consolidated english report hana bank 2011 ye draft...

Hana Bank Consolidated financial statements

Years ended December 31, 2011 and 2010

with independent auditors’ report

Hana Bank December 31, 2011 and 2010 Contents

Page Independent auditors’ report 1 Consolidated statements of financial position 2 Consolidated statements of comprehensive income 3 Consolidated statements of changes in equity 4 Consolidated statements of cash flows 5-6 Notes to the consolidated financial statements 7-132

1

Independent auditors’ report

The Board of Directors and Shareholder Hana Bank

We have audited the accompanying consolidated financial statements of Hana Bank (the “Bank”) and its

subsidiaries (collectively referred to as the “Company”), which comprise the consolidated statements of financial

position as at December 31, 2011 and 2010; the consolidated statements of comprehensive income, changes in

equity and cash flows for the years ended December 31, 2011 and 2010; and opening statement of financial

position as at January 1, 2010. 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 Korea Standards on Auditing. 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 financial statements referred to above present fairly, in all material respects, the financial

position of the Company as of December 31, 2011, December 31, 2010, and January 1, 2010, and the results of

its financial performance, and its cash flows for the years ended December 31, 2011 and 2010 in accordance with

Korea International Financial Reporting Standards (K-IFRS).

March 6, 2012

This audit report is effective as of March 6, 2012, the independent auditors’ report date. Accordingly, certain

material subsequent events or circumstances may have occurred during the period from the independent auditors’

report date to the time this audit report is used. Such events and circumstances could significantly affect the

accompanying consolidated financial statements and may result in modification to this audit report.

Hana BankConsolidated statements of financial positionAs at December 31, 2011, December 31, 2010, and January 1, 2010(Korean won in millions)

NotesAssets

7, 8, 9, 12, 51 ₩ 6,084,606 ₩ 6,528,066 ₩ 6,386,639 6, 7, 8, 9, 13, 18, 20 3,719,272 2,805,987 4,653,583

6, 7, 8, 9, 14, 16, 17, 18 15,988,979 16,155,875 15,681,779 7, 8, 9, 15, 16, 17, 18 2,103,395 2,462,626 4,798,902

7, 8, 9, 19 117,898,726 106,760,807 101,550,336 6, 7, 8, 9, 20 110,440 84,639 79,817

21 693,530 604,474 101,464 9, 22 1,368,736 1,400,307 1,415,506

23 289,026 283,861 298,918 24 171,872 204,029 225,339 48 11,320 9,648 13,108

7, 8, 9, 25 5,246,499 4,643,709 4,525,551

Total assets ₩ 153,686,401 ₩ 141,944,028 ₩ 139,730,942

Liabilities and equity

Liabilities

6, 7, 8, 9, 20, 26 ₩ 1,762,338 ₩ 2,118,910 ₩ 3,234,505 7, 8, 9, 27 106,424,262 94,667,013 91,132,065 7, 8, 9, 28 10,288,840 9,080,044 11,555,781 7, 8, 9, 29 16,636,883 15,420,985 14,794,426

6, 7, 8, 9, 20 2,624 3,593 13,152 30 33,299 5,565 11,698 31 115,617 211,796 414,507 48 123,277 237,655 253,175

215,692 122,637 205,790 7, 8, 9, 32 7,544,253 10,092,145 7,313,677

Total liabilities 143,147,085 131,960,343 128,928,776

Equity

33 1,147,404 1,147,404 1,147,404 Hybrid equity securities - 400,000 400,000 Capital surplus 33 2,736,400 2,724,081 2,724,150 Capital adjustments (857) (1,095) (176,292)Accumulated other comprehensive income 35 222,801 504,963 339,278 Retained earnings 34 6,166,854 4,958,439 6,116,916

(Reserve for bad debts) 11 - - - (Planned reserve for bad debts) 11 (1,018,450) (725,403) -

Equity attributable to equity holders of the parent 10,272,602 9,733,792 10,551,456

Non-controlling shareholder's equity 266,714 249,893 250,710

Total equity 10,539,316 9,983,685 10,802,166

Total liabilities and equity ₩ 153,686,401 ₩ 141,944,028 ₩ 139,730,942

See accompanying notes.

December 31, 2011 December 31, 2010 January 1, 2010

Cash and due from banksFinancial assets held-for-tradingAvailable-for-sale financial assets

Held-to-maturity financial assetsLoans receivableDerivative assets used for hedging

Severance and retirement benefits, net

Investments in associatesProperty and equipmentInvestment propertiesIntangible assetsDeferred income tax assetsOther assets

ProvisionsDeferred income tax liabilitiesIncome taxes payableOther liabilities

Common stock

Financial liabilities held-for-tradingDepositsBorrowingsDebenturesDerivative liabilities used for hedging

2

Hana BankConsolidated statements of comprehensive incomeFor the years ended December 31, 2011 and 2010(Korean won in millions, except per share amounts)

10, 36, 37₩ 6,920,109 ₩ 6,630,779

(3,984,417) (3,749,203)2,935,692 2,881,576

10, 36, 38500,733 518,727

(110,838) (101,449)389,895 417,278

36, 39 43,275 23,890

36, 40 (600) (7,611)36, 41 506,743 201,299

36 35,556 93,6853,910,561 3,610,117

36, 42 (507,451) (832,781)3,403,110 2,777,336

10, 36, 43 (1,555,655) (1,295,592)36, 44 97,537 254,56836, 45 (344,317) (301,838)

1,600,675 1,434,474

21 57,436 (1,955)46 34,688 62,01247 (81,535) (97,511)

Net income before income tax expense 1,611,264 1,397,020

10, 48 (365,991) (305,923)

10 1,245,273 1,091,097

(Adjusted income after deducting provisions 11for bad debt reserve of ₩ 952,226for the year ended December 31, 2011)

Equity holders of the parent 1,224,926 1,070,110Non-controlling interests 20,347 20,987

Net gain (loss) on valuation of available-for-sale financial assets 14, 35 (326,115) 176,763Exchange differences on translations of foreign operations 35 25,418 3,768Equity adjustments in equity method 19,313 (14,459)Total comprehensive income for the year, net of tax ₩ 963,889 ₩ 1,257,169

Equity holders of the parent 942,764 1,235,795Non-controlling interests 21,125 21,374

Earnings per shareBasic and diluted earnings per share 49 ₩ 5,480 ₩ 4,752


Gain on valuation of equity method investment, net

Notes

Net trading income

2011 2010Net interest incomeInterest incomeInterest expenses

Net loss on derivative financial instruments used for hedgingNet other income on financial instrumentsGain on foreign currency translation and transactionsTotal operating income

Net fees and commission incomeFees and commission incomeFees and commission expenses

Impairment loss on financial instrumentsNet operating income

General and administrative expensesOther operating incomeOther operating expenses

Income tax expense

Net income

Other comprehensive income for the year, net of tax

Operating incomeNon-operating income

Other non-operating incomeOther non-operating expenses

3

Hana BankConsolidated statements of changes in equityFor the years ended December 31, 2011 and 2010(Korean won in millions)

₩ 1,147,404 ₩ 400,000 ₩ 2,724,081 ₩ (1,095) ₩ 504,963 ₩ 4,958,439 ₩ 9,733,792 ₩ 249,893 ₩ 9,983,685

- (400,000) - - - (20,516) (420,516) (20,178) (440,694)- - 12,319 238 - - 12,557 - 12,557

- - - - - - - 15,874 15,874- - - - - 4,005 4,005 - 4,005

1,147,404 - 2,736,400 (857) 504,963 4,941,928 9,329,838 245,589 9,575,427- - - - - 1,224,926 1,224,926 20,347 1,245,273

- - - - (326,084) - (326,084) (31) (326,115)- - - - 24,609 - 24,609 809 25,418- - - - 19,313 - 19,313 - 19,313- - - - (282,162) 1,224,926 942,764 21,125 963,889

₩ 1,147,404 ₩ - ₩ 2,736,400 ₩ (857) ₩ 222,801 ₩ 6,166,854 ₩ 10,272,602 ₩ 266,714 ₩ 10,539,316

₩ 1,147,404 ₩ 400,000 ₩ 2,724,150 ₩ (176,292) ₩ 339,278 ₩ 6,116,916 ₩ 10,551,456 ₩ 250,710 ₩ 10,802,166- - - - - (87,920) (87,920) - (87,920)- - - - - (1,934,233) (1,934,233) - (1,934,233)- - - 175,031 - (175,031) - - -- - - - - (25,710) (25,710) (20,343) (46,053)- - 2,011 166 - - 2,177 - 2,177

- - (2,080) - - - (2,080) (1,848) (3,928)

- - - - - (5,693) (5,693) - (5,693)1,147,404 400,000 2,724,081 (1,095) 339,278 3,888,329 8,497,997 228,519 8,726,516

- - - - - 1,070,110 1,070,110 20,987 1,091,097

- - - - 176,718 - 176,718 45 176,763- - - - 3,426 - 3,426 342 3,768- - - - (14,459) - (14,459) - (14,459)- - - - 165,685 1,070,110 1,235,795 21,374 1,257,169

₩ 1,147,404 ₩ 400,000 ₩ 2,724,081 ₩ (1,095) ₩ 504,963 ₩ 4,958,439 ₩ 9,733,792 ₩ 249,893 ₩ 9,983,685


Loss on valuation of equity method

Non-controllinginterest

Controllinginterest

Gain on valuation of equity method

Retainedearnings

Translation of foreign operations

Total consolidated comprehensive incomeAs of December 31, 2011

Total comprehensive incomeAs of December 31, 2010

Changes in hybrid equity securities

Others

Net incomeChanges in unrealized gain of available- for-sale financial assetsTranslation of foreign operations

Gain on share-based payment transactionsAcquisition of additional equity interests in the Company's subsidiaries

TotalAs of January 1, 2010DividendInterim cash dividendAppropriation for losses on capital reduction

Non-controllinginterest

Controllinginterest

Accumulated

Commonstock

Hybridequity

securitiesCapitalsurplus

Capitaladjustments

othercomprehensive

income

As of January 1, 2011Redemption and changes in hybrid equity securities

Others

Net incomeChanges in unrealized gain of available- for-sale assets

Gain on share-based payment transactionsAcquisition of additional equity interests in the Company's subsidiaries

Commonstock

Hybridequity

securitiesCapitalsurplus

Capitaladjustments

othercomprehensive

income Retainedearnings Total

Accumulated

4

Hana BankConsolidated statements of cash flowsFor the years ended December 31, 2011 and 2010(Korean won in millions)

Operating activities

Net income before income taxes ₩ 1,611,264 ₩ 1,397,020

Adjustments to reconcile net income before income taxes tonet cash flows:Net gain on valuation of trading securities (1,128) (4,107)Net gain on valuation of derivatives for trading (70,711) (59,290)Net gain on disposal of available-for sale financial assets (489,055) (209,993)Net gain on disposal of held-to-maturity financial assets (65) (109)Impairment loss on available-for-sale financial assets 64,788 27,617 Net loss on fair value of hedged items 617 626 Net loss (gain) on retirement of debentures (13,312) 27 Provision of allowance for possible loan losses and other asset losses 442,663 805,164 Loss (gain) on valuation of equity method investments, net (57,436) 1,955 Depreciation and amortization 128,705 145,830 Impairment loss on intangible assets 5,375 - Net reversal of provisions (40,059) (202,712)Provision for severance and retirement benefits 89,330 32,681 Share based payment expense 2,426 (222)Net interest income 39,310 19,290 Loss on foreign exchange translations 29,610 233,321 Others 13,652 (20,138)

144,710 769,940

Changes in operating assets and liabilities:Due from banks 317,125 (221,842)Financial assets held-for-trading 309,799 3,217,116 Loans (11,537,165) (6,044,501)Derivative assets used for hedging 42,772 37,358 Other assets (602,341) (220,229)Financial liabilities held-for-trading (1,505,113) (2,427,236)Deposits 11,752,481 3,488,150 Investments in associates 16,013 - Derivative liabilities used for hedging (28,466) (41,839)Severance and retirement benefits (61,596) (38,814)Provisions (57,376) (1,729)Other liabilities (602,285) 828,346

(1,956,152) (1,425,220)

Payment of income tax (298,739) (447,977)

Net cash flows provided by (used in) operating activities ₩ (498,917) ₩ 293,763

(Continued)


2011 2010

5

Hana BankConsolidated statements of cash flowsFor the years ended December 31, 2011 and 2010(Korean won in millions)

Investing activitiesPurchase of available-for-sale financial assets ₩ (12,715,962) ₩ (13,552,910)Proceeds from disposal of available-for-sale financial assets 12,856,514 13,459,051 Purchase of held-to-maturity financial assets (421,638) (426,786)Proceeds from disposal of held-to-maturity financial assets 785,903 2,767,528 Purchase of investments in associates (35,340) (473,732)Proceeds from disposal of investments in associates - 4,864 Acquisition of property and equipment (44,473) (55,357)Proceeds from disposal of property and equipment 605 2,505 Acquisition of investment property - (533)Proceeds from disposal of investment property 1,279 - Acquisition of intangible assets (31,527) (38,003)Proceeds from disposal of intangible assets 247 1,126 Decrease in guarantee deposits, net 2,137 7,142

Net cash flows provided by investing activities 397,745 1,694,895

Financing activitiesIncrease (decrease) in borrowings, net 1,213,362 (2,524,044)Issuance of debentures 8,389,970 5,137,025 Redemption of debentures (7,275,235) (4,537,116)Dividends paid (1,934,233) (87,920)Redemption of hybrid equity securities (400,000) - Dividends of hybrid equity securities (40,756) (45,208)Acquisition of additional equity interests in Bank's subsidiaries - (2,080)Increase (decrease) in non-controlling shareholder's equity, net 15,874 (1,848)

Net cash flows used in financing activities (31,018) (2,061,191)

Effect of exchange rate changes on cash and cash equivalents 5,855 (7,882)Net decrease in cash and cash equivalents (126,335) (80,415)Cash and cash equivalents at January 1 3,053,198 3,133,613 Cash and cash equivalents at December 31 ₩ 2,926,863 ₩ 3,053,198


2011 2010

6

Hana Bank Notes to the consolidated financial statements December 31, 2011 and 2010

7

1. Company Information The accompanying consolidated financial statements include Hana Bank (the “Bank”), and its controlled subsidiaries (collectively, the “Company”). The general information describing the Company operations and equity-method investees is provided below. Hana Bank The Bank was initially incorporated in November 1959 under the name of Seoul Bank and acquired Korea Trust Bank in August 1976. On September 27, 2002, Seoul Bank entered into a business combination agreement with the previously existing Hana Bank and on December 1, 2002, upon completion of the merger Seoul Bank was deemed as the sole surviving entity, and subsequently changed its name to its current form. The Bank is engaged in commercial and retail banking, investment trusts and foreign currency exchanges, and other related operations as permitted under the Banking Act, the Capital Market and Financial Investment Business Act and other relevant laws and regulations in the Republic of Korea. The Bank has also been engaged in the bancassurance business since September 26, 2003, upon revisions to the Insurance Act. The Bank operates 653 domestic branches and 4 overseas branches as of December 31, 2011. On December 1, 2005, the Bank became a subsidiary of Hana Financial Company Inc. (“HFG”) through a stock exchange with HFG. As a result, the Bank was delisted from the Korea Exchange (“KRX”) on December 12, 2005. The Bank is authorized to issue 2,000,000,000 shares of common stock with a par value of ₩5,000 per share, and has 219,799,157 shares issued and outstanding amounting to ₩1,147,404 million as of December 31, 2011. Pursuant to a resolution passed at the meeting of the Bank’s Board of Directors, 9,681,720 shares of treasury stock were disposed and carried over to retained earnings through December 31, 2011. 2. Scope and principles of consolidation The Company’s ownership percentages in its consolidated subsidiaries as of December 31, 2011 and 2010 are summarized as follows:

(*) Hana Bank (China) Co., Ltd. is a privately owned entity that does not issue stock in accordance with the relevant Chinese laws.

Investee Country Number of

shares Ownership

(%) Closing

date Hana Bank (China) Co., Ltd.(*) China - 100.0 12.31 PT Bank Hana Indonesia 75,100 75.1 12.31 Hana Funding Limited Cayman Islands 1 100.0 12.31 Trust Accounts Korea - - 12.31 Hana 2nd Securitization Specialty Co., Ltd. Korea - 1.0 12.31 Hana Cymbidium Co., Ltd. Korea - - 12.31 Hana Aphrodite Co., Ltd. Korea - - 12.31 Sevenstar Co., Ltd. Korea - - 12.31 Hana CSP Co., Ltd. Korea - - 12.31 LS Leading Solution PEF Invest Trust 109 Korea - 100.0 12.31 Prudential PEF 20 Korea - 100.0 12.31Samsung Partner PEF Invest Trust 21 Korea - 100.0 12.31 Korea Basic PEF Invest Trust 47 Korea - 100.0 12.31 Hana UBS Power PEF Invest Trust 13 Korea - 100.0 12.31Hana UBS Power PEF Invest Trust 14 Korea - 100.0 12.31


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2. Scope and principles of consolidation (cont’d) Changes in consolidated subsidiaries are as follows:

December 31, 2011 December 31, 2010 Reason for difference

Subsidiary Hana Bank (China) Co., Ltd. Hana Bank (China) Co., Ltd. - Subsidiary PT Bank Hana PT Bank Hana - Subsidiary Hana Funding Limited Hana Funding Limited -

Trust Accounts Development trust Development trust

-

Trust Accounts

General unspecified money trusts

General unspecified money trusts

-

SPE Hana 2nd Securitization Specialty Co., Ltd.

Hana 2nd Securitization Specialty Co., Ltd.

-

SPE Hana Cymbidium Co., Ltd. Hana Cymbidium Co., Ltd. - SPE Hana Aphrodite Co., Ltd. Hana Aphrodite Co., Ltd. - SPE Sevenstar Co., Ltd. Sevenstar Co., Ltd. - SPE Hana CSP Co., Ltd. - Newly established

SPE - Bigpot 2007 Co., Ltd. Repayment of

securitized liabilities

SPE - Grandpot 2008 Co., Ltd. Repayment of


SPE - Global 2008 Securitization Specialty Co., Ltd.

