Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 6-K

 


 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of March 2005

 


 

Kookmin Bank

(Translation of registrant’s name into English)

 


 

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

(Address of principal executive office)

 


 

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

 

Form 20-F      X            Form 40-F              

 

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

 

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

 

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

 

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

 

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

 

Yes                      No      X    

 



Kookmin Bank’s 2004 Audit Report and Consolidated Operating Results for the Fiscal year 2004

 

On March 9, 2005, Kookmin Bank released audit report for the fiscal year of 2004, which includes comparative non-consolidated financial statements for the years ended December 31, 2004 and 2003 and related notes to the statements.

 

On March 9, 2005, Kookmin Bank also disclosed summary of consolidated operating results prepared in accordance with Korean GAAP for the fiscal year 2004.

 

Kookmin Bank will disclose Kookmin Bank and Its Subsidiaries Consolidated Audit Report with full financial statements and relevant notes in English as of and for the years ended 2004 and 2003 latest by the end of March 2005.

 

Exhibit 99.1_ Kookmin Bank’s 2004 Audit Report

 

Exhibit 99.2_Consoliated Operating Results for the Fiscal year 2004

 

2


SIGNATURES

 

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

 

    Kookmin Bank
    (Registrant)

Date: March 9, 2005

  By:  

/s/ Kap Shin


        (Signature)
    Name:   Kap Shin
    Title:  

Senior Executive Vice President &

Chief Financial Officer

 

3


Exhibit 99.1

 

Kookmin Bank

Non-Consolidated Financial Statements

December 31, 2004 and 2003


Kookmin Bank

Index

December 31, 2004 and 2003


 

     Page(s)

Report of Independent Auditors

   1–3

Non-Consolidated Financial Statements

    

Balance Sheets

   4

Statements of Operations

   5

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

   6

Statements of Cash Flows

   7–8

Notes to Financial Statements

   9–63


LOGO       LOGO
       

Samil PricewaterhouseCoopers

Kukje Center Building

191 Hankangro 2ga, Yongsanku

Seoul 140-702, KOREA

(Yongsan P.O. Box 266, 140-600)

 

Report of Independent Auditors

 

To the Board of Directors and Shareholders of

Kookmin Bank

 

We have audited the accompanying non-consolidated balance sheets of Kookmin Bank (“the Bank”) as of December 31, 2004 and 2003, and the related non-consolidated statements of operations, appropriations of retained earnings (dispositions of accumulated deficit) and cash flows for the years then ended, expressed in Korean Won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

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

 

In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kookmin Bank as of December 31, 2004 and 2003, and the results of its operations, the changes in its retained earnings (accumulated deficit), and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of Korea.

 

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

 

As discussed in Note 38 to the non-consolidated financial statements, the Bank restated its non-consolidated financial statements as of and for the year ended December 31, 2003 to correct, as instructed by the Securities and Futures Commission, the overstatement of unrealized loss on investment in associates amounting to (Won)27,159 million, the understatement of provision for other allowances amounting to (Won)213,157 million and the overstatement of income tax expenses amounting to (Won)63,308 million. Accordingly, the financial statements as of and for the year ended December 31, 2003 included in the audit report dated March 3, 2004, are no longer effective, as they do not reflect the above restatements.

 

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.


LOGO

 

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 receiving 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 made by 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 discussed in Note 4 and Note 38 to the non-consolidated financial statements, on April 29, 2004, as a means to venture into the insurance business for diversification of revenues, the Bank invested (Won)30,246 million (including acquisition costs) 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. On January 25, 2005, the Bank sold 49% of its ownership of KB Life Insurance Co., Ltd. to ING Insurance International B.V. at (Won)14,821 million.

 

As discussed in Note 2 to the non-consolidated financial statements, the Bank changed its accounting on its sale of loans. Previously, the sale proceed of written-off loans was recorded as an adjustment to related allowances and the gain or loss on sale of loans was recognized for non written-off loans for the difference of the book value at the date of sale and the proceeds of the sale. Currently, the sale proceed of written-off loans is not recorded as an adjustment to related allowances but is recorded as the gain or loss on sale of loans and the all gain or loss on sale of loans is calculated 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)1,183,119 million and gain on sale of loans and allowance for loan losses decreased by (Won)142,531 million and (Won)1,325,650 million, respectively, for the year ended December 31, 2004. The financial statements as of and for the year ended December 31, 2003, presented herein for comparative purposes, were restated to reflect the above changes resulting in an increase in loss on sale of loans by (Won)2,586,725 million, a decrease in gain on sale of loans by (Won)55,216 million and a decrease in allowance for loans losses by (Won)2,641,941 million. Such restatement has no effect on the net assets and the net income (loss) as of and for the year ended December 31, 2003.

 

2


LOGO

 

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

 

Seoul, Korea

February 4, 2005

 

This report is effective as of February 4, 2005, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying non-consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

3


Kookmin Bank

Non-Consolidated Balance Sheets

December 31, 2004 and 2003


 

(in millions of Won)

 

   2004

    2003

 

Assets

                

Cash and due from banks (Note 3)

   (Won) 5,177,758     (Won) 6,526,345  

Securities, net (Note 4)

     27,598,737       26,908,462  

Loans, net (Notes 5 and 6)

     136,034,323       141,138,972  

Fixed assets, net (Note 7)

     2,633,218       3,019,556  

Other assets (Note 8)

     8,283,148       6,508,855  
    


 


Total assets

   (Won) 179,727,184     (Won) 184,102,190  
    


 


Liabilities and Shareholders’ Equity

                

Deposits (Note 9)

     127,010,534       132,180,272  

Borrowings (Note 10)

     9,634,296       10,902,800  

Debentures (Note 11)

     21,867,820       19,192,581  

Other liabilities (Note 13)

     12,109,893       13,589,031  
    


 


Total liabilities

   (Won) 170,622,543     (Won) 175,864,684  
    


 


Commitments and contingencies (Notes 14 and 16)

                

Common stock (5,000 Won par value per share, authorized 1 billion shares and 336,379,116 shares outstanding in 2004) (Notes 1 and 17)

     1,681,896       1,681,896  

Capital surplus (Note 18)

     6,230,738       6,230,738  

Retained earnings (Note 19)

     2,041,691       1,485,111  

Capital adjustments (Note 20)

     (849,684 )     (1,160,239 )
    


 


Total shareholders’ equity

     9,104,641       8,237,506  
    


 


Total liabilities and shareholders’ equity

   (Won) 179,727,184     (Won) 184,102,190  
    


 


 

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

 

4


Kookmin Bank

Non-Consolidated Statements of Operations

Years ended December 31, 2004 and 2003


 

(in millions of Won except per share amounts)

 

   2004

    2003

 

Interest income

                

Interest on due from banks

   (Won) 9,995     (Won) 10,433  

Interest on trading securities

     151,349       116,142  

Interest on available-for-sale securities

     534,410       754,605  

Interest on held-to-maturity securities

     360,188       626,552  

Interest on loans

     10,279,924       10,018,895  

Other interest income

     104,967       98,923  
    


 


       11,440,833       11,625,550  
    


 


Interest expenses

                

Interest on deposits

     3,909,204       4,280,290  

Interest on borrowings

     326,586       410,746  

Interest on debentures

     1,116,110       1,143,228  

Other interest expenses

     59,202       68,570  
    


 


       5,411,102       5,902,834  
    


 


Net interest income

     6,029,731       5,722,716  

Provision for loan losses (Note 6)

     3,068,248       1,431,181  
    


 


Net interest income after provision for loan losses

     2,961,483       4,291,535  
    


 


Non-interest income

                

Fees & commission income

     2,186,741       1,636,171  

Dividends on trading securities

     3,289       1,633  

Dividends on available-for-sale securities

     13,452       5,580  

Gain on foreign currency transactions

     257,039       287,501  

Gain on derivatives transactions

     4,057,392       1,131,711  

Others (Note 22)

     2,921,114       882,459  
    


 


       9,439,027       3,945,055  
    


 


Non-interest expenses

                

Fees and commission expenses

     452,174       270,405  

General and administrative expenses (Note 23)

     2,758,514       2,704,148  

Loss on foreign currency transactions

     305,448       200,109  

Loss on derivatives transactions

     3,990,483       1,053,990  

Others (Note 22)

     2,804,723       1,522,037  
    


 


       10,311,342       5,750,689  
    


 


Operating income

     2,089,168       2,485,901  

Non-operating expenses, net (Note 24)

     (1,190,570 )     (3,872,661 )
    


 


Net (loss) income before income tax expense

     898,598       (1,386,760 )
    


 


Income tax (benefit) expense (Note 25)

     343,348       (456,404 )
    


 


Net (loss) income

   (Won) 555,250     (Won) (930,356 )
    


 


Basic (loss) earnings per share (In Korean Won) (Note 26)

   (Won) 1,812     (Won) (2,854 )
    


 


Diluted (loss) earnings per share (In Korean Won) (Note 26)

   (Won) 1,811     (Won) (2,854 )
    


 


 

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

 

5


Kookmin Bank

Non-Consolidated Statements of Appropriations of Retained Earnings

(Dispositions of Accumulated Deficit)

Years ended December 31, 2004 and 2003

(Date of Appropriation : March 18, 2005 for the year ended December 31, 2004

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


 

(in millions of Won)

 

   2004

    2003

 

Retained earnings (accumulated deficit) before appropriations (dispositions)

                

Unappropriated retained earnings carried over from prior year

   (Won) (176,963 )   (Won) 410  

Adjustment on investment in associates (Note 19)

     1,614       (1,917 )

Net income (loss)

     555,250       (930,356 )
    


 


       379,901       (931,863 )
    


 


Transfers from voluntary reserve (Note 19)

                

Discretionary appropriated retained earnings

     220,100       754,900  

Appropriated retained earnings for business stabilization

     40,760       —    
    


 


       260,860       754,900  
    


 


Appropriations (Note 19)

                

Legal appropriated retained earnings

     55,600       —    

Appropriated retained earnings for financial structure improvement

     55,600       —    

Reserve for losses on sale of treasury stock

     359,525       —    

Other reserves

     1,438       —    

Cash dividends (11.0% for common stock in 2004)

     168,574       —    
    


 


       640,737       —    
    


 


Unappropriated retained earnings carried over to the subsequent year

   (Won) 24     (Won) (176,963 )
    


 


 

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

 

6


Kookmin Bank

Non-Consolidated Statements of Cash Flows

Years ended December 31, 2004 and 2003


 

(in millions of Won)

 

   2004

    2003

 

Cash flows from operating activities

                

Net (loss) income

   (Won) 555,250     (Won) (930,356 )
    


 


Adjustments to reconcile net (loss) income to net cash provided by operating activities

                

Realized gain on trading securities, net

     (78,417 )     (71,899 )

Unrealized gain on trading securities, net

     (26,745 )     (70,976 )

Gain (loss) on foreign currency transactions, net

     48,409       (87,392 )

Provision for loan losses

     3,068,248       1,431,181  

Reversal of losses from guarantees and acceptances

     —         (1,209 )

Gain on derivatives transactions, net

     (66,909 )     (77,721 )

Gain (loss) on valuation of derivatives, net

     (145,561 )     18,788  

Gain on fair value hedged items, net

     (2,175 )     (10,715 )

Retirement benefits

     124,608       109,766  

Stock compensation expense

     5,101       12,130  

Depreciation and amortization

     415,289       466,856  

Gain (loss) on disposal of fixed assets, net

     (12,810 )     33,058  

Impairment loss on fixed assets, net

     19,384       22,228  

Realized gain on available-for-sale securities, net

     (53,473 )     (493,993 )

Impairment loss on available-for-sale securities, net

     82,272       114,787  

Realized gain on held-to-maturity securities, net

     (1,514 )     (2,771 )

Unrealized gain (loss) on investment in associates, net

     5,014       (240,711 )

Gain on disposal of investment in associates

     (1,146 )     —    

Loss on sale of loans, net

     1,159,561       2,673,281  

Provision for guarantee allowance

     206       —    

Provision for other allowance

     235,911       213,157  

Reversal of loan losses due to merger

     —         1,652,264  

Gain on operation of beneficiary certificates, net

     (384,747 )     —    

Others, net

     (11,886 )     22,755  

Changes in assets and liabilities resulting from operations

                

Accrued income

     60,340       118,796  

Prepaid expenses

     96,625       (255,957 )

Deferred tax assets

     186,286       (462,618 )

Other assets

     (2,810 )     (166 )

Accrued expenses

     (138,302 )     (593,967 )

Unearned income

     (33,509 )     (28,019 )

Withholding taxes

     (116,164 )     36,095  

Other liabilities

     (135,243 )     587,179  

Payment of retirement benefits

     (39,107 )     (18,637 )

Retirement pension funds

     (29,975 )     (66,349 )

Account for agency business

     (131,093 )     (35,111 )
    


 


Net cash provided by operating activities

     4,650,918       4,063,754  
    


 


 

7


Kookmin Bank

Non-Consolidated Statements of Cash Flows

Years ended December 31, 2004 and 2003


 

(in millions of Won)

 

   2004

    2003

 

Cash flows from investing activities

                

Decrease (increase) in due from banks

   (Won) 947,422     (Won) (1,247,467 )

Decrease in trading securities

     1,337,347       1,336,940  

Increase in available-for-sale securities

     (841,048 )     (1,179,456 )

Increase (decrease) in held-to-maturity securities

     (248,579 )     5,119,423  

Acquisition of investment in associates

     5,894       (71,295 )

Dividend from investment in associates

     —         11,392  

Decrease (increase) in loans granted, net

     337,617       (12,613,037 )

Proceeds from disposal of fixed assets

     184,885       101,599  

Acquisition of fixed assets

     (216,150 )     (316,890 )

Acquisition of intangible assets

     (1,801 )     (705 )

Proceeds from disposal of foreclosed assets

     545       162  

Acquisition of foreclosed assets

     (128 )     (166 )

Decrease (increase) in guarantee deposits

     45,748       (8,865 )

Increase (decrease) in other accounts receivable

     (636,240 )     166,101  

Increase in payments in advance

     (4,731 )     (28,328 )

Decrease in derivative assets, net

     107,270       145,924  

Collection of domestic exchange receivables

     91,980       474,995  

Collection of loans to trust accounts

     —         37,882  

Increase in provision for other allowances

     28,627       —    
    


 


Net cash provided by (used in) investing activities

     1,138,658       (8,071,791 )
    


 


Cash flows from financing activities

                

Decrease (increase) in deposits, net

     (5,169,738 )     9,076,415  

Decrease in borrowings, net

     (1,268,504 )     (2,248,706 )

Increase (decrease) in debentures, net

     2,675,238       (3,278,588 )

Decrease (increase) in borrowings from trust accounts

     (3,184,632 )     3,248,649  

Decrease in dividend payable

     —         (325,188 )

Increase (decrease) in other accounts payable

     848,452       (273,080 )

Increase in advances received from customers

     81,956       19,325  

Decrease in guarantee deposits received

     (8,714 )     (623 )

Decrease in domestic exchange payables

     (142,425 )     (173,865 )

Decrease in liabilities incurred by agency relationships

     (34,672 )     (171,172 )

Acquisition of treasury stock

     —         (1,227,876 )

Sale of treasury stock

     —         826  

Stock options exercised

     3,238       (35 )

Increase in stock issuance cost

     —         (212 )
    


 


Net cash (used in) provided by financing activities

     (6,199,801 )     4,645,870  
    


 


Net (decrease) increase in cash and cash equivalents

     (410,225 )     637,833  

Increase due to merger

     —         33,343  

Cash and cash equivalents, Beginning of year

     3,771,757       3,100,581  
    


 


End of year (Note 34)

   (Won) 3,361,532     (Won) 3,771,757  
    


 


 

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

 

8


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

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 December 31, 2004, the Bank’s paid-in capital amounts to (Won)1,681,896 million and its 47,503,730 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 1,124 domestic branches and offices (excluding automated teller machines of 204) and three overseas branches as of December 31, 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 year ended December 31, 2004 and as of and for the year ended December 31, 2003.

