Table of Contents

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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 November 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

 

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1

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Table of Contents

 

Summary of 3^rd Quarter Business Report

 

TABLE OF CONTENTS

 

Summary of 3rd Quarter Business Report						4
1.		Introduction to the Bank				5
		1.1.		Business Purposes		5
		1.2.		History		5
		1.3.		Capital Structure		6
		1.4.		Employee Stock Ownership Association		10
		1.5.		Dividend		10
2.		Business				11
		2.1.		Sources and Uses of Fund		11
		2.2.		Principal Banking Activities		13
		2.3.		Branch Networks		17
		2.4.		Other Information for Investment Decision		18
3.		Financial Information				20
		3.1.		Non-Consolidated Condensed Financial Statements		20
		3.2.		Other Financial Information		20
4.		Independent Accountant Fees and Services				21
		4.1.		Audit & Review Fees		21
		4.2.		Non-Audit Services		21
5.		Corporate Governance and Affiliated Companies				22
		5.1.		Board of Directors & Committees under the Board		22
		5.2.		Audit Committee		22
		5.3.		Compensation to Directors		23
		5.4.		Voting Rights of Shareholders		23
		5.5.		Share Ownership		23
		5.6.		Affiliated Companies		24
6.		Directors, Senior Management and Employees				25
		6.1.		Executive Directors		25
		6.2.		Non-Executive Directors		25
		6.3.		Senior Management		26
		6.4.		Compensation to Directors and Senior Management		26
		6.5.		Employees		26

 

2

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Table of Contents

7.		Related Party Transactions				27
		7.1.		Transactions with the Largest Shareholders or Affiliates		27
		7.2.		Transactions with Other than the Largest Shareholders or Affiliates		28
Exhibit 99.1_ Kookmin Bank Non-Consolidated Interim Financial Statements September 30, 2004 and 2003.

 

3

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Table of Contents

 

Summary of 3^rd Quarter Business Report

 

On November 15, 2004, Kookmin Bank filed its business report for the third quarter of 2004 (the “Business Report”) with the Financial Supervisory Commission of Korea pursuant to the Securities and Exchange Act of Korea. This is the summary of the Business Report translated into English.

 

All references to “Kookmin Bank” mean Kookmin Bank on a non-consolidated basis, and all references to “we”, “us” or “the Bank” mean Kookmin Bank and, as the context may require, its subsidiaries. In addition, all references to “Won” or “W” in this document are to the currency of the Republic of Korea.

 

4

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Table of Contents

1.	Introduction to the Bank

 

1.1.	Business Purposes

 

The business purpose of the Bank is to engage in the following business activities:

 

•

The banking business as prescribed by the Bank Act,

 

•

The trust business as prescribed by the Banking Trust Act,

 

•

The credit card business as prescribed by the Non-Banking Financing Act, and

 

•

Other businesses permitted by the Bank Act or other relevant Korea laws and regulations

 

1.2.

History

 

•

November 1, 2001 Incorporated and listed on the New York Stock Exchange

 

•

November 9, 2001 Listed on the Korea Stock Exchange

 

•

September 23, 2002 Integrated two brand operations onto a single information technology platform

 

•

December 4, 2002 Entered into a strategic alliance agreement with ING Bank N.V., which replaced the prior investment agreement with H&CB

 

•

May 30, 2003 Entered into a merger agreement with Kookmin Credit Card, one of our major subsidiaries, and officially submitted Merger Statement to Financial Supervisory Service

 

•

September 30, 2003 Completed small-scale merger with Kookmin Credit Card

 

•

December 16, 2003 Completed strategic investment in Bank Internasional Indonesia (BII) through the Consortium of Sorak Financial Holdings, of which we hold 25% stake

 

•

December 19, 2003 Fully privatized through the entire disposition of Korean government’s stake in Kookmin Bank

 

•

April 29, 2004 Established a subsidiary, KB Life Co. Ltd., to engage in insurance business

 

5

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Table of Contents

1.3.	Capital Structure

 

1.3.1.

Common Shares

 

Kookmin Bank has authority to issue a total of 1,000,000,000 shares of capital stock according to its Articles of Incorporation. Kookmin Bank’s Articles of Incorporation also provide that it is authorized to issue shares of preferred stock up to one-half of all of the issued and outstanding shares of common stock. On completion of the merger between Former Kookmin Bank and H&CB, Kookmin Bank issued 299,697,462 common shares.

 

Upon the resolution of shareholders’ meeting held on March 22, 2002, Kookmin Bank issued additional 17,979,954 common shares in connection with stock dividend of 6 percent.

 

On November 25, 2002 Goldman Sachs Capital Koryo, L.P. converted all of its convertible bonds into common shares. According to this conversion on November 30, 2002, Kookmin Bank issued 10,581,269 common shares and distributed them to Goldman Sachs Capital Koryo, L.P.

 

With regard to the merger between Kookmin Bank and Kookmin Credit Card on September 30, 2003, Kookmin Bank issued additional 8,120,431 shares on October 1, 2003. Accordingly, as of September 30, 2004, total 336,379,116 shares were issued with 1,681,896 million Won of paid-in capital.

 

1.3.2.

Treasury Stock

 

The following table shows the acquisition and disposition of our treasury stock as of September 30, 2004.

 

(Unit: in thousands of Won unless otherwise indicated)

 

Date		Transaction		Number of share		Acquisition/ Disposition amount		Average cost per one share (Won)
November 15, 2001		Acquisition of fractional shares in the course of the merger		41,548		1,794,885		43,200
December 24, 2001		Disposition due to exercise of stock option by a grantee		10,000		432,003		43,200
April 3, 2002		Acquisition of fractional shares due to stock dividend		36,089		2,071,557		57,400
May 14, 2002		Disposition pursuant to the Bank Act of Korea		31,548		1,601,944		50,788
July 30 ~ October 23, 2002		Acquisition pursuant to the Securities and Exchange Act of Korea		3,000,000		147,632,489		49,210
December 24, 2002		Disposition due to exercise of stock option by a grantee		10,000		492,294		49,229
January 15, 2003		Disposition due to exercise of stock option by a grantee		10,000		492,294		49,229
September 4 ~ 9, 2003		Acquisition pursuant to the Securities and Exchange Act of Korea		650,000		29,094,064		44,760
October 16, 2003		Acquisition of fractional shares due to the Merger with Kookmin Credit Card		5,095		214,254		42,050
4th quarter, 2003		Disposition due to exercise of stock option by grantees		78,322		3,792,977		48,428
December 17, 2003		Acquisition from the sale of Korean government shares of the Bank		27,423,761		1,198,568,158		43,700
December 26, 2003		Disposition due to contribution to ESOP account		1,000,000		44,252,000		44,252
1st quarter, 2004		Disposition due to exercise of stock option by grantees		30,855		1,365,396		44,252
2nd quarter, 2004		Disposition due to exercise of stock option by grantees		55,593		2,460,101		44,252
3rd quarter, 2004		Disposition due to exercise of stock option by grantees		592		26,197		44,252
Total		-		29,929,583		1,324,460,201		—

 

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Table of Contents

1.3.3.

Stock Option

 

The following table is the breakdown of stock options Kookmin Bank has granted to the directors and employees as of September 30, 2004.

 

( Units: in Won, shares)

 

Grant date		Name of the grantee		Position when granted		Exercise period				Exercise price		Number of granted options*		Number of exercised options		Number of exercisable options
						From		To
31-Oct-98		Jung Tae Kim		Chairman, President & CEO		01-Nov-01		31-Oct-04		5,000		400,000		390,000		10,000
27-Feb-99		Choul Ju Lee		Auditor & Executive Director		28-Feb-02		27-Feb-05		13,900		30,000		30,000		0
27-Feb-99		Seung Dong Kim		Executive Vice President		28-Feb-02		27-Feb-05		13,900		20,054		20,054		0
27-Feb-99		Young Jo Joo		Executive Vice President		28-Feb-02		27-Feb-05		13,900		30,000		30,000		0
27-Feb-99		Seok II Cho		Executive Vice President		28-Feb-02		27-Feb-05		13,900		20,054		20,054		0
27-Feb-99		Hong Shik Chung		Executive Vice President		28-Feb-02		27-Feb-05		13,900		20,000		20,000		0
27-Feb-99		Bong Hwan Cho		Executive Vice President		28-Feb-02		27-Feb-05		13,900		30,000		30,000		0
27-Feb-99		Sun Joo Kim		Executive Vice President		28-Feb-02		27-Feb-05		13,900		10,000		10,000		0
27-Feb-99		Je Hyung Jo		Executive Vice President		28-Feb-02		27-Feb-05		13,900		30,000		30,000		0
27-Feb-99		Ho Gi Baek		Executive Vice President		28-Feb-02		27-Feb-05		13,900		20,000		20,000		0
27-Feb-99		Bruce G. Willison		Non Executive Director		28-Feb-02		27-Feb-05		13,900		10,000		10,000		0
28-Feb-00		Jan Op de Beeck		Director&Executive Vice President		01-Mar-03		28-Feb-06		27,600		22,490		0		22,490
28-Feb-00		Sung Chul Kim		Executive Vice President		01-Mar-03		28-Feb-06		27,600		30,000		0		30,000
28-Feb-00		Woo Jung Lee		Executive Vice President		01-Mar-03		28-Feb-06		27,600		30,000		0		30,000
28-Feb-00		Kuk Ju Kwon		Non Executive Director		01-Mar-03		28-Feb-06		27,600		4,800		0		4,800
28-Feb-00		Sun Jin Kim		Non Executive Director		01-Mar-03		28-Feb-06		27,600		7,000		1,100		5,900
28-Feb-00		Joon Park		Non Executive Director		01-Mar-03		28-Feb-06		27,600		4,800		0		4,800
28-Feb-00		Moon Soul Chung		Non Executive Director		01-Mar-03		28-Feb-06		27,600		7,000		0		7,000
28-Feb-00		Ju Hyun Yoon		Non Executive Director		01-Mar-03		28-Feb-06		27,600		4,800		4,800		0
28-Feb-00		Heung Hoon Chang		Non Executive Director		01-Mar-03		28-Feb-06		27,600		2,486		0		2,486
28-Feb-00		In Joon Kang		Non Executive Director		01-Mar-03		28-Feb-06		27,600		2,486		0		2,486
28-Feb-00		Sung Hee Jwa		Non Executive Director		01-Mar-03		28-Feb-06		27,600		4,800		0		4,800
28-Feb-00		Seung Woo Nam		Non Executive Director		01-Mar-03		28-Feb-06		27,600		1,928		0		1,928
28-Feb-00		Woon Youl Choi		Non Executive Director		01-Mar-03		28-Feb-06		27,600		4,909		4,909		0
28-Feb-00		Kyung Hee Yoon		Non Executive Director		01-Mar-03		28-Feb-06		27,600		7,000		0		7,000
28-Feb-00		Sung Cheon Hong & 9 others		Employees		01-Mar-03		28-Feb-06		27,600		67,283		24,154		43,129
24-Mar-01		Young II Kim		Executive Vice President		25-Mar-04		24-Mar-07		25,100		30,000		0		30,000
24-Mar-01		Jong In Park		Executive Vice President		25-Mar-04		24-Mar-07		25,100		19,333		0		19,333
24-Mar-01		Won Bae Yoon		Non Executive Director		25-Mar-04		24-Mar-07		25,100		2,318		0		2,318
24-Mar-01		Jae Kyu Lee		Non Executive Director		25-Mar-04		24-Mar-07		25,100		2,318		0		2,318
24-Mar-01		Chul Soo Ahn		Non Executive Director		25-Mar-04		24-Mar-07		25,100		1,916		0		1,916
24-Mar-01		Jae Han Kim & 2 others		Employees		25-Mar-04		24-Mar-07		25,100		16,491		10,216		6,275
18-Mar-00		Sang Hoon Kim		Chairman & CEO		19-Mar-03		18-Mar-05		23,469		41,460		1,300		40,160
18-Mar-00		Jong Min Lee		Auditor & Executive Director		19-Mar-03		18-Mar-05		23,469		14,807		14,807		0
18-Mar-00		Se Jong Oh		Non Executive Director		19-Mar-03		18-Mar-05		23,469		2,961		0		2,961
18-Mar-00		In Kie Kim		Non Executive Director		19-Mar-03		18-Mar-05		23,469		2,961		0		2,961
18-Mar-00		Ji Hong Kim		Non Executive Director		19-Mar-03		18-Mar-05		23,469		2,961		2,961		0
18-Mar-00		Jin Ho Hwang		Non Executive Director		19-Mar-03		18-Mar-05		23,469		2,961		0		2,961
18-Mar-00		Hyung Jin Chang		Non Executive Director		19-Mar-03		18-Mar-05		23,469		2,961		2,961		0
18-Mar-00		Ik Rae Kim		Non Executive Director		19-Mar-03		18-Mar-05		23,469		2,961		2,961		0
18-Mar-00		Bong Ho Paick		Non Executive Director		19-Mar-03		18-Mar-05		23,469		2,961		0		2,961
18-Mar-00		Bock Woan Kim		Executive Vice President		19-Mar-03		18-Mar-05		23,469		11,845		11,845		0

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*	Some numbers of the granted options have been adjusted due to the merger and the early retirement of the grantees.

 

7

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Table of Contents

Grant date		Name of the grantee		Position when granted		Exercise period				Exercise price		Number of granted options*		Number of exercised options		Number of exercisable options
						From		To
18-Mar-00		Yoo Hwan Kim		Executive Vice President		19-Mar-03		18-Mar-05		23,469		11,845		5,845		6,000
18-Mar-00		Duk Hyun Kim		Executive Vice President		19-Mar-03		18-Mar-05		23,469		11,845		0		11,845
15-Mar-01		Sang Hoon Kim		Chairman & CEO		16-Mar-04		15-Mar-09		28,027		29,614		0		29,614
15-Mar-01		Jong Min Lee		Auditor & Executive Director		16-Mar-04		15-Mar-09		28,027		14,807		0		14,807
15-Mar-01		In Kie Kim		Non Executive Director		16-Mar-04		15-Mar-09		28,027		2,961		0		2,961
15-Mar-01		Hyung Jin Chang		Non Executive Director		16-Mar-04		15-Mar-09		28,027		2,961		2,961		0
15-Mar-01		Ji Hong Kim		Non Executive Director		16-Mar-04		15-Mar-09		28,027		2,961		0		2,961
15-Mar-01		Bong Ho Paick		Non Executive Director		16-Mar-04		15-Mar-09		28,027		1,870		0		1,870
15-Mar-01		Ik Rae Kim		Non Executive Director		16-Mar-04		15-Mar-09		28,027		2,961		0		2,961
15-Mar-01		Seung Heon Han		Non Executive Director		16-Mar-04		15-Mar-09		28,027		1,870		0		1,870
15-Mar-01		Young Seok Kim		Non Executive Director		16-Mar-04		15-Mar-09		28,027		1,870		0		1,870
15-Mar-01		Se Woong Lee		Non Executive Director		16-Mar-04		15-Mar-09		28,027		2,961		0		2,961
15-Mar-01		Chang Ki Min		Non Executive Director		16-Mar-04		15-Mar-09		28,027		2,961		2,961		0
15-Mar-01		Bock Woan Kim		Executive Vice President		16-Mar-04		15-Mar-09		28,027		11,845		0		11,845
15-Mar-01		Yoo Hwan Kim		Executive Vice President		16-Mar-04		15-Mar-09		28,027		11,845		0		11,845
15-Mar-01		Duk Hyun Kim		Executive Vice President		16-Mar-04		15-Mar-09		28,027		11,845		0		11,845
15-Mar-01		Yoon Ok Hyun		Executive Vice President		16-Mar-04		15-Mar-09		28,027		11,845		0		11,845
15-Mar-01		Tai Gon Kim		Executive Vice President		16-Mar-04		15-Mar-09		28,027		11,845		4,845		7,000
15-Mar-01		Byung Sang Kim		Executive Vice President		16-Mar-04		15-Mar-09		28,027		11,845		0		11,845
15-Mar-01		Byung Jin Kim		Executive Vice President		16-Mar-04		15-Mar-09		28,027		11,845		0		11,845
15-Mar-01		Ji Han Koo & 46 others		Employees		16-Mar-04		15-Mar-09		28,027		47,381		9,697		37,684
16-Nov-01		Jung Tae Kim		President & CEO		17-Nov-04		16-Nov-09				500,000		0		500,000
16-Nov-01		Sang Hoon Kim		Chairman		17-Nov-04		16-Nov-09		A1		150,000		0		150,000
22-Mar-02		Choul Ju Lee		Auditor & Executive Director		23-Mar-05		22-Mar-10				9,963		0		9,963
22-Mar-02		Henry Cornell		Non Executive Director		23-Mar-05		22-Mar-10				3,321		0		3,321
22-Mar-02		Keun Shik Oh		Non Executive Director		23-Mar-05		22-Mar-10				3,321		0		3,321
22-Mar-02		Dong Soo Chung		Non Executive Director		23-Mar-05		22-Mar-10				10,000		0		10,000
22-Mar-02		Ji Hong Kim		Non Executive Director		23-Mar-05		22-Mar-10		B2		3,321		0		3,321
22-Mar-02		Timothy Hartman		Non Executive Director		23-Mar-05		22-Mar-10				3,321		0		3,321
22-Mar-02		Sun Jin Kim		Non Executive Director		23-Mar-05		22-Mar-10				3,000		0		3,000
22-Mar-02		Moon Soul Chung		Non Executive Director		23-Mar-05		22-Mar-10				3,000		0		3,000
22-Mar-02		Kyung Hee Yoon		Non Executive Director		23-Mar-05		22-Mar-10				3,000		0		3,000
22-Mar-02		Jong Kyoo Yoon		Executive Vice President		23-Mar-05		22-Mar-10		57,100		30,000		0		30,000
22-Mar-02		Bong Hwan Cho		Executive Vice President		23-Mar-05		22-Mar-10		57,100		9,498		0		9,498
22-Mar-02		Bum Soo Choi		Executive Vice President		23-Mar-05		22-Mar-10		57,100		13,339		0		13,339
22-Mar-02		Bock Woan Kim		Executive Vice President		23-Mar-05		22-Mar-10		57,100		13,339		0		13,339
22-Mar-02		Ki Taek Hong		Executive Vice President		23-Mar-05		22-Mar-10		57,100		19,525		0		19,525
22-Mar-02		Sung Hyun Chung		Executive Vice President		23-Mar-05		22-Mar-10		57,100		19,525		0		19,525
22-Mar-02		Ki Sup Shin		Executive Vice President		23-Mar-05		22-Mar-10		57,100		30,000		0		30,000
22-Mar-02		Seong Kyu Lee		Executive Vice President		23-Mar-05		22-Mar-10		57,100		30,000		0		30,000
22-Mar-02		Byung Sang Kim		Executive Vice President		23-Mar-05		22-Mar-10		57,100		9,498		0		9,498
22-Mar-02		Jong Young Yoon & 15 others		Employees		23-Mar-05		22-Mar-10		57,100		148,810		0		148,810
26-Jul-02		Donald H. MacKenzie		Executive Vice President		27-Jul-05		26-Jul-10		58,800		30,000		0		30,000
21-Mar-03		Sung Nam Lee		Auditor&Executive Director		22-Mar-06		21-Mar-11		42,500		30,000		0		30,000

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1.	Exercise price = 51,200 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4) / 100. The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - 207.25) / 207.25 x 100.

 

2.