Repayment of securitized liabilities

SPE - Post Pine Asset Securitization Specialty Co., Ltd.

Repayment of securitized liabilities

SPE - TD Soleil Co., Ltd. Repayment of


SPE - First Class Master Co., Ltd. Repayment of


SPE - Hana Swap Plus Co., Ltd. Repayment of


SPE - Hana Minerba Co., Ltd. Repayment of

securitized liabilitiesPrivate Equity Investment

LS Leading Solution PEF Invest Trust 109 -

Newly established

Private Equity Investment Prudential PEF 20 -

Newly established

Private Equity Investment

Samsung Partner PEF Invest Trust 21 -

Newly established


Korea Basic PEF Invest Trust 47 -

Newly established


Hana UBS Power PEF Invest Trust 13 -

Newly established


Hana UBS Power PEF Invest Trust 14 -

Newly established

Private Equity Investment -

LS Leading Solution PEF Invest Trust 87

Repurchase


Samsung Partner PEF Invest Trust 20

Repurchase

Private Equity Investment - Korea Basic PEF Invest Trust 39

Repurchase


Hana UBS Power PEF Invest Trust 9

Repurchase


Hana UBS Power PEF Invest Trust 10

Repurchase


9

2. Scope and principles of consolidation (cont’d) Condensed financial statements of main subsidiaries as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011

Assets Liabilities Equity RevenueNet

Income Comprehensive

income Hana Bank (China)

Co., Ltd. ₩2,909,041 ₩2,496,535 ₩ 412,506 ₩ 138,823 ₩ 29,867

₩ 30,321PT Bank Hana 466,346 333,038 133,308 30,514 3,852 13,727Hana Funding Limited 231,503 785 230,718 19,388 - -

December 31, 2010

Assets Liabilities Equity RevenueNet

Income Comprehensive

income Hana Bank (China)

Co., Ltd. ₩2,169,490 ₩1,810,123 ₩ 359,367 ₩ 93,525 ₩ 12,933

₩ 12,321PT Bank Hana 301,176 235,420 65,756 24,257 2,586 2,768Hana Funding Limited 228,612 775 227,837 19,926 - -

January 1, 2010 Assets Liabilities Equity

Hana Bank (China) Co., Ltd. ₩ 1,919,408 ₩ 1,575,324 ₩ 344,084PT Bank Hana 228,448 166,834 61,614Hana Funding Limited 234,373 795 233,578 Hana Funding Limited (“HFL”)

HFL, a special purpose entity, was incorporated on December 17, 2002 in the Cayman Islands for the purpose of issuing one common stock and non-cumulative tier one preferred shares (“TOPS”), and to acquire the subordinated bonds with a par value of US$200 million issued by the Company with the proceeds from the issuance of TOPS. Significant details are as follows: - Call option: Redeemable in whole but not in part at the option of the issuer on December 17, 2012

(“Reset Date”) or any redemption date thereafter. - Interest rate: 8.748% per annum up to the Reset Date, and a floating interest rate thereafter. - Interest payment date: Annually up to the Reset Date and quarterly thereafter. - Maturity date: December 17, 2101 Hana Bank (China) Co., Ltd. (“Hana Bank China”) Hana Bank China was incorporated to engage in commercial banking, foreign currency exchanges and other related operations in China on December 14, 2007. Paid-in capital of Hana Bank China amounts to CNY 2 billion as of December 31, 2011, and its head office is located in Beijing with 13 branches including a branch in Qingdao.


10

2. Scope and principles of consolidation (cont’d) PT Bank Hana PT Bank Hana was established in April 1971 to engage in both retail and wholesale banking operations under the laws of Indonesia. On December 14, 2007, Hana Bank acquired 60.97% ownership of PT Bank Hana under a share purchase and sale agreement. As of December 31, 2011, Hana Bank owns 75.1% ownership of PT Bank Hana as a result of subsequent increases in paid-in capital amounting to IDR 1,000 billion. PT Bank Hana’s head office is located in Jakarta with 21 branches. LS Leading Solution PEF Investment Trust and a Set of 5 Other Private Equity Investment Vehicles In accordance with the K-IFRS 2012 Consolidation-Special Purpose Entities, 6 private equity investment vehicles were included in consolidation scope, assuming the operations of the SPE and associated risks and benefits. Hana CSP Co., Ltd and 4 Other Special Purpose Entities In accordance with the K-IFRS 2012 Consolidation-Special Purpose Entities, 5 special purpose companies were included in consolidation scope, assuming the operations of the SPE and associated risks and benefits. Trust accounts In accordance with the K-IFRS 2012 Consolidation-Special Purpose Entities, Trust accounts with a guarantee of principal and interest repayment were included in consolidation scope, assuming the operations of the SPE and associated risks and benefits. Principles of consolidation Subsidiaries are fully consolidated from the date on which the control is transferred to the Company. Subsidiaries are no longer consolidated from the date on which the Company loses control over them. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain the benefits from its activities. The Company consolidates special purpose entities (SPEs) if the substance of its relationship with them indicates that it has control over them. The Company considers the existence and influence of exercisable or transferrable voting rights when evaluating its subsidiaries. The investment accounts of the Company and the corresponding equity accounts of the subsidiaries are eliminated in consolidation. The consolidated financial statements reflect on only the share of the consolidated subsidiaries post-application of purchase accounting method. The difference between the cost of investment and the Company’s share of the fair value of identifiable net assets and liabilities of the subsidiaries at the date of purchase accounting method application is presented as goodwill or negative goodwill. A review of impairment is performed at the end of each reporting date. If the controlling company additionally acquires the subsidiaries’ share, the elimination of subsidiaries’ equity account is based on the acquisition date of shares. The difference between the investment accounts of the Company and the corresponding equity accounts of the subsidiaries is amounted to the consolidated capital surplus (or capital adjustment). All significant intercompany transactions and the account balances among the consolidated companies are eliminated on consolidation. Unrealized gains or losses included in loans and borrowings arising from transactions between consolidated companies are eliminated on consolidation. The related accounts receivable and payable are also eliminated on consolidation.


11

2. Scope and principles of consolidation (cont’d) Principles of consolidation (cont’d) Investments in entities over which the Company has control or significant influence are accounted for using the equity method. Under the equity method of accounting, the Company’s initial investment in an investee is recorded at acquisition cost. Subsequently, the carrying amount of the investment is adjusted to reflect the Company’s share of income or loss of the investee in the statement of income and share of changes in equity that have been recognized directly in the equity of the investee in the related equity account of the Company on the statement of financial position. If the Company’s share of losses of the investee equals or exceeds its interest in the investee, it suspends recognizing its share of further losses. However, if the Company has other long-term interests in the investee, it continues recognizing its share of further losses to the extent of the carrying amount of such long-term interests. The Company resumes the application of the equity method if the Company’s share of income or change in equity of an investee exceeds the Company’s share of losses accumulated during the period of suspension of the equity method of accounting. At the date of acquisition, the excess of the cost of the investment over the Company’s share of the net fair value of the investee’s identifiable assets and liabilities is accounted for as goodwill or negative goodwill. The amortization expense is included as a part of valuation gain or loss on the equity method investments in the statement of comprehensive income. The difference related to goodwill is recorded as the carrying amount. Goodwill is reviewed for the impairment when signs of damage arise and is not amortized over its useful life. Further, the Company’s share of any difference between the net fair value of the investee’s identifiable assets and liabilities, and the net book value of such assets and liabilities are amortized based on the investee’s accounting treatments on the related assets and liabilities and charged or credited to the valuation gain or loss on the equity method investments in the statement of comprehensive income The Company’s share in the investee’s unrealized profits and losses resulting from transactions between the Company and its investee are eliminated to the extent of the interest in the investee. A special reserve provided for the possible future losses on certain trust accounts under the arrangement of guaranteed fixed rate of return and repayment of the principal is included under the retained earnings in the consolidated financial statements. 3. Summary of significant accounting policies 3.1 Basis of preparation The consolidated financial statements for the year ended December 31, 2011 have been prepared in accordance with Korea International Financial Reporting Standards (K-IFRS) enacted by the Corporate External Audit Law. Korea International Financial Reporting Standards (“K-IFRS”) first time adoption The Company has adopted K-IFRS in preparation for its consolidated financial statements for the period beginning January 1, 2011. In preparing these financial statements, the Company’s opening statement of financial position was prepared as at January 1, 2010, the Company’s date of transition to K-IFRS. Note 53 explains the principal adjustments made by the Company in restating its previous statements of financial position based on Korean Generally Accepted Accounting Principles (“K-GAAP”) as at January 1, 2010 and its previously published K-GAAP financial statements for the year ended December 31, 2010.


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3. Summary of significant accounting policies (cont’d) 3.1 Basis of preparation (cont’d) Korea International Financial Reporting Standards (“K-IFRS”) first time adoption (cont’d) Significant accounting policies used to prepare the consolidated financial statements for the years ended December 31, 2011 and 2010, presented for comparative purposes, were consistently applied.

The Company’s Management has exercised reasonable estimates and assumptions in order to prepare for the financial statements in accordance with K-IFRS. Also, K-IFRS requires the Management’s judgment in adopting the Company’s accounting policies. Certain parts requiring a higher level of judgment and complexity or estimates and assumptions significantly affecting the preparation of financial statements are described in Note 4. 3.2 Foreign exchange 3.2.1 Functional currency When preparing for the financial statements, the Company measures and recognizes all the transactions according to the functional currency. The term, functional currency, is defined as the currency used to conduct operating activities in the primary economic environment and trades in each entity between the functional currency and other currencies are converted to the functional currency to be measured and recognized. 3.2.2 Translation of foreign currency transactions and balances at the end of the reporting period Transactions in foreign currencies are initially recorded at the functional currency rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. 3.2.3 Translation of the Company’s foreign affiliates As at the reporting date, the assets and liabilities of subsidiaries and overseas branches are translated into the Company’s presentation currency, Korean won (KRW), at the rate of exchange as at the reporting date, and their statement of comprehensive income are translated at the weighted average exchange rates for the year. Exchange differences arising on translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the statement of comprehensive income in other operating expenses or other operating income. 3.3 Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise of cash at banks and on hand and short-term deposits with an original maturity of three months or less. The purpose of cash and cash equivalents are to make short-term investments and to meet short-term cash demands. Cash and cash equivalents are highly liquidable and can be easily convertible and subject to changes in value.


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3. Summary of significant accounting policies (cont’d) 3.4 Financial assets Initial recognition and measurement Financial assets within the scope of K-IFRS 1039 Financial Instruments: Recognition and Measurement are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition. All financial assets are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset. Subsequent measurement The subsequent measurement of financial assets based on their classification is as follows: 3.4.1 Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held-for-trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the short-term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments as defined by K-IFRS 1039 Financial Instruments: Recognition and Measurement. Derivatives, including separate embedded derivatives are also classified as held-for-trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with changes in fair value recognized in finance income or finance cost in the statement of comprehensive income. 3.4.2 Available-for-sale financial assets Available-for-sale financial assets include equity and debt securities. Equity investments classified as available-for sale are those, which are neither classified as held-for-trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or changes in market conditions.

After initial measurement, available-for-sale financial assets are subsequently measured at fair value with unrealized gains or losses recognized in other comprehensive income in the available-for-sale reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the available-for-sale reserve to the impairment loss in the statement of comprehensive income. Interest earned whilst holding available-for-sale financial assets is reported as interest income using the effective interest rate method (EIR). However, non-marketable securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured using cost method. Dividends earned whilst holding available-for-sale financial assets are recognized in the statement of comprehensive income when the right of the payment has been established.


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3. Summary of significant accounting policies (cont’d) 3.4 Financial assets (cont’d) 3.4.3 Held-to-maturity financial assets Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Company has the positive intention and ability to hold them to maturity. From initial measurement, held-to-maturity financial assets are measured at amortized cost using the EIR, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the statement of comprehensive income. The losses arising from impairment are recognized in finance costs in the statement of comprehensive income. 3.4.4 Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the EIR, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the statement of comprehensive income except short-term loans and receivable that the recognition of interest income is immaterial. 3.5 Derivative financial instruments and hedge accounting The Company uses derivative financial instruments such as forward currency contracts, interest rate swaps and forward commodity contracts to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives are taken directly to the statement of comprehensive income, except for the effective portion of cash flow hedges, which is recognized in other comprehensive income. For the purpose of hedge accounting, hedges are classified as: - Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or

liability or an unrecognized firm commitment (except for foreign currency risk) - Cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a

particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment

At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.


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3. Summary of significant accounting policies (cont’d) 3.5 Derivative financial instruments and hedge accounting (cont’d) Hedges which meet the strict criteria for hedge accounting are accounted for as follows: 3.5.1 Fair value hedges The change in the fair value of an interest rate hedging derivative is recognized in the statement of comprehensive income in finance costs. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognized in the statement of comprehensive income. For fair value hedges relating to items carried at amortized cost, the adjustment to carrying value is amortized through the statement of comprehensive income over the remaining term to maturity. EIR amortization may begin as soon as an adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedge item is derecognized, the unamortized fair value is recognized immediately in the statement of comprehensive income. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the statement of comprehensive income. 3.5.2 Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognized directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the statement of comprehensive income in finance costs. Amounts recognized as other comprehensive income are transferred to the statement of comprehensive income when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognized as other comprehensive income are transferred to the initial carrying amount of the nonfinancial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in equity are transferred to the statement of comprehensive income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss. 3.5.3 Embedded derivatives Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives. When their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured by fair value through profit or loss (FVTPL).


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3. Summary of significant accounting policies (cont’d) 3.5 Derivative financial instruments and hedge accounting (cont’d) 3.5.4 ‘Day 1’ profit or loss When the transaction price is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets, the Company immediately recognizes the differences between the transaction price and fair value (a ‘Day 1’ profit or loss) in net trading income. In case where fair value is determined using data which is not observable, the difference between the transaction price and model value is deferred and amortized over the life of the associated instrument using the straight-line method. 3.5.5 Liquidity adjustment and credit valuation adjustment When measuring derivatives at fair value using valuation techniques, the liquidity adjustment and credit valuation adjustment are calculated to reflect the spread for bid and ask prices to reflect costs to close out position and credit risk of counterparties. 3.6 Impairment of financial assets The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. 3.6.1 Available-for-sale financial assets For available-for-sale financial assets, the Company assesses at each reporting date whether there is objective evidence that an asset is impaired. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the statement of comprehensive income, is removed from other comprehensive income and recognized in the statement of comprehensive income. In the case of equity investments classified as available-for-sale, objective evidence would include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. Impairment loss on equity investments is not reversed through the statement of comprehensive income; increases in their fair value after impairment are recognized directly in other comprehensive income. In the case of debt investments classified as available-for-sale, if, in a subsequent year, increases in the fair value because of an event occurring after the impairment were recognized, the previously recognized impairment is reversed.


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3. Summary of significant accounting policies (cont’d) 3.6 Impairment of financial assets (cont’d) 3.6.2 Held-to-maturity financial assets When objective evidence exists for the impairment of a particular held-to-maturity financial asset, the Company calculates the difference between the carrying amount and the present value of the estimated future cash flows using the EIR. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment is reversed and reduced by adjusting the allowance account. If the carrying amount does not reflect the impairment at the initial recognition after the reversal, the amount cannot exceed the amortized cost at the date of the reversal recognition. 3.6.3 Loans receivables The Company first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the individual impairment loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the individual impairment loss is recognized in the statement of comprehensive income. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the amount of the individual impairment loss. The present value of the estimated future cash flows is discounted at the financial assets original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Company’s internal credit grading system, that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, past-due status and other relevant factors. Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.


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3. Summary of significant accounting policies (cont’d) 3.7 Reclassification of financial assets The Company may reclassify, in certain circumstances, non-derivative financial assets out of the ‘Held-for-trading’ category and into the ‘Available-for-sale’, ‘Loans and receivables’, or ‘Held-to-maturity’ categories. From this date it was also permitted to reclassify, in certain circumstances, financial instruments out of the ‘Available-for-sale’ category and into the ‘Loans and receivables’ category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortized cost. For a financial asset reclassified out of the ‘Available-for-sale’ category, any previous gain or loss on that asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired then the amount recorded in equity is recycled to the statement of comprehensive income. The Company may reclassify a non-derivative trading asset out of the ‘Held-for-trading’ category and into the ‘Loans and receivables’ category if it meets the definition of loans and receivables and the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Company subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the EIR from the date of the change in estimate. 3.8 Derecognition of financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: - The rights to receive cash flows from the asset have expired. - The Company has transferred its rights to receive cash flows from the asset or has assumed an

obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. 3.9 Recognition and measurement of financial liabilities Financial liabilities within the scope of K-IFRS 1039 Financial Instruments: Recognition and Measurement are classified as financial liabilities at fair value through profit or loss, borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.


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3. Summary of significant accounting policies (cont’d) Subsequent measurement The subsequent measurement of financial liabilities based on their classification is as follows: 3.9.1 Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held-for-trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by K-IFRS 1039 Financial Instruments: Recognition and Measurement. Separated embedded derivatives are also classified as held-for-trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held-for-trading are recognized in the statement of comprehensive income. The Company has not designated any financial liabilities upon initial recognition as at fair value through profit or loss. 3.9.2 Deposits, borrowings, and debentures After initial recognition, interest bearing deposits, borrowings and debentures are subsequently measured at amortized cost using the EIR. Gains and losses are recognized in the statement of comprehensive income when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortization is included in finance cost in the statement of comprehensive income. 3.10 Derecognition of financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of comprehensive income. 3.11 Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. 3.12 Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made on the amount of the obligation. The provision is used only for expenditures for which the provision was originally recognized. If the effect of the time value of money is material, provisions are stated at present value.


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3. Summary of significant accounting policies (cont’d) 3.12 Provisions (cont’d)

Confirmed acceptances and guarantees, unconfirmed acceptances and guarantees and bills endorsed are not recognized on the statement of financial position, but are disclosed as off-statement of financial position items in the notes to the financial statements. The Company provides a provision for such off-statement of financial position items, applying a Cash Conversion Factor (“Cash CF”) and provision rates, and records the provision as a reserve for possible losses on acceptances and guarantees.