 

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 December 31, 2004, the Bank has non-accrual loans and securities of (Won)8,067,271 million and (Won)532,904 million, respectively, with related foregone interest of (Won)469,089 million and (Won)82,594 million, respectively.

 

9


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

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 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 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 assets of the wholly owned beneficiary certificates are classified based on the Bank’s intention on the balance sheet. 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.

 

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 either as capital adjustments, adjustments to retained earnings or charges to net income(loss), 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.

 

10


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

Allowances for Loan Losses

 

The Bank provides allowance for loan losses based on the minimum reserve level provided by Financial Supervisory Service Guidelines if the amounts are larger than allowances for loan losses based on historical loss rate of the Bank’s lending portfolios.

 

As of December 31, 2004, the Bank provided allowance for loan losses based on the minimum reserve level provided by Financial Supervisory Service Guidelines.

 

- Allowance for loan losses based on the minimum reserve level provided by Financial Supervisory Service Guidelines

 

The Bank determines the credit risk classification of corporate loans using a certain scale based on the Banks internal credit rating system, the Forward Looking Criteria (FLC), and other factors such as days in arrears, insolvency and result of financial transactions. Allowances are determined by applying the rates of each credit risk classification . The FLC credit rating criteria are divided into 12 categories (AAA, AA, A, BBB, BB, BB-, B, B-, CCC, CC, C, D) and credit risk classification are as follows:

 

Credit Risk Classification


 

Credit Ratings


Normal

  AAA ~ B

Precautionary

  B- ~ CCC

Sub-standard

  CC

Doubtful

  C

Estimated loss

  D

 

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

 

     Allowance Rates

 

Credit Risk Classification


   Consumer

    Credit Card

    Corporate

 

Normal

   0.75 %   1.00 %   0.50 %

Precautionary

   8.00 %   12.00 %   2.00 %

Sub-standard

   20.00 %   20.00 %   20.00 %

Doubtful

   55.00 %   60.00 %   50.00 %

Estimated loss

   100.00 %   100.00 %   100.00 %

 

Also, the Bank provides additional allowance for relatively high-risk borrowers and their assets based on estimated recovery amount, liquidation amount, within the maximum allowance rate for each classification.

 

 

11


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

-Allowance for loan losses based historical loss rate

 

The rates used for determining the allowances for losses based on historical loss rate by Bank’s lending portfolios is determined as follows:

 

Lending Portfolios


 

Methodology


 

Period of Historical

Loss Rate


 

Period of Recovery

Ratio


Impaired corporate loans

  Discounted Cash Flows   N/A   N/A

Non-impaired corporate loans

  Migration Analysis   1-year   5-year

Consumer loans

  Migration Analysis   2-year   5-year

Credit card loans

  Roll-rate Analysis   1-year   5-year

 

Based on Bank’s lending portfolios’ nature, loan period, referrer period and other economic factors, the Bank determined the appropriate data period to be used in assessing its historical loss rate and recovery ratio.

 

Guarantees and Acceptances

 

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.

 

After the above adjustments to loans from troubled debt structuring, the Bank separately establishes additional allowances for its loans on related present value, based on the credit status of the borrower.

 

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.

 

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

 

12


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

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 December 31, 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.

 

Deferred Income Taxes

 

The Bank recognizes deferred income taxes for anticipated future tax consequences resulting from temporary differences between amounts reported for financial reporting and income tax purposes. By directly adjusting of retained earnings, the Bank records the tax effects of temporary differences arising from the cumulative effects of accounting changes or that arising from adjusting losses and profits on prior period to prior year’ s unappropriated retained earnings. Deferred tax assets are recognized when it is more likely that such deferred tax assets will be realized.

 

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.

 

 

13


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

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.

 

National Housing Fund

 

The Bank, as designated by the Korean Government under the Housing Law (former 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.

 

Transactions with the Trust Accounts

 

Under the Trust Business Act, the Bank recognize trust accounts (“the Trust Accounts”) as a separate one. The borrowings from trust accounts represent transfer of funds in trust accounts into banking accounts. Such borrowings from trust accounts are recorded as receivables from the banking accounts in the trust accounts and as borrowings from trust accounts in the banking accounts. The Bank’s banking accounts receive trust fees from the trust accounts for its management of trust assets and operations.

 

The 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 in accordance with the relevant laws and regulations applicable to trust operations. 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. No compensation was recorded for the years ended December 31, 2004 and 2003.

 

Foreign Currency Translation

 

All assets and liabilities denominated in foreign currencies are translated into Korean Won at the rates in effect at the balance sheet date (2004: (Won)1,043.8:US$1, 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.

 

 

14


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

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 year ended December 31, 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)1,183,119 million and gain on sale of loans and allowance for loan losses decreased by (Won)142,531 million and (Won)1,325,650 million, respectively, for the year ended December 31, 2004. The income statement for the year December 31, 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 (Won)2,586,725 million and decrease in gain on sale of loans and allowance for loans losses by (Won)55,216 million and (Won)2,641,941 million, respectively. Such restatement has no effect on the current period’s net income (loss) and net assets.

 

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

 

As explained in Note 38, the Bank restated its financial statements as of and for the year ended December 31, 2003 to comply with Securities and Futures Commission’s instructions.

 

 

15


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

3. Cash and Due from Banks

 

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

 

(in millions of Korean won)

 

        2004

    2003

 

Cash on hand

                     

Cash in won

        (Won) 2,380,578     (Won) 2,945,921  

Cash in foreign currencies

          124,735       228,153  
         


 


            2,505,313       3,174,074  
         


 


Due from banks in Won

                     

Bank of Korea

   Reserve deposits in the Bank of Korea      1,685,105       2,612,248  
         


 


Other banks

   Time deposits      —         810  
     Passbook deposits      13,277       8,185  
     Certificate of deposit      262,905       —    
         


 


            276,182       8,995  
         


 


Other financial institutions

   Deposits at Hansol Mutual Savings & Finance Co., Ltd      90,000       140,000  
     Time deposits at Ministry of Information and Communication      14,700       —    
         


 


Others

   Futures margin accounts      3       1,560  
     Market participation margin      463       454  
     Due from Banking accounts      1,806       —    
     KOSPI futures margin accounts      490       200  
         


 


            2,762       2,214  
         


 


            2,068,749       2,763,457  
     Present value discounts 1      (3,751 )     (12,810 )
         


 


            2,064,998       2,750,647  
         


 


Due from banks in foreign currencies

                     

Bank of Korea

  

Demand deposits

     43,631       12,415  
         


 


Other banks

  

Demand deposits

     54,048       71,879  
    

Time deposits

     15,181       —    
         


 


Others

  

Other deposits

     5,045       3,354  
         


 


Off-shore

  

Demand deposits

     489,542       513,976  
         


 


            607,447       601,624  
         


 


          (Won) 5,177,758     (Won) 6,526,345  
         


 



1 Present value discounts are related to the (Won)90,000 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.) during 1999.

 

The maturities of the due from banks as of December 31, 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) 1,732,359    (Won) 484,754    (Won) 2,217,113

Due after 3 months through 6 months

     280,261      122,693      402,954

Due after 6 months through 1 year

     52,100      —        52,100

Due after 1 year through 2 years

     —        —        —  

Due after 2 years through 3 years

     4,029      —        4,029
    

  

  

     (Won) 2,068,749    (Won) 607,447    (Won) 2,676,196
    

  

  

 

16


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

Included in cash and due from banks as of December 31, 2004 and 2003 are the following restricted deposits:

 

(in millions of Korean won)

 

  

Place of Deposit


   2004

   2003

   Restrictions

Reserve deposits

   Bank of Korea    (Won) 1,685,105    (Won) 2,612,248    General Banking Act

Time deposits

   Hansol Mutual Savings & Finance Co., Ltd.      90,000      140,000    Withdrawal at maturity

Due from banks in foreign currency

   Bank of Korea      43,631      12,415    General Banking Act

Other deposits

   JP MORGAN, etc.      1,241      2,735    Futures guarantee deposits
         

  

    
          (Won) 1,819,977    (Won) 2,767,398     
         

  

    

 

4. Securities

 

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

 

(in millions of Won)

 

   2004

   2003

Trading

   (Won) 3,635,510    (Won) 4,482,948

Available-for-sale

     17,189,060      15,894,974

Held-to-maturity

     6,229,435      5,979,341

Investment in associates

     544,732      551,199
    

  

     (Won) 27,598,737    (Won) 26,908,462
    

  

 

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

 

(in millions of Won)

 

   Unrealized

   Book Value

   Gain

   Loss

   2004

   2003

Trading

                           

Equity securities

   (Won) 9,304    (Won) 950    (Won) 184,544    (Won) 113,171

Beneficiary certificates

     2      1      10,884      1,686,754

Government and municipal bonds

     4,790      27      756,658      1,076,427

Corporate bonds

     14,081      569      2,539,819      1,365,060

Asset-backed securities

     103      —        44,963      241,536

Other debt securities

     12      —        98,642      —  
    

  

  

  

     (Won) 28,292    (Won) 1,547    (Won) 3,635,510    (Won) 4,482,948
    

  

  

  

 

(in millions of Won)

 

   Impairment

   Capital Adjustments

   Book Value

   Reversal of

   Loss

   Gain

   Loss

   2004

   20031*

Available-for-Sale

                                         

Equity securities

   (Won) —      (Won) 14,912    (Won) 280,412    (Won) 2,429    (Won) 805,799    (Won) 439,791

Investment in funds

     —        3      3,203      —        3,711      30,872

Beneficiary certificates

     —        —        160      14      157,277      4,375,817

Government and municipal bonds

     —        —        18,995      —        2,222,531      2,322,889

Foreign government bonds

     —        —        1,318      104      32,639      28,153

Corporate bonds

     —        2,317      68,906      3,744      12,918,924      8,228,640

Asset-backed securities

     —        65,040      72,054      —        852,659      468,669

Other debt securities

     —        —        33      —        195,520      143
    

  

  

  

  

  

     (Won) —      (Won) 82,272    (Won) 445,081    (Won) 6,291    (Won) 17,189,060    (Won) 15,894,974
    

  

  

  

  

  

 

 

17


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

(in millions of Won)

 

   Impairment

   Unrealized

   Book Value

   Reversal of

   Loss

   Gain

   Loss

   2004

   2003

Held-to-Maturity

                                         

Government and municipal bonds

   (Won) —      (Won) —      (Won) 133,510    (Won) 18    (Won) 3,080,549    (Won) 2,489,998

Corporate bonds

     —        —        78,371      39      2,949,730      3,163,020

Asset-backed securities

     —        —        9,936      —        180,000      326,323

Other debt securities

     —        —        —        —        19,156      —  
    

  

  

  

  

  

     (Won) —      (Won) —      (Won) 221,817    (Won) 57    (Won) 6,229,435    (Won) 5,979,341
    

  

  

  

  

  


1 Subordinated retained interest received from securitization transaction amounting to (Won)1,193,383 million as of December 31, 2003 has been reclassified from beneficiary certificates in securities to credit card receivables in loans (Note 2).

 

Available-for-sale securities include structured securities related to stocks, such as convertible bonds, exchangeable bonds, bonds with stock warrants, and bonds linked with stock index amounting to (Won)15,321 million, (Won)153,525 million, (Won)762 million, and (Won)49,721 million, respectively. In addition, available-for-Sale securities include structured securities related to interest rates such as dual index variable interest rate bonds, and reverse variable interest rate bonds amounting to (Won)50,140 million, and (Won)22,533 million, respectively. Moreover, available-for-sale securities include credit risk related securities, such as credit risk linked bonds amounting to (Won)41,544 million.