Exercise price = 57,100 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

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Table of Contents

Grant Date

Name of the grantee

Position when granted

Exercise Period

Exercise price

Number of granted options

Number of exercised options

Number of exercisable options

From

To

21-Mar-03

Moon Soul Chung

Non Executive director

22-Mar-06

21-Mar-11

10,000

0

10,000

21-Mar-03

Sun Jin Kim

Non Executive director

22-Mar-06

21-Mar-11

10,000

0

10,000

21-Mar-03

Richard Elliott Lint

Non Executive director

22-Mar-06

21-Mar-11

10,000

0

10,000

21-Mar-03

Kyung Hee Yoon

Non Executive director

22-Mar-06

21-Mar-11

10,000

0

10,000

21-Mar-03

Suk Yong Cha

Non Executive director

22-Mar-06

21-Mar-11

C1

10,000

0

10,000

21-Mar-03

Bernard S. Black

Non Executive director

22-Mar-06

21-Mar-11

10,000

0

10,000

21-Mar-03

Ki Hong Kim

Non Executive director

22-Mar-06

21-Mar-11

10,000

0

10,000

21-Mar-03

Eun Joo Park

Non Executive director

22-Mar-06

21-Mar-11

3,351

0

3,351

21-Mar-03

Cheol Soo Ahn

Non Executive director

22-Mar-06

21-Mar-11

3,351

0

3,351

21-Mar-03

Kyung Bae Suh

Non Executive director

22-Mar-06

21-Mar-11

3,351

0

3,351

21-Mar-03

Sung Chul Kim

Executive Vice President

22-Mar-06

21-Mar-11

35,500

9,443

0

9,443

21-Mar-03

Woo Jung Lee

Executive Vice President

22-Mar-06

21-Mar-11

35,500

9,443

0

9,443

21-Mar-03

See Young Lee

Executive Vice President

22-Mar-06

21-Mar-11

35,000

7,024

0

7,024

21-Mar-03

Won Suk Oh & 6 others

Employees

22-Mar-06

21-Mar-11

35,500

90,000

0

90,000

27-Aug-03

Jin Baek Cheong

Executive Vice President

28-Aug-03

27-Aug-11

40,500

5,091

0

5,091

22-Mar-01

Han Kyoung Lee

Former KCC Officer

23-Mar-04

22-Mar-11

71,538

6,644

0

6,644

22-Mar-01

Jun Chae Song

Former KCC Officer

23-Mar-04

22-Mar-11

71,538

6,644

0

6,644

22-Mar-01

Cheol Ho Kim

Former KCC Officer

23-Mar-04

22-Mar-11

71,538

4,429

0

4,429

22-Mar-01

Myoung Woo Lee

Former KCC Officer

23-Mar-04

22-Mar-11

71,538

4,429

0

4,429

29-Mar-02

Boung Hak Kim

Former KCC Officer

30-Mar-04

29-Mar-11

3,330

0

3,330

29-Mar-02

Sun Lee

Former KCC Officer

30-Mar-04

29-Mar-11

D2

3,330

0

3,330

29-Mar-02

Jang Ok Kim

Former KCC Officer

30-Mar-04

29-Mar-11

3,330

0

3,330

09-Feb-04

Young II Kim

Senior Executive Vice President

10-Feb-07

09-Feb-12

46,100

10,000

0

10,000

09-Feb-04

Jeung Lak Lee

Senior Executive Vice President

10-Feb-07

09-Feb-12

46,100

10,000

0

10,000

09-Feb-04

Sang Jin Lee

Senior Executive Vice President

10-Feb-07

09-Feb-12

46,100

10,000

0

10,000

09-Feb-04

Yun Keun Jung

Senior Executive Vice President

10-Feb-07

09-Feb-12

46,100

5,000

0

5,000

09-Feb-04

Kuk Shin Kang & 9 others

Employees

10-Feb-07

09-Feb-12

46,100

50,000

0

50,000

23-Mar-04

Dong Soo Chung

Non Executive Director

24-Mar-07

23-Mar-12

E3

5.000

0

5,000

23-Mar-04

Woon Youl Choi

Non Executive Director

24-Mar-07

23-Mar-12

5.000

0

5,000

23-Mar-04

Wang Ha Cho

Non Executive Director

24-Mar-07

23-Mar-12

5.000

0

5,000

23-Mar-04

Young Soon Cheon

Non Executive Director

24-Mar-07

23-Mar-12

5.000

0

5,000

23-Mar-04

Jung Young Kang

Senior Executive Vice President

24-Mar-07

23-Mar-12

47,200

10,000

0

10,000

Total

2,628,859

718,431

1,910,428

---

1

Exercise price = 35,500 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

2	Exercise price = 129,100 Won x (1 + the increase rate of Comparative Industry Index x 0.4).

If negative index produced, the factor is not to be considered.

The increase rate of Comparative Industry Index = (B-A)/A

A : KOSPI as of the grant date x 0.5 + KOSPI Banking Industry Index as of the grant date x 0.5

B : KOSPI as of the exercise date x 0.5 + KOSPI Banking Industry Index as of the exercise date x 0.5.

 

3

Exercise price = 47,200 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

9

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Table of Contents

1.4.	Employee Stock Ownership Association

 

		Beginning balance		Increase		Decrease		Ending Balance (September 30, 2004)		Remarks
Registered common stock		983,137		968,427		418		1,951,146		—
Total		983,137		968,427		418		1,951,146		—

 

1.5.

Dividend

 

The following table shows dividend policy and the related information for the last three years. The Board of Directors of Kookmin Bank made a resolution not to pay dividend for the fiscal year of 2003, and shareholders of Kookmin Bank approved of no dividend payout for the year at the general shareholders’ meeting held on March 23, 2004

 

(Units: in millions of Won unless indicated otherwise)

 

		20036			2002			2001
Net (loss) income for the period		(930,356	)		1,310,291			740,565
Basic (loss) earnings per share (Won)		(2,854	)		4,123	1		3,706
Maximum amount available for dividend		—			1,192,643	2		604,984
Total dividend amount		—			325,232			119,866
Dividend payout ratio (%)		—			24.823			16.19
Cash dividend per common share (Won)		—			1,000			100
Stock dividend per common share (%)		—			—			6
Dividend per preferred share (Won)		—			—			—
Dividend yield ratio (%)		—			2.384			0.80
Net asset value per common share (Won)		25,094			30,6145			29,742
Ordinary income per common share (Won)		(2,854	)		4,123			3,706

---

1.	Earnings per share = net income (1,310,291,195,314 Won) / weighted average number of shares (317,786,872 shares).

 

2.	Maximum amount available for dividend = retained earnings before appropriations (1,319,970 millions of Won) + transferred from prior years’ reserves (5,417 millions of Won) – appropriated amount pursuant to the relevant rules and regulations (132,744 millions of Won).

 

3.	Dividend payout ratio = total dividend amount for common shares (325,232,596,000 Won) / net income (1,310,291,195,314 Won).

 

4.	Dividend yield ratio = dividend per share (1,000 Won) / market closing price of December 31, 2002 (42,000 Won)

 

5.	Net asset value per common share = total shareholders’ equity (10,049,396 millions of Won) / total issued shares as of December 31, 2002 (328,258,685 shares).

 

6.	Revised due to the restated numbers for 2003.

 

10

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Table of Contents

2.

Business

 

2.1.	Sources and Uses of Fund

 

2.1.1.

Sources of Fund

 

(Unit: in millions of Won)

 

				September 30, 2004				December 31, 2003				December 31, 2002
				Average balance		Interest rate (%)		Average balance		Interest rate (%)		Average balance		Interest rate (%)
Won currency		Deposits		118,669,528		3.33		117,045,837		3.69		113,157,719		4.21
		Certificate of deposit		5,995,904		4.13		4,068,327		4.45		2,119,900		4.82
		Borrowings		3,104,909		3.51		3,625,926		3.89		4,568,873		4.45
		Call money		1,280,689		3.60		1,315,639		3.93		1,039,249		4.02
		Other		22,727,921		5.70		23,311,299		5.91		14,254,281		6.70
Subtotal				151,778,951		3.73		149,367,028		4.06		135,140,022		4.49
Foreign currency		Deposits		1,740,081		0.59		1,276,952		0.84		1,096,544		1.28
		Borrowings		2,918,996		0.88		3,462,883		1.01		2,269,774		2.45
		Call money		154,650		1.29		150,609		1.07		293,151		1.65
		Finance debentures issued		848,146		2.21		773,840		2.11		1,071,848		3.57
		Other		38,076		—		26,491		—		23,087		—
Subtotal				5,699,949		1.00		5,690,775		1.12		4,754,404		2.67
Other		Total Shareholders Equity		9,814,323		—		12,053,112		—		14,586,550		—
		Allowances		450,315		—		98,422		—		63,039		—
		Other		12,538,728		—		9,509,283		—		3,717,379		—
Subtotal				22,803,366		—		21,660,817		—		18,366,968		—
Total				180,282,266		3.17		176,718,620		3.47		158,261,394		3.92

 

11

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2.1.2.

Uses of Fund

 

(Unit: in millions of Won)

 

				September 30, 2004				December 31, 2003				December 31, 2002
				Average balance		Interest rate (%)		Average balance		Interest rate (%)		Average balance		Interest rate(%)
Won currency		Due from banks		166,312		0.90		165,358		1.37		1,041,865		4.62
		Securities		23,422,326		5.24		30,069,922		7.26		30,180,305		6.32
		Loans		125,670,926		6.69		121,725,298		7.10		105,188,481		7.79
		Advances for customers		80,535		1.70		96,547		5.79		91,583		4.35
		Call loan		1,615,778		3.86		685,953		3.92		736,571		4.36
		Private placement corporate bonds		1,356,100		6.61		1,287,623		10.26		1,631,524		7.32
		Credit card accounts		9,953,873		10.51		6,698,954		10.44		5,719,359		10.25
		Other		193,301		—		298,858		—		374,718		—
		Allowance for credit losses (-)		3,245,929		—		1,823,976		—		1,437,960		—
Subtotal				159,213,222		6.88		159,204,537		7.41		143,526,446		7.66
Foreign currency		Due from banks		646,560		1.22		612,862		1.33		253,390		1.35
		Securities		1,264,858		3.11		1,269,538		5.23		1,302,214		7.97
		Loans		2,690,849		3.96		2,785,091		3.11		3,216,042		3.39
		Call loan		104,418		1.32		84,803		1.28		188,465		1.98
		Bills bought		1,889,254		1.74		1,983,368		1.83		835,356		4.71
		Other		5,747		—		12,391		—		15,739		—
		Allowance for credit losses (-)		78,167		—		132,105		—		267,194		—
Subtotal				6,523,519		2.90		6,615,948		3.03		5,544,012		4.95
Other		Cash		963,117		—		968,815		—		914,639		—
		Fixed assets held for business		3,077,292		—		3,210,463		—		3,126,812		—
		Other		10,505,116		—		6,718,857		—		5,149,485		—
Subtotal				14,545,525		—		10,898,135		—		9,190,936		—
Total				180,282,266		6.18		176,718,620		6.79		158,261,394		7.12

 

12

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Table of Contents

2.2.	Principal Banking Activities

 

2.2.1.

Deposits

 

The following table shows the average balances of our deposits for the periods ended and ending balances as of the dates indicated.

 

(Unit: in millions of Won)

 

				September 30, 2004				December 31, 2003				December 31, 2002
				Average balance		Ending balance		Average balance		Ending balance		Average balance		Ending balance
Deposits in Won		Demand deposits		12,972,860		14,678,724		12,192,971		14,110,288		10,654,651		12,987,742
		Time & savings deposits		97,253,060		94,180,300		96,668,084		97,616,747		93,347,999		93,630,423
		Mutual installment deposits		6,774,587		6,536,462		6,958,043		7,054,752		8,058,664		7,491,115
		Mutual installment for housing		5,489,175		5,393,721		5,161,535		5,423,853		4,463,601		4,872,637
		Certificates of deposits		5,995,904		7,174,805		4,068,327		6,499,258		2,119,900		3,044,089
Subtotal				128,485,586		127,964,012		125,048,960		130,704,898		118,644,815		122,026,006
Deposits in foreign currency				1,728,955		2,143,016		1,276,952		1,475,374		1,096,544		1,083,647
Trust deposits		Money trust		7,902,487		7,343,177		13,064,749		10,278,357		17,214,936		15,356,285
		Property trust		17,399,801		13,795,274		24,512,746		21,453,761		16,783,690		26,852,684
Subtotal				25,302,288		21,138,451		37,577,495		31,732,118		33,998,626		42,208,969
Total				155,516,829		151,245,479		163,903,407		163,912,390		153,739,985		165,318,622

 

2.2.2.

Average Deposit per Domestic Branch

 

The following table shows the average balances of our deposits per domestic branch as of the dates indicated.

 

(Unit: in millions of Won)

 

		September 30, 2004		December 31, 2003		December 31, 2002
Deposits		125,194		119,593		121,137
Deposits in Won		123,877		118,756		120,336

 

13

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Table of Contents

2.2.3.

Average Deposit per Employee

 

The following table shows the average balances of our deposits per employee as of the dates indicated.

 

(Unit: in millions of Won)

 

		September 30, 2004		December 31, 2003		December 31, 2002
Deposits		7,261		7,487		7,256
Deposits in Won		7,184		7,434		7,208

 

2.2.4.

Loan Balances

 

The following table shows the average balances of our loans for the periods ended and ending balances as of the dates indicated.

 

(Unit: in millions of Won)

 

		September 30, 2004				December 31, 2003				December 31, 2002
		Average balance		Ending balance		Average balance		Ending balance		Average balance		Ending balance
Loans in Won		125,662,499		125,248,264		121,705,493		123,715,244		105,117,047		116,441,303
Loans in foreign currency		4,009,154		4,190,860		4,160,185		4,019,929		3,228,857		4,417,176
Advances to customers		83,991		41,276		107,091		89,665		106,380		52,430
Subtotal		129,755,644		129,480,400		125,972,769		127,824,838		108,452,284		120,910,909
Trust account loans		448,154		410,131		531,500		489,788		789,614		575,412
Total		130,203,798		129,890,531		126,504,269		128,314,626		109,241,898		121,486,321

 

2.2.5.

Loan Balances as of September 30, 2004 by Remaining Years to Maturities

 

(Unit: in millions of Won)

 

		Less than 1 year		More than 1 year~ less than 3 years		More than 3 years less than 5 years		More than 5 years		Total
Loans in Won		71,521,331		36,161,354		5,904,573		11,661,006		125,248,264
Loans in foreign currencies		2,961,764		435,340		174,105		619,650		4,190,859

 

14

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2.2.6.

Loan Balances by Types

 

The following table shows the banking account balances of our loans in Won by uses as of the dates indicated.

 

(Unit: in millions of Won)

 

				September 30, 2004		December 31, 2003		December 31, 2002
Loans to enterprise		Loans for operations		34,075,319		35,351,506		35,369,066
		Loans for facility		6,493,261		6,631,703		5,963,631
Loans to households				42,908,316		42,884,305		40,477,483
Loans to public sector & others		Loans for operations		718,260		526,227		738,632
		Loans for facility		37,877		42,473		39,414
Loans on property formation savings				11,618		62,963		95,252
Loans for housing				40,992,919		38,199,290		33,731,435
Inter-bank loans				7,541		12,815		20,941
Others				3,153		3,962		5,449
Total				125,248,264		123,715,244		116,441,303

 

2.2.7.

Loan to Deposit Ratio

 

The following table shows loan to deposit ratio as of indicated dates.

 

(Units: in millions of Won,%)

 

		September 30, 2004		December 31, 2003		December 31, 2002
Loans1 (A)		125,662,499		121,705,493		105,117,146
Deposits2 (B)		128,485,586		125,048,960		118,644,815
Loan to deposit ratio (A/B)		97.80		97.33		88.60

 

2.2.8.

Acceptances and Guarantees

 

(Unit: in millions of Won)

 

		September 30, 2004		December 31, 2003		December 31, 2002
Determined		808,213		800,297		1,031,698
Contingent		1,769,320		1,281,518		1,306,878
Total		2,577,533		2,081,815		2,338,576

---

1.	Average balance of loans in each indicated date.

 

2.	Average balance of deposits in each indicated date. The balances include certificate of deposits.

 

15

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Table of Contents

2.2.9.

Breakdown of Securities Investment

 

The following table shows the average balances of our securities for the periods ended and ending balances as of the indicated dates.

 

(Unit: in millions of Won)

 

				September 30, 2004				December 31, 2003				December 31, 2002
				Average balance		Ending balance		Average balance		Ending balance		Average balance		Ending balance
Securities in Won (Banking account)		Monetary stabilization bonds		6,446,411		6,970,851		4,343,978		5,540,598		2,834,534		3,269,269
		Government and public bonds		4,745,473		4,108,714		5,630,422		5,885,595		4,272,946		5,252,321
		Debentures		5,891,773		5,509,267		11,028,217		7,149,089		13,154,258		12,378,717
		Stocks		985,490		1,163,640		1,380,254		877,013		2,146,149		1,661,682
		Others		5,353,179		5,771,330		7,687,051		7,299,404		7,809,012		7,162,134
Subtotal				23,422,326		23,523,802		30,069,922		26,751,699		30,216,899		29,724,123
Securities in Won (Trust account)		Monetary stabilization bonds		1,265,329		1,158,258		984,380		878,077		1,309,515		583,379
		Government and public bonds		894,168		1,102,575		1,182,165		1,252,419		2,023,503		1,323,195
		Debentures		2,406,206		2,229,302		5,876,064		4,080,362		8,035,960		7,600,794
		Stocks		577,753		516,662		763,277		592,379		904,921		924,514
		Others		2,041,940		2,342,921		3,208,160		2,106,262		3,945,649		3,821,884
Securities in foreign currency (Trust Account)				712,602		625,830		868,819		767,675		559,964		747,253
Subtotal				7,897,998		7,975,548		12,882,865		9,677,174		16,779,512		15,001,019
Securities in foreign currency (Banking account)		Foreign securities		946,425		864,758		1,066,595		992,408		945,199		960,749
		Off-shore foreign securities		316,468		306,220		306,376		355,737		320,423		255,878
Subtotal				1,262,893		1,170,978		1,372,971		1,350,145		1,265,622		1,216,627
Total				32,583,217		32,670,328		44,325,758		37,779,018		48,262,033		45,941,769

 

2.2.10.

Trust Account

 

(Unit: in millions of Won)

 

		September 30, 2004				December 31, 2003				December 31, 2002
		Total amount trusted		Trust fees		Total amount trusted		Trust fees		Total amount trusted		Trust fees
Return-guaranteed trust		379		7,338		559		45,682		1,528		59,530
Performance trust		25,301,909		73,133		37,576,936		186,851		33,997,098		241,444
Total		25,302,288		80,471		37,577,495		232,533		33,998,626		300,974

 

16

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Table of Contents

2.2.11.

Credit Card

 

(Unit: in millions of Won unless indicated otherwise)

 

				As of or for the years ended of indicated dates
				September 30, 2004		December 31, 2003		December 31, 2002
Number of card holders (Person)		Corporate		183,332		147,813		153,425
		Individual		11,603,509		10,990,703		11,638,968
Number of merchants				1,496,350		1,528,872		1,589,015
Profit		Sales1		48,218,328		92,535,500		111,076,680
		Fee revenue		1,579,308		4,012,017		3,482,289

 

2.3.	Branch Networks

 

As of September 30, 2004, we had 1,079 branches and 41 sub-branches in Korea, the largest number of branches among Korean commercial banks. Approximately 42.1% of our branches and sub-branches are located in Seoul.

 

We also have three overseas branches in Tokyo, New York and Auckland, and 1 overseas office in Guangzhou in China.

---

1.	Includes credit card receivables and cash advances.

 

17

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Table of Contents

2.4.	Other Information for Investment Decision

 

2.4.1.

BIS Risk-adjusted Capital Ratios

 

(Units: in millions of Won, %)

 

		September 30, 2004		December 31, 2003		December 31, 2002
Risk-adjusted capital (A)		13,060,502		12,499,542		14,439,313
Risk-weighted assets (B)		125,171,799		127,370,180		138,703,021
BIS ratios (A/B)		10.431		9.812		10.41

 

2.4.2.

Non-Performing Loans3

 

(Units: in millions of Won unless indicated otherwise)

 

		September 30, 2004				December 31, 2003				Change
Amount		NPL to total loans		Amount		NPL to total loans		Amount		NPL to total loans
4,069,767		2.91%		4,202,254		2.99%		-132,487		-0.08%p

 

2.4.3.

Loan Loss Allowances

 

The following table shows the balance of our loan loss allowances as of the dates indicated.

 

(Units: in millions of Won)

 

				September 30, 2004		December 31, 2003		December 31, 2002
Loan losses allowance		Loans in Won		2,669,206		2,271,198		1,905,065
		Loans in foreign currencies		52,042		68,045		103,838
		Credit card		795,035		1,187,616		284,491
		Others		86,323		163,482		85,302
		Total		3,602,606		3,690,341		2,378,696
Write-offs for the period				1,990,462		4,509,979		1,527,311

---

1	Tentative ratio.

 

2	Revised due to the restated numbers for 2003.

 

3	Non-performing loans are defined as those loans that are past due for more than 90 days or those that do not accrue interest according to the Financial Supervisory Service’s guidelines.

 

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2.4.4.

Changes of Loan Loss Allowances for Recent Three Years

 

(Unit: in millions of Won)

 

		September 30, 20041			December 31, 2003		December 31, 2002
Beginning balance		3,905,342			2,378,696		2,271,179
Net Write-Off(-)		2,548,434			2,728,891		1,485,962
Write-Off		1,990,462			4,509,979		1,527,311
Recovery		178,899			767,718		269,533
Other		(736,871	)		1,013,370		228,184
Provision for loan losses		2,245,698			4,040,536		1,593,479
Ending balance		3,602,606			3,690,341		2,378,696

---

1

Due to the reclassification of credit card subordinated beneficiary certificates (held as available-for-sales) into credit card receivables, the related provision for loan loss of 192,221 million won was added to the beginning balance of provision for loan losses. And according to the Statements of Korean Financial Accounting Standards No. 13, the prior year present value discount of 22,780 million won was also added to the beginning balance of provision for loan losses.