The Company provides an allowance for possible losses on a certain portion of unused credit line. The Company records the provision for such unused balances as an allowance for possible losses on unused commitments which are calculated by applying a Credit Conversion Factor (“CCF”) and provision rates. 3.13 Financial guarantees In the ordinary course of business, the Company gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognized in the financial statements at fair value, being the premium received. Subsequent to initial recognition, the Company’s liability under each guarantee is measured at the higher of the amount initially recognized less, when appropriate, cumulative amortization recognized in the statement of comprehensive income, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is recorded in the statement of comprehensive income. The premium received is recognized in the statement of comprehensive income. 3.14 Bonds purchased under resale agreements and bonds sold under repurchase agreements Bonds purchased under resale agreements and bonds sold under repurchase agreements are included in loans and borrowings, respectively, in the accompanying statement of financial position. 3.15 Property and equipment Property and equipment (including equipment under operating leases where the Company is the lessor) is stated at cost excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. Depreciation is calculated using the straight-line method to write down the cost of property and equipment to their residual values over their estimated useful lives. Land is not depreciated. The estimated useful lives are as follows:

Property and equipment is derecognized on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in other operating income in the statement of comprehensive income when the asset is derecognized.

Depreciation method Years Buildings Straight-line method 5 to 50 Vehicles, furniture and fixtures,

leasehold improvements Declining balance

method 5


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3. Summary of significant accounting policies (cont’d) 3.16 Investment properties Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day to day servicing of an investment property. Subsequent to initial recognition, investment properties are stated as cost model. Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in the statement of comprehensive income in the period of derecognition. And transfers are made to or from investment property only when there is a change in use. Depreciation method to measure of buildings which are classified as investment properties is straight-line method with useful lives range from 40 to 50 years. 3.17 Intangible assets An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Company. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment loss. Depreciation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives. The estimated useful lives are as follows:

Depreciation method Years

Industrial property, software, system development Straight-line method 5

Other intangible assets Straight-line method 1 to 7

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statements of comprehensive income in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are not amortized but are tested for impairment annually. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. 3.18 Impairment of non-financial assets The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.


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3. Summary of significant accounting policies (cont’d) 3.19 Retirement benefits The Company operates a defined benefit pension plan and verifies the amount payable to the employees for the services rendered to the Company based on elements such as years of service and salary. The defined benefit liability comprises the present value of the defined benefit obligation less past service costs not yet recognized and less the fair value of plan assets out of which the obligations are to be settled directly, less actuarial losses not yet recognized. The cost of providing benefits under the defined benefit plan is determined separately using the projected unit credit actuarial valuation method. The present value of the defined benefit liability is recorded in the same currency as the payment itself and is calculated by discounting the expected future cash flow and using the interest rate of other reputable companies with similar payment and end of reporting dates. Changes in the actuarial assumptions and actuarial gains and losses between estimates and results are recognized in the period as part of net income. Past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits vest immediately following the introduction of, or changes to, a pension plan, the past service cost is recognized immediately. 3.20 Share-based payment transactions Employees (including senior executives) of the Company receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments, or are granted share appreciation rights, which can only be settled in cash. If the goods or services provide cannot be reliably measured, the endowed equity is indirectly estimated at fair value and the Company accounts for compensation costs and equity. The cost of cash-settled transactions is measured initially at fair value at the grant date, taking into account the terms and conditions upon which the instruments were granted. This fair value is expensed over the period until vesting with recognition of a corresponding liability. The liability is re-measured to fair value at each reporting date up to and including the settlement date, which changes in fair value recognized in the statement of comprehensive income. Also, in the case of a selectable share-based payment transaction in which the employees have a choice between a cash-settled transaction and an equity-settled transaction, the Company records the amount depending on its materiality. 3.21 Income tax expenses and deferred tax assets and liabilities Income taxes comprise of current and deferred taxes. All items related to taxes, other than those recognized directly in equity, are accounted for in the statement of comprehensive income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Company operates and generates taxable income. If the applied tax laws require an interpretation, the Company calculates income tax payable expected to be paid to the taxation authorities based on the opinion made when the taxes were reported.


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3. Summary of significant accounting policies (cont’d) 3.21 Income tax expenses and deferred tax assets and liabilities (cont’d) Deferred tax is provided on the temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred liabilities are recognized for all taxable temporary differences, except: - Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability

in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit loss.

- In respect of taxable temporary differences associated with investments in subsidiaries and

associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences to the extent that taxable profit will be available against which the deductible temporary differences can be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. 3.22 Equity 3.22.1 Classification of equity The Company classifies financial instruments at initial recognition as either financial liabilities or financial equity depending on the contractual materiality. In the case where it is possible to avoid the related contractual obligations, the financial item is classified as a financial equity. 3.22.2 Stock issuance costs New stock issuance costs or incremental costs related to the stock issuance for business combinations are recorded as a deduction from paid-in capital net of tax effects. 3.23 Per share amounts Basic and diluted earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. 3.24 Accounting basis for trust accounts The Company recognizes, in accordance with the Capital Markets and Financial Investment Business Act, trust commissions earned from trust accounts as income from trust operations. When a loss is incurred on a trust account that includes a guarantee of principal repayment, the corresponding loss is recognized as a loss from trust operations. 3.25 Interest income and interest expense For all financial instruments measured at amortized cost, and interest bearing financial assets classified as available-for-sale, interest income or expense is recorded using the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.


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3. Summary of significant accounting policies (cont’d) 3.25 Interest income and interest expense (cont’d) Interest income on impaired loans is recognized on a cash basis. Once the recorded value of a financial asset has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. 3.26 Fee and commission income The Company earns fee and commission income from a diverse range of services it provides to its customers. Fee income related to financial services is treated differently depending on the objective imposed by the related financial item. Fee income can be divided into the following categories:

- Fees earned for the provision of services over a period of time are accrued over that period. - Loan commitment fees for loans that are likely to be drawn down and other credit related fees are

deferred (together with any incremental costs) and recognized as an adjustment to the EIR on the loan.

- Fees arising from negotiating or participating in the negotiation of a transaction for a third party are recognized upon completion of the underlying transaction.

3.27 Dividend income Dividend income is recognized when the Company’s right to receive the payment is established. 3.28 Standards issued but not yet effective Standards issued but not yet effective as of December 31, 2011 are listed below. This listing of standards and interpretations issued are those that the Company reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Company intends to adopt these standards when they become effective. 3.28.1 K-IFRS 1012 Income Taxes - Recovery of Underlying Assets The amendment clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in K-IFRS 1040 Investment Property should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in K-IFRS 1016 Property, Plant and Equipment always be measured on a sale basis of the asset. The amendment becomes effective for annual periods beginning on or after January 1, 2012. 3.28.2 K-IFRS 1019 Employee Benefits (Amendment) The KASB has issued numerous amendments to K-IFRS 1019 Employee Benefits. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The amendment becomes effective for annual periods beginning on or after January 1, 2013.


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3. Summary of significant accounting policies (cont’d) 3.28 Standards issued but not yet effective (cont’d) 3.28.3 K-IFRS 1107 Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements The amendment requires additional disclosures about financial assets that have been transferred but not derecognized to enable the user of the Company’s consolidated financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in those derecognized assets. The amendment becomes effective for annual periods beginning on or after July 1, 2011. The amendment affects disclosure only has no impact of the Company’s financial position or performance. 3.28.4 K-IFRS 1113 Fair Value Measurement K-IFRS 1113 Fair Value Measurement establishes a single source of guidance under K-IFRS for all fair value measurements. K-IFRS 1113 Fair Value Measurement does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under K-IFRS when fair value is required or permitted. This standard becomes effective for annual periods beginning on or after January 1, 2013. 4. Significant judgments and accounting estimates The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. In the process of applying the Company’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the consolidated financial statements: 4.1 Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable market data where possible, but where this is not feasible, a degree of judgment is required to establish fair values. The judgments include considerations of liquidity and model inputs such as volatility for longer dated derivatives and discount rates, prepayment rates and default rate assumptions for asset backed securities. The valuation of financial instruments is described in more detail in Note 6. 4.2 Impairment loss on equity securities classified as available-for-sale financial assets The Company reviews its equity securities classified as available-for-sale assets at each reporting date to assess whether they are impaired. This requires similar judgment as applied to the individual assessment of loans and advances. The Company also records impairment on available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. In making this judgment, the Company evaluates, among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost.


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4. Significant judgments and accounting estimates (cont’d) 4.3 Impairment loss on loans The Company reviews its individually significant loans at each reporting date to assess whether an impairment should be recorded in the statement of comprehensive income. In particular, management judgment is required in the estimation of the amount and timing of future cash flows when determining the impairment loss, if any. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans that have been assessed individually and found not to be impaired and all individually insignificant loans are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as levels of arrears, credit utilization, loan to collateral ratios, etc.), and judgments to the effect of concentrations of risks and economic data (including levels of unemployment, real estate prices indices, country risk and the performance of different individual groups). 4.4 Provision for severance and retirement benefits The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method. Actuarial assumptions were made for the discount rate, the overall expected rates of return on assets, and an increase in the future pay rate. Severance and retirement benefits include significant uncertainties in the estimates due to the longer duration of the period. 4.5 Impairment of non-financial assets Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. 4.6 Tax expenses Different taxation laws that the Company’s foreign subsidiaries are exposed to require some judgments to determine the amount of tax expenses that can be recognized. In addition, there has been various transactions and tax accounting methods which has made computing the final tax expenses for the period uncertain. The contingent liability from any future tax assessments is based on the estimates of the likelihood of additional taxes imposed and has been included in the Company’s financial statements for the current period. When the finalized tax expense assessments are different from the appropriated amounts, the differences, if any, are recognized in current deferred tax assets, liabilities, and expenses for the period.


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5. Explanation of transition to K-IFRS

(1) For all periods up to and including the year ended December 31, 2009, the Company prepared its financial statements in accordance with K-GAAP. These financial statements, for the year ended December 31, 2011, are the first the Company has prepared in accordance with Korea International Financial Reporting Standards (K-IFRS).

(2) When preparing the Company’s opening K-IFRS statement of financial position, some exemptions from other K-IFRS and exceptions to the retrospective application of other K-IFRS have been applied. (2-1) Exemptions from other K-IFRS that the Company has applied are as follows: According to exemptions to business combinations, the Company did not apply K-IFRS 1103 Business Combinations to the business combinations recognized before the date of transition to K-IFRS. Deemed cost for property and equipment has been measured at fair value at the date of transition to K-IFRS and transition effects are disclosed in Note 53. The cumulative translation differences, which arise when financial statements of foreign subsidiaries and associates are converted to amounts denominated in Korean won, have been deemed to be nil at the date of transition to K-IFRS. Fair value measurement of financial assets or financial liabilities at initial recognition has been applied only for the transactions entered into on or after January 1, 2010. The Company did not apply K-IFRS 1102 Share-based Payment to certain liabilities arising from share-based payment transactions which were settled before the date of transition to K-IFRS.

(2-2) Exceptions to the retrospective application that the Company has applied are as follows: Derecognition under K-IFRS 1039 Financial Instruments: Recognition and Measurement has been applied only for the transactions entered into on or after January 1, 2010.

Hedge accounting was applied only for the qualified transactions in accordance with K-IFRS 1039 Financial Instruments: Recognition and Measurement at the date of transition to K-IFRS. (3) When preparing the Company’s statement of financial position as of January 1, 2010, estimates were made consistently with the estimates made for the preparation of K-GAAP financial statements on the same date.


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6. Fair value measurement of financial assets and financial liabilities The following standards are applied in measuring fair value of financial assets and financial liabilities: - Financial assets and financial liabilities traded in active markets at the reporting date is based on

their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques.

- Valuation techniques include the discounted cash flow method, compared to the similar instruments

for which market observable prices exist, options pricing models, credit models and other relevant valuation models. These techniques incorporate the Company’s estimate of assumptions that a market participant would make when valuing the instruments. Valuation techniques which provide reliable estimates on mark-to-market prices are applied.

- When determining fair value by using the valuation techniques, compared to the current market

transaction of another instrument that is substantially the same as the financial instrument needed to be objectively substantiated or inclusion of variables in the marketable data must be performed. Not all of the significant market variables are observable and in relevant cases, the reasonable estimates or assumptions are required to determine the fair value.

- Investments in equity instruments that do not have a quoted market price in an active market as well as the derivatives that are linked to these equity instruments are accounted for using the cost method when it is determined that their fair values cannot be reliably measured.

The fair value hierarchy of financial instruments as of December 31, 2011, December 31, 2010, and January 1, 2010 is as follows (Korean won in millions):

December 31, 2011 Level 1 Level 2 Level 3 Total

Financial assets: Financial assets held-for-

trading ₩ 935,418 ₩ 2,773,114 ₩ 10,740 ₩ 3,719,272 Available-for-sale

financial assets(*) 6,244,805 9,079,259 664,915 15,988,979 Derivative assets used

for hedging - 110,395 45 110,440 ₩ 7,180,223 ₩ 11,962,768 ₩ 675,700 ₩ 19,818,691

Financial liabilities: Financial liabilities held

-for-trading ₩ 114,639 ₩ 1,639,930 ₩ 7,769 ₩ 1,762,338 Derivative liabilities used for hedging - 2,624 - 2,624

₩ 114,639 ₩ 1,642,554 ₩ 7,769 ₩ 1,764,962


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6. Fair value measurement of financial assets and financial liabilities (cont’d)

December 31, 2010 Level 1 Level 2 Level 3 Total

Financial assets: Financial assets

held-for-trading ₩ 478,731 ₩ 2,298,215 ₩ 29,041 ₩ 2,805,987 Available-for-sale

financial assets(*) 7,467,377 7,892,687 795,811 16,155,875 Derivative assets

used for hedging - 84,171 468 84,639 ₩ 7,946,108 ₩ 10,275,073 ₩ 825,320 ₩ 19,046,501

Financial liabilities: Financial liabilities

held-for-trading ₩ 1,852 ₩ 2,096,330 ₩ 20,728 ₩ 2,118,910 Derivative liabilities

used for hedging - 3,593 - 3,593 ₩ 1,852 ₩ 2,099,923 ₩ 20,728 ₩ 2,122,503

January 1, 2010 Level 1 Level 2 Level 3 Total


held-for-trading ₩ 1,008,869 ₩ 3,607,798 ₩ 36,916 ₩ 4,653,583Available-for-sale

financial assets(*) 7,027,917 7,892,702 761,160 15,681,779Derivative assets

used for hedging - 79,817 - 79,817 ₩ 8,036,786 ₩ 11,580,317 ₩ 798,076 ₩ 20,415,179


held-for-trading ₩ - ₩ 3,214,100 ₩ 20,405 ₩ 3,234,505Derivative liabilities used for hedging - 12,294 858 13,152

₩ - ₩ 3,226,394 ₩ 21,263 ₩ 3,247,657

(*) Available-for-sale financial assets amounting to ₩236,835 million, ₩248,617 million and ₩250,701 million were valued at cost as of December 31, 2011, December 31, 2010 and January 1, 2010, respectively, since their fair values were not able to be reasonably estimated. The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques: - Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities - Level 2:Other techniques for which all inputs which have a significant effect on the recorded fair

value are observable directly or indirectly - Level 3: Techniques which used the inputs have a significant effect on the recorded fair value which

is not based on the observable market data.


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6. Fair value measurement of financial assets and financial liabilities (cont’d) Changes in the fair value of level 3 financial instruments for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011

January 1,

2011

Addition/issue

Disposal /settlement

Changes in the fair value December 31,

2011 Current income

Comprehensive income


held-for-trading ₩ 29,041 ₩ 400 ₩ (8,101) ₩(10,600) ₩ - ₩ 10,740Available-for-sale

financial assets 795,811 66,103 (122,819) (28,504) (45,676) 664,915 Derivative assets

used for hedging 468 - (322) (101) - 45 ₩ 825,320 ₩ 66,503 ₩ (131,242) ₩(39,205) ₩ (45,676) ₩ 675,700


held-for-trading ₩ 20,728 ₩ 299 ₩ (87) ₩(13,171) ₩ - ₩ 7,769 ₩ 20,728 ₩ 299 ₩ (87) ₩(13,171) ₩ - ₩ 7,769

2010

January 1,

2010

Addition/issue

Disposal/settlement

Changes in the fair value December 31,

2010 Current income

Comprehensive income


held-for-trading ₩ 36,916 ₩ - ₩ (6,567) ₩ (1,308) ₩ - ₩ 29,041 Available-for-sale

financial assets 761,160 87,137 (54,441) - 1,955 795,811Derivative assets used for hedging - - - 468 - 468

₩ 798,076 ₩ 87,137 ₩(61,008) ₩ (840) ₩ 1,955 ₩ 825,320


held -for-trading ₩ 20,405 ₩ - ₩ (1,417) ₩ 1,740 ₩ - ₩ 20,728 Derivative liabilities

used for hedging 858 - - (858) - -

₩ 21,263 ₩ - ₩ (1,417) ₩ 882 ₩ - ₩ 20,728


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6. Fair value measurement of financial assets and financial liabilities (cont’d) Interest rate option and interest rate swap are subject to the sensitivity analysis, which measures the impact on the fair value by changing the correlation of 10% between the significant unobservable input variables such as the interest rate swap in Korean won and yield to maturity on bonds curve (Korean won in millions).