 

18


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

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

 

(in millions of Korean won)

 

   Owner-
ship (%)


   Acquisition
Cost


   Beginning
balance1


   Equity Method

    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) 1,707     (Won) —       (Won) 1,056     (Won) 78,695    (Won) 77,273

KB Data Systems Co., Ltd.4*

   99.98      7,998      14,247      1,583       —         (3 )     15,827      14,647

KB Futures Co., Ltd. 5*

   99.98      19,996      25,121      889       —         —         26,010      25,521

KLB Securities

   36.41      10,316      —        —         —         —         —        —  

KB Asset Management 6*

   80.00      39,015      38,918      8,609       —         (239 )     47,288      45,051

Jooeun Industrial

   99.99      23,994      —        —         —         —         —        —  

KB Real Estate Trust

   99.99      76,103      98,129      (40,058 )     (336 )     336       58,071      98,129

KB Credit Information

   93.71      12,553      15,556      1,770       —         1,344       18,670      11,863

ING Life Korea

   20.00      21,769      41,845      23,576       —         3,724       69,145      43,845

Korea Mortgage 8*

   26.67      30,629      —        —         —         —         —        35,788

KICO No. 2 Venture Investment Partnership 2*

   55.56      —        —        213       —         —         213      —  

KICO No. 3 Venture Investment Partnership 2*

   69.23      —        —        149       —         —         149      —  

Pacific IT Investment Partnership2

   50.00      7,000      7,000      (41 )     —         —         6,959      —  

NPC02-4 Kookmin Venture Fund 2*

   33.33      10,000      10,000      179       —         —         10,179      —  

KB Life Insurance Co., Ltd.

   100.00      30,246      30,246      (22,455 )     —         781       8,572      —  
         

  

  


 


 


 

  

            444,930      356,994      (23,879 )     (336 )     6,999       339,778      352,117
         

  

  


 


 


 

  

Foreign Associates

                                                        

Kookmin Bank Int’l Ltd. (London)

   100.00      40,180      53,550      2,012       —         145       55,707      56,755

Kookmin Bank Luxembourg S.A 9*

   100.00      24,679      5,257      (1,206 )     —         —         —        5,950

Kookmin Singapore Ltd.

   100.00      20,926      1,812      —         —         —         1,812      2,080

Kookmin Finance Asia Ltd.(HK)

   100.00      7,307      249      5       —         —         254      286

Kookmin Bank HongKong Ltd. 7*

   100.00      20,876      54,653      8,236       2,563       (424 )     65,028      62,716

Sorak Financial Holdings PTE Ltd.

   25.00      76,928      76,928      9,818       —         (4,593 )     82,153      71,295
         

  

  


 


 


 

  

            190,896      192,449      18,865       2,563       (4,872 )     204,954      199,082
         

  

  


 


 


 

  

          (Won) 635,826    (Won) 549,443    (Won) (5,014 )   (Won) 2,227     (Won) 2,127     (Won) 544,732    (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 HongKong Ltd., on January 2, 2004.
8 All equity securities of Korea Mortgage have been sold on June 4, 2004.
9 The Bank collected capitals from Kookmin Bank Luxembourg S.A. which completed liquidation process on November 30, 2004.

 

19


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

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) 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)58,875 million.

 

Differences between the initial purchase price and the Bank’s initial proportionate ownership of the net book value of KB Credit Information amounting to (Won)1,128 million, for the 342,844 shares which the Bank acquired on October 22, 2004, are accreted for 5 years to unrealized gain or loss on investment in associates.

 

The Bank applies the equity method accounting to subsidiaries based on unaudited financial statements as of December 31, 2004. In the case of Sorak Financial Holdings PTE Ltd. and ING Life Korea Co., Ltd., the Bank applies the equity method based on the most recent available unaudited financial statements that are adjusted for changes in net assets for the period ended December 31, 2004.

 

On April 29, 2004, as a means to venture into the insurance business for diversification of revenues, the Bank invested (Won)30,246 million (including acquisition costs) 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 Bank eliminated unrealized gain for inter-company transactions with KB Life Insurance Co., Ltd amounting to (Won)15,816 million.

 

The maturities of the available-for-sale and held-to-maturity debt securities, excluding equity investments, as of December 31, 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) 7,735,564    (Won) 7,735,564    (Won) 1,966,856    (Won) 2,001,180

Due after 1 year through 5 years

     7,968,047      7,968,047      3,874,386      4,019,397

Due after 5 years through 10 years

     675,422      675,422      388,193      430,617

After 10 years

     517      517      —        —  
    

  

  

  

     (Won) 16,379,550    (Won) 16,379,550    (Won) 6,229,435    (Won) 6,451,194
    

  

  

  

 

 

20


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

Investment securities risk concentrations as of December 31, 2004 are as follows:

 

(in millions of Korean won, except ratio)

 

  

Book Value


  

Ratio (%)


     

By Country

           

Korea

   (Won) 27,381,913    99.21

Singapore

     82,178    0.30

USA

     50,284    0.18

Philippines

     25,703    0.09

Indonesia

     13,516    0.05

Mexico

     11,693    0.04

Others

     33,450    0.13
    

  
     (Won) 27,598,737    100.00
    

  

(in millions of Korean won, except ratio)

 

   Book Value

   Ratio (%)

     

By Type

           

Fixed rate bonds

   (Won) 23,393,496    84.76

Floating rate bonds

     1,485,279    5.38

Subordinated bonds

     981,947    3.56

Convertible bonds

     30,976    0.11

Beneficiary certificates

     168,161    0.61

Equity securities

     1,517,575    5.50

Others

     21,303    0.08
    

  
     (Won) 27,598,737    100.00
    

  

(in millions of Korean won, except ratio)

 

   Book Value

   Ratio (%)

     

By Type

           

Government and government-invested Public companies

   (Won) 9,349,587    33.88

Financial institutions

     17,119,674    62.03

Manufacturing industries

     444,310    1.61

Others

     685,166    2.48
    

  
     (Won) 27,598,737    100.00
    

  

 

 

21


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

Available-for-sale equity securities of which the fair value cannot be reasonably measured as of December 31, 2004 are as follows:

 

(in millions of Korean won)

 

   Book Value

Arirang Restructuring Fund

   (Won) 18,163

Mugunghwa Restructuring Fund

     14,606

Seoul Restructuring Fund

     12,540

Bad Bank Harmony

     12,267

Mastercard, Inc. Korea

     7,900

Korea Asset Management Corp.

     7,827

Samsung Life Insurance Co., Ltd.

     7,479

Korea Highway Corp.

     6,248

Continuous Linked Settlement System

     6,211

Kyobo Investment Trust Management Co., Ltd.

     2,100

Baring Communications Equity

     1,957

Pan Asia Paper

     1,642

Korea Smart Card

     1,628

Korea Money Broker Corp.

     1,291

Mercury

     1,088

Tianjin Samsung Opto Electronics

     1,020

Others

     17,019
    

     (Won) 120,986
    

 

As of December 31, 2004, the following investment securities are pledged at various institutions:

 

(in millions of Korean won)               

Restrictions


   Restricted securities

Related Transactions


  

Placed with


   Book Value

   Pledge Value

Bonds sold under REPO agreements

   Customers    (Won) 3,791,977    (Won) 3,795,600

Borrowings from the Bank of Korea

   Bank of Korea      1,024,167      1,015,000

Bank of Korea settlements

   Bank of Korea      170,535      170,200

Derivative transactions

   Samsung Futures, others      175,447      184,000

Other

   Standard Chartered Bank, others      80,538      84,000
         

  

          (Won) 5,242,664    (Won) 5,248,800
         

  

 

 

22


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

5. Loans

 

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

 

(in millions of Korean won)

 

        2004

    2003

 

Loans in Won

                     

Corporate loans

   Operation loans                 
     General operation loans    (Won) 25,475,710     (Won) 28,884,554  
     Notes discounted      1,197,606       1,415,445  
     Overdraft accounts      401,369       447,992  
     Trading notes      740,580       809,921  
     Other operation loans      3,862,852       3,793,594  
         


 


            31,678,117       35,351,506  
         


 


     Facility loans                 
     General facility loans      5,139,091       5,413,333  
     Other facility loans      1,147,656       1,218,370  
         


 


            6,286,747       6,631,703  
         


 


            37,964,864       41,983,209  
         


 


Consumer loans

   General consumer loans      41,957,690       41,951,219  
     Consumer housing loans      41,234,086       38,199,290  
     Remunerations on mutual installment savings      300,032       297,868  
     Other consumer loans      532,615       635,218  
         


 


            84,024,423       81,083,595  
         


 


Public loans

   Public operation loans      673,456       526,227  
     Public facility loans      40,383       42,473  
         


 


            713,839       568,700  
         


 


Other loans

   Property formation loans      9,719       62,963  
     Inter-bank loans      6,114       12,815  
     Others      2,939       3,962  
         


 


            18,772       79,740  
         


 


            122,721,898       123,715,244  
         


 


Loans in foreign currencies

   Domestic funding loans      1,000,004       1,165,988  
     Overseas funding loans      489,437       887,018  
     Inter-bank loans      1,092,174       767,884  
     Domestic usance bills      1,278,793       1,197,563  
     Government funding loans      420       1,477  
         


 


            3,860,828       4,019,930  
         


 


Call loans

   In Won      2,814,996       1,640,000  
     In foreign currencies      191,784       5,351  
         


 


            3,006,780       1,645,351  
         


 


Privately placed debentures

     1,203,631       1,787,131  
         


 


Other loans

     8,311,072       13,872,793  
         


 


Allowances for loan losses (Note 6)

     (3,118,775 )     (3,910,044 )
         


 


Net deferred loan origination fees and costs

     48,889       8,567  
         


 


          (Won) 136,034,323     (Won) 141,138,972  
         


 


 

23


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

As of December 31, 2004, restructured loans 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)

     1~9      6~10      4~10      4~7       

Adjusted interest rate (%)

     5.96~22.22      5.93~14.80      4.90~17.00      9.50       

Balances before restructuring

   (Won) 120,177    (Won) 26,026    (Won) 43,526    (Won) 612,235    (Won) 801,964

Loans swapped to equity

     3,700      4,090      —        494,314      502,104

Loans due for equity conversion

     —        746      —        —        746
    

  

  

  

  

Loans to be restructured

     116,477      21,190      43,526      117,921      299,114

Balances after restructuring

     109,916      15,064      40,326      111,698      277,004
    

  

  

  

  

Allowances for loan losses (present value discounts)

   (Won) 6,561    (Won) 6,126    (Won) 3,200    (Won) 6,223    (Won) 22,110
    

  

  

  

  

 

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. The difference between the nominal amount and the fair value of the equity is adjusted in the related allowance for loan losses.

 

The movements in allowance for loan losses(present value discounts) related restructured loans and deferred loan origination fees and costs to for the year ended December 31, 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) 12,283    (Won) 12,953    (Won) 22,110

Deferred loan origination fees and costs

     8,567      44,766      4,444      48,889

 

24


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

The maturities of loans as of December, 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) 19,085,485    (Won) 874,100    (Won) 505,391    (Won) 5,329,240      3,006,780    (Won) 38,168    (Won) 33,653    (Won) 28,872,817

Due after 3 months through 6 months

     17,430,180      1,047,044      82,255      623,768      —        110,500      746      19,294,493

Due after 6 months through 1 year

     35,029,206      906,882      8,839      835,722      —        622,982      —        37,403,631

Due after 1 year through 2 years

     19,972,984      181,903      5,396      386,655      —        237,900      —        20,784,838

Due after 2 years through 3 years

     11,900,101      190,361      —        386,614      —        94,081      —        12,571,157

Due after 3 years through 4 years

     2,637,763      85,984      —        63,633      —        —        —        2,787,380

Due after 4 years through 5 years

     3,956,310      67,973      —        18,358      —        —        30,802      4,073,443

Thereafter

     12,709,869      506,581      —        —        —        100,000      —        13,316,450
    

  

  

  

  

  

  

  

     (Won) 122,721,898    (Won) 3,860,828    (Won) 601,881    (Won) 7,643,990    (Won) 3,006,780    (Won) 1,203,631    (Won) 65,201    (Won) 139,104,209
    

  

  

  

  

  

  

  

 

Loan risk concentrations by country as of December 31, 2004 are as follows:

 

(in millions of Korean won)

 

   Loans in Won

   Loans in Foreign
Currencies


   Others

   Total

   Percentage (%)

 

Korea

   (Won) 122,721,898    (Won) 2,622,653    (Won) 12,325,575    (Won) 137,670,126    98.97  

Southeast Asia

     —        700,600      186,753      887,353    0.64  

Central and South America

     —        53,452      45      53,497    0.04  

China

     —        135,118      —        135,118    0.09  

Japan

     —        278,971      —        278,971    0.20  

Others

     —        70,034      9,110      79,144    0.06  
    

  

  

  

  

     (Won) 122,721,898    (Won) 3,860,828    (Won) 12,521,483    (Won) 139,104,209    100.00 %
    

  

  

  

  

 

Loan risk concentrations by industry as of December 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) 689,007    (Won) 1,150,426    (Won) 4,102,497    (Won) 5,941,930    4.27  

Manufacturing companies

     12,315,767      1,146,217      1,721,775      15,183,759    10.92  

Service companies

     21,240,715      1,422,823      487,968      23,151,506    16.64  

Others

     4,114,249      71,921      94,863      4,281,033    3.08  
    

  

  

  

  

       38,359,738      3,791,387      6,407,103      48,558,228    34.91  
    

  

  

  

  

Household loans

     84,037,082      69,441      6,114,380      90,220,903    64.86  
    

  

  

  

  

Public and other loans

     325,078      —        —        325,078    0.23  
    

  

  

  

  

     (Won) 122,721,898    (Won) 3,860,828    (Won) 12,521,483    (Won) 139,104,209    100.00 %
    

  

  

  

  

 

25


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

As of March 30, 2004, the Bank recognized loss on sale of loans of (Won)186,666 million for loans sold to KB Star Card 3rd Securitization Specialty Company, Limited 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 2nd Securitization Specialty Company, Limited that amounts to (Won)606,850 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 (Won)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 7, 2004, the Bank recognized loss on sale of loans of (Won)12,866 million for loans sold to Solomon Mutual Saving Bank that amounts to (Won)625,767 million. As of December 17, 2004, the Bank recognized loss on sale of loans of (Won)64,807 million for loans sold to KB 3rd Securitization Specialty Company, Limited that amounts to (Won)532,600 million. As of December 31, 2004, the Bank recognized loss on sale of loans of (Won)256,249 million for loans sold to Jinheung Savings Bank, that amounts to (Won)317,234 million. As of December 31, 2004, the credit card accounts amounting to (Won)713,792 million(before allowance) are provided as collateral for asset-backed securities transactions.

