and 2002 as presented in the statements of cash flows are as follows:


*(in millions of Won)*	2003			2002
Cash on hand	(Won)	2,945,921		(Won)	2,392,346
Cash in foreign currencies		228,153			186,780
Due from banks in Won		2,763,457			1,532,179
Due from banks in foreign currencies		601,624			509,207

		6,539,155			4,620,512
Restricted deposits		(2,767,398	)		(1,519,931	)

	(Won)	3,771,757		(Won)	3,100,581

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

Major transactions that do not involve cash inflows and cash outflows for the year ended December 31, 2003, and 2002 are presented as follows:


*(in millions of Won)*	2003			2002
Change due to the merger with KB Credit Card Co., Ltd.	(Won)	10,595,409		(Won)	—
Unrealized gains on investment securities		(122,888	)		86,164
Capital increase due to debt-equity swap		—			234,100
Capital increase due to stock dividend		—			89,900
Change due to accounting under equity method		6,996			4,562
Write-off of loans		4,773,212			1,527,311
Decrease in loan from restructuring		(7,483	)		122,043
Decrease in loan loss provision due to sales of non-performing loans		60,401			65,174
Conversion of loans into equity securities		33,415			109,931

35. Business Segments

The following table shows the distribution of the Bank’s operations by business segment as of and for the year ended December 31, 2003:


*(in millions of Won)*
Account	Retail Banking		Corporate Banking		Capital Markets Activities		Credit Card Operations		Others		Total
Loans	(Won)	79,284,676	(Won)	45,208,573	(Won)	4,823,406	(Won)	9,056,594	(Won)	1,557,803	(Won)	139,931,052
Securities		27,636		4,626		27,380,911		—		688,672		28,101,845
Fixed assets		1,678,217		498,068		170,695		364,654		307,922		3,019,556
Other assets		1,076,083		271,644		11,286,066		126,565		239,695		13,000,053

Total assets	(Won)	82,066,612	(Won)	45,982,911	(Won)	43,661,078	(Won)	9,547,813	(Won)	2,794,092	(Won)	184,052,506

Operating revenue	(Won)	6,066,594	(Won)	3,314,310	(Won)	3,670,257	(Won)	1,458,464	(Won)	1,047,361	(Won)	15,556,986

The following table shows the distribution of the Bank’s operations by geographical market as of and for the year ended December 31, 2003:


*(in millions of Won)*	Domestic		Overseas		Total
Loans	(Won)	139,313,903	(Won)	617,149	(Won)	139,931,052
Securities		28,076,373		25,472		28,101,845
Fixed assets		3,016,549		3,007		3,019,556
Other assets		12,529,873		470,180		13,000,053

Total assets	(Won)	182,936,698	(Won)	1,115,808	(Won)	184,052,506

Operating revenue	(Won)	15,494,187	(Won)	62,799	(Won)	15,556,986

Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2003 and 2002

36. Final interim period performance

Final interim performance for the three-month periods ended December 31, 2003 and 2002, are as follows:


*(in millions of Won)*	2003			2002
Operating income	(Won)	3,100,554		(Won)	3,982,692
Operating expense		3,502,862			3,711,358
Operating (loss) income		(402,308	)		271,334
Net loss		(371,239	)		(202,577	)
Loss per share (in Won)		(1,131	)		(635	)

37. Reclassification of Prior Financial Statement Presentation

Certain accounts of prior period financial statements have been reclassified to conform to the current year presentation. These reclassifications have no effect on previously reported net income or shareholders’ equity.

38. Subsequent Event

On February 9, 2004, the Board of Directors approved the purchase of the assets and liabilities of Hanil Life Insurance Co. by the Bank through a Purchase and Acquisition (“P&A”) transaction. The terms and conditions of the P&A is to be determined in the future.

39. Approval of Financial Statements

The financial statements of the Bank, as of and for the year ended December 31, 2003, were approved by the board of directors on March 3, 2004.