 

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3.	Financial Information

 

3.1.	Non-Consolidated Condensed Financial Statements

 

(Unit: in millions of Won)

 

		As of or for the years ended of indicated dates
		September 30, 2004			December 31, 20031
Cash and due from banks		8,508,411			6,526,345
Securities		24,703,466			26,908,462
Loans		142,047,025			141,143,674
Fixed assets		2,827,777			3,019,556
Other assets		8,176,381			6,547,547
Total assets		186,263,060			184,145,584
Deposits		130,107,028			132,180,272
Borrowings		10,663,592			10,902,800
Debentures		21,436,144			19,192,581
Other liabilities		14,976,352			13,632,425
Total liabilities		177,183,116			175,908,078
Common stocks		1,681,896			1,681,896
Capital surplus		6,230,738			6,230,738
Retained earnings		2,169,192			1,485,111
Capital adjustments		(1,001,882	)		(1,160,239	)
Total shareholders’ equity		9,079,944			8,237,506
Liabilities and Shareholders’ Equity		186,263,060			184,145,584
Operating revenue		13,866,345			15,556,986
Operating income		1,858,003			(137,073	)
Continuing (loss) income before income taxes		1,001,708			(1,386,760	)
Net (loss) income		682,509			(930,356	)

---

1	Revised due to the restated number for 2003.

 

3.2.	Other Financial Information

 

See attached Kookmin Bank Non-Consolidated Interim Report by our independent auditors. The Report is also available at our website www.kbstar.com.

 

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4.	Independent Accountant Fees and Services

 

4.1.	Audit & Review Fees

 

Our financial statements for the third quarter of 2004 have been reviewed by Samil Accounting Corporation, a Korean member firm of PRICEWATERHOUSECOOPERS. The aggregate contract fee for the audit and review fees for the fiscal year 2004 is 1,200 million Won.

 

4.2.	Non-Audit Services

 

The following is a description of non-audit services rendered by our independent auditor for the recent three years.

 

(Units: in millions of Won unless indicated otherwise)

 

Year				Service description		Amount of payment
2004				—			—
2003		-		US GAAP conversion for 2003		US$	3,950 thousand
		-		US GAAP conversion for 2002		US$	3,800 thousand
		-		Due Diligence on Kookmin Credit Card			250
		-		SEC Filing regarding the proposed merger with Kookmin Credit Card		US$	30 thousand
2002		-		Project for improving the accounting process			690
		-		Advisory service for the conversion process in US GAAP			1,450

 

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5.	Corporate Governance and Affiliated Companies

 

5.1.	Board of Directors & Committees under the Board

 

The board of directors holds regular meetings every quarter. The board of directors consists of directors and resolves each following matter:

 

•

matters relating to business objectives and performance evaluation;

 

•

matters relating to amendments of the Articles of Incorporation;

 

•

matters relating to budget and accounting including salaries of directors and employees;

 

•

matters relating to major organizational changes such as dissolution, business transfer and merger;

 

•

matters relating to internal control standards; or

 

•

other matters determined by law and the board of directors regulations.

 

We currently have six management committees that serve under the board:

 

•

the Board Steering Committee;

 

•

the Management Strategy Committee;

 

•

the Risk Management Committee;

 

•

the Audit Committee;

 

•

the Compensation Committee; and

 

•

the Non Executive Director Nominating Committee.

 

Each committee member is appointed by the board of directors, except for members of the Audit Committee, who are elected at the general meeting of stockholders. For list of our directors, see 6. Directors, Senior Management and Employees / 6.1. Executive Directors and 6.2. Non-Executive Directors.

 

5.2.	Audit Committee

 

Audit Committee oversees our financial reporting and approves the appointment of and interaction with our independent auditors, compliance officers, management personnel and other committee advisors. The committee also reviews our financial information, auditor’s examinations, key financial statement issues and the administration of our financial affairs by the board of directors. In connection with the general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors to each general meeting of stockholders. The committee holds regular meetings every quarter and as-needed basis.

 

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5.3.	Compensation to Directors

 

For the 9 months period ended September 30, 2004, the aggregate of the remuneration paid by us to the President & CEO and our other executive directors and 2) our non-executive directors was 2,621 million Won, 475 million Won, respectively. The following table shows the breakdown of the remuneration.

 

(Units: in millions of Won)

 

		The aggregate remuneration paid		Limit for the remuneration resolved by shareholders’ meeting		Average amount of the payment per person
1) Executive Directors		2,621		8,000		524
2) Non Executive Directors		475				32
Total		3,096		8,000		155

 

As part of remuneration, Kookmin Bank also granted stock options to directors. See 1.3.3. Stock Option.

 

5.4.	Voting Rights of Shareholders

 

Each outstanding share of our common stock is entitled to one vote per share. If the method of written resolution at the general meeting of shareholders is adopted by resolution of the board of directors, at which the convening of the general meeting of shareholders is determined, the shareholders may exercise their voting rights in writing without participating the meeting in person. In this case, the Bank is required to send the documents and references necessary for exercise of voting rights, together with the convening notice. If a shareholder intends to exercise his/her voting rights in writing, the shareholder is required to fill in a certain form and submit it to the Bank one day before the date set for the general meeting of shareholders.

 

5.5.	Share Ownership

 

The following table presents information regarding the selected major ownership of our shares as of September 30, 2004, the latest record date.

 

(Unit: Shares,        %)

 

Name		Number of Shares of Common Stock		Percentage of Total Issued Shares
The Bank of New York1		46,744,257		13.90
Kookmin Bank2		29,929,583		8.90
ING Bank N.V.		13,650,001		4.06

---

1	Depositary of ADRs.

 

2	Treasury shares with no voting rights.

 

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5.6.	Affiliated Companies

 

5.6.1.

List of Affiliates1

 

As of September 30, 2004, we have following affiliates.

 

•

KB Investment Co., Ltd.

 

•

KB Asset Management Co., Ltd.

 

•

KB Real Estate Trust Co., Ltd.

 

•

KB Credit Information Co., Ltd.

 

•

KB Data Systems Corporation

 

•

KB Futures Co., Ltd.

 

•

KB Life Co., Ltd.

 

•

ING Life Korea Ltd.

 

•

Kookmin Bank Luxemburg. S.A.

 

•

Kookmin Bank International (London) Ltd.

 

•

Kookmin Finance Hong Kong Ltd.

 

•

Sorak Financial Holdings

 

5.6.2.

Operating Results of Affiliates

 

(Unit: in millions of Won)

 

Company name		Operating results
		Closing date		Total Assets		Total Liabilities		Total Equities		Sales		Net Income
KB Investment		December 31, 2003		95,555		18,194		77,361		19,227		5,300
KB Asset Management		March 31, 2004		61,432		4,113		57,319		24,401		9,711
KB Real Estate Trust		December 31, 2003		257,724		159,595		98,129		56,613		10,402
KB Credit Information		December 31, 2003		25,177		7,385		17,792		43,717		3,841
KB Data Systems Corp.		December 31, 2003		17,898		3,244		14,654		37,389		1,035
KB Futures		March 31, 2004		35,791		9,973		25,818		8,691		1,056
KB Life2		September 30, 2004		137,699		115,539		22,160		31,023		(8,341	)
ING Life Korea		March 31, 2004		3,461,826		3,228,415		233,411		1,865,503		103,088
Kookmin Bank Luxemburg		June 30, 2004		7,592		3,057		4,535		1,026		6
Kookmin Bank International (London)		September 30, 2004		320,376		264,695		55,681		11,078		555
Kookmin Finance HK		September 30, 2004		409,226		338,992		70,234		9,274		7,313
Sorak Financial Holdings		September 30, 2004		332,032		9,423		322,609		—		(43	)

---

1	Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures.

 

2	Since its establishment (i.e. April 29, 2004 ~ September 30, 2004)

 

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6.	Directors, Senior Management and Employees

 

As of September 30, 2004, our board of directors, which consists of 3 executive directors and 11 non-executive directors, has the ultimate responsibility for the management of our affairs.

 

6.1.	Executive Directors

 

Our 3 executive directors consist of the President & CEO and two executive vice presidents.

 

The names and positions of our directors with Kookmin Bank’s common stocks owned are set forth below.

 

Name		Date of Birth		Position		Common Stocks Owned
Jung Tae Kim		08/15/1947		President & CEO		126,581
Seong Kyu Lee		10/25/1959		Executive Director & EVP		—
Donald H. MacKenzie		12/20/1948		Executive Director & EVP		—

 

6.2.	Non-Executive Directors

 

Our non-executive directors are selected based on the candidates’ talents and skills in diverse areas, such as law, finance, economy, management and accounting. As of September 30, 2004, 11 non-executive directors are in office.

 

Our current non-executive directors with Kookmin Bank’s shares owned are as follows.

 

Name		Date of Birth		Position		Common Stocks Owned
Moon Soul Chung		03/07/1938		Non-Executive Director		5,221
Richard Elliott Lint		01/04/1946		Non-Executive Director		1,110
Sun Jin Kim		06/08/1942		Non-Executive Director		4,065
Dong Soo Chung		09/24/1945		Non-Executive Director		1,010
Kyung Hee Yoon		01/05/1947		Non-Executive Director		—
Suk Yong Cha		06/09/1953		Non-Executive Director		1,540
Bernard S. Black		11/13/1953		Non-Executive Director		1,110
Ki Hong Kim		01/10/1957		Non-Executive Director		1,660
Woon Youl Choi		04/02/1950		Non-Executive Director		9,379
Wang Ha Cho		09/18/1953		Non-Executive Director		661
Young Soon Cheon		02/01/1961		Non-Executive Director		590

 

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6.3.	Senior Management

 

In addition to the executive directors who are also our executive officers, we currently have the following 7 executive officers as of September 30, 2004.

 

Name		Date of Birth		Position		Common Shares Owned
Jong Kyoo Yoon		10/13/1955		Senior Executive Vice President		3,300
Jeung Lak Lee		06/13/1958		Senior Executive Vice President		—
Sang Jin Lee		05/21/1955		Senior Executive Vice President		1,078
Yun Keun Jung		07/01/1951		Senior Executive Vice President		2,416
Jung Young Kang		01/29/1951		Senior Executive Vice President		—
Young Il Kim		07/06/1953		Senior Executive Vice President		3,327
Ki Sup Shin		10/29/1955		Senior Executive Vice President		280

 

6.4.	Compensation to Directors and Senior Management

 

The total compensation to both directors and senior management for the three quarters of 2004, excluding grant of stock options, is 6,143,123,785 Won, and the average compensation amount per person is 180,680,111 Won. During the nine months, we had 20 directors and 14 executive vice presidents.

 

6.5.

Employees

 

The following table shows the breakdown of our employees as of September 30, 2004.

 

(Unit: in millions of Won)

 

		Number of Employees						Average Tenure of the Full-time Employees		Total Payment for Three Quarters of 2004		Average Monthly Payment per Person
		Full-time		Contractual		Total
Male		14,080		1,223		15,303		16.40		613,382		4.5
Female		4,931		7,764		12,695		13.68		320,616		2.8
Total		19,011		8,987		27,998		15.69		933,998		3.7

 

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7.	Related Party Transactions

 

A number of banking transactions are entered into with related parties in the ordinary course of business. Generally, these transactions include loans, deposits, debt securities and other arms-length transactions relating to our banking business. These transactions are carried out on commercial terms and conditions and at market rates.

 

7.1.	Transactions with the Largest Shareholders or Affiliates

 

7.1.1.

Investments in Affiliates1

 

(Unit: in millions of Won)

 

Name		Relation with the Bank		Account		Par Value		Beginning Balance (January 1, 2004)		Increase		Decrease		Ending Balance (September 30, 2004)
KB Real Estate Trust		Affiliate		Equity Securities of Affiliate		79,999		79,999		—		—		79,999
KB Investment		Affiliate		Equity Securities of Affiliate		44,708		44,708		—		—		44,708
KB Asset Management		Affiliate		Equity Securities of Affiliate		30,670		30,670		—		—		30,670
KB Futures		Affiliate		Equity Securities of Affiliate		19,996		19,996		—		—		19,996
KB Data Systems Corp.		Affiliate		Equity Securities of Affiliate		7,998		7,998		—		—		7,998
KB Credit Information		Affiliate		Equity Securities of Affiliate		4,154		4,154		—		—		4,154
KB Life		Affiliate		Equity Securities of Affiliate		30,000		0		30,000		—		30,000
ING Life Korea		Affiliate		Equity Securities of Affiliate		14,000		14,000		—		—		14,000
KOMOCO		Affiliate		Equity Securities of Affiliate		30,000		30,000		—		30,000		0
Total						261,525		231,525		30,000		30,000		231,525

---

1	Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures.

 

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7.1.2.

Real Estate Transactions

 

(Unit: in millions of Won)

 

Name		Relation with the Bank		Type		Account		The Number of Contracts		Deposits		Rent Fee
KB Credit Information		Affiliate		Building		Rental Income		21		4,727.46		11.73
KB Real Estate Trust		Affiliate		Building		Rental Income		2		1,738.00		3.56
KB Data Systems Corp.		Affiliate		Building		Rental Income		1		2,484.31		—
KB Futures		Affiliate		Building		Rental Income		1		1,363.36		—
KB Life		Affiliate		Building		Rental Income		1		1,839.20		—
Total		—		—		—		26		12,152.33		15.29

 

7.2.	Transactions with Other than the Largest Shareholders or Affiliates

 

7.2.1.

Loans and Guarantees

 

(Unit: in millions of Won)

 

Name		Relation with the Bank		Account		Beginning Balance (January 1, 2004, or on the date of appointment)		Ending Balance (September 30, 2004)		Increase / (Decrease) for the period
Kolon Co.		Related party of Non executive director, Wang Ha Cho		Overdraft and etc.		30,000		25,000		25,378 (30,378	)
Kolon Construction		Related party of Non executive director, Wang Ha Cho		Overdraft		77		0		(77	)
Hankyoreh Plus		Related party of Senior executive vice president, Seong Kyu Lee		Loans for working capital and etc.		6,915		8,798		3,349 (1,466	)
Janssen Korea		Related party of Non executive director, Sun Jin Kim		Corporate loans		0		6,500		6,500
Hyundai Mipo Dockyard Co.		Related party of Non executive director, Woon Youl Choi		Housing loan		36		36		0
Total						37,028		40,334		3,306

 

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7.2.2.

Real Estate Transactions

 

(Unit: in millions of Won)

 

Name		Relation with Kookmin Bank		Type		Account		Deposits		Rent Fee
DSME Co.		Related party of Non executive director, Dong Soo Chung		Building		Rental Deposit		—		11.04
Total								—		11.04

 

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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: November 15, 2004						By:		/s/ Kap Shin
						(Signature)
						Name:		Kap Shin
						Title:		Senior Executive Vice President & Chief Financial Officer

 

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Exhibit 99.1

 

Kookmin Bank

 

Non-Consolidated Interim Financial Statements

September 30, 2004 and 2003

 

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Kookmin Bank

Index

September 30, 2004 and 2003, and December 31, 2003

 

		Page(s)
Report of Independent Accountants		1–3
Non-Consolidated Interim Financial Statements
Balance Sheets		4
Statements of Operations		5
Statements of Cash Flows		6–7
Notes to Non-Consolidated Interim Financial Statements		8–58

 

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

 

Report of Independent Accountants

 

To the Board of Directors and Shareholders of Kookmin Bank

 

We have reviewed the accompanying non-consolidated balance sheet of Kookmin Bank (“the Bank”) as of September 30, 2004, and the related non-consolidated statements of operations and cash flows for the three-month and nine-month periods ended September 30, 2004 and 2003, expressed in Korean won. These interim financial statements are the responsibility of the Bank’s management. Our responsibility is to issue a report on these interim financial statements based on our review.

 

We conducted our reviews in accordance with the quarterly and semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. These standards require that we plan and perform our review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of the Bank’s personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

 

Based on our reviews, nothing has come to our attention that causes us to believe that the non-consolidated interim financial statements referred to above are not presented fairly, in all material respects, in accordance with accounting principles generally accepted in the Republic of Korea.

 

We have audited the non-consolidated balance sheet of Kookmin Bank as of December 31, 2003 and the related non-consolidated statements of operations, appropriation of retained earnings and cash flows for the year then ended, in accordance with auditing standards generally accepted in the Republic of Korea. We expressed an unqualified opinion on those financial statements in our audit report dated March 3, 2004.

 

As discussed in Note 36 to the non-consolidated financial statements, the Bank restated its non-consolidated balance sheet as of December 31. 2003 and the related non-consolidated statements of operations and cash flows for the nine-month period ended September 30, 2003, presented herein for comparative purposes, as instructed by the Securities and Futures Commission of underestimate of other allowance by (Won) 213,157 million and overestimate of valuation loss using equity method by (Won)27,159 million. On the other hand, the financial statements for the year ended in December 31, 2003 in the audit report dated March 3, 2004, are no longer valid, as they were prior to restatement.

 

Samil PricewaterhouseCoopers is the Korean member firm of the PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

 

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As discussed in Note 33 to the non-consolidated 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 each received 0.442983 share of the Bank’s common stock for each share of the Subsidiary.

 

As discussed in Note 20 to the non-consolidated financial statements, in accordance with the resolution of the Board of Directors on December 17, 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 of September 30, 2004, the Bank holds 8.90% of the total common stock issued as treasury stock.

 

As discussed in Note 4 to the non-consolidated financial statements, as a means to venture into the insurance business for diversification of revenues, the Bank invested (Won)30,246 million (including acquisition costs) on April 29, 2004, to acquire a 100% ownership of KB Life Insurance Co., Ltd., which was founded to acquire the assets and the liabilities of Hanil Life Insurance Co., Ltd.

 

As discussed in Note 16 to the non-consolidated financial statements, the Bank’s total exposure (including loans and securities) to LG Card Co., Ltd., which is under the joint control of financial institutions as it is currently experiencing a financial crisis, amounts to (Won)520,134 million as of September 30, 2004. In addition, the Bank holds securities issued by credit card companies and capital companies, which are experiencing liquidity problems, amounting to (Won)201,538 million as of September 30, 2004. 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 non-consolidated financial statements.

 

As discussed in Note 2, during the quarter ended September 30, 2004, the Bank changed its accounting on its sale of loans. Previously, the gain or loss on sale of written-off loans is computed by adjusting the loan’s related allowance. The gain or loss on sale of loans other than written-off loans is computed by comparing the book value at the date of sale against the proceeds of the sale. Currently, the gain or loss on sale of both kinds of loans is now computed by comparing the sale proceeds against its book value on the year end immediately preceding the date of sale. Due to this change, loss on sale of loans increased by (Won)864,445 million and gain on sale of loans and allowance for loan losses decreased by (Won)43,039 million and (Won)907,484 million, respectively, for the nine-month period ended September 30, 2004. The income statement for the nine-month period ended September 30, 2003, presented herein for comparative purposes, were restated to reflect the changes in calculation of gain or loss on sales of loans loss resulting in an increase in loss on sale of loans and gain on sale of loans by (Won)498,143 million and (Won)4,668 million, respectively, and decrease in allowance for loans losses by (Won)493,475 million. Such restatement has no effect on the current period’s net income and net assets.

 

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Accounting principles and review 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 review such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those who are knowledgeable about Korean accounting principles or review standards and their application in practice.