 

6. Allowances for Loan Losses

 

As of December 31, 2004 and 2003, allowances for loan losses are as follows:

 

(in millions of Korean won)

 

   2004

   2003

Loans in Won

   (Won) 2,622,509    (Won) 2,289,661

Loans in foreign currencies

     55,111      70,983

Bills bought in Won and foreign currencies

     8,480      16,928

Payments on guarantees

     26,301      20,193

Factoring receivable

     1,695      17,603

Credit card accounts

     392,722      1,407,127

Privately placed debentures

     11,211      87,549

Loans due for equity conversion

     746      —  
    

  

Total allowance for loan losses

     3,118,775      3,910,044
    

  

Others 1*

     67,320      38,692
    

  

Total allowance

   (Won) 3,186,095    (Won) 3,948,736
    

  


1* Other allowances as of December 31, 2004 include:

 

26


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

(in millions of Korean won)

 

   2004

   2003

Suspense receivables as credit

   (Won) 38,952    (Won) 17,186

Kookmin Card’s other loans

     274      3,749

Derivative instruments

     3,209      1,654

Suspense receivables 2*

     15,495      7,249

Uncollected leasehold deposits

     9,295      8,854

Other receivables

     95      —  
    

  

Total

   (Won) 67,320    (Won) 38,692
    

  


2* Suspense receivables includes allowances for frauds/accidents by directors and employees which 73 events took place as of December 31, 2004 amounting to (Won)12,455 million which the Bank provides allowances for the whole amount.

 

 

27


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

As of December 31, 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) 114,439,619   (Won) 5,222,736   (Won) 1,710,889   (Won) 1,019,763   (Won) 328,891   (Won) 122,721,898
    Allowances     781,650     476,391     357,321     678,256     328,891     2,622,509
       

 

 

 

 

 

    Ratio (%)     0.68     9.12     20.89     66.51     100.00     2.14
       

 

 

 

 

 

Loans in foreign currencies

  Balance     3,645,049     158,672     25,015     30,199     1,893     3,860,828
    Allowances     13,061     13,316     8,428     18,413     1,893     55,111
       

 

 

 

 

 

    Ratio (%)     0.36     8.39     33.69     60,97     100.00     1.43
       

 

 

 

 

 

Bills bought

  Balance     585,927     9,569     650     2,698     3,037     601,881
    Allowances     2,930     393     130     1,990     3,037     8,480
       

 

 

 

 

 

    Ratio (%)     0.50     4.11     20.00     73.75     100.00     1.41
       

 

 

 

 

 

Payments on guarantees

  Balance     964     2,978     883     6,669     20,626     32,120
    Allowances     5     621     176     4,873     20,626     26,301
       

 

 

 

 

 

    Ratio (%)     0.50     20.85     20.00     73.08     100.00     81.88
       

 

 

 

 

 

Credit card accounts

  Balance     6,609,976     686,457     539     298,093     48,925     7,643,990
    Allowances     66,100     82,375     108     195,214     48,925     392,722
       

 

 

 

 

 

    Ratio (%)     1.00     12.00     20.00     65.49     100.00     5.14
       

 

 

 

 

 

Call loans

  Balance     3,006,780     —       —       —       —       3,006,780
    Allowances     —       —       —       —       —       —  
       

 

 

 

 

 

    Ratio (%)     —       —       —       —       —       —  
       

 

 

 

 

 

Privately placed debentures

  Balance     1,195,825     826     3,076     3,836     68     1,203,631
    Allowances     5,979     189     1,159     3,816     68     11,211
       

 

 

 

 

 

    Ratio (%)     0.50     22.95     37.66     99.46     100.00     0.93
       

 

 

 

 

 

Factoring receivables

  Balance     30,802     —       516     992     25     32,335
    Allowances     585     —       103     982     25     1,695
       

 

 

 

 

 

    Ratio (%)     1.90     —       20.00     99.00     100.00     5.24
       

 

 

 

 

 

Loans due for equity conversion

  Balance     —       —       —       746     —       746
    Allowances     —       —       —       746     —       746
       

 

 

 

 

 

    Ratio (%)     —       —       —       100.00     —       100.00
       

 

 

 

 

 

Total

  Balance   (Won) 129,514,942   (Won) 6,081,238   (Won) 1,741,568   (Won) 1,362,996   (Won) 403,465   (Won) 139,104,209
    Allowances     870,310     573,285     367,425     904,290     403,465     3,118,775
       

 

 

 

 

 

    Ratio (%)     0.67     9.43     21.10     66.35     100.00     2.24
       

 

 

 

 

 

 

 

28


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

For the years ended December 31, 2004 and 2003, the movements in allowances for loan losses are as follows:

 

(in millions of Korean won)

 

   2004

    2003

 

Beginning balance 1

   (Won) 3,948,736     (Won) 2,420,410  

Provision for loan losses2

     3,080,256       1,436,013  

Increase due to merger with Kookmin Credit Card Co., Ltd.

     —         1,388,854  

Reclassification of ABS 2nd beneficiary certificate

     —         159,635  

Reclassification from other allowances 3

     289,919       27,291  

Collection of written-off loans

     286,464       270,422  

Repurchase of loans sold

     40,571       327,921  

Sale of loans

     (685,161 )     (597,207 )

Write-off of loans

     (5,260,962 )     (4,509,979 )

Reversal of write-off due to loan sale of loans

     1,878,832       3,348,122  

Conversion of loans into equity securities

     (327,816 )     (43,996 )

Exemption of loans

     (32,847 )     (263,233 )

Changes in exchange rates and others

     (31,897 )     (15,517 )
    


 


Ending balance

   (Won) 3,186,095     (Won) 3,948,736  
    


 



1 Includes present value discounts on allowances for loans, allowances for ABS 2nd beneficiary certificate reclassified into credit card receivables, allowances related to credit card claimed assets and allowance for other assets amounting to (Won)22,780 million, (Won)192,221 million, (Won)27,291 million and (Won)16,103 million, respectively, that had been recorded as of December 31, 2003
2 Includes other allowances for other asset amounting to (Won)12,008 million as of December 31, 2004 ((Won)4,832 million: December 31, 2003)
3 Other allowances for loans receivable from LG Card Company, Limited, credit lines to Kookmin Credit Card 16th ABS Specialty Company, Limited and commercial papers from Jooeun 2nd ABS Specialty Company, Limited amounting to (Won)221,377 million, (Won)68,505 million and (Won)37 million, respectively, that had been recorded as of December 31, 2003 were transferred to allowances for loan losses..

 

As of December 31, 2004, 2003 and 2002, the ratios of allowances for loan losses to loans are as follows:

 

     2004

   2003

   2002

Loans

   (Won) 139,104,209    (Won) 145,040,449    (Won) 129,139,699

Allowances for loan losses1

     3,118,775      3,910,044      2,396,157
    

  

  

Ratio (%)

     2.24      2.70      1.86
    

  

  


1 The above amounts of allowances for loan losses include present value discounts.

 

29


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

7. Fixed Assets

 

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

 

(in millions of Korean won)

 

   2004

   2003

Tangible assets

   (Won) 2,164,021    (Won) 2,469,353

Intangible assets

     468,958      549,427

Foreclosed and other properties

     239      776
    

  

     (Won) 2,633,218    (Won) 3,019,556
    

  

 

Movements in tangible assets for the year ended December 31, 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) 963,296     (Won) 157,231     (Won) 1,449,062     (Won) 12,324     (Won) 3,687,782  

Acquisition

     —         20       3       130,046       86,081       216,150  

Transfer

     —         69,637       27,526       —         (97,163 )     —    

Disposal

     (106,848 )     (117,985 )     (10,335 )     (73,861 )     —         (309,029 )
    


 


 


 


 


 


Ending balances

     999,021       914,968       174,425       1,505,247       1,242       3,594,903  
    


 


 


 


 


 


Accumulated depreciation

                                                

Beginning balances

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

Depreciation expense

     —         20,916       41,185       270,918       —         333,019  

Disposal

     —         (22,905 )     (8,086 )     (69,643 )     —         (100,634 )
    


 


 


 


 


 


Ending balances

     —         140,114       123,907       1,164,565       —         1,428,586  
    


 


 


 


 


 


Impairment

     1,306       990       —         —         —         2,296  
    


 


 


 


 


 


Book Value

   (Won) 997,715     (Won) 773,864     (Won) 50,518     (Won) 340,682     (Won) 1,242     (Won) 2,164,021  
    


 


 


 


 


 


 

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

 

(in millions of Won)

 

   Land

    Buildings and
structures


    Leasehold
improvement


    Equipment
and vehicle


    Construction
in-progress


    Total

 

Acquisition cost

                                                

Beginning balances

   (Won) 1,175,682     (Won) 848,746     (Won) 98,117     (Won) 1,043,969     (Won) 1,195     (Won) 3,167,709  

Acquisition

     3,350       8,898       6,898       201,254       97,112       317,512  

Transfer

     —         37,466       48,517       —         (85,983 )     —    

Increase due to merger

     55,529       71,024       4,805       263,897       —         395,255  

Disposal

     (128,692 )     (2,838 )     (1,106 )     (60,058 )     —         (192,694 )
    


 


 


 


 


 


Ending balances

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


 


 


 


 


 


Accumulated depreciation

                                                

Beginning balances

     —         108,723       48,164       533,675       —         690,562  

Depreciation expense

     —         20,583       40,594       326,248       —         387,425  

Increase due to merger

     —         12,976       2,786       160,380       —         176,142  

Disposal

     —         (179 )     (736 )     (57,013 )     —         (57,928 )
    


 


 


 


 


 


Ending balances

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


 


 


 


 


 


Impairment

     12,673       9,555       —         —         —         22,228  
    


 


 


 


 


 


Book Value

   (Won) 1,093,196     (Won) 811,638     (Won) 66,423     (Won) 485,772     (Won) 12,324     (Won) 2,469,353  
    


 


 


 


 


 


 

30


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

Tangible assets covered by insurance policies as of December 31, 2004 are as follows:

 

(in millions of Korean won)

 

   Amount Insured

   Insurance Company

   Type of Insurance

Buildings and structures

   (Won) 620,234    Samsung Fire & Marine Insurance Co., Ltd, etc.    General property insurance

Leasehold improvements

     42,516    Samsung Fire & Marine Insurance Co., Ltd, etc.    General property insurance

Equipment and vehicles

     165,554    Samsung Fire & Marine Insurance Co., Ltd, etc.    General property insurance

Construction-in-progress

     994    Samsung Fire & Marine Insurance Co., Ltd    General property insurance
    

         
     (Won) 829,298          
    

         

 

Movements in intangible assets for the year ended December 31, 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

     —        —        —        —        49      1,752      1,801

Amortization

     78,345      3,488      8      21      54      354      82,270
    

  

  

  

  

  

  

Ending balances

   (Won) 457,015    (Won) 9,274    (Won) 94    (Won) 118    (Won) 145    (Won) 2,312    (Won) 468,958
    

  

  

  

  

  

  

 

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

 

(in millions of Won)

 

   Goodwill

   Development
Costs


   Rights to
Income on
Donated Asset


   Store
Possessory
Right


   Trademarks

   Others

   Total

Beginning balances

   (Won) 613,705    (Won) —      (Won) 110    (Won) 161    (Won) 11    (Won) 470    (Won) 614,457

Acquisition

     —        —        —        —        96      609      705

Increase due to merger

     —        13,634      —        —        62      —        13,696

Amortization

     78,345      872      8      22      19      165      79,431
    

  

  

  

  

  

  

Ending balances

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

  

  

  

  

  

  

 

The Bank recorded (Won)134,300 million and (Won)106,844 million of current development costs under general and administrative expenses for the year ended December 31, 2004 and 2003, respectively.

 

The total government-posted prices of land, used for tax imposition and compensation for confiscation, as of December 31, 2004 and 2003 are as follows:

 

(in millions of Won)

 

   2004

   2003

     Book Value

   Appraisal Value

   Book Value

   Appraisal Value

Lands included in tangible assets

   (Won) 997,715    (Won) 904,658    (Won) 1,093,196    (Won) 986,382

Lands included in foreclosed assets

     287      239      1,315      591
    

  

  

  

     (Won) 998,002    (Won) 904,897    (Won) 1,094,511    (Won) 986,973
    

  

  

  

 

31


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

8. Other Assets

 

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

 

(in millions of Korean won)

 

   2004

   2003

Guarantee deposits paid

   (Won) 1,290,891    (Won) 1,336,639

Accounts receivable

     2,351,340      1,715,100

Accrued income

     1,019,717      1,080,057

Payments in advance

     29,629      53,525

Prepaid expenses

     210,529      307,154

Deferred tax assets (Note 25)

     429,045      615,944

Derivative assets (Note 15)

     2,391,984      751,252

Unsettled domestic exchange assets

     520,612      612,592

Others

     39,401      36,592
    

  

     (Won) 8,283,148    (Won) 6,508,855
    

  

 

32


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

9. Deposits

 

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

 

(in millions of Korean won)

 

  

Annual Interest (%)

December 31, 2004


   2004

   2003

Deposits in Won

                  

Demand deposits

                  

Checking deposits

   —      (Won) 110,967    (Won) 125,533

Household checking deposits

   0.10      417,443      476,132

Passbook deposits

   0.10      10,767,705      10,001,043

Temporary deposits

   —        2,858,688      3,292,770

Public fund deposits

   0.10      157,840      190,593

Others

   0.10      26,141      24,218
         

  

            14,338,784      14,110,289
         

  

Time deposits and savings deposits

                  

Time deposits

   2.20~3.60      62,835,217      62,247,870

Installment savings deposits

   2.95~3.50      1,249,939      1,306,793

Property formation savings

   8.50      1,516      1,870

Time and savings deposits of non residents in Won

   2.20~3.60      263,671      340,388

General savings deposits

   0.10~2.70      19,120,739      21,644,066

Corporate savings deposits

   0.10~2.60      7,358,107      7,800,122

Long-term savings deposits for workers

   11.50~12.00      39,104      69,031

Long-term housing savings deposits

   4.10      1,663,366      983,684

Long-term savings for households

   11.00      20,108      494,606

Workers’ preferential savings deposits

   5.35      2,171,785      2,728,236

Workers’ savings for housing

   8.50~11.50      49      81

Mutual installment deposits

   2.65~3.50      6,306,923      7,054,752

Mutual installment for housing

   2.20~3.40      5,295,274      5,423,853
         

  