Impact of income

2011 2010

Advantageous

change Adverse change

Advantageous change

Adverse change


held-for-trading ₩ 563 ₩ (652) ₩ 1,374 ₩ (1,667)

₩ 563 ₩ (652) ₩ 1,374 ₩ (1,667)


held-for-trading ₩ 564 ₩ (494) ₩ 889 ₩ (871)

₩ 564 ₩ (494) ₩ 889 ₩ (871) 7. Fair value of financial assets and liabilities Details of the carrying amounts and fair value of financial instruments as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):


Carrying amount Fair value



Financial assets Cash and due

from banks ₩ 6,084,606 ₩ 6,084,571 ₩ 6,528,066 ₩ 6,528,323 ₩ 6,386,639 ₩ 6,386,614 Financial assets held-for-trading 3,719,272 3,719,272 2,805,987 2,805,987 4,653,583 4,653,583Available-for-sale financial assets 15,988,979 15,988,979 16,155,875 16,155,875 15,681,779 15,681,779

Held-to-maturity financial assets 2,103,395 2,180,020 2,462,626 2,528,622 4,798,902 4,825,876

Loans 117,898,726 118,218,711 106,760,807 107,544,776 101,550,336 101,972,331Derivative assets used for hedging 110,440 110,440 84,639 84,639 79,817 79,817

Others 5,046,215 5,046,215 4,453,447 4,453,447 4,296,234 4,296,234 ₩150,951,633 ₩151,348,208 ₩139,251,447 ₩140,101,669 ₩137,447,290 ₩137,896,234

Financial liabilities Financial liabilities held-for-trading ₩ 1,762,338 ₩ 1,762,338 ₩ 2,118,910 ₩ 2,118,910 ₩ 3,234,505 ₩ 3,234,505

Deposits 106,424,262 106,415,093 94,667,013 94,681,271 91,132,065 91,091,369Borrowings 10,288,840 10,284,930 9,080,044 9,567,770 11,555,781 11,577,394Debentures 16,636,883 16,902,702 15,420,985 15,905,361 14,794,426 15,080,405Derivative liabilities used for hedging 2,624 2,624 3,593 3,593 13,152 13,152

Others 7,324,377 7,324,377 9,846,201 9,846,201 7,151,962 7,151,962 ₩142,439,324 ₩142,692,064 ₩131,136,746 ₩132,123,106 ₩127,881,891 ₩128,148,787


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7. Fair value of financial assets and liabilities (cont’d) The following standards are applied in measuring fair value of financial instruments - Loans and receivables: Expected cash flows, current market interest rates and discount rates

including borrowers’ credit risks are factors to calculate the fair value of loans and receivables. For lines of credit and loans that have a short term maturity (less than three months), it is assumed that the carrying amounts approximate to their fair value.

- Financial assets at fair value through profit or loss: Fair value of financial assets held-to-maturity are

stated by the market, broker, or by credible sources. If any of the information from these entitles cannot be used, the published market price of financial instruments with similar credit rating, maturity, and ROI is used to estimate the fair value.

- Depository liabilities: For deposits with no interests, deposits without an explicit maturity period,

deposits that have a short term maturity (less than three months), and deposits with a floating rate readjustment period of less than three months, it is assumed that the carrying amounts approximate to their fair value. The estimated fair value of fixed interest bearing deposits is based on the discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity.

- Borrowing liabilities: For borrowings which have a short term maturity (less than three months) and

borrowings with floating rate readjustment period of less than three months, it is assumed that the carrying amounts approximate to their fair value. The estimated fair value of fixed interest bearing borrowings is based on the discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity.

- Bonds: Quoted debt issued fair values are determined based on the quoted market prices. For those

notes issued where quoted market price is not available, a discounted cash flow model is used based on the current interest rate yield curve which is appropriate for the remaining term to maturity and credit spreads.

8. Categories of financial assets and financial liabilities The Company categorises its financial assets and financial liabilities as of December 31, 2011, December 31, 2010, and January 1, 2010 as follows (Korean won in millions):

December 31, 2011

Financial assets held-for-trading

Available-for-sale

financial instruments

Held-to-maturity financial assets

Amortized cost of a financial asset

or financial liabilityDerivatives for

hedging Total

Financial assets: Cash and due

from banks ₩ - ₩ - ₩ - ₩ 6,084,606 ₩ - ₩ 6,084,606Financial assets held-for-trading 3,719,272 - - - - 3,719,272

Available-for-sale financial assets - 15,988,979 - - - 15,988,979

Held-to-maturity financial assets - - 2,103,395 - - 2,103,395

Loans - - - 117,898,726 - 117,898,726Derivative assets

used for hedging - - - - 110,440 110,440

Others - - - 5,046,215 - 5,046,215

₩3,719,272 ₩ 15,988,979 ₩2,103,395 ₩ 129,029,547 ₩ 110,440 ₩ 150,951,633


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8. Categories of financial assets and financial liabilities (cont’d)

December 31, 2011


Available-for-sale





hedging Total


held-for-trading ₩1,762,338 ₩ - ₩ - ₩ - ₩ - ₩ 1,762,338

Deposits - - - 106,424,262 - 106,424,262

Borrowings - - - 10,288,840 - 10,288,840

Debentures - - - 16,636,883 - 16,636,883Derivative liabilities used for hedging - - - - 2,624 2,624

Others - - - 7,324,377 - 7,324,377

₩1,762,338 ₩ - ₩ - ₩ 140,674,362 ₩ 2,624 ₩ 142,439,324

December 31, 2010


Available-for-sale





hedging Total


from banks ₩ - ₩ - ₩ - ₩ 6,528,066 ₩ - ₩ 6,528,066 Financial assets

held-for-trading 2,805,987 - - - - 2,805,987 Available-for-sale

financial assets - 16,155,875 - - - 16,155,875 Held-to-maturity

assets - - 2,462,626 - - 2,462,626

Loans - - - 106,760,807 - 106,760,807Derivative assets

used for hedging - - - - 84,639 84,639

Others - - - 4,453,447 - 4,453,447

₩ 2,805,987 ₩ 16,155,875 ₩2,462,626 ₩ 117,742,320 ₩ 84,639 ₩139,251,447


held-for-trading ₩ 2,118,910 ₩ - ₩ - ₩ - ₩ - ₩ 2,118,910

Deposits - - - 94,667,013 - 94,667,013

Borrowings - - - 9,080,044 - 9,080,044

Debentures - - - 15,420,985 - 15,420,985 Derivative liabilities used for hedging - - - - 3,593 3,593

Others - - - 9,846,201 - 9,846,201

₩ 2,118,910 ₩ - ₩ - ₩ 129,014,243 ₩ 3,593 ₩131,136,746


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8. Categories of financial assets and financial liabilities (cont’d)

January 1, 2010


Available-for-sale





hedging Total


from banks ₩ - ₩ - ₩ - ₩ 6,386,639 ₩ - ₩ 6,386,639 Financial assets

held-for-trading 4,653,583 - - - - 4,653,583 Available-for-sale financial assets - 15,681,779 - - - 15,681,779 Held-to-maturity

financial assets - - 4,798,902 - - 4,798,902

Loans - - - 101,550,336 - 101,550,336 Derivative assets

used for hedging - - - - 79,817 79,817

Others - - - 4,296,234 4,296,234

₩ 4,653,583 ₩ 15,681,779 ₩ 4,798,902 ₩ 112,233,209 ₩ 79,817 ₩137,447,290


held-for-trading ₩ 3,234,505 ₩ - ₩ - ₩ - ₩ - ₩ 3,234,505

Deposits - - - 91,132,065 - 91,132,065

Borrowings - - - 11,555,781 - 11,555,781

Debentures - - - 14,794,426 - 14,794,426 Derivative liabilities used for hedging - - - - 13,152 13,152

Others - - - 7,151,962 - 7,151,962

₩ 3,234,505 ₩ - ₩ - ₩ 124,634,234 ₩ 13,152 ₩127,881,891 9. Risk management The Company is exposed to credit risk, liquidity risk, market risk and various operating risks. The objects of risk management are to pursue the income by managing the risk exposures in the changing financial environment and to use the limited capital efficiently. The basic principles of risk management are as follows: - Minimize the rapid fluctuation in profit by balancing the risks and the income. - Maximize the shareholder value in the long run. - Comply with procedures in order for the operating activities to stay within the allowable risk limits. - Risk manager should examine the type and size of risk in accordance with the changes in potential

economic value of portfolios for the efficient use and distribution of assets and to establish risk management strategy.


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9. Risk management (cont’d) The basic policies in order to realize the basic principles of risk management are as follows: - Set and comply with allowable limits for each risk type. - Establish an appropriate balance between risk and income. - When a conflict between risk and income exists, the Company pursues income while complying

with the allowable risk limits. - Prioritize the distribution of risk in order to avoid risk concentration in certain areas. - Analyze the effect of various market fluctuations on parts or the entire portfolio on a regular basis. - Separate risk management segment, operational segment, and segment which deals with trade

confirmation and payments in order to maintain independence. The Company has built an organization-wide risk management system attributable to the new BIS standards in order to manage risks with advanced methodologies in the rapidly changing financial environment. The Company has been used the credit risk Foundation Internal Ratings-Based Approach since November 2008, operational risk Advanced Internal Ratings-Based Approach since November 2008, and the market risk internal model since July 2006 upon the Financial Supervisory Board’s approval. The Company manages risk assets which is appropriate for the developed system and puts emphasis on the management of potential risk arisen from changes in the business environment and risk management capacity strength of all personnel. For the proactive and pre-emptive risk management, the Company applies Hana Financial Company’s FLS (‘Forward Looking Statements’) based upon the outlook on economic and financial markets and experience on internal losses to the risk management policies. The Risk Committee is responsible for setting the allowable limits for each risk type, and the Risk Management Committee is responsible for the compliance to the limit and monitoring risk levels on a monthly basis. The Company has also established the Comprehensive Risk Management Committee, Credit Risk Management Committee, and Credit Rating Team composed of the Risk Office and the Middle office of each business unit to report daily risk management. The Risk Committee is the top decision-making body within the Board of Directors for risk management. The committee examines credit risk, market risk, and various operating risks, in respect of the risk limits and other controls more than once every quarter. The Risk Management Committee is the secondary decision-making body and managing the actual conditions of risk on a monthly basis. The Risk Management Committee has the overall responsibility for the implementation of risk stragegy. The Risk Management Office consists of the Comprehensive Risk Management Department which manages the market risk, interest rate and liquidity risks, operational risk, and internal capital; the Credit Risk Management Department which manages the credit risk and the Credit Rating Team that deals with the corporate credit ratings and the industry analysis. The Risk Management Office deals with monitoring of risks, measuring of risks and the assets exposed to risks, and forecasting the changes of risks. It also mainly assists the complementary system which enables the Middle Office of each group to function as a member of the Risk Management organization. The Risk Management Office is responsible for reporting the contents of Middle Office’s works including the conditions related to the risks and management status to the Risk Committee, the Risk Management Committee, as well as the Management.

Credit risk is the risk that the Company will incur a loss because its customers or counterparties fail to discharge their contractual obligations. Credit risk arises from on-balance and off-balance accounts including loans, derivatives, securities, financial guarantees, and acceptances and guarantees.


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9. Risk management (cont’d) To determine the possibility of bankruptcy for its customers or counterparties, the Company uses various methods comprehensively. Risks pertaining to the retail sector compared to those pertaining to the corporate sector are relatively easy to predict but cyclical and seasonal factors may influence the outcomes. The frequency of impairment loss in the overall retail sector is relatively high but in terms of individual cases, the loss rate is lower than in the corporate sector. Based on these differences, the Company manages each segment differently in terms of credit rating, pricing and subsequent management. As for the business customers, the branch managers and credit rating team carry out the credit risk assessment by using a detailed valuation model depending on the size and the nature of the industry. The corporate financial valuation model is further subdivided based on the characteristics of the loans and is a combination of statistical and expert valuation models. Also, the Loan Review team of the Credit Risk Management regularly performs the subsequent reviews in order to establish adequacy of the credit grading. As for the retail sector, a Credit Scoring System is used to compute the credit scores of the borrower. The system includes an Application Scoring Model which is used for the application of loans and a Behaviorial Scoring Model which has been used after handling of the loans. Expected loss is calculated using the expected default rate based upon the historical default rate and the estimated loss rate gives a rise to the default rate from a collection of historical information. A measured expected loss is reflected on the client’s interest rate and allowances when applying or renewing a loan. Unexpected loss takes into account for the allowance for potential volatility in the actual loss. Unexpected loss is calculated using the inner Credit Metrics model with 99.9% of the confidence level and the measured figure is used as a credit risk reference value and is used as part of the unexpected loss when calculating interest rates. Both retail and corporate sector are developing and operating a credit risk management system appropriately designed for each sector. The Credit Risk Management Committee and Credit Rating Team measure and manage credit risks for the corporate sector; Credit Risk Management Committee and Personal Loans Committee measure and manage credit risks for the retail sector. The Company manages as well as controls the credit risk by setting the limits on the amount of risk willing to accept for individual counterparties and for geographical and industry concentration, and by monitoring exposures relating to such limits. The Company reviews on a monthly basis in accordance with the economic conditions and industry characteristics and examines the adequacy of the limits on a semi-annual basis. The Company continuously manages credit rating models for retail and corporate sectors and examines the adequacy of LGD (Loss Given Default) and EAD (Exposure At Default), and any related information. The Company annually performs a comprehensive analysis on economic conditions and changes in the economic environment in order to appropriately assess the credit quality of financial assets by setting credit limits on same entities, industries, countries, and financial instruments. In addition, for the unexpected loss management, the Company regularly sets, distributes and checks for the compliance maintenance of internal capital limits according to the corporate and household sectors and the size of clients through the risk management system. The Company measures and manages the risk indicators such as delinquency rate, roll-rate, and vintage rate of each operating segment. Also, in order to assess the credit quality of the assets, the Company operates an early warning system and regularly examines companies whose credit rating is likely to degrade.


37

9. Risk management (cont’d) In order to separately evaluate the characteristics of clients in the corporate sector, the Company operates a detailed valuation model based on the external and non-external audit and is in the process of continuing the stability of the corporate credit rating system through the subsequent examinations and performance improvements. The Company operates a detailed valuation model based on the credit rating model and the activity rating model for the household sector in accordance with the client’s characteristics. The Company improves the efficiency of the model through the subsequent examinations and performance improvements. Credit rating on new clients as well as an automatic renewal and adjustments to the credit limits are managed by the household and SOHO credit extension system. For the large amount of credit line, after the approval of credit extension, the Company regularly examines the borrower’s credit status and the adequacy of the borrower’s credit rating as in part of the subsequent management process. In addition, the Company significantly focuses on industries by increasing credit risks based on the analysis of the risk indicators and examines with the sample for smaller credit extensions. The Company obtains the collateral for the granted loans in order to reduce risks. The amount and type of the collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters. The main types of the collateral obtained are as follows: - For retail lending, mortgages over residential properties - For commercial lending, charges over real estate properties, inventory and trade receivables - For securities lending and reverse repurchase transactions, cash, or securities

The Company trades the debt securities above the Investment-Grade Status level in order to manage the credit risks and manages the exposure of the credit ratings to maintain credit quality of the assets. The credit risk arising from the derivative financial instruments is, at any time, limited to those with the positive fair values, as recorded on the statement of financial position. The Company manages the exposure as a part of the unused commitment of loans. The maximum exposure to credit risk as of December 31, 2011, December 31, 2010, and January 1, 2010 is as follows. The following table shows the maximum exposure to credit risk for the components of the statement of financial position, including derivatives, by geography of counterparty and by industry before the effect of mitigation through the use of master netting and collateral agreements. Equity securities in the trading financial assets and financial assets available-for-sale are excluded. (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Due from banks ₩ 4,528,717 ₩ 5,107,666 ₩ 4,770,362 Financial assets held-for-trading 3,719,272 2,803,857 4,623,808 Available-for-sale financial assets 14,394,373 14,402,116 14,057,124 Held-to-maturity financial assets 2,103,395 2,462,626 4,798,902 Derivatives for hedging 110,440 84,639 79,817 Loans 117,898,726 106,760,807 101,550,336

House 50,897,120 48,758,643 45,369,367 Large business 28,237,719 20,623,840 18,578,329 Small business 34,341,948 34,855,127 32,809,645 Public sector and others 4,421,939 2,523,197 4,792,995

Others 5,046,215 4,453,447 4,296,234 ₩ 147,801,138 ₩ 136,075,158 ₩ 134,176,583


38

9. Risk management (cont’d)

December 31,

2011 December 31,

2010 January 1,

2010 Financial guarantees ₩ 1,560,970 ₩ 1,383,802 ₩ 1,543,802

Guarantee contracts 9,762,752 8,094,765 7,859,277 Commitment 45,150,907 36,665,125 30,876,414

₩ 56,474,629 ₩ 46,143,692 ₩ 40,279,493 Details of collateral management and credit risk mitigation as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011

Impaired Non impaired

Individual

assessment Collective

assessment Past due Non past due Total Guarantees ₩ 3,573 ₩ 52,707 ₩ 19,373 ₩ 7,268,950 ₩ 7,344,603 Deposit - 13,044 1,420 2,963,676 2,978,140 Securities 3,016 3,729 202 2,404,784 2,411,731 Real estate 336,262 302,528 131,423 51,696,994 52,467,207

₩ 342,851 ₩ 372,008 ₩152,418 ₩ 64,334,404 ₩ 65,201,681

December 31, 2010


Individual


assessment Past due Non past due Total Guarantees ₩ - ₩ 75,002 ₩ 18,481 ₩ 5,822,371 ₩ 5,915,854 Deposit 19,969 41,368 5,129 3,058,341 3,124,807 Securities 3,233 30,595 153 1,777,487 1,811,468 Real estate 454,335 368,523 80,231 48,363,058 49,266,147

₩ 477,537 ₩ 515,488 ₩103,994 ₩ 59,021,257 ₩ 60,118,276

January 1, 2010


Individual


assessment Past due Non past due Total Guarantees ₩ 18,581 ₩ 47,175 ₩ 22,625 ₩ 6,028,453 ₩ 6,116,834 Deposit 31,041 24,374 6,901 2,848,053 2,910,369 Securities 1,197 3,664 2,391 1,323,370 1,330,622 Movable assets - - - 5,365 5,365 Real estate 406,006 479,000 109,031 45,174,959 46,168,996

₩ 456,825 ₩ 554,213 ₩140,948 ₩ 55,380,200 ₩ 56,532,186


39

9. Risk management (cont’d) Details of delinquency rates on loans as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31 2011

Household

loans Large business Small business

Public institution and

others Total Neither past due nor

impaired ￦ 50,488,747 ￦ 28,161,350 ￦ 34,074,556 ￦ 4,431,183 ￦117,155,836

Past due but not impaired 34,951 - 64,745 45 99,741 Impaired 382,966 384,639 773,809 1,835 1,543,249

￦ 50,906,664 ￦ 28,545,989 ￦ 34,913,110 ￦ 4,433,063 ￦118,798,826 Deferred loan fees 92,030 (1,955) (4,238) 165 86,002 Allowance for possible loan losses

(101,574) (306,315) (566,924) (11,289) (986,102)

￦ 50,897,120 ￦ 28,237,719 ￦ 34,341,948 ￦4,421,939 ￦117,898,726

December 31, 2010

Household




impaired

￦48,379,463 ￦20,338,323 ￦34,280,215 ￦2,519,197 ￦105,517,198 Past due but not impaired 34,650 - 159,446 5,520 199,616 Impaired 356,347 563,316 1,168,770 3,382 2,091,815

￦48,770,460 ￦20,901,639 ￦35,608,431 ￦2,528,099 ￦107,808,629 Deferred loan fees 91,019 (7,173) (8,270) 1,444 77,020 Allowance for possible loan losses

(102,836) (270,626) (745,034) (6,346) (1,124,842)

￦48,758,643 ￦20,623,840 ￦34,855,127 ￦2,523,197 ￦106,760,807

January 1, 2010

Household




impaired ￦ 44,923,025 ￦18,476,055 ￦32,204,928 ￦4,788,388 ￦100,392,396

Past due but not impaired 46,275 3,645 223,941 7,454 281,315 Impaired 419,276 230,436 911,536 45,808 1,607,056

￦ 45,388,576 ￦18,710,136 ￦33,340,405 ￦4,841,650 102,280,767 Deferred loan fees 87,974 706 (19,438) (8,466) 60,776 Allowance for possible loan losses

(107,183) (132,513) (511,322) (40,189) (791,207)

￦ 45,369,367 ￦18,578,329 ￦32,809,645 ￦4,792,995 ￦101,550,336 Delinquency in interest occurs when the counterparty is unable to make a principle and the interest payments as at the due date. A financial item is deemed impaired if, and only if, there is an objective evidence of impairment as a result of one or more events which have occurred after the initial recognition of the item (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows, such as changes in arrears or economic conditions which correlate with defaults, delinquency in interest for more than 90 days, credit deterioration resulting in misleading information, damages incurred due to poor exposure.