 

Seoul, Korea

October 14, 2004

 

This report is effective as of October 14, 2004, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

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Kookmin Bank

Non-Consolidated Balance Sheets

September 30, 2004 and December 31, 2003

(Unaudited)

 

(in millions of Korean won)		2004				2003
Assets
Cash and due from banks (Note 3)		(Won)	8,508,411			(Won)	6,526,345
Securities (Note 4)			24,703,466				26,908,462
Loans, net (Notes 5 and 6)			142,047,025				141,143,674
Fixed assets, net (Note 7)			2,827,777				3,019,556
Other assets (Note 8)			8,176,381				6,547,547
Total assets		(Won)	186,263,060			(Won)	184,145,584
Liabilities and Shareholders’ Equity
Deposits (Note 9)		(Won)	130,107,028			(Won)	132,180,272
Borrowings (Note 10)			10,663,592				10,902,800
Debentures (Note 11)			21,436,144				19,192,581
Other liabilities (Note 13)			14,976,352				13,632,425
Total liabilities			177,183,116				175,908,078
Commitments and contingencies (Notes 14 and 16)
Common stock - (Won)5,000 par value per share; 1 billion shares authorized and 336,379,116 shares outstanding (Notes 1 and 17)			1,681,896				1,681,896
Capital surplus (Note 18)			6,230,738				6,230,738
Retained earnings (Note 19)			2,169,192				1,485,111
Capital adjustments (Note 20)			(1,001,882	)			(1,160,239	)
Total shareholders’ equity			9,079,944				8,237,506
Total liabilities and shareholders’ equity		(Won)	186,263,060			(Won)	184,145,584

 

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

 

See Report of Independent Accountants

 

4

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Table of Contents

 

Kookmin Bank

Non-Consolidated Statements of Operations

Three-Month and Nine-Month Periods Ended September 30, 2004 and 2003

(Unaudited)

 

(in millions of Korean won, except per share amounts)		Three-month period								Nine-month period
		2004				2003				2004				2003
Interest income
Interest on due from banks		(Won)	2,900			(Won)	1,388			(Won)	7,038			(Won)	5,167
Interest on trading securities			35,791				27,296				115,477				51,818
Interest on available-for-sale securities			115,227				176,792				378,091				344,469
Interest on held-to-maturity securities			86,929				175,238				272,889				363,497
Interest on loans			2,538,438				2,413,620				7,824,498				4,791,321
Other interest income			25,496				26,616				76,194				49,382
			2,804,781				2,820,950				8,674,187				5,605,654
Interest expenses
Interest on deposits			967,229				1,079,533				2,986,152				2,183,020
Interest on borrowings			74,841				105,782				254,163				214,312
Interest on debentures			288,322				280,770				818,822				564,021
Other interest expenses			11,728				20,016				50,009				32,722
			1,342,120				1,486,101				4,109,146				2,994,075
Net interest income			1,462,661				1,334,849				4,565,041				2,611,579
Provision for loan losses (Note 6)			966,507				1,026,698				2,245,698				1,685,764
Net interest income after provision for loan losses			496,154				308,151				2,319,343				925,815
Non-interest income
Fees and commission income			518,802				344,963				1,631,272				681,829
Dividends on trading securities			324				—				3,289				1,514
Dividends on available-for-sale securities			95				2,622				7,709				5,288
Gain on foreign currency transactions			82,226				35,210				203,995				165,926
Gain on derivatives transactions (Note 15)			861,535				498,267				2,049,392				1,240,561
Others (Note 22)			864,082				500,401				1,296,501				546,430
			2,327,064				1,381,463				5,192,158				2,641,548
Non-interest expenses
Fees and commission expenses			107,534				43,143				359,902				92,378
General and administrative expenses (Note 23)			650,573				628,663				1,966,199				1,210,779
Loss on foreign currency transactions			44,885				46,213				124,779				129,016
Loss on derivatives transactions (Note 15)			833,429				465,014				2,008,046				1,214,154
Others (Note 22)			562,689				574,745				1,194,572				624,648
			2,199,110				1,757,778				5,653,498				3,270,975
Operating income (loss)			624,108				(68,164	)			1,858,003				296,388
Non-operating income (expenses), net (Note 24)			(69,764	)			(117,275	)			(856,295	)			(334,712	)
Net income (loss) before income tax expense			554,344				(185,439	)			1,001,708				(38,324	)
Income tax expense (benefit) (Note 25)			179,396				(70,838	)			319,199				2,344
Net income (loss)		(Won)	374,948			(Won)	(114,601	)		(Won)	682,509			(Won)	(40,668	)
Basic earnings (loss) per share (In Won) (Note 26)										(Won)	2,227			(Won)	(125	)

 

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

 

See Report of Independent Accountants

 

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Kookmin Bank

Non-Consolidated Statements of Cash Flows

Three-Month and Nine-Month Periods Ended September 30, 2004 and 2003

(Unaudited)

 

(in millions of Korean won)		Three-month period								Nine-month period
		2004				2003				2004				2003
Cash flows from operating activities
Net income (loss)		(Won)	374,947			(Won)	(114,601	)		(Won)	682,509			(Won)	(40,668	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Realized (gain) loss on trading securities, net			(11,847	)			(15,417	)			(49,879	)			(42,500	)
Unrealized gain on trading securities, net			(32,020	)			(39,005	)			(42,442	)			(56,625	)
(Gain) loss on foreign currency transactions, net			(37,341	)			11,003				(79,216	)			(36,910	)
Provision for loan losses			966,507				1,026,698				2,245,698				1,685,764
Reversal of losses from guarantees and acceptances			—				122,950				—				122,746
Gain on derivative transactions, net			(28,106	)			(33,253	)			(41,346	)			(26,407	)
Loss on valuation of derivatives, net			(18,541	)			(11,652	)			(24,215	)			(13,224	)
Loss (gain) on fair value hedged items, net			10,116				6,671				(2,147	)			8,076
Retirement benefits			26,037				22,040				81,200				45,990
Stock compensation expense			1				—				3,223				—
Depreciation and amortization			102,063				109,440				304,041				210,912
Loss on disposal of fixed assets, net			658				32,188				507				33,553
Impairment loss on disposal of fixed assets, net			16,103								16,103
Realized gain on available-for-sale securities, net			(7,420	)			(46,843	)			(81,207	)			(86,530	)
Impairment loss on available-for-sale securities, net			—				46,397				55,058				38,627
Realized gain on held-to-maturity securities			—				(475	)			(1,509	)			(1,268	)
Unrealized loss (gain) on investment in associates, net			6,389				91,990				(10,089	)			349,642
Loss on sale of loans, net			24,150				420				840,839				1,633
Provision for other allowances			(236,573	)			—				15,562				—
Others, net			(87,889	)			(6,454	)			(233,594	)			(12,796	)
Changes in assets and liabilities resulting from operations
Accrued income			(25,322	)			(61,502	)			27,782				24,382
Prepaid expenses			(30,716	)			3,206				132,056				(29,166	)
Deferred tax assets			180,315				3,771				242,890				(167,223	)
Other assets			(2,460	)			(251	)			(2,924	)			3,168
Accrued expenses			(14,703	)			(200,965	)			(110,868	)			(174,510	)
Unearned income			(12,865	)			(8,230	)			(15,683	)			(9,163	)
Withholding taxes			(31,015	)			9,236				(74,000	)			12,214
Other liabilities			68,523				(67,749	)			(169,532	)			275,557
Payment of retirement benefits			(4,284	)			(3,953	)			(34,466	)			(7,225	)
Retirement pension funds			310				183,484				14,759				(10,752	)
Account for agency business			73,071				—				21,385				—
Stock compensation expense			—				3,805				—				(2,683	)
Net cash provided by operating activities			1,268,088				1,062,949				3,710,495				2,094,614

 

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

 

See Report of Independent Accountants

 

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Kookmin Bank

Non-Consolidated Financial Statements of Cash Flows

Three-Month and Nine-Month Periods Ended September 30, 2004 and 2003

(Unaudited)

 

		Three-month period								Nine-month period
(in millions of Korean won)		2004				2003				2004				2003
Cash flows from investing activities
(Increase) decrease in due from banks		(Won)	(269,681	)		(Won)	974,688			(Won)	(1,891,166	)		(Won)	(699,744	)
Decrease in trading securities			1,109,170				573,215				1,356,119				876,918
(Increase) decrease in available-for-sale securities			(1,153,744	)			(66,010	)			891,513				(4,089,009	)
Decrease (increase) in held-to-maturity securities			261,538				462,681				647,443				1,492,244
Acquisition of investment in associates			(9,231	)			—				(6,299	)			—
Increase in loans granted, net			(3,286,720	)			(3,359,993	)			(4,181,343	)			(6,736,889	)
Proceeds from disposal of fixed assets			526				126,525				4,424				133,742
Acquisition of fixed assets			(46,574	)			(114,917	)			(133,131	)			(173,845	)
Acquisition of intangible assets			(132	)			(70	)			(891	)			(340	)
Proceeds from disposal of foreclosed assets			382				248				518				279
(Increase) decrease in guarantee deposits			(333	)			(13,989	)			53,026				(21,046	)
Decrease (increase) in other accounts receivable			1,389,600				(1,742,280	)			(2,063,443	)			(1,692,171	)
(Increase) decrease in payments in advance			(4,316	)			(13,284	)			(278	)			(27,683	)
(Increase) decrease in derivative assets, net			(26,823	)			(20,065	)			41,717				64,537
Decrease in collection of domestic exchange receivables			92,791				328,534				291,728				764,687
Collection of loans to trust accounts			—				29,869				—				36,748
Acquisition of foreclosed assets			(64	)			—				—				—
Net cash used in investing activities			(1,943,611	)			(2,834,848	)			(4,990,063	)			(10,071,572	)
Cash flows from financing activities
Increase (decrease) in deposits, net			188,083				3,281,589				(2,073,242	)			4,592,498
(Decrease) increase in borrowings, net			(712,282	)			(415,760	)			(239,208	)			2,637,463
Increase (decrease) in debentures, net			1,767,846				(2,024,557	)			2,243,564				(493,759	)
(Decrease) increase in borrowings from trust accounts			(122,119	)			192,924				(2,809,326	)			734,550
(Decrease) increase in other accounts payable			(951,058	)			1,702,214				2,659,765				1,536,531
Increase in advances received from customers			48,355				483,570				320,692				1,169,615
Increase (decrease) in guarantee deposits received			15,098				2,161				1,432				(7,229	)
Increase in domestic exchange payables			714,240				239,705				889,032				(191,352	)
Increase (decrease) in liabilities incurred by agency relationships			138,427				(887,284	)			367,757				(50,079	)
Stock options exercised			—				—				—				(35	)
Sale of treasury stock			16				—				2,251				50
Decrease in dividend payable			—				(3	)			—				(325,183	)
Net cash provided by financing activities			1,086,606				2,574,559				1,362,717				9,603,070
Net increase in cash and cash equivalents			411,083				802,660				83,149				1,626,112
Cash and due from banks, beginning of period			3,443,823				3,924,033				3,771,757				3,100,581
Cash and due from banks, end of period (Note 34)		(Won)	3,854,906			(Won)	4,726,693			(Won)	3,854,906			(Won)	4,726,693

 

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

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

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 Housing and Commercial Bank (“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 has 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 on November 9, 2001. As of September 30, 2004, the Bank’s paid-in capital amounts to (Won)1,681,896 million and its 46,744,257 shares 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 1,119 domestic branches and offices (excluding automated teller machines) and three overseas branches as of September 30, 2004.

 

2. Summary of Significant Accounting Policies

 

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.

 

Application of the Statements of Korean Financial Accounting Standards

 

The Bank has adopted Statements of Korean Financial Accounting Standards (“SKFAS”) Nos. 1~10, 12 and 13 (SKFAS Nos.10, 12 and 13 have been effective as of January 1, 2004) in the preparation of its financial statements. Except for the adoption of these SKFAS, the same accounting policies are applied for the financial statements as of and for the nine-month period ended September 30, 2004 and as of and for the year ended December 31, 2003.

 

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 differ from those estimates.

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Recognition of Interest Income

 

The Bank recognizes interest income on loans and debt securities on an accrual basis. However, interest income on delinquent and dishonored loans and debt securities, other than those collateralized with security deposits or guaranteed by financial institutions, is recognized on a cash basis. As of September 30, 2004, the Bank has non-accrual loans and securities of (Won)9,798,553 million and (Won)553,114 million, respectively, with related foregone interest of (Won)539,230 million and (Won)188,915 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 neither classified as 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. 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. Otherwise, they 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 of the debt securities using the effective interest method. Impairment losses are recognized in the current operations when there is evidence of impairment and recoverable amounts of available-for-sale securities or held-to-maturity securities are less than either 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 of.

 

The wholly owned beneficiary certificates are each classified based on the Bank’s intention for acquiring the certificates. The fund assets of these wholly owned beneficiary certificates are comprised of deposits, call loans and securities, and the fund income is comprised of interest income, realized gains and losses, and valuation gains and losses. The Bank recorded all gains and losses from these wholly owned beneficiary certificates as income from beneficiary certificates. Accounting policies of these funds that are different from those of the Bank include application of the moving average method for determining the cost of debt securities and amortization of discounts/premiums on debt securities using the straight line method.

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Investments in Associates

 

Investments in associates, over which the Bank exercises significant control or influence, are accounted for using the equity method. Under the equity method, the Bank records changes in its proportionate ownership of the associate in the 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. The deferred loan origination fees and costs are amortized using the effective interest method with the amortization recognized as adjustments to other interest income.

 

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. The credit rating criteria are divided into 12 categories (AAA, AA, A, BBB, BB, BB-, B, B-, CCC, CC, C, D) with consideration of the credit risk of corporate borrowers, which is evaluated based on financial and non-financial risks, and 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		0.50%
Precautionary		B-~CCC		2.00%
Sub-standard		CC		20.00%
Doubtful		C		50.00%
Estimated loss		D		100.00%

 

See Report of Independent Accountants

 

10

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

However, the Bank classifies small-sized corporate loans, consumer loans, and credit card loans by considering the recoverable amounts of loans including delinquencies, bankruptcies and collateral value. The rates used for determining the allowances for losses from corporate loans, consumer loans and credit card loans are as follows:

 

Credit Risk Classification		Allowance Rates
		Small-sized corporate			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	%

 

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

 

Troubled Debt Structuring

 

The equity interest in the debtors, net of real estates and/or other assets received as full or partial satisfaction of the Bank’s loans, collected through reorganization proceedings, court mediation, or debt restructuring agreements of parties concerned, are recorded at their fair value at the time of the restructuring. In cases where the fair value of the assets received are less than the book value of the loan (book value before allowances), the Bank offsets the book value against allowances for loans first and then recognizes provisions for loans. Impairment losses for loans, that were restructured in a troubled debt restructuring involving a modification of terms, are computed by getting the difference between the present value of future cash flows under debt restructuring agreements discounted at effective interest rates at the time when loans are originated, and the book value before allowances for loans. If the amount of allowances already established is less than the impairment losses under the workout plans, the Bank establishes additional allowances for the difference. Otherwise, the Bank reverses the allowances for loan losses.

 

Before the adoption of SKFAS No. 13, Troubled Debt Structuring, the difference between the nominal value and the present value of loan under troubled debt structuring agreements was recorded as present value discounts and was presented separately as a deduction from the loan nominal value. However, in accordance with the Bank’s adoption of SKFAS No. 13, unamortized present value discounts as of the beginning of the current period are classified as allowances for loan losses.

 

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 the accumulated depreciation is presented as a contra account of tangible assets in the financial statements. In addition, impairment loss is recognized based on the difference between the recoverable amount and the book value. The accumulated impairment loss is presented as a contra account of tangible assets in the financial statements.

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

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		40 years
Leasehold improvements		Declining balance		4-5 years
Equipment and vehicles		Declining balance		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 when 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		9 years
Development costs		Straight-line		5 years
Trademarks		Straight-line		1-10 years
Others		Straight-line		5-30 years

 

The Bank estimates the useful life of endowment assets, that are beneficial upon usage and are classified under other intangible assets, to be 30 years based on the term of the contract. The Bank records goodwill as a result of the merger with H&CB as the cost of the merger exceeded 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.

 

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.

 

Accrued Retirement Benefits

 

Employees and directors with at least one year of service and temporary employees with at least a one-year contract, as of September 30, 2004, 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.

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

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 under loans as bonds purchased under resale agreements. Securities sold under repurchase agreements are recorded under 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 the resulting unrealized gains and losses are recognized in the 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 the 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 the 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 NHF the interest, which is computed by multiplying the average balance of the NHF account by the passbook deposit interest rate.

 

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 % (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 nine-month period ended September 30, 2004.

 

See Report of Independent Accountants

 

13

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Foreign Currency Translation

 

All assets and liabilities denominated in foreign currencies are translated into Korean Won at the rates in effect as of the balance sheet dates (September 30, 2004: (Won)1,147.9:US$1, December 31, 2003: (Won)1,197.8: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.

 

Restatement of Prior Period Financial Statements

 

During the quarter ended September 30, 2004, the Bank changed its accounting on its sale of loans. Previously, the gain or loss on sale of written-off loans is computed by adjusting the loan’s related allowance. The gain or loss on sale of loans other than written-loans is computed by comparing the book value at the date of sale against the proceeds of the sale. Currently, the gain or loss on sale of both kinds of loans is now computed by comparing the sale proceeds against its book value on the year end immediately preceding the date of sale. Due to this change, loss on sale of loans increased by (Won)864,445 million and gain on sale of loans and allowance for loan losses decreased by (Won)43,039 million and (Won)907,484 million, respectively, for the nine-month period ended September 30, 2004. The income statement for the nine-month period ended September 30, 2003, presented herein for comparative purposes, were restated to reflect the changes in calculation of gain or loss on sales of loans loss resulting in an increase in loss on sale of loans and gain on sale of loans by (Won)498,143 million and (Won)4,668 million, respectively, and decrease in allowance for loans losses by (Won)493,475 million. Such restatement has no effect on the current period’s net income and net assets.

 

During the current period, the Bank reclassified the subordinated retained interests earned from securitization transactions from available-for-sale securities to loans. Such reclassification has no effect on the current period’s net income and net assets. The prior period financial statements presented herein for comparative purposes were also reclassified to conform to the current period financial statement presentation.

 

As explained in Note 36, the Bank restated its financial statements as of September 30, 2003 and December 31, 2003 and for nine-month period ended September 30, 2003 and the year ended December 31, 2003 to comply with SFC’s instructions.

 

See Report of Independent Accountants

 

14

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

3. Cash and Due from Banks

 

Cash and due from banks as of September 30, 2004 and December 31, 2003 consist of:

 

(in millions of Korean won)				2004				2003
Cash on hand
Cash in won				(Won)	3,023,458			(Won)	2,945,921
Cash in foreign currencies					139,945				228,153
					3,163,403				3,174,074
Due from banks in Won
Bank of Korea		Reserve deposits in the Bank of Korea			4,446,922				2,612,248
Other banks		Time deposits			—				810
		Passbook deposits			29,279				8,185
		Certificate of deposit			98,632				—
					127,911				8,995
Other financial institutions		Deposits at Hansol Mutual Savings & Finance Co., Ltd.			140,000				140,000
Others		Futures margin accounts			4				1,560
		Market participation margin			463				454
		KOSPI futures margin accounts			2,822				200
					3,289				2,214
					4,718,122				2,763,457
		Present value discounts 1			(5,059	)			(12,810	)
					4,713,063				2,750,647
Due from banks in foreign currencies
Bank of Korea		Demand deposits			67,923				12,415
Other banks		Demand deposits			83,859				71,879
		Time deposits			15,502				—
Others		Other deposits			5,616				3,354
Off-shore		Demand deposits			459,045				513,976
					631,945				601,624
				(Won)	8,508,411			(Won)	6,526,345

---

1	Present value discounts are related to the (Won)140,000 million of time deposits (1% interest, scheduled in installments by the end of 2005) placed with Hansol Mutual Savings & Finance Co., Ltd. (previously, Bukook Mutual Savings & Finance Co., Ltd.).

 

The maturities of the due from banks as of September 30, 2004 are as follows:

 

(in millions of Korean won)		Due from Banks in Won			Due from Banks in Foreign Currencies			Total
Due in 3 months or less		(Won)	4,529,490		(Won)	501,653		(Won)	5,031,143
Due after 3 months through 6 months			121,132			114,790			235,922
Due after 6 months through 1 year			67,500			15,502			83,002
		(Won)	4,718,122		(Won)	631,945		(Won)	5,350,067

 

See Report of Independent Accountants

 

15

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Included in cash and due from banks as of September 30, 2004 are the following restricted deposits:

 

(in millions of Korean won)		Amount			Restrictions
Reserve deposits in the Bank of Korea		(Won)	4,446,922		General Banking Act
Deposits at Hansol Mutual Savings & Finance Co., Ltd.			140,000		Withdrawal at maturity
Due from banks in foreign currency			67,923		General Banking Act
Other deposits			3,719		Futures guarantee deposits
		(Won)	4,658,564

 

See Report of Independent Accountants

 

16

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

4. Securities

 

Securities as of September 30, 2004 and December 31, 2003 consist of:

 

(in millions of Korean won)		2004			2003
Trading		(Won)	3,438,555		(Won)	4,482,948
Available-for-sale			15,361,559			15,894,974
Held-to-maturity			5,333,407			5,979,341
Investment in associates			569,945			551,199
		(Won)	24,703,466		(Won)	26,908,462

 

Trading, available-for-sale, and held-to-maturity securities as of September 30, 2004 and December 31, 2003 consist of:

 

		Unrealized						Book Value
(in millions of Korean won)		Gain			Loss			2004			2003
Trading
Equity securities		(Won)	15,542		(Won)	428		(Won)	164,613		(Won)	113,171
Beneficiary certificates			1			2			8,409			1,686,754
Government and municipal bonds			7,460			5			781,872			1,076,427
Corporate bonds			20,002			347			2,412,203			1,365,060
Asset-backed securities			219			—			71,458			241,536
		(Won)	43,224		(Won)	782		(Won)	3,438,555		(Won)	4,482,948

 

		Impairment						Capital Adjustments						Book Value
(in millions of Korean won)		Reversal			Loss			Gain			Loss			2004			20031*
Available-for-Sale
Equity securities		(Won)	—		(Won)	17,154		(Won)	145,843		(Won)	9,012		(Won)	689,495		(Won)	439,791
Investment in funds			—			3			3,169			—			4,676			30,872
Beneficiary certificates			—			—			48,783			3			5,721,477			4,375,817
Government and municipal bonds			—			—			19,354			—			863,007			2,322,889
Foreign government bonds			—			—			1,794			111			36,470			28,153
Corporate bonds			—			2,451			81,957			2,367			7,425,287			8,228,640
Asset-backed securities			—			35,450			1,484			—			621,099			468,669
Other debt securities			—			—			—			—			48			143
		(Won)	—		(Won)	55,058		(Won)	302,384		(Won)	11,493		(Won)	15,361,559		(Won)	15,894,974

 

		Impairment						Unrealized Holding						Book Value
(in millions of Korean won)		Reversal of			Loss			Gain			Loss			2004			2003
Held-to-Maturity
Government and municipal bonds		(Won)	—		(Won)	—		(Won)	130,745		(Won)	32		(Won)	2,463,836		(Won)	2,489,998
Corporate bonds			—			—			86,078			—			2,622,226			3,163,020
Asset-backed securities			—			—			8,143			—			228,188			326,323
Other securities			—			—			—			1			19,157			—
		(Won)	—		(Won)	—		(Won)	224,966		(Won)	33		(Won)	5,333,407		(Won)	5,979,341

---

1	Subordinated retained interest received from securitization transaction amounting to (Won)1,193,383 million has been reclassified from beneficiary certificates in securities to credit card receivables in loans (Note 2).