            106,325,798      110,095,352
         

  

Total deposits in Won

          120,664,582      124,205,641
         

  

Deposits in foreign currencies

                  

Demand deposits

                  

Checking deposits

   0.00~0.82      37,137      40,778

Passbook deposits

   0.09      663,261      787,798

Notice deposits

   0.00~0.16      276      410

Temporary deposits

   —        1,315      1,049
         

  

            701,989      830,035
         

  

Time deposits and savings deposits

                  

Time deposits

   1.03      729,950      642,039

Others

   0.00~4.45      2,122      3,299
         

  

            732,072      645,338
         

  

Total deposits in foreign currencies

          1,434,061      1,475,373
         

  

Certificates of deposit

   3.00~3.15      4,911,891      6,499,258
         

  

          (Won) 127,010,534    (Won) 132,180,272
         

  

 

33


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

The maturities of deposits as of December 31, 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) 66,822,353    (Won) 1,239,418    (Won) 2,820,472    (Won) 70,882,243

Due after 3 months through 6 months

     11,822,721      103,087      1,799,846      13,725,654

Due after 6 months through 1 year

     31,245,947      84,301      291,462      31,621,710

Due after 1 year through 2 years

     5,578,733      5,223      111      5,584,067

Due after 2 years through 3 years

     3,232,364      2,032      —        3,234,396

Due after 3 years through 4 years

     177,936      —        —        177,936

Due after 4 years through 5 years

     132,309      —        —        132,309

Thereafter

     1,652,219      —        —        1,652,219
    

  

  

  

     (Won) 120,664,582    (Won) 1,434,061    (Won) 4,911,891    (Won) 127,010,534
    

  

  

  

 

10. Borrowings

 

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

 

(in millions of Korean won)

 

  

Annual Interest (%)

December 31, 2004


   2004

   2003

Borrowings in Won

                  

Borrowings from the Bank of Korea

   2.00    (Won) 920,144    (Won) 992,433

Borrowings from the Korean government

   0.00~8.00      697,772      920,589

Borrowings from banking institutions

   2.79~6.00      158,245      253,822

Borrowings from National Housing Fund

   8.00      2,986      8,553

Borrowings from other financial institutions

   1.84~4.00      5,227      5,688

Other borrowings

   1.25~7.00      1,160,863      1,173,284
         

  

            2,945,237      3,354,369
         

  

Borrowings in foreign currencies

                  

Due to banks

   —        27,463      189,976

Borrowings from domestic banks

   0.05~5.06      1,657,515      2,360,652

Borrowings from other financial institutions

   1.50      13,882      19,486

Borrowings from foreign banks

   —        841,400      752,803
         

  

            2,540,260      3,322,917
         

  

Bonds sold under repurchase agreements

                  

In won

   2.50~3.25      3,449,445      3,613,505

In foreign currencies

   —        —        9,651
         

  

            3,449,445      3,623,156
         

  

Bills sold

   2.90~3.15      41,988      44,239
         

  

Due to the Bank of Korea in foreign currencies

   1.86~2.69      2,007      12,608
         

  

Call money

                  

In won

   2.75~3.15      638,500      55,800

In foreign currencies

   0.27~6.85      13,685      193,700

Inter-bank borrowings

          3,174      296,011
         

  

            655,359      545,511
         

  

          (Won) 9,634,296    (Won) 10,902,800
         

  

 

34


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

The maturities of borrowings as of December 31, 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) 989,046    (Won) 1,060,222    (Won) 2,683,011    (Won) 4,732,279

Due after 3 months through 6 months

     77,093      586,642      820,278      1,484,013

Due after 6 months through 1 year

     169,566      464,065      624,939      1,258,570

Due after 1 year through 2 years

     347,295      355,702      20,077      723,074

Due after 2 years through 3 years

     355,194      3,099      494      358,787

Due after 3 years through 4 years

     318,242      69,042      —        387,284

Due after 4 years through 5 years

     260,711      1,488      —        262,199

Thereafter

     428,090      —        —        428,090
    

  

  

  

     (Won) 2,945,237    (Won) 2,540,260    (Won) 4,148,799    (Won) 9,634,296
    

  

  

  

 

11. Debentures

 

Debentures as of December 31, 2004 and 2003 include:

 

(in millions of Korean won)

 

       

Annual Interest
(%)

December 31, 2004


  

2004


   

2003


 
          

In Won

   Hybrid debentures1    6.00~7.00    (Won) 903,668     (Won) 903,668  
     Structured debentures    4.29      80,000       —    
     Subordinated fixed rate debentures    4.19~15.66      6,020,845       4,896,072  
     KCC2 subordinated fixed rate debentures    7.10~8.00      205,000       205,000  
     KCC2 fixed rate debentures    5.43~7.80      930,000       2,895,000  
     KCC2 floating rate debentures    0.00~8.48      610,000       870,000  
     Floating rates debentures    3.14~8.71      12,536,566       8,609,663  
              


 


                 21,286,079       18,379,403  
     Discounts on debentures           (120,271 )     (83,443 )
              


 


                 21,165,808       18,295,960  
              


 


In foreign
currencies

   Floating rates debentures    0.92~3.19      110,810       196,211  
     Fixed rates debentures    2.37~4.63      525,485       613,549  
     KCC2 floating rate debentures    3.46      60,227       78,695  
              


 


                 696,522       888,455  
     Premiums on debentures           6,336       9,639  
     Discounts on debentures           (846 )     (1,473 )
              


 


                 702,012       896,621  
              


 


               (Won) 21,867,820     (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.

 

 

35


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

As of December 31, 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    133,477    14.67 ~ 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
     2000.11.20    66    9.57    2010.01.28
     2000.11.21    33    9.57    2010.01.28
     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
     2002.07.15    415    7.00    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
     2002.11.14    611    6.30    2010.05.27
     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    341    8.00    2008.01.18
     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    50,302    6.65    2013.06.27
     2002.12.27    30,370    6.55    2014.12.27
     2003.01.21    184    7.65    2008.02.21
     2003.01.21    50,000    7.65    2008.02.21
     2003.03.10    45,000    7.10    2008.04.10
     2003.03.10    182    7.10    2008.04.10
     2003.10.09    519    5.20    2009.10.27
     2003.10.09    77    5.35    2011.01.27
     2003.10.15    39    5.35    2011.01.27
     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

 

 

36


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

(in millions of Korean won)                    

Type


   Issue Date

   Amount

   Annual Interest (%)

   Maturity

Subordinated fixed rate debentures

   2004.02.10    174    5.68    2009.08.27
     2004.02.12    85    5.87    2011.08.27
     2004.02.13    174    5.68    2009.08.27
     2004.02.17    548    5.68    2009.08.27
     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
     2004.12.27    700,000    4.19 ~ 4.20    2010.06.27
         
         
          6,225,845          
         
         

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          
         
         
          7,129,513          
         
         

 

The maturities of debentures as of December 31, 2004 are as follows:

 

(in millions of Korean won)

 

   In Won

   In Foreign
Currencies


   Total

Due in 3 months or less

   (Won) 1,849,407    (Won) 16,108    (Won) 1,865,515

Due after 3 months through 6 months

     4,074,904      —        4,074,904

Due after 6 months through 1 year

     3,264,691      60,227      3,324,918

Due after 1 year through 2 years

     5,670,861      —        5,670,861

Due after 2 years through 3 years

     420,192      587,230      1,007,422

Due after 3 years through 4 years

     2,022,335      32,957      2,055,292

Due after 4 years through 5 years

     1,352,172      —        1,352,172

Thereafter

     2,631,517      —        2,631,517
    

  

  

     (Won) 21,286,079    (Won) 696,522    (Won) 21,982,601
    

  

  

 

 

37


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

12. Accrued Retirement Benefits

 

The movements in accrued retirement benefits for the year ended December 31, 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) 79,608     (Won) 24,069     (Won) 126,622  

Contributed retirement benefits

     163,349       45,000       15,024       193,325  
    


 


 


 


Total accrued retirement benefits

     234,432       124,608       39,093       319,947  

Contribution to pension funds

     (163,349 )     (45,000 )     (15,024 )     (193,325 )
    


 


 


 


     (Won) 71,083     (Won) 79,608     (Won) 24,069     (Won) 126,622  
    


 


 


 


 

As of December 31, 2004, approximately 60.42% 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 year ended December 31, 2004 amount to (Won)89,109 million, including the additional early retirement benefits paid in February 2004 of (Won)50,029 million.

 

13. Other Liabilities

 

Other liabilities as of December 31, 2004 and 2003 consist of:

 

(in millions of Korean won)

 

         
   2004

   2003

Accrued retirement benefits (Note 12)

   (Won) 126,622    (Won) 71,083

Allowance for losses on guarantees and acceptances (Note 14)

     1,150      1,074

Due to trust accounts

     798,662      3,983,295

Accounts payable

     2,734,897      1,886,446

Accrued expenses

     4,280,637      4,418,940

Advances from customers

     191,642      109,685

Unearned income

     97,269      130,778

Withholding taxes

     7,291      123,455

Guarantee deposits received

     111,723      120,437

Derivative liabilities (Note 15)

     2,219,630      686,271

Unsettled domestic exchange liabilities

     258,020      400,445

Accounts for agency business

     233,690      364,783

Other allowances

     611,120      846,916

Liabilities incurred by agency relationship

     280,569      315,241

Others

     156,971      130,182
    

  

     (Won) 12,109,893    (Won) 13,589,031
    

  

 

 

38


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

Other allowances as of December 31, 2004 include:

 

(in millions of Korean won)          

Allowances for


   Amounts

  

Remarks


LG Card

   (Won) 23,812    Allowances for Contingency on LG Card

KP chemical loans sold

     4,029    Allowances for KP chemical loans sold

Dormant accounts

     14,976    Allowances for dormant accounts written off

Cash advance service

     45,234    Allowances for unused cash advance credit lines

Mileage rewards

     80,676    Allowances for mileage on credit cards and currency exchange rates

Claimed assets

     3    Allowances for credit card claimed assets

Credit commitments to SPC

     438,343    Allowances for the credit line commitment to SPC (Note 16)

Loss on branch closure

     237    Allowances for closure of the Buenos Aires branch

KAMCO loans sold

     217    Allowances for loans under repurchase agreements to KAMCO (Note 16)

Master Card share agreement

     3,135    Allowances for the share settlement provision for Master Card shares

Allowances for tax deficiencies

     458    Allowances for tax deficiencies (Note 16)
    

    
     (Won) 611,120     
    

    

 

14. Guarantees and Acceptances

 

Guarantees and acceptances as of December 31, 2004 and 2003 are summarized as follows:

 

(in millions of Korean won)

 

              
      2004

   2003

Guarantees and acceptances outstanding in

             

Won

             

Guarantees on debentures

   (Won) 472    (Won) 541

Guarantees on loan collateral

     30,852      34,112

Others

     260,497      235,843
    

  

       291,821      270,496
    

  

Foreign Currencies

             

Acceptances on letters of credit

     101,180      134,888

Acceptances for letters of guarantee for importers

     62,829      88,743

Guarantees for performance of contracts

     32,039      16,689

Guarantees for bids

     2,606      1,067

Guarantees for borrowings

     26,728      37,843

Guarantees for repayment of advances

     23,213      10,004

Others

     435,372      240,567
    

  

       683,967      529,801
    

  

       975,788      800,297
    

  

Contingent guarantees and acceptances

             

Letters of credit

     1,016,414      1,200,228

Others

     295,360      81,290
    

  

       1,311,774      1,281,518
    

  

     (Won) 2,287,562    (Won) 2,081,815
    

  

 

39


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

As of December 31, 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) 280,910    (Won) 8,614    (Won) 2,042    (Won) 225    (Won) 30    (Won) 291,821
     Allowance      —        —        408      113      30      551
         

  

  

  

  

  

     Ratio (%)      —        —        20.00      50.00      100.00      0.19
         

  

  

  

  

  

Foreign Currencies

   Balance      672,484      10,312      1,024      142      5      683,967
     Allowance      —        —        496      98      5      599
         

  

  

  

  

  

     Ratio (%)      —        —        48.44      69.25      100.00      0.09
         

  

  

  

  

  

Total

   Balance    (Won) 953,394    (Won) 18,926    (Won) 3,066    (Won) 367    (Won) 35    (Won) 975,788
     Allowance      —        —        904      211      35      1,150
         

  

  

  

  

  

     Ratio (%)      —        —        29.50      57.45      100.00      0.12
         

  

  

  

  

  

 

For the years ended December 31, 2004 and 2003, the changes in allowances for losses on guarantees and acceptances outstanding are as follows:

 

(in millions of Korean won)

 

   2004

    2003

 

Beginning balance

   (Won) 1,074     (Won) 2,287  

Loss from (reversal of) guarantees and acceptances

     206       (1,209 )

Changes in foreign exchange rates, etc.