40

9. Risk management (cont’d) Details on loans with no impairment or overdue payments as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011 Corporate loans

Household

loans Large

business Small

business


others Total Grade 1 ￦ 28,496,813 ￦ 16,980,052 ￦ 3,600,247 ￦ 2,880,188 ￦ 51,957,300 Grade 2 20,907,615 10,505,388 29,071,482 1,499,026 61,983,511 Grade 3 1,065,970 675,910 1,122,229 2,472 2,866,581 Others 18,349 - 280,598 49,497 348,444

￦ 50,488,747 ￦ 28,161,350 ￦ 34,074,556 ￦ 4,431,183 ￦ 117,155,836

December 31, 2010

Corporate loans

Household

loans Large

business Small

business


others Total Grade 1 ￦ 21,363,314 ￦ 13,659,951 ￦ 3,680,130 ￦1,370,908 ￦ 40,074,303 Grade 2 25,717,627 6,215,135 29,128,601 1,082,834 62,144,197 Grade 3 1,250,853 284,873 1,471,484 46,456 3,053,666 Others 47,669 178,364 - 18,999 245,032

￦ 48,379,463 ￦ 20,338,323 ￦ 34,280,215 ￦2,519,197 ￦105,517,198

January 1, 2010

Corporate loans

Household

loans Large

business Small

business


others Total Grade 1 ￦ 15,514,283 ￦ 12,536,203 ￦ 5,582,349 ￦ 1,080,495 ￦ 34,713,330Grade 2 27,612,203 4,791,001 24,963,147 2,735,711 60,102,062Grade 3 1,764,918 195,604 1,285,017 281,265 3,526,804Others 31,621 953,247 374,415 690,917 2,050,200

￦ 44,923,025 ￦ 18,476,055 ￦ 32,204,928 ￦ 4,788,388 ￦ 100,392,396 The Company classifies the grade of loan in accordance with a credit rating chart below, based on the character of borrowers.

Household loans Corporate loans SOHO Grade 1 Less or equal to 0.36% of PD A1+ ~ A3 Grade 1 Grade 2 From 0.36% to 8.79% of PD B1+ ~ B3 Grade 2 ~ 16 Grade 3 From 8.79% to 100% of PD C1 ~ C3 Grade 17 ~ 25


41

9. Risk management (cont’d) The Company recognizes that a loan with overdue payments due within 90 days which is not impaired if no other credit information is given to measure such impairment. Types of unimpaired loans with delinquent payments as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011

Household loansSmall

Business Public institution

and others Total Less 30 days ￦ 24,333 ￦ 16,107 ￦ 37 ￦ 40,477 30 to 59 days 5,561 27,922 8 33,491 60 to 89 days 5,057 20,716 - 25,773

￦ 34,951 ￦ 64,745 ￦ 45 ￦ 99,741

December 31, 2010

Household loansSmall

business Public institution

and others Total Less 30 days ￦ 32,517 ￦ 124,208 ￦ 5,520 ￦ 162,245 30 to 59 days 1,375 26,677 - 28,052 60 to 89 days 758 8,561 - 9,319

￦ 34,650 ￦ 159,446 ￦ 5,520 ￦ 199,616

January 1, 2010

Household

loans Large

BusinessSmall

Business Public institution

and others Total Less 30 days ￦ 43,669 ￦ 3,645 ￦ 198,688 ￦ 3,837 ￦ 249,83930 to 59 days 1,818 - 18,416 1,761 21,99560 to 89 days 788 - 6,837 1,856 9,481

￦ 46,275 ￦ 3,645 ￦ 223,941 ￦ 7,454 ￦ 281,315 Types of impaired loans as of December 31, 2011, December 31, 2010 and January 1, 2010 are as follows (Korean won in millions):


Household

loans Large

business Small

business

Public institution and others Total

Individual impairment Book value ￦ - ￦ 345,149 ￦ 525,755 ￦ - ￦ 870,904 Allowance for possible loan losses

- (146,123) (284,155) - (430,278)

￦ - ￦ 199,026 ￦ 241,600 ￦ - ￦ 440,626 Collective impairment Book value 382,966 39,490 248,054 1,835 672,345 Deferred loan fees and expenses

482 - (139) - 343

Allowance for possible loan losses

(44,512) (3,986) (57,907) (525) (106,930)

338,936 35,504 190,008 1,310 565,758 ￦ 338,936 ￦ 234,530 ￦ 431,608 ￦ 1,310 ￦ 1,006,384


42



Household

loans Large

business Small

business


Individual impairment Book value ￦ - ￦ 515,927 ￦ 783,210 ￦ 2,450 ￦ 1,301,587 Deferred loan fees and expenses

- - (25) - (25)


- (153,000) (377,203) (842) (531,045)

- 362,927 405,982 1,608 770,517 Collective impairment Book value 356,347 47,389 385,560 932 790,228 Deferred loan fees and expenses

486 - - 1 487


(36,691) (9,970) (80,925) (684) (128,270)

320,142 37,419 304,635 249 662,445 ￦ 320,142 ￦ 400,346 ￦ 710,617 ￦ 1,857 ￦ 1,432,962

January 1, 2010

Corporate loans

Household

loans Large

business Small

business


Individual impairment Book value ￦ - ￦ 197,352 ￦ 486,286 ￦ 11,351 ￦ 694,989 Deferred loan fees and expenses

- - (2) - (2)


- (73,229) (152,629) (1,737) (227,595)

￦ - ￦ 124,123 ￦ 333,655 ￦ 9,614 ￦ 467,392 Collective impairment Book value 419,276 33,084 425,250 34,457 912,067 Deferred loan fees and expenses

1,400 - 1 7 1,408


(47,824) (225) (88,455) (118) (136,622)

372,852 32,859 336,796 34,346 776,853 ￦ 372,852 ￦ 156,982 ￦ 670,451 ￦ 43,960 ￦ 1,244,245


43

9. Risk management (cont’d) Interest income on impaired loans for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):


Household

loans Large

business Small

business


others TotalIndividual impairment ￦ - ￦ 18,663 ￦ 27,711 ￦ 47 ￦ 46,421 Collective impairment 20,674 3,091 15,099 811 39,675

￦ 20,674 ￦ 21,754 ￦ 42,810 ￦ 858 ￦ 86,096


Household

loans Large

business Small

business


others TotalIndividual impairment ￦ - ￦ 16,043 ￦ 33,798 ￦ 316 ￦ 50,157Collective impairment 23,235 3,635 30,572 3,007 60,449

￦ 23,235 ￦ 19,678 ￦ 64,370 ￦ 3,323 ￦ 110,606

Overdue payments on debt securities as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011


Available-for-sale

financial assets

Held-to-maturity

financial assets Total Neither past due nor impaired ￦ 2,055,538 ￦ 14,386,796 ￦2,103,395 ￦ 18,545,729Impaired - 7,577 - 7,577

￦ 2,055,538 ￦ 14,394,373 ￦2,103,395 ￦ 18,553,306

December 31, 2010


Available-for-sale

financial assets

Held-to-maturity

financial assets Total Neither past due nor impaired ￦ 784,049 ￦ 14,395,020 ￦2,462,626 ￦ 17,641,695 Impaired - 7,096 - 7,096

￦ 784,049 ￦ 14,402,116 ￦2,462,626 ￦ 17,648,791

January 1, 2010


Available-for-sale

financial assets

Held-to-maturity

financial assets Total Neither past due nor impaired ￦ 1,313,455 ￦ 14,049,510 ￦ 4,798,902 ￦ 20,161,867Impaired - 7,614 - 7,614

￦ 1,313,455 ￦ 14,057,124 ￦ 4,798,902 ￦ 20,169,481


44

9. Risk management (cont’d) Internal credit ratings of debt securities as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011


Available-for-salefinancial assets

Held-to-maturity financial assets Total

Grade 1 ￦ 2,055,538 14,240,706 2,093,246 18,389,490Grade 2 - 33,710 3,546 37,256Grade 3 - 47,981 - 47,981Others - 71,976 6,603 78,579

￦ 2,055,538 14,394,373 2,103,395 18,553,306 December 31, 2010




Grade 1 ￦ 784,049 ￦ 14,060,736 ￦ 2,453,747 ￦17,298,532 Grade 2 - 134,674 - 134,674 Grade 3 - 73,755 - 73,755 Others - 132,951 8,879 141,830

￦ 784,049 ￦ 14,402,116 ￦ 2,462,626 ￦17,648,791

January 1, 2010




Grade 1 ￦ 1,313,455 ￦ 13,223,055 ￦ 4,725,632 ￦19,262,142Grade 2 - 402,334 40,000 442,334Grade 3 - 16,474 - 16,474Others - 415,261 33,270 448,531

￦ 1,313,455 ￦ 14,057,124 ￦ 4,798,902 ￦20,169,481 The credit rating classification of debt securities which are rated by the external rating agencies is as follows:

Domestic Rating Agencies Overseas Rating Agencies KIS KAP Moody’s S&P Fitch

Grade 1 A1+ ~ A3 A1+ ~ A3 Aaa ~ Baa1 AAA ~ BBB+ AAA ~ BBB+Grade 2 B1+ ~ B2+ B1+ ~ B2+ Baa2 ~ Baa3 BBB ~ BBB- BBB ~ BBB-Grade 3 C1 ~ C3 C1 ~ C3 Ba1 ~ B1 BB+ ~ B+ BB+ ~ B+


45

9. Risk management (cont’d) Credit risk concentration in each major industry as of December 31, 2011, December 31, 2010, and January 1, 2010 is as follows (Korean won in millions):

December 31, 2011

Industry Korean won Foreign currency

Total

Amount Ratio (%)

Due from banks Financial services ₩ 2,712,150 ₩ 1,816,567 ₩ 4,528,717 100.0Financial assets held-for-trading (Debt securities)

Financial services 1,120,123 - 1,120,123 54.5 Public administration 935,415 - 935,415 45.5 2,055,538 - 2,055,538 100.0Available-for-sale financial assets (Debt securities)

Financial services 4,445,619 531,930 4,977,549 34.6 Manufacturing 870,762 103,935 974,697 6.8 Public administration 6,411,594 227,784 6,639,378 46.1 Construction 47,741 - 47,741 0.3 Wholesale & retail 152,316 - 152,316 1.1 Others 1,453,129 149,563 1,602,692 11.1 13,381,161 1,013,212 14,394,373 100.0Held-to-maturity

financial assets Financial services 663,661 - 663,661 31.6

Public administration 468,407 9,121 477,528 22.7 Others 961,178 1,028 962,206 45.7 2,093,246 10,149 2,103,395 100.0Loan Household loans 50,887,905 18,759 50,906,664 42.8 Corporate loans Manufacturing 16,313,337 7,642,708 23,956,045 20.2 Construction 3,365,842 177,799 3,543,641 3.0 Wholesale & retail 7,081,051 2,491,448 9,572,499 8.1 Financial services 5,647,196 3,261,403 8,908,599 7.5 Real estate rental 6,712,071 298,368 7,010,439 5.9 Others 12,360,213 2,540,726 14,900,939 12.5 102,367,615 16,431,211 118,798,826 100.0 ₩ 122,609,710 ₩ 19,271,139 ₩141,880,849

Financial guarantees Manufacturing ₩ 567,055 ₩ 123,420 ₩ 690,475 44.2

Construction 45,973 - 45,973 2.9 Wholesale & retail 262,146 22,071 284,217 18.2 Financial services 207 - 207 0.0 Real estate rental - 3,414 3,414 0.2 Others 456,467 80,217 536,684 34.5 1,331,848 229,122 1,560,970 100.0


46

9. Risk management (cont’d) December 31, 2011


Total

Amount Ratio (%)

Guarantee contracts Manufacturing 411,213 5,417,862 5,829,075 59.7

Construction 48,649 652,678 701,327 7.2 Wholesale & retail 214,393 2,087,408 2,301,801 23.6 Financial services 4,233 253,819 258,052 2.6 Real estate rental 16,001 31,250 47,251 0.5 Others 121,066 504,180 625,246 6.4 815,555 8,947,197 9,762,752 100.0 Commitment Manufacturing 10,131,598 9,525,056 19,656,654 43.6 Construction 1,602,792 256,893 1,859,685 4.1 Wholesale & retail 3,296,917 2,602,056 5,898,973 13.1 Financial services 4,648,312 58,369 4,706,681 10.4 Real estate rental 363,072 3,670 366,742 0.8 Others 11,703,097 959,075 12,662,172 28.0

31,745,788 13,405,119 45,150,907 100.0 ₩ 33,893,191 ₩ 22,581,438 ₩ 56,474,629

December 31, 2010


Total

Amount Ratio (%)

Due from banks Financial services ₩ 4,184,083 ₩ 923,583 ₩ 5,107,666 100.0Financial assets held-for-trading (Debt securities) Financial services 306,193 - 306,193 39.1

Public administration 477,605 - 477,605 60.9 Others 251 - 251 0.0 784,049 - 784,049 100.0Available-for-sale

financial assets (Debt securities) Financial services 4,119,065 675,048 4,794,113 33.3

Manufacturing 325,904 96,234 422,138 2.9 Public administration 7,195,380 29,367 7,224,747 50.2 Construction 286,560 - 286,560 2.0 Wholesale & retail 121,939 - 121,939 0.8 Others 1,115,452 437,167 1,552,619 10.8 13,164,300 1,237,816 14,402,116 100.0Held-to-maturity

financial assets Financial services 1,122,732 - 1,122,732 45.6 Public administration 496,456 7,869 504,325 20.5 Others 834,559 1,010 835,569 33.9 2,453,747 8,879 2,462,626 100.0


47


December 31, 2010


Total

Amount Ratio (%)

Loans Household loans 48,748,856 21,604 48,770,460 45.2 Corporate loans Manufacturing 16,262,498 6,320,961 22,583,459 20.9 Construction 2,657,814 93,535 2,751,349 2.6 Wholesale & retail 6,267,972 1,847,020 8,114,992 7.5 Financial services 4,638,252 1,417,034 6,055,286 5.6 Real estate rental 5,972,044 305,707 6,277,751 5.8 Others 10,536,170 2,719,162 13,255,332 12.4 95,083,606 12,725,023 107,808,629 100.0

₩ 115,669,785 ₩ 14,895,301 ₩130,565,086 Financial guarantees Manufacturing ₩ 504,014 ₩ 141,951 ₩ 645,965 46.7

Construction 43,905 2,102 46,007 3.3 Wholesale & retail 257,117 11,697 268,814 19.4 Financial services 478 - 478 0.0 Real estate rental 2,153 7,596 9,749 0.7 Others 388,925 23,864 412,789 29.9 1,196,592 187,210 1,383,802 100.0 Guarantee

contracts Manufacturing 298,070 5,066,830 5,364,900 66.3 Construction 37,395 448,952 486,347 6.0 Wholesale & retail 232,198 1,405,808 1,638,006 20.2 Financial services 4,510 26,344 30,854 0.4 Real estate rental 13,675 38,624 52,299 0.6 Others 106,833 415,526 522,359 6.5 692,681 7,402,084 8,094,765 100.0 Commitment Manufacturing 8,298,961 6,355,619 14,654,580 40.0 Construction 1,712,369 539,945 2,252,314 6.1 Wholesale & retail 3,056,950 1,561,326 4,618,276 12.6 Financial services 3,249,143 258,891 3,508,034 9.6 Real estate rental 484,329 12,158 496,487 1.4 Others 10,781,107 354,327 11,135,434 30.3

27,582,859 9,082,266 36,665,125 100.0 ₩ 29,472,132 ₩ 16,671,560 ₩ 46,143,692


48


January 1, 2010


Total

Amount Ratio (%)