 

See Report of Independent Accountants

 

17

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004 and December 31, 2003, investments in associates include:

 

(in millions of Korean won)		Owner- ship (%)		Acquisition Cost			Beginning balance1			Equity Method2												Book Value
										Net Income				Retained Earnings				Capital Adjustments				2004			2003
Domestic Associates
KB Investment Co., Ltd.3		99.89		(Won)	155,311		(Won)	75,932		(Won)	(3,471	)		(Won)	—			(Won)	3,234			(Won)	75,695		(Won)	77,273
KB Data Systems Co., Ltd.4		99.98			7,998			14,247			962				—				(3	)			15,206			14,647
KB Futures Co., Ltd.5		99.98			19,996			25,121			593				—				—				25,714			25,521
KLB Securities		36.41			10,316			—			—				—				—				—			—
KB Asset Management 6		80.00			39,015			38,918			5,845				—				(238	)			44,525			45,051
Jooeun Industrial		99.99			23,994			—			—				—				—				—			—
KB Real Estate Trust		99.99			76,103			98,129			(7,565	)			(336	)			336				90,564			98,129
KB Credit Information		66.34			8,444			11,447			1,244				—				—				12,691			11,863
ING Life Korea		20.00			21,769			41,845			15,124				—				2,186				59,155			43,845
Korea Mortgage8		—			30,629			—							—				—				—			35,788
KICO No. 2 Venture Investment Partnership2		55.56			—			—			207				—				—				207			—
KICO No. 3 Venture Investment Partnership2		69.23			—			—			149				—				—				149			—
Pacific IT Investment Partnership2		50.00			7,000			7,000			(114	)			—				—				6,886			—
NPC02-4 Kookmin Venture Fund2		33.33			10,000			10,000			318				—				—				10,318			—
KB Life Insurance Co., Ltd.		100.00			30,246			30,246			(16,722	)			—				501				14,025			—
					440,821			352,885			(3,430	)			(336	)			6,016				355,135			352,117
Foreign Associates
KB Int’l Ltd. (London)		100.00			41,328			55,080			602				—				—				55,682			56,755
KB Luxembourg S.A		100.00			24,564			5,386			(969	)			—				—				4,417			5,950
Kookmin Singapore Ltd.		100.00			23,103			1,993			—				—				—				1,993			2,080
Kookmin Finance Asia Ltd. (HK)		100.00			8,035			274			3				—				—				277			286
Kookmin Bank HK Ltd.7		100.00			22,958			60,103			7,683				2,818				(370	)			70,234			62,716
Sorak Financial Holdings		25.00			81,938			81,938			6,200				—				(5,931	)			82,207			71,295
					201,926			204,774			13,519				2,818				(6,301	)			214,810			199,082
				(Won)	642,747		(Won)	557,659		(Won)	10,089			(Won)	2,482			(Won)	(285	)		(Won)	569,945		(Won)	551,199

---

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

 

2	The investments in funds which had been classified as available-for-sale for the prior years are reclassified as investments in associates as of January 1, 2004.

 

3	Kookmin Investment Co.,Ltd. has changed its name to KB Investment Co.,Ltd. on April 30, 2004.

 

4	Kookmin Data Systems Corp. has changed its name to KB Data Systems Co., Ltd., on April 30, 2004.

 

5	Kookmin Futures Co., Ltd. has changed its name to KB Futures Co., Ltd., on April 30, 2004.

 

6	KB Investment Trust Management has changed its name to KB Asset Management, on April 29, 2004.

 

7	Kookmin Finance HK Ltd. has changed its name to Kookmin Bank HK Ltd., on January 1, 2004.

 

8	All equity securities of Korea Mortgage have been sold on June 4, 2004.

 

See Report of Independent Accountants

 

18

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

KLB Securities Co., Ltd., Jooeun Industrial Co., Ltd., KICO No. 2 Venture Investment Partnership  , KICO No.3 Venture Investment Partnership, Kookmin Singapore, Ltd. and Kookmin Finance Asia, Ltd. (HK), KB Luxembourg S.A are all 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 accumulated estimated loss that has not been recognized by the Bank arising from the securities amounts to (Won)55,219 million.

 

The Bank applies the equity method accounting to subsidiaries based on unaudited financial statements as of September 30, 2004. In the case of ING Life Korea Co., Ltd., the Bank applies the equity method based on the most recent available audited financial statements that are adjusted for changes in net assets for the period ended September 30, 2004, including adjustment for income tax expenses of (Won)22,236 million.

 

As a means to venture into the insurance business for diversification of revenues, the Bank invested (Won)30,246 million (including acquisition costs) on April 29, 2004, to acquire a 100% ownership of KB Life Insurance Co., Ltd., which was founded to acquire the assets and the liabilities of Hanil Life Insurance Co., Ltd.

 

The maturities of the available-for-sale and held-to-maturity debt securities, excluding equity investments, as of September 30, 2004 are summarized as follows:

 

(in millions of Korean won)		Available-for-sale						Held-to-maturity
		Book Value			Fair value			Book Value			Fair value
Maturities
Due in 1 year or less		(Won)	9,384,223		(Won)	9,384,223		(Won)	1,988,208		(Won)	2,016,890
Due after 1 year through 5 years			4,941,103			4,941,103			3,072,439			3,231,158
Due after 5 years through 10 years			341,519			341,519			272,760			310,292
After 10 years			543			543			—			—
		(Won)	14,667,388		(Won)	14,667,388		(Won)	5,333,407		(Won)	5,558,340

 

Investment securities risk concentrations as of September 30, 2004 are as follows:

 

(in millions of Korean won, except ratio)		Book Value			Ratio (%)
By Country
Korea		(Won)	24,465,443		99.04
Singapore			82,234		0.33
USA			56,218		0.23
Indonesia			27,641		0.11
Philippines			20,838		0.08
Mexico			13,138		0.05
Others			37,954		0.16
		(Won)	24,703,466		100.00

 

See Report of Independent Accountants

 

19

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

(in millions of Korean won, except ratio)		Book Value			Ratio (%)
By Type
Fixed rate bonds		(Won)	14,394,591		58.27
Floating rate bonds			2,012,461		8.15
Subordinated bonds			866,620		3.51
Convertible bonds			271,128		1.10
Beneficiary certificates			5,729,887		23.19
Equity securities			1,406,493		5.69
Others			22,286		0.09
		(Won)	24,703,466		100.00

 

(in millions of Korean won, except ratio)		Book Value			Ratio (%)
By Industry
Government and municipalities		(Won)	7,470,057		30.24
Financial institutions			15,978,332		64.68
Manufacturing industries			516,822		2.09
Others			738,255		2.99
		(Won)	24,703,466		100.00

 

See Report of Independent Accountants

 

20

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Available-for-sale equity securities of which the fair value cannot be reasonably measured as of September 30, 2004 are as follows:

 

(in millions of Korean won)		Acquisition Cost			Net Asset Value 1			Book Value
Daewoo Electronics Co., Ltd.		(Won)	23,800		(Won)	—		(Won)	—
Daehan Investment Trust Securities Co., Ltd.			10,000			1,604			—
Bad Bank Harmony			9,792			44,065			9,792
Mastercard, Inc. Korea			8,688			6,969			8,688
Korea Asset Management Corp.			7,827			12,783			7,827
Samsung Life Insurance Co., Ltd.			7,479			7,848			7,479
Korea Highway Corp.			6,248			5,903			6,248
Continuous Linked Settlement System			6,146			3,241			6,146
Baring Communications Equity			5,355			2,153			2,153
KOHAP Corporation			3,440			—			—
Pan Asia Paper			3,244			1,696			1,696
Asia Finance and Investment Corp.			2,870			1,166			290
Seoul Smart Card			2,505			2,460			2,505
Nanjing Kumho Tire Co., Ltd.			2,442			3,473			2,442
Kyobo Investment Trust Management Co., Ltd.			2,100			3,574			2,100
Integra Telecom Co., Ltd.			2,000			—			—
Harex Info Tech Inc.			1,365			64			64
Korea Money Broker Corp.			1,291			2,514			1,291
A-Cash Inc.			1,275			139			139
Mondex Korea.			1,250			—			—
MYbi Co., Ltd.			1,200			192			192
Tianjin Samsung Opto Electronics			1,121			1,365			1,121
Digital World Corp.			1,080			147			114
Bo Go Corp.			1,026			—			—
Linux One Inc.			1,000			144			144
Others			26,310			70,568			16,558
		(Won)	140,854		(Won)	172,068		(Won)	76,989

---

1	Net asset values are calculated using the unaudited financial statements of the investees as of September 30, 2004 when available. Otherwise, the most recent financial information is used.

 

See Report of Independent Accountants

 

21

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, the following investment securities are pledged at various institutions:

 

(in millions of Korean won)

 

Restrictions								Restricted securities
Related Transactions		Placed with		Amount				Book Value			Pledge Value
Bonds sold under REPO agreements		Customers		(Won)	3,719,602			(Won)	3,981,452		(Won)	3,982,300
Borrowings from the Bank of Korea		Bank of Korea			834,421				1,069,778			1,060,000
Bank of Korea settlements		Bank of Korea			(balance limits	)			170,597			170,200
Derivative transactions		Samsung Futures, others			(balance limits	)			127,024			134,000
Other		Standard Chartered Bank							19,887			20,000
								(Won)	5,368,738		(Won)	5,366,500

 

See Report of Independent Accountants

 

22

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

5. Loans

 

Loans as of September 30, 2004 and December 31, 2003 are summarized as follows:

 

(in millions of Korean won)				2004				2003
Loans in Won
Corporate loans		Operation loans
		General operation loans		(Won)	27,419,350			(Won)	28,884,554
		Notes discounted			1,160,904				1,415,445
		Overdraft accounts			601,566				447,992
		Trading notes			808,908				809,921
		Other operation loans			4,084,591				3,793,594
					34,075,319				35,351,506
		Facility loans
		General facility loans			5,310,401				5,413,333
		Other facility loans			1,182,860				1,218,370
					6,493,261				6,631,703
					40,568,580				41,983,209
Consumer loans		General consumer loans			42,026,708				41,951,219
		Consumer housing loans			40,992,919				38,199,290
		Remunerations on mutual installment savings			304,906				297,868
		Other consumer loans			576,702				635,218
					83,901,235				81,083,595
Public loans		Public operation loans			718,260				526,227
		Public facility loans			37,877				42,473
					756,137				568,700
Other loans		Property formation loans			11,618				62,963
		Inter-bank loans			7,541				12,815
		Others			3,153				3,962
					22,312				79,740
					125,248,264				123,715,244
Loans in foreign currencies		Domestic funding loans			1,070,574				1,165,988
		Overseas funding loans			592,219				887,018
		Inter-bank loans			1,219,850				767,884
		Domestic usance bills			1,307,683				1,197,563
		Government funding loans			533				1,477
					4,190,859				4,019,930
Call loans		In Won			3,087,000				1,640,000
		In foreign currencies			344,061				5,351
		Inter-bank reconciliation funds			—				—
					3,431,061				1,645,351
Privately placed debentures					1,279,254				1,787,131
Other loans					11,465,211				13,872,793
Allowances for loan losses (Note 6)					(3,602,606	)			(3,905,342	)
Net deferred loan origination fees and costs					34,982				8,567
				(Won)	142,047,025			(Won)	141,143,674

 

See Report of Independent Accountants

 

23

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, restructured debts due to workout plans or other similar restructuring programs are as follows:

 

(in millions of Korean won)		Workout			Court Receivership			Court Mediation			Others			Total
Period (in years)			1~4			1~7			3~10			2~5
Adjusted interest rate (%)			6.05~22.22			7.33~12.12			6.10~17.00			9.5
Balances Before Restructuring		(Won)	108,369		(Won)	15,493		(Won)	34,027		(Won)	663,457		(Won)	821,346
Loans swapped to equity			3,700			4,090			—			494,314			502,104
Swapped equity securities			—			—			—			—			—
Swapped convertible debt securities			—			—			—			—			—
Debts to be restructured			104,669			11,403			34,027			169,143			319,242
Balances after restructuring			100,353			5,285			30,560			162,358			298,556
Allowances for loan losses (present value discounts)			4,316			6,118			3,467			6,785			20,686

 

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 allowance for loan losses from present value discounts and deferred loan incidental income for the nine-month period ended September 30, 2004 are as follows :

 

(in millions of Korean won)		Beginning Balance			Increase			Decrease			Ending Balance
Allowance for loan losses (present value discounts)		(Won)	22,780		(Won)	7,315		(Won)	9,409		(Won)	20,686
Deferred loan incidental income			8,567			29,104			2,689			34,982

 

See Report of Independent Accountants

 

24

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The maturities of loans as of September 30, 2004 are as follows:

 

(in millions of Korean 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)	21,448,220		(Won)	978,464		(Won)	493,786		(Won)	6,509,789		(Won)	3,431,061		(Won)	148,089		(Won)	2,092,990		(Won)	35,102,399
Due after 3 months through 6 months			16,424,734			1,229,612			47,930			541,924			—			87,000			780			18,331,980
Due after 6 months through 1 year			33,648,377			753,688			7,662			674,713			—			349,000			—			35,433,440
Due after 1 year through 2 years			22,296,964			196,900			6,356			548,423			—			542,115			—			23,590,758
Due after 2 years through 3 years			13,864,390			238,440			2,967			220,859			—			52,400			—			14,379,056
Due after 3 years through 4 years			2,681,720			92,095			—			259,754			—			650			—			3,034,219
Due after 4 years through 5 years			3,222,853			82,010			—			26,476			—			—			30,802			3,362,141
Thereafter			11,661,006			619,650			—			—			—			100,000			—			12,380,656
		(Won)	125,248,264		(Won)	4,190,859		(Won)	558,701		(Won)	8,781,938		(Won)	8,781,938		(Won)	1,279,254		(Won)	2,124,572		(Won)	145,614,649

 

Loan risk concentrations by country as of September 30, 2004 are as follows:

 

(in millions of Korean won)		Loans in Won			Loans in Foreign Currencies			Others			Total			Percentage (%)
Korea		(Won)	125,248,264		(Won)	2,636,523		(Won)	15,828,386		(Won)	143,713,173		98.70	%
Southeast Asia			—			865,790			328,105			1,193,895		0.82	%
Central and South America			—			99,259			12			99,271		0.07	%
China			—			219,429			—			219,429		0.15	%
Japan			—			298,384			—			298,384		0.20	%
Others			—			71,474			19,023			90,497		0.06	%
		(Won)	125,248,264		(Won)	4,190,859		(Won)	16,175,526		(Won)	145,614,649		100.00	%

 

Loan risk concentrations by industry as of September 30, 2004 are as follows:

 

(in millions of Korean won)		Loans in Won			Loans in Foreign Currencies			Others			Total			Percentage (%)
Industrial loans
Financial institutions		(Won)	833,244		(Won)	1,285,633		(Won)	3,738,500		(Won)	5,857,377		4.02	%
Manufacturing companies			13,800,440			1,642,290			1,248,532			16,691,262		11.46	%
Service companies			22,196,849			899,433			518,969			23,615,251		16.22	%
Others			4,115,214			246,334			266,067			4,627,615		3.18	%
			40,945,747			4,073,690			5,772,068			50,791,505		34.88	%
Household loans			83,916,005			74,209			8,403,458			92,393,672		63.45	%
Public and other loans			386,512			42,960			2,000,000			2,429,472		1.67	%
		(Won)	125,248,264		(Won)	4,190,859		(Won)	16,175,526		(Won)	145,614,649		100.00	%

 

See Report of Independent Accountants

 

25

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, the credit card accounts amounting to (Won)1,147,333 million are provided as collateral for asset-backed securities transactions.

 

6. Allowances for Loan Losses

 

As of September 30, 2004 , allowances for loan losses are as follows:

 

(in millions of Korean won)		2004
Loans in won		(Won)	2,669,206
Loans in foreign currencies			52,042
Bills bought in won and foreign currencies			8,394
Payments on guarantees			28,280
Factoring receivable			1,439
Credit card accounts			795,035
Privately placed debentures			10,656
Loans due for equity conversion			—
Suspense receivables			33,326
Others			4,228
		(Won)	3,602,606

 

See Report of Independent Accountants

 

26

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, allowances for loan losses by credit risk classification are as follows:

 

(in millions of Korean won)				Normal			Pre-cautionary			Substandard			Doubtful			Estimated Loss			Total
Loans in won		Balance		(Won)	116,026,857		(Won)	5,359,563		(Won)	2,225,530		(Won)	1,164,123		(Won)	472,191		(Won)	125,248,264
		Allowances			787,204			298,613			484,715			626,483			472,191			2,669,206
		Ratio (%)			0.68			5.57			21.78			53.82			100.00			2.13
Loans in foreign currencies		Balance			3,939,458			199,339			28,824			22,077			1,161			4,190,859
		Allowances			13,598			11,879			13,216			12,188			1,161			52,042
		Ratio (%)			0.35			5.96			45.85			55.21			100.00			1.24
Bills bought		Balance			537,895			13,796			1,421			1,117			4,472			558,701
		Allowances			2,689			337			337			559			4,472			8,394
		Ratio (%)			0.50			2.44			23.72			50.04			100.00			1.50
Payments on guarantees		Balance			1,711			5,051			2,876			9,023			22,615			41,276
		Allowances			9			544			601			4,511			22,615			28,280
		Ratio (%)			0.53			10.77			20.90			49.99			100.00			68.51
Credit card accounts		Balance			7,070,934			802,665			648			766,062			141,629			8,781,938
		Allowances			70,708			96,320			130			486,248			141,629			795,035
		Ratio (%)			1.00			12.00			20.06			63.47			100.00			9.05
Repurchase agreements		Balance			2,050,775			—			—			—			—			2,050,775
		Allowances			—			—			—			—			—
		Ratio (%)			0.00			0.00			0.00			0.00			0.00			0.00
Call loans		Balance			3,431,061			—			—			—			—			3,431,061
		Allowances			—			—			—			—			—			—
		Ratio (%)			0.00			0.00			0.00			0.00			0.00			0.00
Privately placed debentures		Balance			1,270,994			826			3,109			4,257			68			1,279,254
		Allowances			6,355			26			1,175			3,032			68			10,656
		Ratio (%)			0.50			3.15			37.79			71.22			100.00			0.83
Factoring receivables		Balance			30,802			—			516			1,178			25			32,521
		Allowances			722			—			103			589			25			1,439
		Ratio (%)			2.34			0.00			19.96			50.00			100.00			4.42
Loans due for equity conversion		Balance			—			—			—			—			—			—
		Allowances			—			—			—			—			—			—
		Ratio (%)			0.00			0.00			0.00			0.00			0.00			0.00
Total		Balance		(Won)	134,360,487		(Won)	6,381,240		(Won)	2,262,924		(Won)	1,967,837		(Won)	642,161		(Won)	145,614,649
		Allowances 1			881,285			407,719			500,277			1,133,610			642,161			3,565,052
		Ratio (%)			0.66			6.39			22.11			57.61			100.00			2.45

---

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

 

See Report of Independent Accountants

 

27

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

For the nine-month period ended September 30, 2004, the movements in allowances for loan losses are as follows:

 

(in millions of Korean won)		Amount
Beginning balance 1		(Won)	3,905,342
Provision for loan losses			2,245,698
Reclassification from other allowances 2			156,928
Collection of written-off loans			178,899
Repurchase of loans sold			15,451
Sale of loans			(644,112	)
Write-off of loans			(1,990,462	)
Conversion of loans into equity securities			(242,546	)
Exemption of loans			(25,874	)
Changes in exchange rates and others			3,282
Ending balance		(Won)	3,602,606

---

1	Available-for-sale subordinated retained interest is reclassified into credit card receivables and its related allowances for loans losses have been added to the beginning balance.