     (130 )     (4 )
    


 


Ending balance

   (Won) 1,150     (Won) 1,074  
    


 


 

The allowance ratios for guarantees and acceptances outstanding as of December 31, 2004, 2003 and 2002 are as follows

 

(in millions of Korean won)

 

   2004

   2003

   2002

Guarantees and acceptances outstanding

   (Won) 975,788    (Won) 800,297    (Won) 1,031,698

Allowance

     1,150      1,074      2,287
    

  

  

Ratio (%)

     0.12      0.13      0.22
    

  

  

 

The guarantees and acceptances risk concentration by country as of December 31, 2004 are as follows:

 

(in millions of Korean won)    Guarantees and Acceptances
Outstanding


   Contingent Guarantees and
Acceptances


   Total

     Balance

   Percentage (%)

   Balance

   Percentage (%)

   Balance

   Percentage (%)

Korea

   (Won) 934,036    95.72    (Won) 1,311,073    99.95    (Won) 2,245,109    98.14

USA

     41,752    4.28      701    0.05      42,453    1.86
    

  
  

  
  

  
     (Won) 975,788    100.00    (Won) 1,311,774    100.00    (Won) 2,287,562    100.00
    

  
  

  
  

  

 

 

40


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

The guarantees and acceptances risk concentration by industry as of December 31, 2004 are as follows:

 

(in millions of Korean won)    Guarantees and Acceptances
Outstanding


  

Contingent

Guarantees and Acceptances


   Total

     Balance

   Percentage (%)

   Balance

   Percentage (%)

   Balance

   Percentage (%)

Manufacturing

   (Won) 373,205    38.25    (Won) 862,433    65.75    (Won) 1,235,638    54.02

Service

     265,714    27.23      346,398    26.41      612,112    26.76

Finance

     242,520    24.85      911    0.07      243,431    10.64

Others

     94,349    9.67      102,032    7.77      196,381    8.58
    

  
  

  
  

  
     (Won) 975,788    100.00    (Won) 1,311,774    100.00    (Won) 2,287,562    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.

 

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

 

(in millions of Korean won)

 

   2004

   2003

   Trading

   Hedge

   Total

   Trading

   Hedge

   Total

Interest related

                                         

Future

   (Won) 605,224    (Won) —      (Won) 605,224    (Won) 519,665    (Won) —      (Won) 519,665

Swap

     31,951,803      1,007,900      32,959,703      26,773,100      598,900      27,372,000

Option bought

     354,190      —        354,190      810,000      —        810,000

Option sold

     854,190      —        854,190      1,530,000      —        1,530,000
    

  

  

  

  

  

       33,765,407      1,007,900      34,773,307      29,632,765      598,900      30,231,665
    

  

  

  

  

  

Currency related

                                         

Forward

     53,943,197      —        53,943,197      25,870,850      —        25,870,850

Future

     2,537,269      —        2,537,269      967,823      —        967,823

Swap

     4,184,152      —        4,184,152      4,136,776      —        4,136,776

Option bought

     245,387      —        245,387      28,148      —        28,148

Option sold

     270,247      —        270,247      81,450      —        81,450
    

  

  

  

  

  

       61,180,252      —        61,180,252      31,085,047      —        31,085,047
    

  

  

  

  

  

Stock related

                                         

Future

     3,406      —        3,406      —        —        —  

Option bought

     1,743,480      —        1,743,480      1,964,870      —        1,964,870

Option sold

     1,729,630      —        1,729,630      1,954,093      —        1,954,093
    

  

  

  

  

  

       3,476,516      —        3,476,516      3,918,963      —        3,918,963
    

  

  

  

  

  

     (Won) 98,422,175    (Won) 1,007,900    (Won) 99,430,075    (Won) 64,636,775    (Won) 598,900    (Won) 65,235,675
    

  

  

  

  

  

 

41


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

Gains and losses on derivatives as of and for the year ended December 31, 2004 are as follows:

 

(in millions of Korean Won)

 

    

Gain on derivatives

      

Gain on derivative transactions

   (Won) 4,057,392

Gain on valuation of derivatives

     2,196,112

Gain on fair value hedged items

     6,065
    

     (Won) 6,259,569
    

Loss on derivatives

      

Loss on derivative transactions

   (Won) 3,990,483

Loss on valuation of derivatives

     2,050,551

Loss on fair value hedged items

     3,890
    

     (Won) 6,044,924
    

 

The summary of derivative transactions for the year ended December 31, 2004 and 2003 are as follows:

 

1) For the year ended December 31, 2004

 

     Valuation Gains (P/L)

   Valuation Losses (P/L)

   Fair Value (B/S)

     Trading

   Hedge

   Total

   Trading

   Hedge

   Total

   Asset

   Liability

Interest related

                                                       

-Option bought

   (Won) 4,234    (Won) —      (Won) 4,234    (Won) 3,192    (Won) —      (Won) 3,192    (Won) 6,202    (Won) —  

-Option sold

     4,052      —        4,052      9,865      —        9,865      —        17,757

-Swap

     319,044      3,890      322,934      279,831      6,065      285,896      316,333      354,023
    

  

  

  

  

  

  

  

       327,330      3,890      331,220      292,888      6,065      298,953      322,535      371,780
    

  

  

  

  

  

  

  

Currency related

                                                       

-Forward

     1,519,740      —        1,519,740      1,480,920      —        1,480,920      1,519,636      1,486,626

-Option bought

     323      —        323      1,792      —        1,792      281      887

-Option sold

     2,683      —        2,683      379      —        379      827      379

-Swap

     321,802      —        321,802      250,158      —        250,158      476,703      287,203
    

  

  

  

  

  

  

  

       1,844,548      —        1,844,548      1,733,249      —        1,733,249      1,997,447      1,775,095
    

  

  

  

  

  

  

  

Stock related

                                                       

-Option bought

     10,554      —        10,554      8,718      —        8,718      72,002      —  

-Option sold

     9,790      —        9,790      9,631      —        9,631      —        72,755
    

  

  

  

  

  

  

  

       20,344      —        20,344      18,349      —        18,349      72,002      72,755
    

  

  

  

  

  

  

  

     (Won) 2,192,222    (Won) 3,890    (Won) 2,196,112    (Won) 2,044,486    (Won) 6,065    (Won) 2,050,551    (Won) 2,391,984    (Won) 2,219,630
    

  

  

  

  

  

  

  

 

42


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

2) For the year ended December 31, 2003

 

     Valuation Gains (P/L)

   Valuation Losses (P/L)

   Fair Value (B/S)

     Trading

   Hedge

   Total

   Trading

   Hedge

   Total

   Asset

   Liability

Interest related

                                                       

-Option bought

   (Won) 770    (Won) —      (Won) 770    (Won) 1,705    (Won) —      (Won) 1,705    (Won) 6,487    (Won) —  

-Option sold

     2,212      —        2,212      8,473      —        8,473      —        13,942

-Swap

     97,875      —        97,875      81,785      10,715      92,500      142,201      228,885
    

  

  

  

  

  

  

  

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

  

  

  

  

  

  

  

Currency related

                                                       

-Forward

     149,056      —        149,056      156,773      —        156,773      152,104      178,064

-Option bought

     94      —        94      —        —        —        94      —  

-Option sold

     358      —        358      581      —        581      130      615

-Swap

     31,005      —        31,005      50,423      —        50,423      258,136      82,827
    

  

  

  

  

  

  

  

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

  

  

  

  

  

  

  

Stock related

                                                       

-Option bought

     105,536      —        105,536      15,184      —        15,184      192,100      —  

-Option sold

     13,491      —        13,491      93,546      —        93,546      —        181,938
    

  

  

  

  

  

  

  

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

  

  

  

  

  

  

  

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

  

  

  

  

  

  

  

 

16. Commitments and Contingencies

 

As of December 31, 2004, the Bank faces 192 pending legal actions involving aggregate amount of damages of (Won)423,013million. On the other hand, the Bank also filed 237 lawsuits, which are still pending, with an aggregate amount of claims of (Won)129,598 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)        

Results


     Exposure to
possible loss


  

1st trial


  

2nd trial


  

3rd trial


Details

                     

Cancellation of a registered mortgage (12 cases)

   (Won) 6,696    closed    in progress     

Confirmation of obligations

     14,722    closed    closed    in progress

Indemnification for damage etc.

     19,303    closed    in progress     

 

As of December 31, 2004, the Bank has entered into commitments to provide a credit line of (Won)5,226,756 million, and to purchase commercial papers amounting to (Won)1,073,300 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)972,000 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 December 31, 2004, loans outstanding under the credit line commitment amounted to (Won)196,858 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 December 31, 2004, the Bank provided (Won)438,343 million in other allowances for its expected losses related to these commitments.

 

43


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

As of December 31, 2004, post settlements on the loan sales transactions with Korea Asset Management Corporation (“KAMCO”) have been completed. Accordingly, the Bank provided allowances of (Won)217million for losses from possible future repurchase of loans from KAMCO under the repurchase agreement on loans amounting (Won)692 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 December 31, 2004, the unpaid tax deficiencies of (Won)458 million still remain under other allowances.

 

As of December 31, 2004, the Bank still holds (Won)6,629,858 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.

 

As of December 31, 2004, the Bank recorded receivables amounting to (Won)1,162,161 million, and payables amounting to (Won)1,468,528 million for unsettled foreign currency spot transactions.

 

The Bank entered into an alliance with 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 December 31, 2004, the Bank has provided one blank promissory note and one promissory note with face value of (Won) 2,000,000 million to Korea Securities Finance Corporation as collateral for borrowings and other obligations. Also, as of December 31, 2004, the Bank transferred endorsed bills amounting to (Won)9,396 million.

 

In accordance with the November 24, 2003 agreement with the creditors’ committee of LG Card Company, Limited(‘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 million, 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 first 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 December 31, 2004, the Bank’s total exposure related to LG Card includes loans and debt-equity swapped equity securities amounting to (Won)237,900 million and (Won)291,072 million, respectively. Also, in accordance with the agreement with the creditors’ committee, the Bank participated in capital increase of LG Card by providing paid-in-capital of (Won)75,800 million on January 28, 2005. Furthermore, as of December 31, 2004, asset backed debt securities amounting to (Won)241,434 million, related with domestic credit card companies and capital companies, is included in the Bank’s investment securities. 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.

 

17. Capital Stock

 

As of December 31, 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. EURO-PACIFIC GROWTH FUND owns 4.26% of the total issued shares. As of December 31, 2004, 47,503,730 common shares, equivalent to 14.12% 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

 

44


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

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 by an appropriate resolution of the Bank’s Board of Directors.

 

18. Capital Surplus

 

The movements in capital surplus for the year ended December 31, 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 only available for being transferred to capital stock or used to reduce accumulated deficit.

 

Under the guidance provided by Financial Supervisory Services, the Bank 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%. This reserve is only available for being transferred to capital stock or used to reduce accumulated deficit.

 

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.

 

There were no dividends declared for the year ended December 31, 2003. For the year ended December 31, 2004, cash dividends were declared as follows:

 

     2004

 

Shares outstanding

     336,379,116  

Treasury stock

     (29,881,209 )
    


Shares entitled to dividends

     306,497,907  
    


Dividend rate(%)

     11.00  
    


Dividend amount (in millions of Won)

   (Won) 168,574  
    


Dividend payout ratio(%)

     30.36  

Dividend profit ratio(%)

     1.36  

 

As approved by the shareholders on March 23, 2004, the Bank offset the discretionary reserves of (Won)754,900 million against the prior year’s undisposed deficit of (Won)754,855 million (which is the amount before reflecting restatement of prior period financial statements referred at Note 38).

 

45


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

20. Capital Adjustments

 

The movements in capital adjustments for the year ended December 31, 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) 5,992     (Won) (1,322,320 )

Unrealized gain on available-for-sale securities

     137,987       375,798       (74,995 )     438,790  

Unrealized gain on investment in associates

     4,624       2,127       (1,059 )     5,692  

Stock options

     26,211       5,101       (1,699 )     29,613  

Loss on disposal of treasury stock

     (749 )     (710 )     —         (1,459 )
    


 


 


 


     (Won) (1,160,239 )   (Won) 382,316     (Won) (71,761 )   (Won) (849,684 )
    


 


 


 



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 July 26, 2002, the Bank contributed one million shares to the Employee Stock Ownership Association.

 

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 8.88% the total common stock issued as treasury stock as of December 31, 2004.

 

 

46


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

21. Employee Stock Options

 

As of December 31, 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    71,641    40,888    (Won) 23,469    03.03.19 -05.03.18

Series 2

   01.03.15    214,975    16,882    22,056    176,037      28,027    04.03.16 -09.03.15

Series 3

   98.10.31    400,000    —      400,000    —        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    41,784    159,998      27,600    03.03.01 -06.02.28

Series 6

   01.03.24    111,000    38,624    11,216    61,160      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 8-23

   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    59,947    —      80,053      35,500    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 13-23

   04.03.23    10,000    —      —      10,000      47,200    07.03.22 -12.03.23

Series 14

   04.11.01    700,000    —      —      700,000      37,600    07.11.02 -12.11.01

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
         
  
  
  
           
          4,206,051    907,192    766,805    2,532,054            
         
  
  
  
           

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. The exercise price of series 7, which was granted on November 16, 2001, is fixed at (Won)51,200 based on the beginning exercise date.
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.

 

 

47


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

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 4

     33,750    4.74    0.33    73.30    1.93      19,850

Series 5

     33,750    4.74    1.33    73.30    1.93      13,320

Series 6

     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    —        24,494

Series 8-2

     58,000    6.14    3.00    53.56    —        24,494

Series 9

     53,900    5.73    3.00    43.09    —        17,333

Series 10-1

     36,500    4.74    3.00    48.77    —        11,961

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    —        15,122

Series 13-2

     45,900    4.67    3.00    42.74    —        15,120

Series 14

     37,400    3.54    3.00    44.14    —        12,234

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 11 and 12. Vesting period was applied for series 13-14 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 11 and 12 and stock options succeeded from Kookmin Credit Card Co., Ltd., and the average of stock volatility of banking industries and the Bank was applied for series 13 and 14.
4 Average historical dividend rate for the past period from grant date that equals the expected exercise period, were assumed.

 

 

48


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

The compensation costs recognized and compensation costs to be recognized in the future as of December 31, 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) 517    (Won) —       (Won) 517    (Won) —      (Won) —      (Won) —      (Won) —      (Won) 517

Series 2

     2,580      234       2,814      —        —        —        —        2,814

Series 5

     2,131      —         2,131      —        —        —        —        2,131

Series 6

     960      87       1,047      —        —        —        —        1,047

Series 7

     10,840      1,097       11,937      —        —        —        —        11,937

Series 8-1

     604      345       949      86      —        —        86      1,035

Series 8-2

     5,296      1,968       7,264      660      —        —        660      7,924

Series 9

     246      173       419      101      —        —        101      520

Series 10-1

     427      131       558      319      80      —        399      957

Series 10-2

     633      318       951      544      136      —        680      1,631

Series 11

     50      (16 )     34      26      17      —        43      77

Series 12

     —        388       388      466      466      78      1,010      1,398

Series 13-1

     —        76       76      101      101      24      226      302

Series 13-2

     —        38       38      50      50      13      113      151

Series 14

     —        238       238      2,855      2,855      2,616      8,326      8,564

Increase due to merger-1

     171      16       187      —        —        —        —        187

Increase due to merger-2

     57      8       65      —        —        —        —        65
    

  


 

  

  

  

  

  

     (Won) 24,512    (Won) 5,101     (Won) 29,613    (Won) 5,208    (Won) 3,705    (Won) 2,731    (Won) 11,644    (Won) 41,257
    

  


 

  

  

  

  

  

 

As of December 31, 2004, the weighted average exercise price per stock option granted is (Won)43,632 and the weighted average compensation cost per stock option granted is (Won)16,294.