Due from banks Financial services ₩ 4,030,403 ₩ 739,959 ₩ 4,770,362 100.0Financial assets held-for-trading (Debt securities) Financial services 335,481 - 335,481 25.5 Public administration 977,691 - 977,691 74.5 Others 283 - 283 0.0 1,313,455 - 1,313,455 100.0Available-for-sale

financial assets (Debt securities) Financial services 4,166,717 548,974 4,715,691 33.5

Manufacturing 171,148 356,305 527,453 3.8 Public administration 6,789,196 250,256 7,039,452 50.1 Construction 77,159 22,937 100,096 0.7 Wholesale & retail 69,686 - 69,686 0.5 Others 1,312,599 292,147 1,604,746 11.4 12,586,505 1,470,619 14,057,124 100.0Held-to-maturity

financial assets Financial services 3,188,355 - 3,188,355 66.4 50,000 25,256 75,256 1.6 682,735 8,314 691,049 14.4 Public administration 30,000 - 30,000 0.6 Others 814,242 - 814,242 17.0 4,765,332 33,570 4,798,902 100.0Loans Household loans 45,382,326 6,250 45,388,576 44.4 Corporate loans Manufacturing 15,452,383 5,905,317 21,357,700 20.9 Construction 2,501,572 49,002 2,550,574 2.5 Wholesale & retail 6,075,800 1,505,048 7,580,848 7.4 Financial services 5,588,681 1,067,549 6,656,230 6.5 Real estate rental 5,761,070 336,956 6,098,026 6.0 Others 10,643,786 2,005,027 12,648,813 12.3 91,405,618 10,875,149 102,280,767 100.0

₩ 114,101,313 ₩ 13,119,297 ₩127,220,610 Financial guarantees Manufacturing ₩ 760,530 ₩ 151,970 ₩ 912,500 59.1

Construction 28,468 1,833 30,301 2.0 Wholesale & retail 208,003 10,917 218,920 14.2 Financial services 580 - 580 0.0 Real estate rental 421 9,446 9,867 0.6 Others 353,292 18,342 371,634 24.1 1,351,294 192,508 1,543,802 100.0


49


January 1, 2010

Industry Korean wonForeign currency

Total Amount Ratio (%)

Guarantee contracts Manufacturing 380,589 4,575,347 4,955,936 63.0

Construction 11,459 330,088 341,547 4.3 Wholesale & retail 228,023 1,866,536 2,094,559 26.7 Financial services 6,850 16,745 23,595 0.3 Real estate rental 12,568 757 13,325 0.2 Others 110,816 319,499 430,315 5.5 750,305 7,108,972 7,859,277 100.0 Commitment Manufacturing 4,941,274 6,679,215 11,620,489 37.6 Construction 1,285,562 172,392 1,457,954 4.7 Wholesale & retail 2,901,814 1,029,300 3,931,114 12.7 Financial services 4,179,752 60,928 4,240,680 13.7 Real estate rental 319,167 35,734 354,901 1.1 Others 8,499,838 771,438 9,271,276 30.2

22,127,407 8,749,007 30,876,414 100.0 ₩ 24,229,006 ₩ 16,050,487 ₩ 40,279,493 Credit risk concentration in each major country as of December 31, 2011, December 31, 2010, and January 1, 2010 is as follows (Korean won in millions):

December 31, 2011

Country

Korean wonForeign currency


Due from banks Korea ₩ 2,712,150 ₩ 493,083 ₩ 3,205,233 70.8

U.S - 117,266 117,266 2.6 Japan - 287 287 0.0 Others - 1,205,931 1,205,931 26.6 2,712,150 1,816,567 4,528,717 100.0Financial assets held-for-trading (Debt securities) Korea 2,055,538 - 2,055,538 100.0Available-for-sale financial assets (Debt securities) Korea 13,381,161 866,701 14,247,862 99.0

U.S - 40,082 40,082 0.3 Others - 106,429 106,429 0.7 13,381,161 1,013,212 14,394,373 100.0Held-to-maturity

financial assets Korea 2,093,246 - 2,093,246 99.5 Singapore - 7,887 7,887 0.4 Others - 2,262 2,262 0.1 2,093,246 10,149 2,103,395 100.0


50


December 31, 2011

Country

Korean won Foreign currency


Loans Korea 100,808,614 10,336,018 111,144,632 93.6 China 2,912 3,235,180 3,238,092 2.7 U.S 60,609 178,462 239,071 0.2 Japan 13,371 20,630 34,001 0.0 Hong Kong - 29,824 29,824 0.0 Others 1,482,109 2,631,097 4,113,206 3.5 102,367,615 16,431,211 118,798,826 100.0 ₩ 122,609,710 ₩ 19,271,139 ₩ 141,880,849 Financial

guarantees Korea ₩ 1,331,848 ₩ 229,122 ₩ 1,560,970 100.0 Guarantee

contracts

Korea 813,388 7,349,302 8,162,690 83.6 China - 666,189 666,189 6.8 Others 2,167 931,706 933,873 9.6 815,555 8,947,197 9,762,752 100.0 Commitment Korea 30,528,711 12,352,098 42,880,809 95.0 China 56 555,411 555,467 1.2 U.S 33,985 - 33,985 0.1 Japan 8,000 1,579 9,579 0.0 Others 1,175,036 496,031 1,671,067 3.7 31,745,788 13,405,119 45,150,907 100.0 ₩ 33,893,191 ₩ 22,581,438 ₩ 56,474,629

December 31, 2010

Country




U.S - 223,006 223,006 4.3 Japan - 2 2 0.0 Others - 459,085 459,085 9.0 4,184,083 923,583 5,107,666 100.0 Financial assets held-for-trading (Debt securities) Korea 784,049 - 784,049

100.0

Available-for-sale financial assets (Debt securities) Korea 13,164,300 1,068,729 14,233,029

98.8

U.S - 18,316 18,316 0.1 Japan - 43,187 43,187 0.3 Others - 107,584 107,584 0.8 13,164,300 1,237,816 14,402,116 100.0


51


December 31, 2010

Country



Held-to-maturity financial assets Korea 2,453,747 - 2,453,747 99.7

Singapore - 7,869 7,869 0.3 Others - 1,010 1,010 0.0 2,453,747 8,879 2,462,626 100.0Loans Korea 94,276,643 8,935,884 103,212,527 95.8 China 17,261 1,617,548 1,634,809 1.5 U.S 211,203 741 211,944 0.2 Japan 18,594 - 18,594 0.0 Hong Kong 419 - 419 0.0 Others 559,486 2,170,850 2,730,336 2.5 95,083,606 12,725,023 107,808,629 100.0 ₩ 115,669,785 ₩ 14,895,301 ₩ 130,565,086 Financial

guarantees Korea ₩ 1,196,592 ₩ 187,210 ₩ 1,383,802 100.0 Guarantee

contracts

Korea 692,681 6,811,385 7,504,066 92.7 China - 357,528 357,528 4.4 Others - 233,171 233,171 2.9 692,681 7,402,084 8,094,765 100.0 Commitment Korea 26,887,757 8,589,822 35,477,579 96.7 China 2,456 239,492 241,948 0.7 U.S 45,663 195,400 241,063 0.7 Japan 11,523 - 11,523 0.0 Hong Kong 270 - 270 0.0 Others 635,190 57,552 692,742 1.9 27,582,859 9,082,266 36,665,125 100.0 ₩ 29,472,132 ₩ 16,671,560 ₩ 46,143,692


52


January 1, 2010

Country




U.S - 78,805 78,805 1.7 Japan - 306 306 0.0 Others - 639,796 639,796 13.4 4,030,403 739,959 4,770,362 100.0Financial assets held-for-trading (Debt securities) Korea 1,313,455 - 1,313,455 100.0

Available-for-sale financial assets (Debt securities) Korea 12,586,505 1,283,491 13,869,996 98.6

U.S - 10,850 10,850 0.1 Japan - 10,451 10,451 0.1 Others - 165,827 165,827 1.2 12,586,505 1,470,619 14,057,124 100.0Held-to-maturity

financial assets Korea 4,765,332 25,256 4,790,588 99.8 Singapore - 8,314 8,314 0.2 4,765,332 33,570 4,798,902 100.0Loans Korea 90,989,987 7,065,007 98,054,994 95.9 China 15,673 1,416,959 1,432,632 1.4 U.S 202,061 770 202,831 0.2 Japan 10,028 5,368 15,396 0.0 Hong Kong 30,019 12,943 42,962 0.0 Others 157,850 2,374,102 2,531,952 2.5 91,405,618 10,875,149 102,280,767 100.0 ₩ 114,101,313 ₩ 13,119,297 ₩ 127,220,610 Financial

guarantees Korea ₩ 1,351,294 ₩ 192,508 ₩ 1,543,802 100.0Guarantee

contracts

Korea 748,537 6,142,630 6,891,167 87.7 China - 269,383 269,383 3.4 Others 1,768 696,959 698,727 8.9 750,305 7,108,972 7,859,277 100.0 Commitment Korea 22,094,554 8,300,595 30,395,149 98.4 China 2,101 94,218 96,319 0.3

U.S 8,604 116,064 124,668 0.4 Singapore 8,317 24,475 32,792 0.1 Hong Kong 101 56,813 56,914 0.2 Others 13,730 156,842 170,572 0.6 22,127,407 8,749,007 30,876,414 100.0 ₩ 24,229,006 ₩ 16,050,487 ₩ 40,279,493


53

9. Risk management (cont’d) Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with the financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due under both normal and stress circumstances. The Company measures liquidity ratio in Korean won (more than 100%), liquidity ratio in foreign currency (more than 85%), currency maturity mismatch ratio (more than (-)3% for a week, more than (-)10% for a month), long-term access to financing ratio (more than 100%) in accordance with the guidelines and standards of the Financial Supervisory Service. In addition, the Company has secondary indicator which measures liquidity risks and early warning indicators in order to identify worsening trends in the beginning of the period and to respond in a timely manner. At an early stage, the Company identifies factors affecting liquidity in order to manage liquidity risks and has achieved an adequate level of liquidity via achieving a systematic management. The Company has the following of the basic principles for liquidity risk management: - Set and comply with an acceptable limit and early warning indicators for liquidity risks - Regularly execute an analysis of stress tests and prepare an emergency procurement plan in case

of illiquidity - Focus on maintaining a diversified portfolio in order to avoid excessive concentrations of risks - Evaluate and manage the effect of a large amount of money which is loaned out, invested, or

procured on liquidity risks In order to manage the liquidity risks, the Company is building the internal control systems for each department. The Comprehensive Risk Management Department complies with the liquidity ratio and maturity mismatch ratio set by the Financial Supervisory Service and forecasts liquidity ratio based on the capital planning of each operating segment on a monthly basis. Liquidity risk status is reported to the Risk Management Committee on a monthly basis and to the Risk Committee on a quarterly basis. In order to maintain the liquidity risk management indicators to stay within the acceptable limits, the Treasury Department and the International Finance Department recommends the necessary measures in relation to the procurement and operation of the assets and liabilities traded in the capital market. In addition, the emergency planning in stages has been established in order to respond to liquidity emergencies. ALM team has established a portfolio management strategy based on the internal and external liquidity risk management requirements, procurement, and an outlook on the operating markets.


54

9. Risk management (cont’d) The table below summarizes the maturity profile of the undiscounted cash flows of the Company’s financial assets and liabilities as of December 31, 2011, December 31, 2010, and January 1, 2010. Trading derivatives and depository liabilities (payment on demand) are shown at fair value in a separate column. All derivatives used for hedging purposes are shown by the maturity, based on their contractual undiscounted repayment obligations. Derivatives used for hedging purposes are shown in net cash flows as all interest rate swaps based on the net amount. The maturity of financial assets as of December 31, 2011, December 31, 2010, and January 1, 2010 is summarized as follows (Korean won in millions):

December 31, 2011

Within 1 month

After 1 month

~ but no later

than 3 months

After 3 months

~ but no later

than 6 months

After 6 months

~ but no later

than 1 year

After 1 year

~ but no later

than 3 years

After 3 years

~ but no later

than 5 years

After 5 years Total

Available-for-sale financial assets (Debt securities) ₩ 70,015 ₩ 190,540 ₩ 331,582 ₩1,839,665 ₩5,767,888 ₩ 2,952,578 ₩ 3,242,105 ₩ 14,394,373

Held-to-maturity financial assets 44,226 4,762 114,993 180,749 638,274 559,705 560,686 2,103,395

Loans 9,941,735 14,717,048 22,625,093 27,899,053 18,014,841 7,040,272 18,560,784 118,798,826

₩10,055,976 ₩14,912,350 ₩23,071,668 ₩29,919,467 ₩24,421,003 ₩10,552,555 ₩22,363,575 ₩135,296,594

December 31, 2010

Within 1 month

After 1 month

~ but no later

than 3 months

After 3 months

~ but no later

than 6 months

After 6 months

~ but no later

than 1 year

After 1 year

~ but no later

than 3 years

After 3 years

~ but no later

than 5 years

After 5 years Total

Available-for-sale financial assets (Debt securities) ₩ 13,629 ₩ 51,941 ₩ 269,578 ₩ 1,059,851 ₩5,906,942 ₩ 4,976,416 ₩ 2,123,759 ₩ 14,402,116

Held-to-maturity financial assets 3,538 84,269 70,100 149,795 694,644 781,179 679,101 2,462,626

Loans 8,003,450 14,145,456 21,107,492 25,014,545 15,756,491 5,383,380 18,397,815 107,808,629

₩8,020,617 ₩14,281,666 ₩21,447,170 ₩26,224,191 ₩22,358,077 ₩11,140,975 ₩21,200,675 ₩124,673,371

January 1, 2010

Within 1 month

After 1 month

~ but no later

than 3 months

After 3 months

~ but no later

than 6 months

After 6 months

~ but no later

than 1 year

After 1 year

~ but no later

than 3 years

After 3 years

~ but no later

than 5 years

After 5 years Total

Available-for-sale financial assets (Debt securities) ₩ 72,094 ₩ 149,012 ₩ 692,028 ₩ 725,020 ₩ 7,033,168 ₩ 4,351,261 ₩ 1,034,541 ₩ 14,057,124

Held-to-maturity financial assets 118,363 173,650 441,275 1,840,381 864,450 726,882 633,901 4,798,902

Loans 6,013,196 12,744,875 20,176,595 23,065,994 17,423,067 6,363,742 16,493,298 102,280,767

₩6,203,653 ₩13,067,537 ₩21,309,898 ₩25,631,395 ₩25,320,685 ₩11,441,885 ₩18,161,740 ₩121,136,793


55

9. Risk management (cont’d) The maturity of financial liabilities as of December 31, 2011, December 31, 2010, and January 1, 2010 is summarized as follows (Korean won in millions):

December 31, 2011

On

Demand Within 1 month

After 1 month~

but no later than 3 months

After 3 months~


After 6 months~

but no later than 1 year

After 1 year~

but no later than 3 years

After 3 years ~

but no later than 5 years After 5 years Total

On-balance item Financial liabilities

held-for-trading ₩ 1,762,338 ₩ - ₩ - ₩ - ₩ - ₩ - ₩ - ₩ - ₩ 1,762,338Deposits 32,337,911 10,880,873 12,016,893 12,245,911 37,026,804 2,784,829 493,297 1,347,816 109,134,334 Borrowings 2,453,312 1,556,344 1,887,241 1,189,768 1,569,067 1,163,510 445,574 320,831 10,585,647 Debentures 17,536 601,010 1,359,638 2,507,605 2,859,350 5,147,324 3,057,478 3,408,796 18,958,737 Derivative liabilities

used for hedging - 1,031 2,236 681 (14,580) (20,440) (13,916) (18,277) (63,265)Others 1,090,609 6,185,955 8,237 3,794 26,961 4,168 1,482 3,171 7,324,377

37,661,706 19,225,213 15,274,245 15,947,759 41,467,602 9,079,391 3,983,915 5,062,337 147,702,168 Off-balance item Financial

guarantees 1,560,970 - - - - - - - 1,560,970

Commitment 45,150,907 - - - - - - - 45,150,907

46,711,877 - - - - - - - 46,711,877

₩84,373,583 ₩ 19,225,213 ₩15,274,245 ₩ 15,947,759 ₩41,467,602 ₩9,079,391 ₩3,983,915 ₩5,062,337 ₩194,414,045

December 31, 2010

On


After 1 month~


After 3 months

~ but no later

than 6 months

After 6 months~


After 1 year~


After 3 years ~


On-balance item

Financial liabilities held-for-trading ₩ 2,118,910 ₩ - ₩ - ₩ - ₩ - ₩ - ₩ - ₩ - ₩ 2,118,910

Deposits 28,129,713 11,864,374 12,605,149 12,464,317 29,469,038 2,228,495 405,744 382,678 97,549,508 Borrowings 2,262,305 1,937,086 1,505,657 1,125,413 912,724 738,015 440,545 322,498 9,244,243 Debentures 12,323 261,816 1,629,321 1,699,926 3,649,114 6,034,599 2,413,816 1,409,147 17,110,062 Derivative liabilities

used for hedging - 367 1,378 (2,193) (668) (111) (27) (9,191) (10,445)Others 959,131 8,847,130 5,979 3,186 24,716 5,006 1,053 - 9,846,201

33,482,382 22,910,773 15,747,484 15,290,649 34,054,924 9,006,004 3,261,131 2,105,132 135,858,479

Off-balance item

Financial guarantees 1,383,802 - - - - - - - 1,383,802

Commitment 36,665,125 - - - - - - - 36,665,125

38,048,927 - - - - - - - 38,048,927

₩71,531,309 ₩ 22,910,773 ₩15,747,484 ₩15,290,649 ₩34,054,924 ₩9,006,004 ₩3,261,131 ₩ 2,105,132 ₩173,907,406


56


January 1, 2010

On


After 1 month~


After 3 months~


After 6 months~


After 1 year~


After 3 years ~


On-balance item Financial liabilities

held-for-trading ₩ 3,234,505 ₩ - ₩ - ₩ - ₩ - ₩ - ₩ - ₩ - ₩ 3,234,505

Deposits 25,769,443 9,063,169 13,297,052 11,502,456 29,632,193 3,829,124 539,566 574,056 94,207,059

Borrowings 1,560,941 4,366,795 2,722,567 1,158,598 592,727 712,633 456,211 206,898 11,777,370

Debentures 9,321 364,588 951,354 1,981,207 1,454,922 8,142,795 1,616,826 2,301,645 16,822,658

Derivative liabilities used for hedging

- (212) (2,194) (4,672) (3,217) (685) (905) (14,253) (26,138)

Others 1,136,201 5,912,733 61,557 2,616 26,988 11,238 - 629 7,151,962

31,710,411 19,707,073 17,030,336 14,640,205 31,703,613 12,695,105 2,611,698 3,068,975 133,167,416

Off-balance item Financial

guarantees 1,543,802 - - - - - - - 1,543,802

Commitment 30,876,414 - - - - - - - 30,876,414

32,420,216 - - - - - - - 32,420,216

₩64,130,627 ₩19,707,073 ₩17,030,336 ₩14,640,205 ₩31,703,613 ₩12,695,105 ₩2,611,698 ₩3,068,975 ₩165,587,632

Available assets which exist in redeeming financial liabilities and unused loan commitments are cash and bank deposits, debt securities, equity securities, and loans. In addition, the Company is able to cope with unexpected cash flows through the sale of securities and the additional sources of funding, similar to the asset backed securitization. The purpose of market risk management is to manage the loss of assets and liabilities incurred due to changes in market variables such as interest rates, foreign exchanges and equity prices to remain within the allowable limits in order to ensure the profitability and stability.