 

2

Other allowances for loans receivable from LG Card Co., Ltd. amounting to (Won)136,108 million that had been recorded as of December 31, 2003 were transferred to allowances for loan losses. Also, other allowances on credit lines to Kookmin Credit Card 16th ABS Specialty Co., Ltd. amounting to (Won)20,820 million that had been recorded as of December 31, 2003 were transferred to allowances for loans loss.

 

7. Fixed Assets

 

Fixed assets as of September 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean won)		2004			2003
Tangible assets		(Won)	2,338,852		(Won)	2,469,353
Intangible assets			488,641			549,427
Foreclosed and other properties			284			776
		(Won)	2,827,777		(Won)	3,019,556

 

See Report of Independent Accountants

 

28

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Movements in tangible assets for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Land				Buildings and structures				Leasehold improvements				Equipment and vehicles				Construction- in-progress				Total
Acquisition cost
Beginning balances		(Won)	1,105,869			(Won)	963,295			(Won)	157,231			(Won)	1,449,062			(Won)	12,325			(Won)	3,687,782
Acquisition			—				22				—				61,711				71,398				133,131
Transfer			—				14,636				16,276				—				(30,912	)			—
Disposal			(45	)			(442	)			(6,171	)			(51,811	)			—				(58,469	)
Ending balances			1,105,824				977,511				167,336				1,458,962				52,811				3,762,444
Accumulated depreciation
Beginning balances			—				142,103				90,808				963,290				—				1,196,201
Depreciation expense			—				15,530				29,456				197,378				—				242,364
Disposal			—				(35	)			(4,596	)			(48,672	)			—				(53,303	)
Ending balances			—				157,598				115,668				1,111,996				—				1,385,262
Impairment			20,633				17,697				—				—				—				38,330
Book Value		(Won)	1,085,191			(Won)	802,216			(Won)	51,668			(Won)	346,966			(Won)	52,811			(Won)	2,338,852

 

Tangible assets covered by insurance policies as of September 30, 2004 are as follows:

 

(in millions of Korean won)		Amount Insured			Insurance Company		Type of Insurance
Buildings and structures		(Won)	664,547		Samsung Fire & Marine Insurance Co., Ltd		General property insurance
Leasehold improvements			66,213		Samsung Fire & Marine Insurance Co., Ltd		General property insurance
Equipment and vehicles			274,719		Samsung Fire & Marine Insurance Co., Ltd		General property insurance
Construction-in-progress			30,057		Samsung Fire & Marine Insurance Co., Ltd		General property insurance
		(Won)	1,035,536

 

Movements in intangible assets for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Goodwill			Development Costs			Rights to Income on Donated Asset			Store Possessory Right			Trademarks			Others			Total
Beginning balances		(Won)	535,360		(Won)	12,762		(Won)	102		(Won)	139		(Won)	150		(Won)	914		(Won)	549,427
Acquisition			—			—			—			—			17			874			891
Amortization			58,759			2,616			6			16			40			240			61,677
Ending balances		(Won)	476,601		(Won)	10,146		(Won)	96		(Won)	123		(Won)	127		(Won)	1,548		(Won)	488,641

 

See Report of Independent Accountants

 

29

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The Bank recorded (Won)94,139 million of current development costs under general and administrative expenses for the nine-month period ended September 30, 2004.

 

The total government-posted prices of land, used for tax imposition and compensation for confiscation, as of September 30, 2004 are as follows:

 

(in millions of Korean won)		Book Value			Appraisal Value
Land included in tangible assets		(Won)	1,085,191		(Won)	904,668
Land included in foreclosed assets			287			239
		(Won)	1,085,478		(Won)	904,907

 

8. Other Assets

 

Other assets as of September 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean won)		2004			2003
Guarantee deposits paid		(Won)	1,283,612		(Won)	1,336,639
Accounts receivable			3,778,543			1,715,100
Accrued income			1,052,274			1,080,057
Payments in advance			92,495			92,217
Prepaid expenses			175,098			307,154
Deferred tax assets (Note 25)			372,371			615,944
Derivative assets (Note 15)			1,061,608			751,252
Unsettled domestic exchange assets			320,864			612,592
Others			39,516			36,592
		(Won)	8,176,381		(Won)	6,547,547

 

See Report of Independent Accountants

 

30

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

9. Deposits

 

Deposits as of September 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean won)		Annual Interest (%) September 30, 2004		2004			2003
Deposits in Won
Demand deposits
Checking deposits		—		(Won)	147,508		(Won)	125,533
Household checking deposits		0.10			407,492			476,132
Passbook deposits		0.10			10,720,624			10,001,043
Temporary deposits		—			3,239,934			3,292,770
Public fund deposits		0.10			118,328			190,593
Others		0.10			44,837			24,218
					14,678,723			14,110,289
Time deposits and savings deposits
Time deposits		2.45~4.00			60,372,370			62,247,870
Installment savings deposits		3.20~3.75			1,260,876			1,306,793
Property formation savings		8.5			1,567			1,870
Time and savings deposits of non residents in Won		2.45~4.00			262,243			340,388
General savings deposits		0.10~2.90			19,373,893			21,644,066
Corporate savings deposits		0.10~2.80			8,953,393			7,800,122
Long-term savings deposits for workers		11.5~12.00			45,957			69,031
Long-term housing savings deposits		4.35			1,453,020			983,684
Long-term savings for households		11			28,089			494,606
Workers’ preferential savings deposits		5.35			2,428,832			2,728,236
Workers’ savings for housing		8.50~11.5			61			81
Mutual installment deposits		2.80~3.75			6,536,462			7,054,752
Mutual installment for housing		2.45~3.65			5,393,721			5,423,853
					106,110,484			110,095,352
Total deposits in Won					120,789,207			124,205,641
Deposits in foreign currencies
Demand deposits
Checking deposits		0.00~0.88			44,631			40,778
Passbook deposits		0.09			868,285			787,798
Notice deposits		0.00~0.18			331			410
Temporary deposits		—			1,142			1,049
					914,389			830,035
Time deposits and savings deposits
Time deposits		0.99			1,224,954			642,039
Others		0.00~4.50			3,673			3,299
					1,228,627			645,338
Total deposits in foreign currencies					2,143,016			1,475,373
Certificates of deposit		3.20~3.30			7,174,805			6,499,258
				(Won)	130,107,028		(Won)	132,180,272

 

See Report of Independent Accountants

 

31

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The maturities of deposits as of September 30, 2004 are as follows:

 

(in millions of Korean won)		Deposits in Won			Deposits in Foreign Currencies			Certificates of Deposit			Total
Due in 3 months or less		(Won)	67,717,358		(Won)	1,713,024		(Won)	4,524,530		(Won)	73,954,912
Due after 3 months through 6 months			14,406,757			330,501			2,001,835			16,739,093
Due after 6 months through 1 year			27,399,718			92,408			648,440			28,140,566
Due after 1 year through 2 years			6,457,294			6,339			—			6,463,633
Due after 2 years through 3 years			2,861,530			744			—			2,862,274
Due after 3 years through 4 years			365,957			—			—			365,957
Due after 4 years through 5 years			85,859			—			—			85,859
Thereafter			1,494,734			—			—			1,494,734
		(Won)	120,789,207		(Won)	2,143,016		(Won)	7,174,805		(Won)	130,107,028

 

10. Borrowings

 

Borrowings as of September 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean won)		Annual Interest (%) September 30, 2004		2004			2003
Borrowings in Won
Borrowings from the Bank of Korea		2.50		(Won)	834,421		(Won)	992,433
Borrowings from the Korean government		0.00~8.00			718,754			920,589
Borrowings from banking institutions		3.48~6.00			174,557			253,822
Borrowings from National Housing Fund		8.00			3,201			8,553
Borrowings from other financial institutions		2.00~4.00			5,537			5,688
Other borrowings		1.98~7.00			1,164,933			1,173,284
					2,901,403			3,354,369
Borrowings in foreign currencies
Due to banks		—			23,520			189,976
Borrowings from domestic banks		0.06~5.80			1,562,956			2,360,652
Borrowings from other financial institutions		5.13			15,267			19,486
Borrowings from foreign banks		—			798,630			752,803
					2,400,373			3,322,917
Bonds sold under repurchase agreements
In won		2.50~3.40			3,719,602			3,613,505
In foreign currencies		—			—			9,651
					3,719,602			3,623,156
Bills sold		3.10~3.21			40,738			44,239
Due to the Bank of Korea in foreign currencies		—			3,673			12,608
Call money
In won		3.00~3.15			107,900			55,800
In foreign currencies		1.01~6.60			25,033			193,700
Inter-bank borrowings					1,464,870			296,011
					1,597,803			545,511
				(Won)	10,663,592		(Won)	10,902,800

 

See Report of Independent Accountants

 

32

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The maturities of borrowings as of September 30, 2004 are as follows:

 

(in millions of Korean won)		Borrowings in Won			Borrowings in Foreign Currencies			Others			Total
Due in 3 months or less		(Won)	903,440		(Won)	621,422		(Won)	3,842,611		(Won)	5,367,473
Due after 3 months through 6 months			76,078			544,393			814,758			1,435,229
Due after 6 months through 1 year			162,345			591,584			704,053			1,457,982
Due after 1 year through 2 years			363,544			518,693			394			882,631
Due after 2 years through 3 years			360,122			41,267			—			401,389
Due after 3 years through 4 years			324,808			26,409			—			351,217
Due after 3 years through 4 years			260,496			56,605			—			317,101
Thereafter			450,570			—			—			450,570
		(Won)	2,901,403		(Won)	2,400,373		(Won)	5,361,816		(Won)	10,663,592

 

11. Debentures

 

Debentures as of September 30, 2004 and December 31, 2003 include:

 

(in millions of Korean won)				Annual Interest (%) September 30, 2004		2004				2003
In Won		Hybrid debentures1		6.00 ~ 7.00		(Won)	903,668			(Won)	903,668
		Subordinated fixed rate debentures		5.12 ~ 15.66			5,331,286				4,896,072
		KCC2 subordinated fixed rate debentures		7.10 ~ 8.00			205,000				205,000
		KCC2 fixed rate debentures		5.43 ~ 8.00			1,050,000				2,895,000
		KCC2 floating rate debentures		0.91 ~ 8.48			820,000				870,000
		Floating rates debentures		3.43 ~ 8.71			12,524,067				8,609,663
							20,834,021				18,379,403
		Discounts on debentures					(183,251	)			(83,443	)
							20,650,770				18,295,960
In foreign currencies		Floating rates debentures		0.60 ~ 1.99			121,575				196,211
		Fixed rates debentures		1.08 ~ 4.63			581,885				613,549
				2.46 ~ 2.56			75,417				78,695
							778,877				888,455
		Premiums on debentures					7,541				9,639
		Discounts on debentures					(1,044	)			(1,473	)
							785,374				896,621
						(Won)	21,436,144			(Won)	19,192,581

---

1	The hybrid debentures 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 superior to common stock but subordinate to other subordinated debentures.

 

2	Kookmin Credit Card Co., Ltd.

 

See Report of Independent Accountants

 

33

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, subordinated debentures and hybrid debentures consist of the following:

 

(in millions of Korean won)
Type		Issue Date		Amount			Annual Interest (%)		Maturity
Subordinated fixed rate debentures		98.01.27 ~ 98.11.15			147,668		12.87~ 15.66		03.01.27 ~ 09.11.15
		2000.03.27			200,000		9.65		2005.03.27
		2000.06.28			253,975		9.04 ~ 9.10		2006.01.28
		2000.09.27			300,000		8.99		2006.01.27
		2000.09.28			150,000		8.79 ~ 8.85		2006.01.28
		2000.11.28			100,000		8.65 ~ 8.71		2006.02.28
		2000.11.28			150,721		9.57 ~ 9.65		2010.11.28
		2000.11.28			11,330		9.65		2010.12.28
		2000.12.27			200,000		8.71		2006.01.27
		2001.05.28			200,000		7.60 ~ 7.65		2007.02.28
		2001.06.27			160,000		7.68		2008.03.27
		2001.06.27			217,529		7.86		2009.03.27
		2001.08.28			100,000		6.69 ~ 6.73		2007.08.28
		2001.09.28			150,000		6.69 ~ 6.73		2008.03.28
		2002.03.27			241,684		7.06 ~ 7.10		2008.01.27
		2002.07.27			302,399		6.96 ~ 7.00		2008.01.27
		2002.09.27			257,363		6.27 ~ 6.30		2008.03.27
		2002.09.27			150,000		6.51 ~ 6.55		2010.03.27
		2002.09.27			92,637		6.66 ~ 6.70		2013.03.27
		2002.11.27			400,673		6.07 ~ 6.10		2008.05.27
		2002.11.27			57,846		6.27 ~ 6.30		2010.05.27
		2002.11.27			100,256		6.51 ~ 6.55		2013.05.27
		2002.12.18			110,000		8.00		2008.01.18
		2002.12.27			10,000		6.20		2008.06.27
		2002.12.27			90,000		6.40		2010.06.27
		2002.12.27			50,000		6.65		2013.06.27
		2002.12.27			30,370		6.55		2014.12.27
		2003.01.21			50,000		7.65		2008.02.21
		2003.03.10			45,000		7.10		2008.04.10
		2003.10.27			356,561		5.18 ~ 5.20		2009.01.27
		2003.10.27			88,769		5.33 ~ 5.35		2011.01.27
		2003.10.27			3,721		5.58 ~ 5.60		2014.01.27
		2004.02.27			636,798		5.65 ~ 5.68		2009.08.27
		2004.02.27			22,895		5.84 ~ 5.87		2011.08.27
		2004.02.27			40,307		6.13 ~ 6.16		2014.08.27
		2004.09.30			57,784		5.12		2018.12.30
					5,536,286
Hybrid debentures		2003.06.27			105,145		6.00		2033.06.27
		2003.08.27			533,355		7.00		2033.08.27
		2003.10.27			265,168		6.80		2033.10.27
					903,668
				(Won)	6,439,954

 

See Report of Independent Accountants

 

34

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The maturities of debentures as of September 30, 2004 are as follows:

 

(in millions of Korean won)		In Won			In Foreign Currencies			Total
Due in 3 months or less		(Won)	1,864,874		(Won)	9,183		(Won)	1,874,057
Due after 3 months through 6 months			1,835,776			17,663			1,853,439
Due after 6 months through 1 year			6,741,379			—			6,741,379
Due after 1 year through 2 years			4,725,083			66,234			4,791,317
Due after 2 years through 3 years			428,742			79,249			507,991
Due after 3 years through 4 years			2,023,603			583,590			2,607,193
Due after 4 years through 5 years			1,217,360			22,958			1,240,318
Thereafter			1,997,204			—			1,997,204
		(Won)	20,834,021		(Won)	778,877		(Won)	21,612,898

 

12. Accrued Retirement Benefits

 

The movements in accrued retirement benefits for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Beginning Balance				Amounts Provided			Amounts Paid Out				Ending Balance
Accrued retirement benefits		(Won)	71,083			(Won)	81,200		(Won)	19,695			(Won)	132,588
Contributed retirement benefits			163,349				—			14,760				148,589
Total accrued retirement benefits			234,432				81,200			34,455				281,177
Contribution to pension funds			(163,349	)			—			(14,760	)			(148,589	)
		(Won)	71,083			(Won)	81,200		(Won)	19,695			(Won)	132,588

 

As of September 30, 2004, approximately 52.85% of total accrued retirement benefits is contributed to pension funds, over which the Bank’s employees hold the right of payment and is placed at two insurance companies, including Korea Life Insurance Co., Ltd. The total retirement benefits paid for the nine-month period ended September 30, 2004 amount to (Won)84,474 million, including the additional early retirement benefits paid in February 2004 to 459 employees amounting to (Won)50,029 million.

 

See Report of Independent Accountants

 

35

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

13. Other Liabilities

 

Other liabilities as of September 30, 2004 and 2003 consist of:

 

(in millions of Korean won)		2004			2003
Accrued retirement benefits (Note 12)		(Won)	132,588		(Won)	71,083
Allowance for losses on guarantees and acceptances (Note 14)			908			1,074
Due to trust accounts			1,173,968			3,983,295
Accounts payable			4,546,210			1,886,446
Accrued expenses			4,308,072			4,418,940
Advances from customers			430,368			109,675
Unearned income			115,095			130,778
Withholding taxes			49,455			123,455
Guarantee deposits received			121,869			120,437
Derivative liabilities (Note 15)			970,636			686,271
Unsettled domestic exchange liabilities			1,289,478			400,445
Accounts for agency business			386,169			364,783
Other allowances1			505,222			890,320
Liabilities incurred by agency relationship			682,999			315,241
Others			263,315			130,182
		(Won)	14,976,352		(Won)	13,632,425

---

1	Other allowances are as follows:

 

(in millions of Korean won)
Allowances for		Amounts			Remarks
Suspense receivables		(Won)	8,547		Allowances for frauds/accidents and litigation fee
Loss on branch closure			255		Allowances for closure of the Buenos Aires branch
Uncollected leasehold deposits			10,531		Allowances for uncollected leasehold deposits
Credit card receivables			46,125		Allowances for unused cash advance credit lines
Mileage rewards			47,791		Allowances for mileage on credit cards and currency exchange rates
Claimed assets			22,860		Allowances for credit card claimed assets
Credit commitments to SPC			363,754		Allowances for the credit line commitment to SPC (Note 16)
Securitization allowances			89		Allowances for repurchase obligations from asset securitization (Note 16)
KAMCO loans sold			627		Allowances for loans under repurchase agreements to KAMCO (Note 16)
Allowances for tax deficiencies			3,185		Allowances for tax deficiencies (Note 16)
Master Card share agreement			458		Allowances for the share settlement provision for Master Card shares
Others			1,000		Allowance for time deposits of Hansol Mutual Savings & Finance Co., Ltd.
		(Won)	505,222

 

See Report of Independent Accountants

 

36

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

14. Guarantees and Acceptances

 

Guarantees and acceptances as of September 30, 2004 are summarized as follows:

 

(in millions of Korean won)		Amount
Guarantees and acceptances outstanding
In Won
Guarantees on debentures		(Won)	480
Guarantees on loan collateral			29,307
Others			258,122
			287,909
In Foreign Currencies
Acceptances on letters of credit			99,713
Acceptances for letters of guarantee for importers			55,556
Guarantees for performance of contracts			24,413
Guarantees for bids			2,671
Guarantees for borrowings			27,842
Guarantees for repayment of advances			21,576
Others			288,534
			520,305
			808,214
Contingent guarantees and acceptances
Letters of credit			1,388,146
Others			381,174
			1,769,320
		(Won)	2,577,534

 

As of September 30, 2004, the allowances for losses on guarantees and acceptances outstanding according to credit risk classifications are as follows:

 

(in millions of Korean won)				Normal			Precautionary			Sub-standard			Doubtful			Estimated loss			Total
Guarantees and Acceptances Outstanding
In Won		Balance		(Won)	274,914		(Won)	10,953		(Won)	1,942		(Won)	100		(Won)	—		(Won)	287,909
		Allowance			—			—			389			50			—			439
		Ratio (%)			—			—			20.03			50.00			—			0.15
Foreign Currencies		Balance			505,731			13,821			505			44			204			520,305
		Allowance			—			—			243			22			204			469
		Ratio (%)			—			—			48.12			50.00			100.00			0.09
Total		Balance		(Won)	780,645		(Won)	24,774		(Won)	2,447		(Won)	144		(Won)	204		(Won)	808,214
		Allowance			—			—			632			72			204			908
		Ratio (%)			—			—			25.83			50.00			100.00			0.11

 

See Report of Independent Accountants

 

37

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

For the nine-month period ended September 30, 2004, the changes in allowances for losses on guarantees and acceptances outstanding are as follows:

 

(in millions of Korean won)
Beginning balance		(Won)	1,074
Reversal of losses from guarantees and acceptances			(129	)
Changes in foreign exchange rates			(37	)
Ending balance		(Won)	908

 

The guarantees and acceptances risk concentration by country as of September 30, 2004 are as follows:

 

		Guarantees and Acceptances Outstanding					Contingent Guarantees and Acceptances					Total
(in millions of Korean won)		Balance			Percentage (%)		Balance			Percentage (%)		Balance			Percentage (%)
Korea		(Won)	762,297		94.32		(Won)	1,769,320		100.00		(Won)	2,531,617		98.22
USA			45,917		5.68			—		—			45,917		1.78
		(Won)	808,214		100.00		(Won)	1,769,320		100.00		(Won)	2,577,534		100.00

 

The guarantees and acceptances risk concentration by industry as of September 30, 2004 are as follows:

 

		Guarantees and Acceptances Outstanding					Contingent Guarantees and Acceptances					Total
(in millions of Korean won)		Balance			Percentage (%)		Balance			Percentage (%)		Balance			Percentage (%)
Manufacturing		(Won)	284,048		35.15		(Won)	1,224,003		69.18		(Won)	1,508,051		58.51
Service			386,118		47.77			499,335		28.22			885,453		34.35
Finance			46,332		5.73			1,234		0.07			47,566		1.85
Others			91,716		11.35			44,748		2.53			136,464		5.29
		(Won)	808,214		100.00		(Won)	1,769,320		100.00		(Won)	2,577,534		100.00

 

15. Derivatives

 

The Bank’s derivative instruments are divided into hedge derivatives and trading derivatives, based on the nature of the transaction. The Bank enters into hedge transactions mainly for purposes of hedging fair value risks related to its assets and liabilities. 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 the current operations, or where the hedged item cannot be specifically identified

 

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 consist of interest rate swaps to hedge the fair value changes of debentures arising from the interest rate fluctuations.