 

49


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

22. Other Non-Interest Income (Expenses)

 

Other non-interest income and expenses for the year ended December 31, 2004 are as follows:

 

(in millions of Korean won)

 

   Amount

Other non-interest income

      

- Realized gain on trading securities

   (Won) 147,631

- Unrealized gain on trading securities

     26,745

- Income from beneficiary certificates

     384,747

- Gain on trust management

     117,869

- Gain on valuation of derivatives

     2,196,112

- Gain on fair value hedged items

     6,065

- Others

     41,945
    

     (Won) 2,921,114
    

Other non-interest expenses

      

- Realized loss on trading securities

     69,214

- Contributions to special funds

     179,922

- Loss on valuation of derivatives

     2,050,551

- Others

     505,036
    

     (Won) 2,804,723
    

 

23. General and Administrative Expenses

 

General and administrative expenses for the year ended December 31, 2004 are as follows:

 

(in millions of Korean won)

 

   Amount

Salaries and wages

   (Won) 1,196,981

Retirement benefits (Note 12)

     124,608

Other employee benefits

     335,764

Rent

     79,139

Depreciation

     333,019

Amortization

     82,270

Taxes and dues

     122,982

Advertising

     43,869

Ordinary Research and Development

     134,300

Fees and commissions

     95,898

Others

     209,684
    

     (Won) 2,758,514
    

 

50


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

24. Non-Operating Income (Expenses)

 

Non-operating income (expenses) for the year ended December 31, 2004 are as follows:

 

(in millions of Korean won)

 

   Amount

 

Non-operating income

        

- Gain on disposal of fixed assets

   (Won) 29,546  

- Rent income

     3,171  

- Unrealized gain on investment in associates

     —    

- Realized gain on available-for-sale securities

     77,823  

- Realized gain on held-to-maturity securities

     1,517  

- Realized gain on investment in associates

     1,146  

- Reversal of impairment loss on tangible assets

     3,281  

- Gain on sale of loans

     23,770  

- Others

     171,298  
    


       311,552  
    


Non-operating expenses

        

- Loss on disposal of fixed assets

     16,736  

- Loss on impairment loss on tangible assets

     19,384  

- Unrealized loss on investment in associates

     5,014  

- Realized loss on available-for-sale securities

     24,350  

- Realized loss on held-to-maturity securities

     3  

- Impairment loss on available-for-sale securities

     82,272  

- Early retirement benefits

     50,029  

- Loss on sale of loans

     1,183,331  

- Others

     121,003  
    


       1,502,122  
    


     (Won) (1,190,570 )
    


 

 

51


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

25. Income Tax Expense

 

Income tax expense for the year ended December 31, 2004 and 2003 are as follows:

 

(in millions of Won)

 

   2004

    2003

 

Income tax payable

   (Won) 178,871     (Won) 23  

Deferred income taxes from temporary differences

     164,790       (285,864 )

Deferred income taxes from accumulated deficit

     —         (168,645 )

Deferred tax credit

     —         (3,951 )

Retained earnings and other capital surplus adjustments 1*

     (313 )     2,033  
    


 


Income tax expense(benefit)

   (Won) 343,348     (Won) (456,404 )
    


 



1 Income tax effect from the change in retained earnings by applying the equity method accounting to subsidiaries and from the loss on disposal of treasury stock.

 

The statutory income tax rate applicable to the Bank, including resident tax surcharges, is 29.7% for the years ended December 31, 2004 and 2003. However, due to tax adjustments, the effective tax rate for the years ended December 31, 2004 and 2003 are 38.21% and 32.91%. 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 Won)

 

   2004

    2003

 

Net income (loss) before income taxes

   (Won) 898,598     (Won) (1,386,760 )
    


 


Income tax expense based on statutory tax rate(29.7%)

     266,884       (411,868 )

Tax effects on adjustments

                

Adjustments to increase taxable income

     110,844       97,458  

Adjustments to decrease taxable income

     (47,512 )     (166,668 )

Tax rate discount effect

     13,132       24,674  
    


 


Income tax expense (benefit) per statements of operations

   (Won) 343,348     (Won) (456,404 )
    


 


 

52


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

The significant changes in accumulated temporary differences and deferred income taxes for the year ended December 31, 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     574,629     274,688     598,964     (Won) 164,715  

Accrued interest

     (349,435 )   (267,558 )   (308,069 )   (308,924 )     (84,954 )

Unrealized loss on securities

     762,266     646,073     682,038     726,301       199,733  

Unrealized gain on derivatives

     (35,045 )   (124,245 )   (23,924 )   (135,366 )     (37,226 )

Present value discounts

     14,774     4,279     14,774     4,279       1,177  

Allowance for losses on guarantees and acceptances

     1,074     1,126     1,074     1,126       310  

Stock options

     26,211     29,613     26,211     29,613       8,143  

Loss on fair value hedges

     (1,502 )   (2,176 )   —       (3,678 )     (1,011 )

Accumulated depreciation

     8,313     102     4,260     4,155       1,143  

Other allowances

     505,372     636,457     505,372     636,457       175,025  

Others

     104,471     232,281     329,516     7,236       1,990  

Net operating loss carry-forward

     567,825     —       567,825     —         —    
    


 

 

 

 


       1,903,347     1,730,581     2,073,765     1,560,163       429,045  
    


 

 

 

 


Deferred income tax deduction

   (Won) 3,951     —       3,951     —         —    
    


 

 

 

 


                               (Won) 429,045  
                              


 

26. Earnings Per Share

 

The weighted average number of common shares outstanding for the years ended December 31, 2004 and 2003 are calculated as follows:

 

     2004

    2003

 

Number of common shares outstanding-beginning balance

   336,379,116     330,327,726  

Weighted average number of treasury common shares

   (29,947,507 )   (4,327,815 )
    

 

Weighted average number of common shares outstanding

   306,431,609     325,999,911  
    

 

 

Details of the computation of the basic earnings (loss) per share (“EPS”) and basic ordinary income (loss) per share for the years ended December 31, 2004, and 2003 are shown below.

 

     2004

   2003

 

Net income (loss) (in millions of Won)

   (Won) 555,250    (Won) (930,356 )

Weighted average number of common shares outstanding

     306,431,609      325,999,911  
    

  


Basic earnings (loss) per share and basic ordinary income (loss) per share (in Won)

   (Won) 1,812    (Won) (2,854 )
    

  


 

53


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

Details of the computation of the diluted EPS and diluted ordinary income per share for the years ended December 31, 2004, and 2003 are shown below.

 

     2004

   2003

 

Net income (loss) (in millions of Korean won)

   (Won) 555,238    (Won) (930,356 )

Weighted average number of common shares outstanding

     306,529,707      325,999,911  
    

  


Diluted earnings (loss) per share and ordinary income (loss) per share (in won)

   (Won) 1,811    (Won) (2,854 )
    

  


 

Potential common shares as of December 31, 2004 are as follows:

 

     Exercise Period

   Shares Outstanding

   Exercise Price

 

Stock options

   2001.11.01 - 2012.11.01    2,532,054    (Won) 5,000 –  (Won)129,100

 

As discussed in Note 38, the Bank restated net loss and basic loss per share for the year ended December 31, 2003 from (Won)753,348 million and (Won)2,311 to (Won)930,356 million and (Won)2,854, respectively, to comply with the Securities and Futures Commission’s announced the results of the investigation on Kookmin Bank’s accounting treatments.

 

27. Assets and Liabilities Denominated in Foreign Currencies

 

Significant assets and liabilities denominated in foreign currencies as of December 31, 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) 124,735    $ 119,501    $ 52,102    15,928    ¥ 3,446,955

Due from banks

     607,447      581,957      550,641      3,849      2,277,613

Securities

     950,807      910,909      713,604      —        4,280,373

Loans

     3,860,828      3,698,819      486,690      —        33,744,003

Bills bought

     574,785      550,665      492,775      36,516      682,658

Call loans

     191,784      183,736      163,600      —        500,000

Liabilities

                                  

Deposits

     1,434,061      1,373,885      862,896      46,339      33,911,574

Borrowings

     2,540,260      2,433,665      1,859,413      40,051      46,777,477

Due to Bank of Korea

     2,007      1,923      1,923      —        —  

Call money

     13,685      13,111      1,000      —        200,000

Debentures

     696,522      667,294      570,752      —        —  

Unsettled foreign exchange liabilities

     21,395      20,497      16,305      596      120,366

 

54


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

Significant assets and liabilities denominated in foreign currencies as of December 31, 2003 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) 228,153    $ 190,476    $ 76,612    22,070    (Won) 7,223,564

Due from banks

     601,624      502,275      478,539      3,015      1,798,015

Securities

     1,350,145      1,127,187      969,825      3,960      3,674,314

Loans

     4,019,930      3,356,094      2,464,055      37,850      79,081,632

Bills bought

     533,294      445,228      415,863      15,003      817,496

Advances payments on acceptances and guarantees

     4,593      3,835      3,835      —        —  

Call loans

     5,351      4,467      4,000      —        50,000

Liabilities

                                  

Deposits

     1,475,373      1,231,736      843,970      14,493      27,863,430

Borrowings

     3,322,917      2,774,184      2,138,815      39,595      60,834,504

Due to Bank of Korea

     12,608      10,526      10,526      —        —  

Call money

     193,700      161,713      157,600      —        300,000

Debentures

     896,621      748,557      741,129      —        —  

Unsettled foreign exchange liabilities

     22,600      18,868      11,569      161      89,793

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 year ended December 31, 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) 1,685,105    (Won) 276,182    (Won) 104,700    (Won) 2,065,987
     In foreign currencies      43,631      558,771      5,045      607,447
         

  

  

  

          (Won) 1,728,736    (Won) 834,953    (Won) 109,745    (Won) 2,673,434
         

  

  

  

Loans

   In Won    (Won) —      (Won) 6,623    (Won) 682,384    (Won) 689,007
     In foreign currencies      —        809,978      340,448      1,150,426
     Others      —        2,991,017      1,111,480      4,102,497
         

  

  

  

          (Won) —      (Won) 3,807,618    (Won) 2,134,312    (Won) 5,941,930
         

  

  

  

Deposits

   In Won    (Won) —      (Won) 1,683,255    (Won) 5,240,889    (Won) 6,924,144
     In foreign currencies      —        —        110,000      110,000
         

  

  

  

          (Won) —      (Won) 1,683,255    (Won) 5,350,889    (Won) 7,034,144
         

  

  

  

Borrowings

   In Won    (Won) 920,144    (Won) 158,245    (Won) 5,227    (Won) 1,083,616
     In foreign currencies      —        1,684,978      13,882      1,698,860
     Others      2,007      13,685      638,500      654,192
         

  

  

  

          (Won) 922,151    (Won) 1,856,908    (Won) 657,609    (Won) 3,436,668
         

  

  

  

Debentures

   In Won    (Won) —      (Won) —      (Won) 132,900    (Won) 132,900
     In foreign currencies      —        696,522      —        696,522
         

  

  

  

          (Won) —      (Won) 696,522    (Won) 132,900    (Won) 829,422
         

  

  

  

 

 

55


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

29. Related Party Transactions

 

Significant transactions with related parties for the year ended December 31, 2004 and 2003 are as follows:

 

(in millions of Korean won)

 

        2004

    2003

 
  

Account


   Balances

   Transactions

    Balances

   Transactions

 

KB Investment Co., Ltd.

   Deposits    17,423    (432 )   9,624    (484 )
     Other liabilities    316    —       191    —    

KB Data Systems Co., Ltd.

   Fixed assets    13,318    —       13,780    —    
     Other assets    98          34    —    
     Deposits    12,047    (418 )   5,582    (265 )
     Other liabilities    5,596    (19,694 )   2,832    (15,925 )
     Borrowings    1,100    (19 )   —      —    
     Commissions income    —      —       —      53  

KB Futures Co., Ltd.

   Due from banks    —      1     40    3  
     Other assets    22    82     26    77  
     Deposits    4,410    (307 )   9,793    (497 )
     Borrowings    5,000    (122 )   —      —    
     Other liabilities    1,614    —       1,663    —    
     Commissions income    —      11     —      9  
     Commissions expenses    —      (523 )   —      (187 )

Kookmin Bank Luxembourg S.A.

   Due from banks    —      70     51,784    2,215  
     Loans    —      184     76,659    739  
     Other assets    —      —       176    2,900  
     Borrowings    —      (178 )   140,880    (193 )
     Other liabilities    —      —       —      (1,352 )

Kookmin Bank International Ltd.(London)

   Due from banks    2,762    29     33,754    904  
     Loans    242,005    3,142     95,824    1,765  
     Other assets    1,005    637     405    477  
     Borrowings    101,812    (547 )   108,272    (501 )
     Other liabilities    —      (2,190 )   1,203    (4,011 )
     Commissions expenses    —      (2,378 )   —      (1,398 )

Kookmin Bank Hong Kong Ltd.

   Due from banks    619    61     372    857  
     Loans    170,661    4,380     98,579    1,802  
     Other assets    540    —       152    109  
     Borrowings    12,145    (22 )   173,121    (4 )
     Commissions expenses    —      (1,802 )   —      (1,777 )

KB Asset Management

   Deposits    25,729    (866 )   46,244    (1,250 )
     Other liabilities    524    —       234    (5 )

KB Real Estate Co., Ltd.