Market risk management targets include marketable securities, foreign currency net positions, derivatives and other assets and liabilities with embedded market risks. The Company classifies exposures to market risk into either trading or non-trading portfolios and manages each of those portfolios separately. The trading portfolio includes interest rate positions, equity price positions, commodity, positions, and all foreign exchange positions: - Financial instruments for the purpose of acquiring the differences incurred due to short-term

trading or price fluctuations. - Financial instruments for the purpose of hedging risks - Financial instruments for the purpose of acquiring arbitrages

- Derivatives which are not applied to fair value hedge accounting under K-IFRS - All foreign exchange and gold positions in accordance with Regulations on Supervision of Banking

Business Appendix 3-2 The Risk Committee determines capital limits and annual loss limits in relation to market risks of the trading portfolio on an annual basis, and divides exposure limits and VaR limits into unit on a quarterly basis. The Risk Management Committee further subdivides the limits quarterly into quarter loss limits, exposure limit for desks and VaR limits. The Risk Management Group provides information necessary for deliberation and review by the Committee, reports trading limits, and measures risks. The Middle Office carries out the mark-to-market measures, trade violations, and examination of compliance with the limits.


57

9. Risk management (cont’d) The Company regularly measures the degree of market risks and complies with the allowable limits set for the various areas of the trading portfolio. In addition, the Company reviews the adequacy of the risk-reward ratio by evaluating risks and related profits and losses on a regular basis and complies with the established trading policy regulations. The Company separately examines and analyzes the change in exposures with checking its compliance of the limits and emergency situations, and reports to the Management on a daily basis. Value at Risk (VaR) is a method that manages and measures the degree of market risks of the trading portfolio subject to exposure. The Company calculates the VaR by applying Historical Simulation Method for 10 days in the 99% confidence level. Furthermore, the stress test is performed to measure the size of the loss in order to account for the method’s limited use in extreme cases. Back-testing is performed daily on trading units to verify the predictive power of the value-at risk calculations. When back-testing is performed, the Company compares the daily profits and losses with VaR of the previous day, and reports the result of subsequent examinations separately to the director of the Risk Management Department. The Company analyzes the result of subsequent examination and reports to the Financial Supervisory Service and the Management. If the cumulated occurence of excess becomes more than 10, the Company adjusts multiplier to calculate the internal capital. Risk VaRs as of December 31, 2011, December 31, 2010, and January 1, 2010 is summarized as follows (Korean won in millions):

December 31,

2011 Average Min Max December 31,

2010 January 1,

2010 Interest rates risk ₩ 6,832 ₩ 4,780 ₩ 2,110 ₩ 12,768 ₩ 2,526 ₩ 22,359Foreign exchange rates risk 4,830 4,399 2,891 6,269 8,009 11,601

Stock price risk 675 11,951 237 23,347 1,554 1,982Variance risk 4,455 3,360 1,398 7,315 - -Total risk ₩ 5,035 ₩ 12,333 ₩ 4,831 ₩ 23,393 ₩ 9,281 ₩ 12,222

(*) The Company calculates the VaR by using Monte Carlo Simulation Method for 10 days in the 99% confidence level as of December 31, 2010 and January 1, 2010. The Company reflects the correlation of risk factors and volatility on simply moving average method. The calculation of the total risk VaR takes into consideration the correlation and diversification effects between each risk factor and therefore, it is not same as the total VaRs. Interest rate risk arises from the possibility of changes in interest rates which is affecting the future cash flows or the fair values of financial instruments. The Company manages the interest rate risks in order to maintain the stability of net interest income and net asset value. - Financial assets with interest rates such as bank deposits, debt securities, and loans - Financial liabilities with interest rates such as depository liabilities, borrowings, and debentures - Financial derivatives such as interest rate swaps


58

9. Risk management (cont’d) Measurement of interest rate risk is calculated using the interest rate gaps. The interest rate risks measure the interest rate gap ratio as a primary indicator, and the interest rate EaR, VaR and duration are used as secondary indicators. The Risk Committee establishes the interest risk limits on an annual basis; the Risk Committee as well as the Risk Management Committee measure the interest rate risk indicators on a monthly basis and reports the compliance with the limits to the Management.

The interest rate VaR is an estimated maximum loss of net asset due to the adverse changes of the interest rate, details of the interest rate VaR as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 Average Min Max December 31,

2010 January 1,

2010 Interest rate VaR ₩ 139,322 ₩ 76,150 ₩ 20,199 ₩195,431 ₩ 113,419 ₩ 218,675

The interest rate VaR is calculated by using the maturity bucket repricing gap, the interest maturity bucket on modified duration, and the expected gap due to the interest rate fluctuation in accordance with BIS standards. Assets below the substandard and amounts in checking accounts and temporary deposits are excluded from the calculated amount. Equity price risk is the risk that the fair value of equities results in changes in the level of related revenue and capital. Effects on capital due to the fluctuation in equity price risk as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011 20% decline 10% decline 10% rise 20% rise

Equity price risk ₩ (115,918) ₩ (57,959) ₩ 57,959 ₩ 115,918

December 31, 2010 20% decline 10% decline 10% rise 20% rise


January 1, 2010 20% decline 10% decline 10% rise 20% rise


The Company measures the non-trading equity price risk on the domestic available-for-sale equity securities only. Currency risk is the risk that the value of a financial instrument or future cash flows will fluctuate due to the changes in foreign exchange rates. Currency risk arises from the financial instruments expressed in currencies other than the functional currency. Currency risk does not arise from the financial instruments expressed in the functional currency or in non-monetary items measured by using the historical foreign exchange rates. In order to establish the stop loss and limits, the Company manages the foreign exchange net exposure amount of the trading and non-trading portfolios by each currency.


59

9. Risk management (cont’d) Significant assets and liabilities denominated in foreign currencies as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions or U.S. dollar in thousands):

December 31, 2011

Account Currency Amount in foreign currency in units U.S. dollars (*)

Korean won equivalent

Assets: Cash and due from bank USD 809,729,079 US$ 809,729 ₩ 933,861 JPY 3,919,772,285 50,475 58,213 EUR 39,786,060 51,538 59,439 CNY 4,482,910,718 709,422 818,176 IDR 581,348,011,761 64,068 73,889 Others 51,908 59,865 1,737,140 2,003,443 Financial assets held-

for-trading USD 120,082,558 120,083 138,491 JPY 1,510,324,444 19,449 22,431 EUR 18,683,566 24,205 27,915 163,737 188,837

Available-for-sale financial assets USD 820,966,719 820,967 946,820

JPY 5,269,920 6,827 7,874 CNY 181,132,460 28,664 33,058 IDR 64,469,100,000 7,105 8,194 Others 62,779 72,403 926,342 1,068,349

Held-to-maturity financial assets USD 1,960,620 1,961 2,261 Others 6,839 7,888

8,800 10,149 Loans USD 10,046,205,722 10,046,206 11,586,289

JPY 149,405,884,068 1,924,010 2,218,961 EUR 339,020,208 439,199 506,528 CNY 8,470,993,850 1,340,552 1,546,059

IDR 1,838,118,195,287 202,571 233,625 Others 169,179 195,112 14,121,717 16,286,574

Derivative assets used for hedging USD 69,933,414 69,933 80,654

Property and equipment USD 282,724 283 326 JPY 57,350,464 739 852 CNY 69,462,064 10,992 12,678 IDR 14,688,711,518 1,619 1,867 Others 165 190 13,798 15,913


60


December 31, 2011



Others USD 1,268,533,830 1,268,534 1,463,000 JPY 2,218,216,723 28,565 32,944 EUR 85,047,004 110,178 127,069 CNY 4,633,261,246 695,415 802,022 IDR 821,132,739,625 89,467 103,183 Others 50,296 58,008

2,242,455 2,586,226 US$ 19,283,922 ₩ 22,240,145

Liabilities: Financial liabilities held for trading USD 137,202,021 US$ 137,202 ₩ 158,235

JPY 1,512,591,292 19,478 22,464 EUR 7,310,746 9,471 10,923 166,151 191,622 Deposits USD 3,309,850,053 3,309,850 3,817,250 JPY 35,678,906,822 459,454 529,888 EUR 61,372,553 79,506 91,694 CNY 10,475,484,335 1,657,748 1,911,881 IDR 1,496,471,303,653 164,919 190,202 Others 62,261 71,805

5,733,738 6,612,720 Borrowings USD 4,485,903,138 4,485,903 5,173,592 JPY 82,473,610,745 1,062,808 1,225,737 EUR 550,075,661 712,619 821,864 CNY 724,460,000 114,661 132,238 Others 190,860 220,119

6,566,851 7,573,550 Debentures USD 3,103,938,649 3,103,939 3,579,772 JPY 59,902,440,871 771,393 889,647 Others 380,589 438,934 4,255,921 4,908,353 Derivative liabilities

used for hedging USD 1,513,834 1,514 1,746 Others USD 1,442,470,836 1,442,471 1,663,602 JPY 2,052,782,697 26,435 30,487 EUR 30,534,770 39,558 45,623 CNY 210,693,739 33,343 38,454 IDR 6,128,974,172 675 779 Others 157,242 181,348

1,699,724 1,960,293 US$ 18,423,899 ₩ 21,248,284


61


December 31, 2010



Assets: Cash and due from bank USD 504,905,424 US$ 504,905 ₩ 575,034 JPY 3,375,159,581 41,403 47,155 EUR 29,316,423 38,961 44,375 CNY 1,999,302,683 302,820 344,879 IDR 234,779,372,518 26,098 29,723 Others 33,451 38,097 947,638 1,079,263Financial assets

held-for-trading USD 126,883,081 126,883 144,507 JPY 1,661,354,232 20,380 23,210 EUR 13,665,534 18,161 20,685 165,424 188,402

Available-for-sale financial assets USD 1,071,561,057 1,071,561 1,220,401

EUR 198,320 264 300 CNY 129,684,150 19,642 22,371 IDR 91,247,396,900 10,143 11,551 Others 35,819 40,794 1,137,429 1,295,417

Held-to-maturity financial assets USD 886,751 887 1,010

Others 6,910 7,869 7,797 8,879Loans USD 6,645,888,733 6,590,978 7,506,465

JPY 172,283,472,023 2,113,401 2,406,946 EUR 392,510,947 521,647 594,105 IDR 1,692,002,466,806 188,083 214,208 Others 1,639,648 1,867,398 11,053,757 12,589,122


Property and equipment USD 20,359 20 23 JPY 64,305,145 789 898 Others 14,785 16,839 15,594 17,760

Others USD 546,652,806 546,654 622,585 JPY 2,869,131,134 35,195 40,084 EUR 189,063,606 251,266 286,167 CNY 4,327,417,521 655,598 744,641 IDR 423,060,182,320 46,963 52,426 Others 48,985 55,785 1,584,661 1,801,688 US$ 14,971,026 ₩ 17,047,414


62


December 31, 2010



Liabilities: Financial liabilities held-

for-trading USD 258,121,822 US$ 258,122 ₩ 293,975 JPY 1,662,615,280 20,395 23,228 EUR 5,393,447 7,168 8,164 285,685 325,367

Deposits USD 2,475,570,260 2,475,570 2,819,426 JPY 27,822,293,011 341,296 388,700 EUR 124,095,219 164,923 187,832 CNY 7,325,016,284 1,109,461 1,263,565 IDR 1,000,477,173,228 111,213 126,660 Others 61,998 70,610 4,264,461 4,856,793

Borrowings USD 3,719,192,864 3,719,193 4,235,789 JPY 72,358,450,786 887,621 1,010,912 EUR 442,392,112 587,939 669,605 Others 14,612 16,643 5,209,365 5,932,949

Debentures USD 2,569,904,954 2,569,905 2,926,865 JPY 29,900,795,310 366,793 417,738

Others 323,396 368,320 3,260,094 3,712,923

Derivative liabilities used for hedging USD 1,136,956 1,137 1,295

Others USD 1,551,212,711 1,551,213 1,766,676 JPY 9,852,986,618 120,866 137,654 EUR 81,136,351 107,830 122,808 CNY 562,890,652 85,257 97,099 IDR 29,083,040,825 3,233 3,682 Others 12,520 14,259 1,880,919 2,142,178 US$ 14,901,661 ₩ 16,971,505


63


January 1, 2010



Assets: Cash and due from bank USD 431,065,707 US$ 431,066 ₩ 503,312 JPY 3,840,173,006 41,533 48,494 EUR 31,061,280 44,540 52,005 CNY 1,569,498,996 229,940 268,478 IDR 4,251,110,670 451 526 Others 38,718 45,208 786,248 918,023Financial assets held-

for-trading USD 123,128,503 123,129 143,765 JPY 1,595,795,873 17,260 20,152 EUR 10,959,448 15,715 18,349 156,104 182,266

Available-for-sale financial assets USD 1,235,717,903 1,235,718 1,442,824

EUR 8,898,301 12,760 14,898 Others 49,888 58,250 1,298,366 1,515,972

Held-to-maturity financial assets JPY 2,000,000,000 21,631 25,256

Others 7,120 8,314 28,751 33,570Loans USD 5,352,753,101 5,352,753 6,249,874

JPY 164,551,655,230 1,779,791 2,078,019 EUR 363,640,198 521,424 608,836 IDR 1,178,849,836,690 124,993 145,942 Others 1,439,796 1,681,105 9,218,757 10,763,776


Property and equipment USD 21,833 22 25 JPY 75,131,913 813 949 Others 17,805 20,790 18,640 21,764

Others USD 120,867,745 120,868 141,125 JPY 8,585,886,109 92,865 108,424 EUR 15,559,169 22,310 26,050 CNY 2,319,075,815 339,746 396,701 IDR 385,175,806,182 40,829 47,685 Others 20,433 23,858 637,051 743,843 US$ 12,210,226 ₩ 14,256,636


64


January 1, 2010



Liabilities: Financial liabilities held-

for-trading USD 419,616,109 US$ 419,616 ₩ 489,944 JPY 1,600,210,753 17,308 20,208 EUR 4,684,594 6,717 7,843 443,641 517,995

Deposits USD 2,158,207,058 2,158,207 2,519,922 JPY 27,044,401,944 292,512 341,523 EUR 117,198,784 168,051 196,228 CNY 7,443,930,179 1,090,365 1,273,110 IDR 1,309,099,001,617 138,803 162,066 Others 463,889 541,632 4,311,827 5,034,481

Borrowings USD 4,506,312,026 4,506,312 5,261,570 JPY 36,706,401,101 397,016 463,536 EUR 230,660,141 330,744 386,190 Others 27,581 32,214 5,261,653 6,143,510

Debentures USD 2,445,969,257 2,445,969 2,855,913 Others 351,952 410,942 2,797,921 3,266,855

Derivative liabilities used for hedging USD 30,582 31 36

Others USD 805,231,131 805,231 940,188 JPY 11,682,953,569 126,363 147,535 EUR 73,923,011 105,998 123,768 CNY 370,326,158 54,255 63,348 IDR 29,984,266,764 3,179 3,712 Others 18,882 22,047 1,113,908 1,300,598 US$ 13,928,981 ₩ 16,263,476 (*) All foreign currencies other than USD are expressed in USD amounts at the reporting date. Operational risk is the risk of loss arising from the systems failure, human error, fraud or the external events. Risks related to the strategy or damaging reputation are excluded but legal or regulatory implications are identified as the operational risks. Operational risk includes non-financial risks related to losses due to the internal operational problems and externalities such as natural disasters and terrorist attacks. Operational risk does not have a direct correlation with the income and the Company needs to mitigate such risk through the internal controls and the insurance.


65

9. Risk management (cont’d) The Company calculates the operational risk capital using the Advanced Measurement Approach (AMA) and sets the amount as the basic indicator to manage the limits. Length of the period in which the AMA is in use is one year with the 99.9% confidence level. The Company uses the loss distribution approach to measure 9 different business units and 7 operational risk event types. In addition, the Company combines the loss distribution of the internal and external data on losses with results of the scenario analysis to calculate the amount of capital and takes into account business environment and changes in the controls in order to adjust the amount of capital and determine the total amount. The Risk Committee determines the operational risk limits. In the case where the capital amount is expected to exceed the internal capital limits, an approval from the Risk Committee is needed beforehand. If such a situation occurs in cases outlined as exceptions, an approval from the Risk Committee is needed for the information on exceeded amount, post hoc results, as well as the subsequent plans. The Company implements the BIS capital requirement system in order to secure the capital adequacy and comply with the supervisory regulations. The Company maintains over 8% of the capital to risk-weighted asset ratio (BIS ratio) in accordance with the BIS capital requirement system. In addition, the Company performs a capital adequacy assessment in order to cope with the unexpected loss. Risk-weighted assets which are calculated per each risk type when calculating BIS ratio are as follows: - Risk-weighted assets of credit risk are calculated using the Advanced Internal Ratings-Based

Approach (A-IRB). The Company intends to use the permanent Standardized Approach (SA) for governments, banks, and public institutes. The Company intends to apply the Foundation Internal Ratings-Based Approach (F-IRB) for households and non-profit organizations.