 

See Report of Independent Accountants

 

38

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The notional amounts outstanding for derivative contracts as of September 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean won)		2004									2003
		Trading			Hedge			Total			Trading			Hedge			Total
Interest related
Future		(Won)	675,873		(Won)	—		(Won)	675,873		(Won)	519,665		(Won)	—		(Won)	519,665
Swap			29,888,027			573,950			30,461,977			26,773,100			598,900			27,372,000
Option			1,124,000			—			1,124,000			2,340,000			—			2,340,000
			31,687,900			573,950			32,261,850			29,632,765			598,900			30,231,665
Currency related
Forward			55,008,301			—			55,008,301			25,870,850			—			25,870,850
Future			1,883,073			—			1,883,073			967,823			—			967,823
Swap			4,653,629			—			4,653,629			4,136,776			—			4,136,776
Option bought			281,501			—			281,501			28,148			—			28,148
Option sold			249,383			—			249,383			81,450			—			81,450
			62,075,887			—			62,075,887			31,085,047			—			31,085,047
Stock related
Future			18,891			—			18,891			—			—			—
Option bought			2,047,028			—			2,047,028			1,964,870			—			1,964,870
Option sold			1,943,537			—			1,943,537			1,954,093			—			1,954,093
			4,009,456			—			4,009,456			3,918,963			—			3,918,963
		(Won)	97,773,243		(Won)	573,950		(Won)	98,347,193		(Won)	64,636,775		(Won)	598,900		(Won)	65,235,675

 

Gains and losses on derivatives for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)
Gain on derivatives
Gain on derivative transactions		(Won)	2,049,392
Gain on valuation of derivatives			786,141
Gain on fair value hedged items			2,838
		(Won)	2,838,371
Loss on derivatives
Loss on derivative transactions		(Won)	2,008,046
Loss on valuation of derivatives			761,926
Loss on fair value hedged items			691
		(Won)	2,770,663

 

See Report of Independent Accountants

 

39

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Gains and losses on derivatives for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won		Valuation Gains (P/L)									Valuation Losses (P/L)									Fair Value (B/S)
		Trading			Hedge			Total			Trading			Hedge			Total			Asset			Liability
Interest related
•      Option		(Won)	7,390		(Won)	—		(Won)	7,390		(Won)	9,592		(Won)	—		(Won)	9,592		(Won)	6,629		(Won)	15,132
•      Swap			254,638			691			255,329			236,126			2,838			238,964			279,290			343,105
			262,028			691			262,719			245,718			2,838			248,556			285,919			358,237
Currency related
•      Forward			358,291			—			358,291			385,338			—			385,338			349,390			387,668
•      Option bought			151			—			151			1,282			—			1,282			1,284			1,232
•      Option sold			777			—			777			225			—			225			5			1,455
•      Swap			142,469			—			142,469			102,044			—			102,044			334,065			152,292
			501,688			—			501,688			488,889			—			488,889			684,744			542,647
Stock related
•      Option bought			2,833			—			2,833			21,261			—			21,261			90,945			—
•      Option sold			18,901			—			18,901			3,220			—			3,220			—			69,752
			21,734			—			21,734			24,481			—			24,481			90,945			69,752
		(Won)	785,450		(Won)	691		(Won)	786,141		(Won)	759,088		(Won)	2,838		(Won)	761,926		(Won)	1,061,608		(Won)	970,636

 

16. Commitments and Contingencies

 

As of September 30, 2004, the Bank faces 193 pending legal actions involving aggregate amount of damages of (Won)313,444 million. On the other hand, the Bank also filed 222 lawsuits, which are still pending, with an aggregate amount of claims of (Won)129,370 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 pending material legal actions charged against the Bank are as follows:

 

(in millions of Korean Won)		Exposure to possible loss			Results
					1st trial		2nd trial			3rd trial
Details
Cancellation of a registered mortgage (3 cases)		(Won)	4,399		closed1		in progress			in progress
Confirmation of obligations			14,603		closed1		closed1	*		in progress
Indemnification for damage etc.			14,196		closed1		in progress			in progress

---

1	The Bank (partially) won 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 in 1999, if they declare bankruptcy within three years of sale. Orange Mutual Savings & Finance Co., Ltd. declared bankruptcy in 2001 and 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 September 30, 2004, 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.

 

See Report of Independent Accountants

 

40

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, the Bank has entered into commitments to provide a credit line of (Won)5,521,781 million, and to purchase commercial papers amounting to (Won)520,000 million, with several special purpose companies. Commitments to provide a credit line and to purchase commercial paper with a one year term amounted to (Won)123,500 million and (Won)466,000 million, respectively. 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.

 

As of September 30, 2004, loans outstanding under the credit line commitment amounted to (Won)162,151 million, and there is no outstanding balance for commercial papers under the purchase commitment. 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 September 30, 2004, the Bank provided (Won)363,754 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 indemnify for losses on the loans sold to Jooeun 2nd-ABS Specialty Co., Ltd. with a ceiling of (Won)36,957 million. As of September 30, 2004, the Bank provided (Won)89 million in other allowances for its expected losses related to the commitments to Jooeun 2nd-ABS Specialty Co., Ltd.

 

As of September 30, 2004, post settlements on the loan sales transactions with Korea Asset Management Corporation (“KAMCO”) have been completed. Accordingly, the Bank provided allowances of (Won)627 million for losses from possible future repurchase of loans from KAMCO under the repurchase agreement on loans amounting (Won)3,181 million.

 

The Bank has an off-shore loan commitment, limited to US$ 30,738 thousand. The loan balance under the commitment as of September 30, 2004 is US$ 23,282 thousand.

 

As of March 30, 2004, the Bank recognized loss on sale of loans of (Won)186,666 million for loans sold to FN Star 3rd Securitization Specialty Co., Ltd. that amounts to (Won)1,032,297 million.

 

As of June 17, 2004, the Bank recognized gain on sale of loans of (Won)21,450 million for loans sold to KB 2cd Securitization Specialty Co., Ltd. that amounts to(Won) 606,833 million.

 

As of June 30, 2004, the Bank recognized loss on sale of loans of (Won)324,445 million for loans sold to Jinheung Savings Bank, Solomon Mutual Saving Bank and Solomon AMC that amounts to (Won)1,074,110 million.

 

As of September 30, 2004, the Bank recognized loss on sale of loans of 353,333 million for loans sold to Hyundai Swiss Savings Bank, Solomon Mutual Saving Bank and Solomon AMC that amounts to (Won)430,240 million.

 

As of December 31, 2003, the Bank provided (Won)142,021 million as allowances for tax deficiencies resulting from the tax investigations by the National Tax Administration (“NTA”) for the fiscal years 1998 to 2001. In the current period, the NTA assessed the Bank (Won)123,310 million in tax deficiencies, wherein the Bank actually paid (Won)122,852 million and subsequently recording the difference between the accrued assessment and the actual assessment paid of (Won)18,711 million as non-operating income. As of September 30, 2004, the unpaid tax deficiencies of (Won)458 million still remain under other allowances.

 

As of September 30, 2004, the Bank still holds (Won)741,033 million in unexpired rights to claim from borrowers or guarantors for loans in accordance with the relevant law. This amount, however, has been written off. Also, as of September 30, 2004, the Bank holds endorsed bills amounting to (Won)6,647 million.

 

As of September 30, 2004, the Bank recorded receivables amounting to (Won)3,705,626 million, and payables amounting to (Won)3,703,942 million for unsettled foreign currency spot transactions.

 

See Report of Independent Accountants

 

41

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

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

 

As of September 30, 2004, the Bank has provided one blank promissory note to Korea Securities Finance Corporation as collateral for borrowings and other obligations.

 

In accordance with the November 24, 2003 agreement with the creditors’ committee of LG Card Co., Ltd.(‘LG Card’), which is experiencing a financial crisis, the Bank provided the said company loans totaling (Won)437,000 million. And on January 9, 2004, the Bank agreed to also provide additional loans of (Won) 205,900, a debt-equity swap of (Won) 518,600 million, and an extension of maturities of loans maturing in 2004. On February 13, 2004, the Bank executed a debt-equity swap with LG Card for (Won)156,350 million for loans amounting to (Won)145,950 million and corporate debt securities amounting to (Won)10,400 million. After the capital reduction in May 2004 at a rate of 43.4:1, a second debt-equity swap was executed in July 28, 2004 amounting to (Won)362,250 million for loans of (Won)348,364 million and corporate debt securities of (Won)13,886 million. As of September 30, 2004, the Bank’s total exposure related to LG Card includes loans and debt-equity swapped equity securities amounting to (Won)342,300 million and (Won)177,834 million, 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 non-consolidated financial statements.

 

As of September 30, 2004, the Banks holds debt securities issued by domestic credit card companies and capital companies related to these assets amounting to (Won)201,538 million. Currently, debt securities issued by domestic 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.

 

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.

 

17. Capital Stock

 

As of September 30, 2004, the Bank has 1 billion common shares authorized with a par value per share of (Won)5,000 and 336,379,116 shares issued. ING Insurance International B.V. owns 4.06% of the total issued shares. As of September 30, 2004,.46,744,257 common shares, equivalent to 13.90% 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 registered shareholders of both the Bank and H&CB, as of October 31, 2001, received 179,775,233 shares and 119,922,229 shares, respectively. The new shares were distributed based on an exchange ratio of one new Bank share each for 1.688346 old Bank shares, and one new Bank share for an H&CB share. The new shares were listed on the Korea Stock Exchange as of November 9, 2001. Further, as a result of the merger with Kookmin Credit Co., Ltd., the Bank issued 8,120,431 shares.

 

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

 

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.

 

See Report of Independent Accountants

 

42

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

18. Capital Surplus

 

The movements in capital surplus for the nine -month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Beginning Balance			Changes			Ending Balance
Paid-in capital in excess of par value		(Won)	5,655,840		(Won)	—		(Won)	5,655,840
Gain on business combination			397,669			—			397,669
Revaluation increment			177,229			—			177,229
		(Won)	6,230,738		(Won)	—		(Won)	6,230,738

 

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.

 

19. Retained Earnings

 

The General Banking Act requires the Bank to appropriate as a legal reserve a minimum of 10% of annual net income until the legal reserve equals paid in capital. This reserve is not available for the payment of cash dividends but may be transferred to capital stock by an appropriate resolution of the Bank’s Board of Directors or used to reduce accumulated deficit, if any, by an appropriate approval 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% of its annual income less carried over accumulated deficit, until its capital adequacy ratio equals 5.5%. As of September 30, 2004, 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 was no longer effective.

 

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

 

20. Capital Adjustments

 

The movements in capital adjustments for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Beginning Balance				Increase/ Decrease				Disposal/ Realization1				Ending Balance
Treasury stock		(Won)	(1,328,312	)		(Won)	—			(Won)	(3,852	)		(Won)	(1,324,460	)
Unrealized gain on available-for-sale securities			137,987				218,317				65,413				290,891
Unrealized gain on investment in associates			4,624				(285	)			(80	)			4,419
Stock options			26,211				3,223				1,189				28,245
Loss on disposal of treasury stock			(749	)			(228	)			—				(977	)
		(Won)	(1,160,239	)		(Won)	221,027			(Won)	62,670			(Won)	(1,001,882	)

 

1	Changes in foreign exchange rates from capital adjustments are included.

 

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 three million shares of treasury stock under the said plan. On December 26, 2003, the Bank contributed one million shares to the Employee Stock Ownership Association.

 

See Report of Independent Accountants

 

43

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

In accordance with the resolution of the Board of Directors on December 17, 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 8.90% the total common stock issued as treasury stock as of September 30, 2004.

 

21. Employee Stock Options

 

As of September 30, 2004, the stock options granted to the Bank’s executives and chief executive officer are as follows:

 

		Grant Date		Shares Granted		Forfeiture		Shares Exercised		Shares Outstanding		Exercise Price			Exercise Period
Series 1		00.03.18		233,940		121,411		42,680		69,849		(Won)	23,469		03.03.19 - 05.03.18
Series 2		01.03.15		214,975		16,882		20,464		177,629			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		34,963		166,819			27,600		03.03.01 - 06.02.28
Series 6		01.03.24		111,000		38,624		10,216		62,160			25,100		04.03.25 - 07.03.24
Series 71 2		01.11.16		850,000		200,000		—		650,000			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		166,466		—		323,534			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		29,947		—		110,053			41,646		06.03.22 - 11.03.21
Series 10-13		03.03.21		180,000		64,090		—		115,910			35,500		06.03.22 - 11.03.21
Series 113		03.08.27		30,000		24,909		—		5,091			40,500		06.08.28 - 11.08.27
Series 123		04.02.09		85,000		—		—		85,000			46,100		07.02.10 - 12.02.09
Series 13-12		04.03.23		20,000		—		—		20,000			47,200		07.03.22 - 12.03.23
Series 13-13		04.03.23		10,000		—		—		10,000			47,200		07.03.22 - 12.03.23
Increase due to merger-14		01.03.22		22,146		—		—		22,146			71,538		04.03.23 - 11.03.22
Increase due to merger-22 4		02.03.29		9,990		—		—		9,990			129,100		04.03.30 - 11.03.29

---

1

The stock options excluded the 200,000 shares, which were to be additionally granted if the three-month weighted average stock price of the Bank prior to the exercise period is higher than that of any other listed banks and the Bank achieves total market value and ROE target, due to failure of target achievement.

 

2	The exercise prices are based on the increase rate of the stock price index in 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. The number of shares is calculated under the assumption that the performance-based stock options have been fully granted.

 

4	The Bank took over the stock options granted by Kookmin Credit Card Co., Ltd. of which the exercise prices and number of shares have been adjusted in proportion to the merger ratio.

 

See Report of Independent Accountants

 

44

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

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:

 

		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		—			12,073
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
Series 12			47,000		4.90		3.00		42.74		—			16,430
Series 13-1			45,900		4.67		3.00		42.74		—			15,121
Series 13-2			45,900		4.67		3.00		42.74		—			15,121
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 bonds 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 was 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.

 

See Report of Independent Accountants

 

45

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The compensation costs to be recognized in the future as of September 30, 2004, are as follows:

 

(in millions of Korean won)
		Compensation cost recognized										Compensation cost to be recognized
		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)	883		(Won)	—			(Won)	883		(Won)	—		(Won)	—		(Won)	—		(Won)	—		(Won)	883
Series 2			2,603			237				2,840			—			—			—			—			2,840
Series 3			14			—				14			—			—			—			—			14
Series 5			2,222			—				2,222			—			—			—			—			2,222
Series 6			975			89				1,064			—			—			—			—			1,064
Series 7			10,840			434				11,274			663			—			—			663			11,937
Series 8-1			604			259				863			172			—			—			172			1,035
Series 8-2			5,297			1,308				6,605			1,321			—			—			1,321			7,926
Series 9			246			130				376			144			—			—			144			520
Series 10-1			426			237				663			443			221			—			664			1,328
Series 10-2			633			182				815			544			272			—			816			1,631
Series 11			50			(23	)			27			26			23			—			49			76
Series 12			—			272				272			466			466			194			1,126			1,398
Series 13-1			—			50				50			101			101			50			252			302
Series 13-2			—			25				25			50			50			25			125			150
Increase due to merger-1			171			16				187			—			—			—			—			187
Increase due to merger-2			57			8				65			—			—			—			—			65
		(Won)	25,021		(Won)	3,224			(Won)	28,245		(Won)	3,930		(Won)	1,133		(Won)	269		(Won)	5,332		(Won)	33,578

 

As of September 30, 2004, the weighted average exercise price per stock option granted is (Won)44,951 and the weighted average compensation cost per stock option granted is (Won)17,576.

 

See Report of Independent Accountants

 

46

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

22. Other Non-Interest Income (Expenses)

 

Other non-interest income and expenses for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Amount
Other non-interest income
•      Realized gain on trading securities		(Won)	111,369
•      Unrealized gain on trading securities			42,442
•      Income from beneficiary certificates			219,404
•      Gain on trust management			92,119
•      Gain on valuation of derivatives			786,141
•      Gain on fair value hedged items			2,838
•      Others			42,188
		(Won)	1,296,501
Other non-interest expenses
•      Realized loss on trading securities		(Won)	61,490
•      Contributions to special funds			135,481
•      Loss on valuation of derivatives			761,926
•      Others			235,675
		(Won)	1,194,572

 

23. General and Administrative Expenses

 

General and administrative expenses for the nine-month period September 30, 2004 are as follows:

 

(in millions of Korean won)		Amount
Salaries and wages		(Won)	858,949
Retirement benefits (Note 12)			81,200
Other employee benefits			237,491
Rent			57,000
Depreciation			242,364
Amortization			61,677
Taxes and dues			89,019
Advertising			26,638
Ordinary Research and Development			94,139
Fees and commissions			67,003
Others			150,719
		(Won)	1,966,199

 

See Report of Independent Accountants

 

47

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

24. Non-Operating Income (Expenses)

 

Non-operating income (expenses) for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Amount
Non-operating income
•      Gain on disposal of fixed assets		(Won)	1,861
•      Rent income			2,264
•      Unrealized gain on investment in associates			10,089
•      Realized gain on available-for-sale securities			104,082
•      Realized gain on held-to-maturity securities			1,509
•      Realized gain on investment in associates			79
•      Reversal of impairment loss on tangible assets			3,281
•      Gain on sale of loans			23,770
•      Others			104,985
			251,920
Non-operating expenses
•      Loss on disposal of fixed assets			2,368
•      Loss on impairment loss on tangible assets			19,384
•      Realized loss on available-for-sale securities			22,875
•      Realized loss on held-to-maturity securities			—
•      Impairment loss on available-for-sale securities			55,058
•      Early retirement benefits			50,029
•      Loss on sale of loans			864,609
•      Others			93,892
			1,108,215
		(Won)	(856,295	)

 

25. Income Tax Expense

 

Income tax expense for the nine-month period ended September 30, 2004 is as follows:

 

(in millions of Korean won)		2004
Income tax payable		(Won)	100,446
Deferred income taxes from temporary differences			155,986
Retained earnings and other capital surplus adjustments 1			62,767
Income tax expense		(Won)	319,199

---

1	Income tax effect from the change in retained earnings from loss on disposal of treasury stock.

 

See Report of Independent Accountants

 

48

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The statutory income tax rate applicable to the Bank, including resident tax surcharges, is 29.7% for the years ended December 31, 2002 and 2003. However, due to tax adjustments, the effective tax rate for the nine-month period ended September 30, 2004 is 31.87%. The statutory income tax rate of 29.7% is applied for deferred income tax assets (liabilities) that will be realized before 2005 while the statutory income tax rate of 27.5% is applied for deferred income tax assets (liabilities) that will be realized after 2005, reflecting the 2% corporate tax rate cut from 2005. The basis for calculating the effective tax rate is as follows:

 

(in millions of Korean won)		2004
Net income before income taxes		(Won)	1,001,708
Income tax expense based on the effective tax rate			297,497
Tax effects on adjustments
Adjustments to increase taxable income			64,801
Adjustments to decrease taxable income			(45,913	)
Discount effect			2,814
Income tax benefit per statements of operations		(Won)	319,199

 