   Loans    33,961    2,035     25,000    2,578  
     Other assets    14    —       —      —    
     Deposits    168    (43 )   1,838    (27 )
     Other liabilities    1,748    —       1,755    —    
     Rent    —      152     —      —    

Jooeun Industrial Co., Ltd.

   Loans    70,808    —       139,425    —    

KB Credit Information Co., Ltd.

   Deposits    14,301    (385 )   11,446    (457 )
     Other liabilities    8,062    —       8,482    —    
     Commissions expenses    —      32,938     —      (38,481 )

KB Life Insurance Co., Ltd.

   Other assets    3,037    —       —      —    
     Deposits    4,622    (51 )   —      —    
     Other liabilities    2,581    —       —      —    
     Commissions income    —      17,801     —      —    
     Rent    —      54     —      —    

 

56


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

30. Interest Bearing Assets and Liabilities

 

Interest bearing assets and liabilities as of December 31, 2004 and the related interest income and interest expenses for the year then ended are as follows:

 

(in millions of Korean won)

 

   Average Balance

   Interest Income

   Average Yield (%)

Assets

                  

Due from banks

   (Won) 829,905    (Won) 9,995    1.20

Securities

     23,818,203      1,045,947    4.39

Loans

     139,533,481      10,279,924    7.37
    

  

    
     (Won) 164,181,589    (Won) 11,335,866     
    

  

    

Liabilities

                  

Deposits

   (Won) 129,654,719    (Won) 3,909,204    3.02

Borrowings

     10,891,248      326,586    3.00

Debentures

     19,046,584      1,116,110    5.86
    

  

    
     (Won) 159,592,551    (Won) 5,351,900     
    

  

    

 

31. Operations of Trust Accounts

 

The summarized statement of assets and liabilities of trust accounts as of December 31, 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) 2,874,475     (Won) 3,676,741     (Won) 1,041,021    (Won) 7,592,237  

Loans

     211,489       150,416       —        361,905  

Receivables

     —         —         10,679,316      10,679,316  

Due from banking accounts

     116,824       210,916       101,729      429,469  

Call loans

     96,000       4,000       —        100,000  

Allowance for loan losses

     (33,710 )     (13,482 )     —        (47,192 )

Other assets

     50,216       73,015       927,079      1,050,310  
    


 


 

  


Total assets

   (Won) 3,315,294     (Won) 4,101,606     (Won) 12,749,145    (Won) 20,166,045  
    


 


 

  


Trusts

   (Won) 3,108,612     (Won) 3,920,223     (Won) 12,534,329    (Won) 19,563,164  

Reserves for future losses

     53,349       2,656       —        56,005  

Other liabilities

     153,333       178,727       214,816      546,876  
    


 


 

  


Total liabilities

   (Won) 3,315,294     (Won) 4,101,606     (Won) 12,749,145    (Won) 20,166,045  
    


 


 

  


 

 

57


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

The Bank is liable as of December 31, 2004 for the following portion of the difference between the book value and fair value of principal and/or related profit guaranteed money trusts:

 

(in millions of Korean won)

 

   Book Value

   Fair Value

   Liability

Principal guaranteed money trusts

   (Won) 3,233,059    (Won) 3,255,108    (Won) —  

Principal and dividend guaranteed money trusts

     82,235      82,868      —  
    

  

  

     (Won) 3,315,294    (Won) 3,337,976    (Won) —  
    

  

  

 

The key results of operations from transactions between bank accounts and trust accounts, excluding securities investment trust, for the year ended December 31, 2004 are as follows:

 

(in millions of Korean won)

 

   Trust Account
Related Income


        Trust Account
Related Expenses


Gain on trust management

   (Won) 102,148   

Interest expense on borrowings from trust accounts

   (Won) 34,575

Early withdrawal penalties

     73            
    

       

     (Won) 102,221         (Won) 34,575
    

       

 

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.

 

58


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

34. Statement of Cash Flows

 

Cash and cash equivalents as of December 31, 2004 and 2003 as presented in the statements of cash flows are as follows:

 

(in millions of Won)

 

   2004

    2003

 

Cash on hand

   (Won) 2,380,578     (Won) 2,945,921  

Cash in foreign currencies

     124,735       228,153  

Due from banks in Won

     2,068,749       2,763,457  

Due from banks in foreign currencies

     607,447       601,624  
    


 


       5,181,509       6,539,155  

Restricted deposits

     (1,819,977 )     (2,767,398 )
    


 


     (Won) 3,361,532     (Won) 3,771,757  
    


 


 

Major transactions that do not involve cash inflows and cash outflows for the year ended December 31, 2004, and 2003 are presented as follows:

 

(in millions of Won)

 

   2004

   2003

 

Change due to the merger with KB Credit Card Co., Ltd.

   (Won) —      (Won) 10,595,409  

Unrealized gains on investment securities

     300,802      (122,888 )

Write-off of loans

     5,293,809      4,773,212  

Decrease in loan loss provision due to sales of non-performing loans

     644,590      60,401  

Conversion of loans into equity securities

     181,034      33,415  

 

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 year ended December 31, 2004:

 

(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
Credit Card Operations   Operation of credit card and card loan
Others   Others

 

 

59


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

(2) Financial information

 

(in millions of Korean won)

 

  

Retail

Banking


  

Corporate

Banking


   Capital Markets
Activities


   Credit Card
Operations


   Others

   Total

Loans

   (Won) 82,562,821    (Won) 42,356,089    (Won) 4,094,016    (Won) 7,021,125    (Won) 272    (Won) 136,034,323

Securities

     —        953,208      26,294,868      —        350,661      27,598,737

Fixed assets

     1,662,848      151,660      12,944      55,448      750,318      2,633,218

Other assets

     2,318,209      201,915      7,633,536      1,593,234      1,714,012      13,460,906
    

  

  

  

  

  

Total assets

   (Won) 86,543,878    (Won) 43,662,872    (Won) 38,035,364    (Won) 8,669,807    (Won) 2,815,263    (Won) 179,727,184
    

  

  

  

  

  

Operating revenue

   (Won) 6,088,930    (Won) 3,339,648    (Won) 8,194,308    (Won) 2,647,841    (Won) 609,133    (Won) 20,879,860
    

  

  

  

  

  

 

The following table shows the general information and the distribution of the Bank’s operations by geographical market as of and for the year ended December 31, 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) 135,599,718    (Won) 434,605    (Won) 136,034,323

Securities

     27,596,336      2,401      27,598,737

Fixed assets

     2,630,151      3,067      2,633,218

Other assets

     12,903,908      556,998      13,460,906
    

  

  

Total assets

   (Won) 178,730,113    (Won) 997,071    (Won) 179,727,184
    

  

  

Operating revenue

   (Won) 20,829,465    (Won) 50,395    (Won) 20,879,860
    

  

  

 

 

60


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

36. Final interim period performance

 

Final interim performance for the three-month periods ended December 31, 2004 and 2003, are as follows:

 

(in millions of Won)

 

   2004

    2003

 

Operating income

   (Won) 7,013,515     (Won) 3,114,173  

Operating expense

     6,782,350       1,600,139  

Operating (loss) income

     231,165       1,514,034  

Net loss

     (127,259 )     (521,088 )

Loss per share (in Won)

     (415 )     (1,587 )

 

37. Reclassification of Prior year Financial Statement Presentation

 

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

 

38. 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 year 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 unrealized gain on investment in associates 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 unrealized loss on investment in associates 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 SPC’s 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, understating other allowances (allowance for acceptances and guarantees outstanding) by (Won)213,157 million and overstating net assets (understating net income) by the same amount.

 

61


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

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 unrealized loss on investment in associates. However, KCC recognized the swap settlement payment as asset, ABS advance payment, and the Bank accounted for the amount as contra account amount of liabilities, agency fee. As a result, the Bank understated the liability by (Won)27,159 million and overstated 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 unrealized gain on investment in associates for the amount of (Won)213,157 million and (Won)27,159 million, respectively, by reversing the understatement of other allowance by (Won)213,157 million in income statement for the year ended in December 31, 2003 and overstatement of unrealized gain on investment in associates by (Won)27,159 million in income statement for the year 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 unrealized gain on investment in associates by (Won)27,159 million.

 

The balance sheet as December 31, 2003 and income statement for the year ended December 31, 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 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 payable

     337,624       364,783  

Retained earnings

     1,662,119       1,485,111  

Income statement (2003.1.1-2003.12.31)

                

Unrealized gain on investment in associates

   (Won) 267,870     (Won) 240,711  

Provision of other allowances

     432,871       646,028  

Income tax benefit

     (393,096 )     (456,404 )

 

The following shows the recomputed ordinary loss, net loss, ordinary loss per share and net loss per share as of and for the year ended December 31, 2003:

 

     December 31, 2003

 

(in millions of Korean won)

 

   Before Adjustments

    After Adjustments

 

Ordinary loss

   (Won) (753,348 )   (Won) (930,356 )

Net loss

     (753,348 )     (930,356 )

Ordinary loss per share(in Won)

     (2,311 )     (2,854 )

Net loss per share(in won)

     (2,311 )     (2,854 )

 

 

62


Kookmin Bank

Notes to Non-Consolidated Financial Statements

December 31, 2004 and 2003


 

39. Subsequent Event

 

The Bank sold 49% of its ownership of KB Life Insurance Co., Ltd to ING Insurance International B.V. at (Won)14,821 million on January 25, 2005.

 

The Bank participated in increasing the paid in capitals of LG Card Co., Ltd. amounting to (Won)75,800 million on January 28, 2005, in accordance with the agreement with the creditors’ committee.

 

On January 25, 2005, the Bank agreed with the Bank’s labor union to implement an early retirement program to which about 2,200 employees applied as of February 2, 2005. Estimated cost for the said program is approximately (Won)256 billion.

 

On February 3, 2005, the Bank, with the approval of the Board of Directors, decided to contribute 2 million treasury stocks to the Employee Stock Ownership Association for the welfare of the employees.

 

40. Approval of Financial Statements

 

The Bank’s financial statements as of and for the year ended December 31, 2004, were approved by the board of directors on February 3,2005.

 

63


Exhibit 99.2

 

Kookmin Bank and Subsidiaries

Consolidated Operating Results for the Fiscal Year 2004

December 31, 2004 and December 31, 2003

 

(in millions of Won)    2004

    2003

 

Assets

                

Cash and due from banks

   (Won) 5,251,217     (Won) 6,560,651  

Securities, net

     30,303,215       29,337,684  

Loans, net

     136,102,701       141,144,849  

Fixed assets, net

     2,637,118       3,024,948  

Other assets

     8,481,033       6,754,658  
    


 


Total assets

   (Won) 182,775,284     (Won) 186,822,790  
    


 


Liabilities and Shareholders’ Equity

                

Deposits

   (Won) 130,133,873     (Won) 135,373,286  

Borrowings

     9,359,595       10,750,820  

Debentures

     21,867,820       19,182,576  

Other liabilities

     12,226,696       13,205,072  
    


 


Total liabilities

     173,587,984       178,511,754  
    


 


Commitments and contingencies

                

Common stock ((Won)5,000 par value per share, 1 billion authorized shares and 336,379,116 shares outstanding in 2004)

     1,681,896       1,681,896  

Capital surplus

     6,238,284       6,237,528  

Retained earnings

     2,091,960       1,535,656  

Capital adjustments

     (852,480 )     (1,160,814 )

Minority interest in consolidated subsidiaries

     27,640       16,770  
    


 


Total shareholders’ equity

     9,187,300       8,311,036  
    


 


Total liabilities and shareholders’ equity

   (Won) 182,775,284     (Won) 186,822,790  
    


 


 

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

 

1


(in millions of Won, except per share amounts)    2004

    2003

 

Interest income

                

Interest on due from banks

   (Won) 12,693     (Won) 10,997  

Interest on trading securities

     289,393       303,743  

Interest on available-for-sale securities

     544,483       756,539  

Interest on held-to-maturity securities

     360,569       1,242,809  

Interest on loans

     9,862,381       10,647,859  

Other interest income

     120,980       122,955  
    


 


       11,190,499       13,084,902  
    


 


Interest expenses

                

Interest on deposits

     4,044,051       4,386,806  

Interest on borrowings

     330,690       591,830  

Interest on debentures

     1,116,557       1,436,234  

Other interest expenses

     48,562       60,891  
    


 


       5,539,860       6,475,761  
    


 


Net interest income

     5,650,639       6,609,141  

Provision for loan losses

     3,064,528       2,028,696  
    


 


Net interest income after provision for loan losses

     2,586,111       4,580,445  
    


 


Non-interest income

                

Fees & commission income

     2,651,130       2,566,553  

Dividends on trading securities

     3,378       79,121  

Dividends on available-for-sale securities

     6,883       5,986  

Gain on foreign currency transactions

     245,694       291,542  

Gain on derivatives transactions

     4,060,338       1,134,624  

Insurance income

     58,385       —    

Others

     2,976,927       857,192  
    


 


       10,002,735       4,935,018  
    


 


Non-interest expenses

                

Fees and commission expenses

     442,349       717,604  

General and administrative expenses

     2,844,108       3,027,164  

Loss on foreign currency transactions

     294,135       195,212  

Loss on derivatives transactions

     3,991,366       1,089,971  

Insurance expense

     43,672       —    

Others

     2,930,558       1,564,883  
    


 


       10,546,188       6,594,834  
    


 


Operating income

     2,042,658       2,920,629  

Non-operating expenses, net

     (1,150,689 )     (4,180,551 )
    


 


Net (loss) income before income tax expense

     891,969       (1,259,922 )

Income tax (benefit) expense

     338,105       (417,666 )
    


 


Net (loss) income before consolidation adjustment

     553,864       (842,256 )

Minority interest in (earnings)losses of consolidated subsidiaries

     (3,132 )     (76,502 )
    


 


Net (loss) income

   (Won) 550,732     (Won) (918,758 )
    


 


Basic (loss) earnings per share (In Korean Won)

   (Won) 1,797     (Won) (2,818 )
    


 


Diluted (loss) earnings per share (In Korean Won)

   (Won) 1,797     (Won) (2,818 )
    


 


 

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

 

2