The significant changes in accumulated temporary differences and deferred income taxes for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Beginning balance				Increase				Decrease				Ending balance				Deferred tax asset (liability)
Allowance for loan losses		(Won)	299,023			(Won)	301,038			(Won)	234,014			(Won)	366,047			(Won)	104,283
Accrued interest			(349,435	)			(240,428	)			(308,068	)			(281,795	)			(77,494	)
Unrealized loss on securities			762,266				308,460				555,602				515,124				141,659
Unrealized loss on derivatives			(35,045	)			20,395				(23,924	)			9,274				2,550
Present value discounts			14,774				5,729				14,774				5,729				1,576
Allowance for losses on guarantees and acceptances			1,074				908				1,074				908				250
Accrued severance benefits			—				20,117				—				20,117				5,532
Stock options			26,211				28,245				26,211				28,245				7,768
Loss on fair value hedges			(1,502	)			(2,148	)			—				(3,650	)			(1,004	)
Accumulated depreciation			8,313				92				3,176				5,229				1,438
Other allowances			505,372				504,764				505,372				504,764				143,500
Others			104,471				27,817				(21,580	)			153,868				42,313
Net operating loss carry-forward			567,825				—				567,825				—				—
		(Won)	1,903,347			(Won)	974,989			(Won)	1,554,476			(Won)	1,323,860			(Won)	372,371

 

See Report of Independent Accountants

 

49

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

26. Earnings Per Share

 

The weighted average numbers of common shares outstanding for the nine-month period ended September 30, six-month period ended June 30, 2004 and three-month period ended March 31, 2004 are calculated as follows:

 

		2004.9.30				2004.6.30				2004.3.31
Number of common shares outstanding-beginning balance			336,379,116				336,379,116				336,379,116
Weighted average number of shares of treasury stock			(29,961,429	)			(29,977,371	)			(30,002,382	)
Weighted average number of common shares outstanding			306,417,687				306,401,745				306,376,734
Details of the computation of the basic earnings per share (“EPS”) and basic ordinary income per share for the nine-month period ended September 30, six-month period ended June 30, 2004 and three-month period ended March 31, 2004 are shown below.
		2004.9.30				2004.6.30				2004.3.31
Net income (in millions of Korean won)		(Won)	682,509			(Won)	307,561			(Won)	151,258
Weighted average number of common shares outstanding			306,417,687				306,401,745				306,376,734
Basic earnings per share and basic ordinary income per share (in won)		(Won)	2,227			(Won)	1,004			(Won)	494
Details of the computation of the diluted EPS and diluted ordinary income per share for the nine-month period ended September 30, six-month period ended June 30, 2004 and three-month period ended March 31, 2004 are shown below.
		2004.9.30				2004.6.30				2004.3.31
Net income (in millions of Korean won)		(Won)	682,509			(Won)	307,561			(Won)	151,258
Weighted average number of common shares outstanding			306,512,245				306,518,191				306,376,734
Diluted earnings per share and ordinary income per share (in won)		(Won)	2,227			(Won)	1,003			(Won)	494

 

Potential common shares as of September 30, 2004 are as follows:

 

		Exercise Period		Shares Outstanding		Exercise Price
Stock options		2001.11.01—2012.03.23		1,910,428		(Won)	5,000 –	(Won)129,100

 

As discussed in Note 36, the restated net loss and basic loss per share for the year ended December 31, 2003 were (Won)930,356 million and (Won)2,854, respectively.

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

27. Assets and Liabilities Denominated in Foreign Currencies

 

Significant assets and liabilities denominated in foreign currencies as of September 30, 2004 are the following :

 

		Total Balances						Major Denomination Currencies
		Millions of Korean Won			Thousands of US Dollars1			Thousands of US Dollars			Thousands of EC Euro			Thousands of Japanese Yen
Assets
Cash		(Won)	139,945		$	121,914		$	55,177		€	19,394		¥	3,327,095
Due from banks			631,945			550,522			503,593			4,779			4,396,326
Securities			1,179,666			1,027,673			850,356			3,119			4,685,984
Loans in foreign currencies			4,190,859			3,650,892			2,705,753			100,018			82,716,189
Bills bought			527,635			459,652			429,724			17,934			434,706
Advances payments on acceptances and guarantees			—			—			—			—			—
Call loans			344,061			299,737			279,500			1,700			80,619
Liabilities
Deposits			2,143,016			1,866,902			847,996			28,504			97,264,514
Borrowings			2,400,373			2,091,099			1,526,246			69,690			48,293,104
Due to Bank of Korea			3,673			3,200			3,200			—			—
Call money			25,033			21,808			—			9,000			—
Debentures			778,878			678,524			582,558			—			—
Unsettled foreign exchange liabilities			67,953			59,198			39,090			810			530,992

---

 

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.

 

28. Transactions with Financial Institutions

 

The assets and liabilities arising from transactions with financial institutions for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Description		Bank of Korea			Other Banks			Other Financial Institutions			Total
Cash and due from banks		In Won		(Won)	4,446,922		(Won)	127,911		(Won)	140,000		(Won)	4,714,833
		In foreign currencies			67,923			558,406			5,616			631,945
				(Won)	4,514,845		(Won)	686,317		(Won)	145,616		(Won)	5,346,778
Loans		In Won		(Won)	—		(Won)	7,541		(Won)	825,703		(Won)	833,244
		In foreign currencies			—			1,242,814			42,819			1,285,633
		Others			2,000,000			3,496,537			241,963			5,738,500
				(Won)	2,000,000		(Won)	4,746,892		(Won)	1,110,485		(Won)	7,857,377
Deposits		In Won		(Won)	—		(Won)	1,239,599		(Won)	5,139,362		(Won)	6,378,961
		In foreign currencies			—			—			450,000			450,000
				(Won)	—		(Won)	1,239,599		(Won)	5,589,362		(Won)	6,828,961
Borrowings		In Won		(Won)	834,421		(Won)	174,557		(Won)	5,537		(Won)	1,014,515
		In foreign currencies			—			1,586,476			15,267			1,601,743
		Others			3,673			25,033			107,900			136,606
				(Won)	838,094		(Won)	1,786,066		(Won)	128,704		(Won)	2,752,864
Debentures		In Won		(Won)	—		(Won)	—		(Won)	146,900		(Won)	146,900
		In foreign currencies			—			778,877			—			778,877
				(Won)	—		(Won)	778,877		(Won)	146,900		(Won)	925,777

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

29. Related Party Transactions

 

Significant transactions with related parties for the nine-month period ended September 30, 2004 are as follows:

 

				Amount
(in millions of Korean won)		Account		Balances			Transactions
KB Investment Co., Ltd.		Deposits		(Won)	12,556		(Won)	(300)
		Other liabilities			265			—
KB Data Systems Co., Ltd.		Deposits			10,331			(312	)
		Other assets			72			—
		Borrowings			1,100			(7	)
		Other liabilities			4,688			(13,001	)
KB Futures Co., Ltd.		Due from banks			1			1
		Other assets			7			—
		Deposits			4,359			(265	)
		Borrowings			5,000			(70	)
		Other liabilities			1,519			—
		Rent			—			61
		Commissions income			—			8
		Commissions expenses			—			(413	)
KB Luxembourg S.A.		Due from banks			—			70
		Loans			—			254
		Borrowings			3,541			(166	)
KB International Ltd.(London)		Due from banks			5,388			29
		Loans			223,841			2,028
		Other assets			581			637
		Borrowings			33,227			(155	)
		Other liabilities			607			(1,564	)
		Commissions expenses			—			(1,778	)
Kookmin Finance H.K. Ltd.		Due from banks			676			54
		Loans			279,970			3,076
		Other assets			500			—
		Borrowings			10,492			(11	)
		Commissions expenses			—			(1,545	)
KB Asset Management		Deposits			22,596			(858	)
		Other liabilities			299			—
KB Real Estate Co., Ltd.		Loans			38,282			1,543
		Deposits			1,735			(47	)
		Other liabilities			1,753			—
		Other assets			42			—
		Rent			—			115
Jooeun Industrial Co., Ltd.		Loans			122,032			—
KB Credit Information Co., Ltd.		Deposits			11,625			(263	)
		Other liabilities			6,640			—
		Commissions expenses			—			(23,311	)

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

				Amount
(in millions of Korean won)		Account		Balances			Transactions
KB Life Insurance Co., Ltd.		Other assets		(Won)	2,500		(Won)	—
		Deposits			5,924			(21	)
		Other liabilities			1,912			—
		Commissions income			—			8,794
		Rent						31

 

30. Interest Bearing Assets and Liabilities

 

Interest bearing assets and liabilities as of September 30, 2004 and the related interest income and interest expenses for the nine-month period then ended are as follows:

 

(in millions of Korean won)		Average Balance			Interest Income			Average Yield (%)
Assets
Due from banks		(Won)	3,651,811		(Won)	7,038		0.26
Securities			23,367,685			766,457		4.37
Loans			140,025,811			7,824,498		7.46
		(Won)	167,045,307		(Won)	8,597,993
Liabilities
Deposits		(Won)	130,225,666		(Won)	2,986,152		3.06
Borrowings			11,205,673			254,163		3.03
Debentures			18,274,273			818,822		5.99
		(Won)	159,705,612		(Won)	4,059,137

 

31. Operations of Trust Accounts

 

The summarized statement of assets and liabilities of trust accounts as of September 30, 2004 are categorized into principal or dividend guaranteed money trusts, performance money trusts and property trusts, as follows:

 

(in millions of Korean won)		Guaranteed Money Trusts				Performance Money Trusts				Property Trusts			Total
Securities		(Won)	2,891,265			(Won)	4,069,293			(Won)	1,014,989		(Won)	7,975,547
Loans			210,246				199,886				—			410,132
Receivables			—				—				11,791,961			11,791,961
Due from banking accounts			114,461				251,516				471,664			837,641
Present value discounts			(402	)			—				—			(402	)
Allowance for loan losses			(35,273	)			(34,778	)			—			(70,051	)
Other assets			120,632				132,896				694,060			947,588
Total assets		(Won)	3,300,929			(Won)	4,618,813			(Won)	13,972,674		(Won)	21,892,416
Trusts		(Won)	2,989,410			(Won)	4,353,768			(Won)	13,795,274		(Won)	21,138,452
Reserves for future losses			52,685				2,726				—			55,411
Other liabilities			258,834				262,319				177,400			698,553
Total liabilities		(Won)	3,300,929			(Won)	4,618,813			(Won)	13,972,674		(Won)	21,892,416

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The Bank is liable as of September 30, 2004 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 Korean won)		Book Value			Fair Value			Liability
Principal guaranteed money trusts		(Won)	3,193,597		(Won)	3,217,126		(Won)	—
Principal and dividend guaranteed money trusts			107,332			109,429			—
		(Won)	3,300,929		(Won)	3,326,555		(Won)	—

 

The key results of operations from transactions between bank accounts and trust accounts, excluding securities investment trust, for nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Trust Account Related Income					Trust Account Related Expenses
Gain on trust management		(Won)	80,406		Interest expense on borrowings from trust accounts		(Won)	30,229
Early withdrawal penalties			65
		(Won)	80,471				(Won)	30,229

 

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 every 1.688346 old shares of the Bank and 1 share of H&CB. 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.

 

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%, and merged with the Subsidiary on September 30, 2003.

 

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

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

34. Statement of Cash Flows

 

Cash and cash equivalents as of September 30, 2004 as presented in the non-consolidated statements of cash flows are as follows:

 

(in millions of Korean won)		Amount
Cash on hand		(Won)	3,023,458
Cash in foreign currencies			139,945
Due from banks in Won			4,718,122
Due from banks in foreign currencies			631,945
			8,513,470
Restricted deposits (Note 3)			(4,658,564	)
		(Won)	3,854,906

 

Major transactions that do not involve cash inflows and cash outflows for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)		Amount
Unrealized gains on investment securities		(Won)	152,904
Write-off of loans			2,016,336
Increase in loan loss provision due to sales and repurchase of non-performing loans			628,661
Conversion of loans into equity securities			179,046

 

See Report of Independent Accountants

 

55

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

35. Business Segments

 

The following table shows the general information and the distribution of the Bank’s operations by business segment as of and for the nine-month period ended September 30, 2004:

 

(1) General information

 

(1) General information		Business Scope
Retail Banking		Operation of loans to individual, household and related to it
Corporate Banking		Operation of loans to corporate and related to it
Capital Markets Activities		Operation of funds and securities
Capital Card Operations		Operation of credit card and card loan
Others		Others

 

(2) Financial information

 

(in millions of Korean won)
		Retail Banking			Corporate Banking			Capital Markets Activities			Credit Card Operations			Others			Total
Loans		(Won)	82,284,042		(Won)	45,441,520		(Won)	6,712,267		(Won)	7,609,196		(Won)	—		(Won)	142,047,025
Securities			—			964,856			22,498,804			—			1,239,806			24,703,466
Fixed assets			1,638,305			139,231			7,934			51,529			990,778			2,827,777
Other assets			2,262,125			211,080			9,395,645			44,784			4,771,158			16,684,792
Total assets		(Won)	86,184,472		(Won)	46,756,687		(Won)	38,614,650		(Won)	7,705,509		(Won)	7,001,742		(Won)	186,263,060
Operating revenue		(Won)	4,593,824		(Won)	2,517,180		(Won)	3,530,422		(Won)	2,046,854		(Won)	1,178,065		(Won)	13,866,345

 

The following table shows the general information and the distribution of the Bank’s operations by geographical market as of and for the nine-month period ended September 30, 2004:

 

(1) General information

 

The Bank’s operations consist of domestic operations and overseas operations.

 

(2) Financial information

 

(in millions of Korean won)		Domestic			Overseas			Total
Loans		(Won)	141,590,767		(Won)	456,258		(Won)	142,047,025
Securities			24,700,821			2,645			24,703,466
Fixed assets			2,824,698			3,079			2,827,777
Other assets			16,114,877			569,915			16,684,792
Total assets		(Won)	185,231,163		(Won)	1,031,897		(Won)	186,263,060
Operating revenue		(Won)	13,828,443		(Won)	37,902		(Won)	13,866,345

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

36. Results of Securities and Futures Commission (SFC)’s investigation and Restatement of prior periods’ financial statements

 

On of August 25, 2004, the Securities and Futures Commission’s (‘SFC’) announced the results of the investigation on Kookmin Bank’s accounting treatments related to acquisition of Kookmin Credit Card and other transactions.

 

(1) Results of Securities and Futures Commission’s investigation

 

Accounting treatment in relation to the acquisition of Kookmin Credit Card (‘KCC’)

 

As discussed earlier, the Bank merged with KCC in September 2003. Relative to the merger, for the nine-month period ended September 30, 2003, KCC failed to recognize an allowance on loan loss of (Won)1,266,405 million, which included other allowances of (Won)15,442 million, resulting in the overstatement of the its net income. Consequently, the Bank recognized an income from equity investments of (Won)211,202 million in proportion to its 74.2692% interest in KCC which recorded a net income of (Won)284,373 million for the same period. Regarding KCC’s under-recording of the allowance of loan loss of (Won)1,266,405 million and the additional allowance on loan losses due to the difference in accounting treatments on the Bank’s consolidated financial statements of (Won)389,980 million, both of which total (Won)1,656,385 million, these were subsequently recorded by the Bank as allowance on loan loss due to merger of (Won)1,652,264 million and impairment loss on investments available-for-sale of (Won)4,121 million. To comply with the SFC’s instructions, the Bank recorded equity loss on investments of (Won)1,018,982 million, proportionate to its 74.2692% interest in the sum of (Won)1,372,012, which is the total of KCC’s net loss of (Won)982,032 million and the additional allowance on loan loss due to merger of (Won)389,980 million; and deducted the minority interest of (Won)309,559 million from additional paid in capital.

 

Accounting treatment in relation to asset securitization

 

The Bank is currently offering credit lines to the KCC 16th Special Purpose Co., Ltd (‘SPC’) and FN Star 3rd SPC amounting to (Won)757,000 million (transferred value of (Won)1,243,000 million, transfer gain of(Won) 488,000 million). However, the recovery rate of the assets transferred to the SPCs decreased dramatically between September 2003 and January 2004, before actual issuance of year-end financial status. As the present value of the underlying assets dropped below the SPCs liability amount, there is a high probability that the Bank would be liable to cover the difference up to the credit line limit. Even though the Bank could have reflected the probable contingency loss amount by estimating future cash flows based on the recovery rates available to the latest month and the fair valuation models used at the point of asset securitization, the Bank appropriated only (Won)133,376 million for the estimable contingency loss of (Won)346,533 million , underestimating other allowances (allowance for acceptances and guarantees outstanding) by (Won)213,157 million and overestimating net assets (underestimating net income) by the same amount.

 

Accounting treatment in relation to Special Purpose Co., Ltd. currency swap

 

In relation to the early redemption of asset-backed securities (‘ABS’) by KCC 10th Special Purpose Co., Ltd on September 18, 2003, a settlement loss of (Won)27,159 million was paid to ING Bank due to a decline in currency swap interest rate. Therefore, since KCC, the holder of the ABS, guaranteed the payment of the loss, KCC should have recognized the settlement payment as loss and the Bank should have recognized its equity share portion of (Won)20,171 million and the excess amount over minority interest of (Won)6,988 million as valuation loss using equity method. However, KCC recognized the swap settlement payment as asset, ABS advance payment, and the Bank accounted for the amount as offset liabilities, agency fee. As a result, the Bank underestimated the liability by (Won)27,159 million and overestimated net assets by the same amount.

 

(2) Restatement of Prior periods’ financial statements

 

To comply with SFC’s instructions, the Bank restated its financial statements as of and for the year ended December 31, 2003 regarding the understatement of other allowance and overstatement of valuation loss using equity method for the amount of (Won) 213,157million and (Won)27,159 million, respectively, by reversing the underestimation of other allowance by (Won) 213,157million in income statement for the year ended in December 31, 2003 and overestimation of valuation loss using equity method by (Won)27,159 million in income statement for the nine-month period ended in September 30, 2003. Therefore, the net income and retained earning before appropriation in the financial statements for the year ended in December 31, 2003 in the audit report dated March 3, 2004, were understated by (Won) 177,008 million due to tax effect of the understatement of other allowance by (Won) 213,157 million and the overstatement of valuation loss using equity method by (Won)27,159 million.

 

See Report of Independent Accountants

 

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Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Although the Bank had originally reflected the overestimated valuation loss using equity method amount of (Won)27,159 million in the income statement for the period ended March 31, 2004 and underestimated other allowance amount of (Won)213,157 million in the income statement for the period ended June 30, 2004, SFC instructed restatement of prior year’s financial statements. Thus, the Bank reversed the loss incurred in the current year’s financial statements.

 

The balance sheet as December 31, 2003 and income statement for the nine-months period ended September 30, 2003 ,presented herein for comparative purposes, has been restated in accordance with above.

 

The following summarizes the adjustments made by the Bank and the effects on financial statements of December 31, 2003 and September 30, 2003 are as follows:

 

(in millions of Korean won)		Before Adjustments				After Adjustments
Balance sheet (2003.12.31)
Deferred income tax assets		(Won)	552,636			(Won)	615,944
Other allowances			647,393				860,550
Agency fee			337,624				364,783
Retained earnings			1,662,119				1,485,111
Income statement (2003.1.1-2003.12.31)
Valuation loss using equity method		(Won)	267,870			(Won)	240,711
Provision of other allowances			432,871				646,028
Income tax expense (revenue)			(393,096	)			(456,404	)

 

(in millions of Korean won)		Before Adjustments			After Adjustments
Balance sheet (2003.9.30)
Agency fee		(Won)	341,411		(Won)	368,570
Retained earnings			2,033,159			2,060,318
Income statement (2003.1.1-2003.9.30)
Valuation loss using equity method		(Won)	238,738		(Won)	265,897

 

The following shows the recomputed ordinary income, net income, ordinary income per share and net income per share as of and for the nine-month period ended September 30, 2003 and as of and for the year end of December 31, 2003:

 

		September 30, 2003								December 31, 2003
(in millions of Korean won)		Before Adjustments				After Adjustments				Before Adjustments				After Adjustments
Ordinary income		(Won)	(382,109	)		(Won)	(409,268	)		(Won)	(753,348	)		(Won)	(930,356	)
Net income			(382,109	)			(409,268	)			(753,348	)			(930,356	)
Ordinary income per share(in Won)			(1,175	)			(1,259	)			(2,311	)			(2,854	)
Net income per share(in won)			(1,175	)			(1,259	)			(2,311	)			(2,854	)

 

37. Subsequent Event

 

On of November 1, 2004, the current chief executive officer of the Bank, Mr. Kim Jung-Tae, will be replaced by Mr. Kang Jung-Won.

 

See Report of Independent Accountants

 

58