- Risk-weighted assets of market risk are calculated by adding higher of (1) the VaR measured at the previous business day and (2) the average VaR measured in the last 60 business days times a multiplier to the separate risk calculated by using a standardized model.

- Risk-weighted assets of the operational risk are calculated by multiplying 12.5 to the amount of operational risk capital.

Regulatory capital in accordance with the Regulations on the Supervision of Banking Business for calculating BIS ratio is as follows:

- Core capital: capital, capital surplus, retained earnings, non-controlling interests in affiliated

subsidiaries, hybrid instruments, foreign exchange differences in accumulated other comprehensive income.

- Supplementary capital: revaluation reserves, 45% of gains on valuation of available-for-sale financial assets in accumulated other comprehensive income and changes in equity(only applicable to marketable items), 70% of gains on revaluation of property and equipment and gains on revaluation of investment properties (after subtracting related tax effect) stated in the retained earnings stated at the Company’s date of transition to K-IFRS determined by the Board of Directors or at the general meeting of shareholders, 70% of dividends limited due to the changes in the articles of association, allowance for bad debts for normal and critical amounts by using the Standard Approach, an eligible allowance for bad debts which exceeds the amount of total expected loss, redeemable preferred stocks, subordinated-term debt with maturity of more than 10 years and usance subordinated-term debt financing with maturity of more than 10 years, subordinated-term debt with maturity of more than 5 years and usance subordinated-term debt financing with the maturity of more than 5 years, permanent subordinated-term debt, cumulative preferred stocks, and redeemable preferred stocks not included in hybrid instruments.


66

9. Risk management (cont’d) Regulatory capital and BIS ratios as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010(*) January 1,

2010(*) Tier 1 capital

Capital stock ₩ 1,147,404 ₩ 1,147,404 ₩ 1,147,404 Hybrid equity securities 237,314 627,780 633,520 Capital surplus 2,736,401 2,726,159 2,724,150 Retained earnings 4,659,140 4,020,186 5,056,818 Unrealized exchange differences of accumulated other

comprehensive income 28,035 -

-Non-controlling interests 29,399 16,373 17,190 Deductions (567,008) (596,360) (675,363)

8,270,685 7,941,542 8,903,719 Tier 2 capital

A certain amount of accumulated other comprehensive income 69,291 160,433

110,528 70% of asset revaluation gains of retained earnings 361,234 -

-

Allowance for possible loan losses (including regulatory reserve for bad debts) 536,762 453,527

272,841 Term subordinated liabilities 2,627,150 2,154,510 2,765,249 Deductions (290,626) (301,706) (198,885)

3,303,811 2,466,764 2,949,733 ₩ 11,574,496 ₩ 10,408,306 ₩ 11,853,452

Risk-weighted assets

Credit risk-weighted assets ₩ 81,340,622 ₩ 68,956,176 ₩ 73,844,033 Operational risk-weighted assets 4,177,815 4,318,073

4,012,815

Market risk-weighted assets 578,867 641,498 1,279,413 Lower under equity risk-weighted assets - 215,231

-

₩ 86,097,304 ₩ 74,130,978 ₩ 79,136,261

BIS capital ratio

Equity capital ratio 13.44% 14.04% 14.98%Tier 1 capital ratio 9.61% 10.71% 11.25%Tier 2 capital ratio 3.84% 3.33% 3.73%

(*) The BIS ratios as of December 31, 2010 and January 1, 2010 were calculated using the consolidated financial statements prepared in accordance with K-GAAP on the same date.


67

9. Risk management (cont’d) Internal capital is the amount which allows for the continuous operation of business while accounting for all the risks. Internal capital is defined as the size of capital needed to cope with unexpected loss under a certain rate. The purpose of managing the internal capital is to compare the size of internal capital and available capital (Tier 1) and to serve as a measure of financial strength. Managing the internal capital also provides the amount of risk-adjusted capital and the basic measurement. The indicators are composed of the risk appetite ratio as well as exhaustion ratio of foreign holding limits. The risk appetite ratio is an internal capital ratio established after taking into consideration of a capital buffer in Tier 1 capital. The exhaustion ratio of foreign holding limits is a ratio used to measure the amount of internal capital used against the internal capital limits. Internal capital limits are established after accounting for the size of current and subsequent Tier 1 capital as well as the components, quality, risk appetite, target credit rating, operational strategy and business plans. The Risk Committee determines risk types and the internal capital limits for each Company more than once a year. In the case where new operations or the expansion of operations result in the amount exceeding the internal capital limits, an approval from the Risk Committee is needed beforehand. If such a situation occurs in cases outlined as exceptions, an approval from the Risk Committee is needed for the information on exceeded amount, post hoc results, as well as the subsequent plans. 10. Operating segment information The Company is organized into three operating segments as followings based on their products and services: - Personal finance: provides retail and private banking (PB) services and pension trust management

at the Chungcheong and Yeongnam regional headquarters. - Corporate finance: provides corporate banking services to domestic in large, medium, and small

entities and overseas subsidiaries. - Capital markets: provides services for investing securities, trading securities, underwriting

government bonds, trading derivatives and exchanging foreign currencies. Based on the reorganization of the Bank as of January 1, 2012, the existing operating segments at the reporting date are restructured. The net income of the operating segments for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):

2011

Private financing segment

Corporate financing segment

Money market

segment Others Subtotal Adjustments Total

Operating income

Net interest income ₩2,315,704 ₩589,105 ₩ - ₩ (16,540) ₩2,888,269 ₩ 47,423 ₩2,935,692 Net fee and

commission income 323,936 72,502 - (369) 396,069 (6,174) 389,895 Net other operating income (loss) (202,032) (80,535) 521,339 44,668 283,440 (24,201) 259,239

2,437,608 581,072 521,339 27,759 3,567,778 17,048 3,584,826

Operating loss General and

administrative expense 1,412,121 125,838 9,219 8,477 1,555,655 - 1,555,655

Operating income 1,025,487 455,234 512,120 19,282 2,012,123 17,048 2,029,171 Provision for possible

credit losses 380,280 63,805 1,009 (13,801) 431,293 (13,386) 417,907

Income tax expenses 156,140 95,915 123,689 (18,362) 357,382 8,609 365,991

Net income ₩ 489,067 ₩295,514 ₩387,422 ₩ 51,445 ₩1,223,448 ₩ 21,825 ₩1,245,273


68

10. Operating segment information (cont’d)

2010



Money market


Operating income

Net interest income ₩2,146,384 ₩ 548,429 ₩ - ₩ 10,312 ₩2,705,125 ₩ 176,451 ₩2,881,576 Net fee and commission income 321,357 103,087 - (11,177) 413,267 4,011 417,278

Net other operating income (loss) (131,325) (65,905) 382,622 33,076 218,468 (18,132) 200,336

2,336,416 585,611 382,622 32,211 3,336,860 162,330 3,499,190

Operating loss General and

administrative expense 1,145,917 114,128 12,070 7,744 1,279,859 15,733 1,295,592

Operating income 1,190,499 471,483 370,552 24,467 2,057,001 146,597 2,203,598 Provision for possible

credit losses 497,179 259,424 855 (44,589) 712,869 93,709 806,578

Income tax expenses 167,783 54,032 89,467 23,753 335,035 (29,112) 305,923

Net income ₩ 525,537 ₩158,027 ₩ 280,230 ₩ 45,303 ₩1,009,097 ₩ 82,000 ₩1,091,097

Provision for possible credit losses consist of provision of allowance for loans and other assets, allowance for possible losses on acceptances and guarantees, and allowance for unused commitments. The net income of operating segments for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):

2011



Money market


Revenue from

external customers ₩2,376,137 ₩ 569,152 ₩ 596,223 ₩26,266 ₩3,567,778 ₩ 17,048 ₩3,584,826

Revenue from

internal transactions 61,471 11,920 (74,884) 1,493 - - -

₩2,437,608 ₩ 581,072 ₩ 521,339 ₩27,759 ₩3,567,778 ₩ 17,048 ₩3,584,826

2010



Money market


Revenue from

external customers ₩ 2,481,800 ₩ 650,398 ₩ 168,543 ₩ 36,119 ₩3,336,860 ₩ 162,330 ₩3,499,190

Revenue from

internal transactions (145,384) (64,787) 214,079 (3,908) - - -

₩ 2,336,416 ₩ 585,611 ₩ 382,622 ₩ 32,211 ₩3,336,860 ₩ 162,330 ₩3,499,190


69

10. Operating segment information (cont’d) Significant non-cash transactions included in income of operating segment for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011



Money market

segment Others Subtotal Adjustments Total Earning from equity method investments ₩ - ₩ - ₩ - ₩ 57,436 ₩ 57,436 ₩ - ₩ 57,436 Depreciation

and amortization 32,282 5,515 117 90,791 128,705 - 128,705 ₩ 32,282 ₩ 5,515 ₩ 117 ₩148,227 ₩186,141 ₩ - ₩ 186,141

2010



Money market

segment Others Subtotal Adjustments Total Earning from equity method investments ₩ - ₩ - ₩ - ₩ (1,955) ₩ (1,955) ₩ - ₩ (1,955)Depreciation

and amortization 41,799 5,034 91 98,631 145,555 275 145,830 ₩ 41,799 ₩ 5,034 ₩ 91 ₩ 96,676 ₩143,600 ₩ 275 ₩ 143,875

Revenue from the external customers for the years ended December 31, 2011 and 2010 and non-current assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

Revenue from external customers Non-current assets

2011 2010 December 31,

2011 December 31,

2010 January 1,

2010 Domestic ₩ 3,412,385 ₩ 3,370,068 ₩ 1,808,235 ₩ 1,863,286 ₩ 1,912,968 Foreign Hong Kong 17,266 23,976 181 289 49 Singapore 4,974 12,785 13 16 36 New York 15,826 25,284 233 19 21 Tokyo 8,445 11,749 852 898 949 China 71,475 46,693 16,160 18,030 20,631 Indonesia 18,013 13,325 2,611 4,124 3,795

135,999 133,812 20,050 23,376 25,481 Adjustments 36,442 (4,690) 1,349 1,535 1,314 ₩ 3,584,826 ₩ 3,499,190 ₩ 1,829,634 ₩ 1,888,197 ₩ 1,939,763

Non-current assets are composed of property and equipment, investment properties, and intangible assets and classified as either domestic or overseas depending on its geographic proximity.


70

11. Regulatory reserve for bad debts In accordance with the Regulations for Supervision of Financial Supervisory Service, when provisions for credit loss required under K-IFRS is deemed insufficient for regulatory purposes, the Company provides the difference as a regulatory reserve for bad debts under retained earnings. Balances of regulatory reserve for the bad debt reserve are as follows (Korean won in millions):

2011 2010 Beginning balance(*1) ₩ - ₩ -

Planned reserve for bad debts 1,018,450 725,403 Ending balance ₩ 1,018,450 ₩ 725,403

(*1) Since agreement on appropriation of retained earnings was not made for the commencement of the financial year, the stated beginning balance is zero. Provisions for the bad debt reserve and income adjusted for the deductions for the years ended December 31, 2011 and 2010 are as follows: (Korean won in millions)

2011(*1) 2010(*2) Net income before deducting provisions

for bad debt ₩ 1,245,273 ₩ 1,091,097

Provision for bad debt reserve 293,047 -Adjusted income after deducting provisions

for bad debt 952,226 -Earnings per share on adjustment

after reflecting reserve for bad debt (Korean won) ₩ 4,055 ₩ -

(*1) Provisions for the bad debt reserve are calculated by deducting the residual balance of the reserve as of December 31, 2010 from the balance as of December 31, 2011. (*2) Provisions for the bad debt reserve in 2010 were not calculated. 12. Cash and due from banks Cash and due from banks as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

Counterparty

Annual interest rate

(%) December 31,

2011 December 31,

2010

January 1,

2010 Cash ₩ 1,555,889 ₩ 1,420,400 ₩ 1,616,277Due from banks in

Korean won:

Reserve deposits with BOK

Bank of Korea (“BOK”) - 1,333,086 2,038,766

1,896,344

Certificates of deposit Other banks 3.5~3.8 311,000 650,000

110,000

Monetary stabilization account

Bank of Korea (“BOK”) 3.4 60,000 -

-

Other deposits Other financial

institutions 0.0~3.7 1,008,064 1,495,317

2,024,059 2,712,150 4,184,083 4,030,403


71

12. Cash and due from banks (cont’d)

Counterparty


(%) December 31,

2011 December 31,

2010

January 1,

2010 Due from banks

in foreign currencies:

Due from banks on demand

BOK and other banks 0.0~6.5 1,434,633 597,220

255,154

Due from others on demand

Other financial institutions 0.0~0.7 381,934 326,363

484,805

1,816,567 923,583 739,959 ₩ 6,084,606 ₩ 6,528,066 ₩ 6,386,639

Restricted balances in due from banks as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010

Restriction Due from banks in Korean won:

Reserve deposits with BOK ₩ 1,333,086 ₩ 2,038,766 ₩ 1,896,344 The Bank of Korea ActMonetary Stabilization Account 60,000 - - The Bank of Korea ActOther deposits 136,867 238,384 602,185 (*)

₩ 1,529,953 ₩ 2,277,150 ₩ 2,498,529 Due from banks


Due from banks on demand ₩ 510,604 ₩ 138,034 ₩ 63,873 Reserve for payment of

deposits, etc Due from others on demand 381,934 326,363 484,774 OTC derivative contracts

892,538 464,397 548,647 ₩ 2,422,491 ₩ 2,741,547 ₩ 3,047,176

(*) Financial Investment Business and Capital Markets Act and Others 13. Financial assets held-for-trading Financial assets held-for-trading as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

Counterparty

Annualinterest

rate (%)

Fair value (Book value)

December 31,

2011 December 31,

2010 January 1,

2010 Securities ₩ - ₩ 2,130 ₩ 29,775Government and public bonds Government bonds 1.5~7.1 935,415 476,601 976,684Financial bonds

Monetary stabilization

bonds 3.3~4.0 922,432 80,321 19,969 Industrial financial bonds - - - 60,118

Small and medium industry

finance bonds 3.9 10,008 117,633 9,994


72

13. Financial assets held-for-trading (cont’d)

Counterparty

Annualinterest

rate (%)


December 31,

2011 December 31,

2010 January 1,

2010 Commercial bank bonds 3.4~3.5 119,706 88,803 245,400 KEXIM bonds 3.4 67,977 19,436 -

1,120,123 306,193 335,481Corporate bonds - 1,255 1,290Trading derivative

instruments (*) 1,663,734 2,019,808 3,310,353 ₩ 3,719,272 ₩ 2,805,987 ₩ 4,653,583 (*) Refer to Note 20.

Debt securities included in trading securities as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):

December 31, 2011

Par value Acquisition

cost Amortized

cost Fair value

(Book value)Government and public bonds ₩ 929,000 ₩ 935,507 ₩ 934,182 ₩ 935,415

Finance bonds 1,120,000 1,116,420 1,120,043 1,120,123 ₩ 2,049,000 ₩ 2,051,927 ₩ 2,054,225 ₩ 2,055,538

December 31, 2010


cost Amortized

cost Fair value


Finance bonds 310,000 305,831 306,183 306,193 Corporate bonds 1,283 1,293 1,256 1,255 ₩ 776,283 ₩ 772,870 ₩ 779,665 ₩ 784,049

January 1, 2010


cost Amortized

cost Fair value


Finance bonds 340,000 335,701 335,869 335,481Corporate bonds 1,283 1,293 1,293 1,290 ₩ 1,305,283 ₩ 1,322,333 ₩ 1,315,883 ₩ 1,313,455

The fair value of debt securities is measured based on the lower of the valuation provided by KIS Pricing Inc. or the Korea Asset Pricing Co. in the conservative way.


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14. Available-for-sale financial assets Available-for-sale financial assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

Counterparty

Annualinterest

rate (%)


December 31,

2011 December 31,

2010

January 1,

2010 Equity securities POSCO and others - ₩ 1,159,493 ₩ 1,203,552 ₩ 1,119,875Investments in

partnerships United PF 1ST Corporate Financial

Stability Private Equity Fund - 148,693 127,526 147,859Government and public

bonds Treasury bonds 3.0~6.1 5,645,434 6,894,254 6,349,325

Housing bonds 3.0 593,159 210,763 175,261

Regional development bonds - - - 20,001

6,238,593 7,105,017 6,544,587

Finance bonds Currency stabilization bonds 3.3~4.0 1,269,353 677,953 951,178

Commercial bank bonds 3.2~5.5 469,896 759,258 698,805

Small and Medium Industry Finance bonds 3.1~5.0 624,420 280,003 484,012

Industrial financial debenture 3.6~5.4 591,528 328,659 642,373

KEXIM bonds 3.4~5.2 250,467 80,891 29,794

3,205,664 2,126,764 2,806,162

Corporate bonds Non-financial corporate bonds 2.0~7.2 1,600,449 1,963,367 1,470,394

State owned entity bonds 3.4~7.2 2,296,291 1,888,302 1,520,075

Others 7.5 40,164 80,850 245,287

3,936,904 3,932,519 3,235,756

Beneficiary certificates - 222,541 356,148 307,586Securities denominated

in foreign currencies Equity securities in foreign

currencies - 22,162 32,359 21,498

Bonds in foreign currencies 0.4~8.0 1,013,212 1,237,816 1,470,619

Investment in foreign currencies - 32,975 25,242 23,855

1,068,349 1,295,417 1,515,972

Other securities Beneficiary certificates - 8,742 8,932 3,982

₩ 15,988,979 ₩ 16,155,875 ₩15,681,779

Equity securities (including equity securities denominated in foreign currencies) as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

Book value

before valuation

Accumulated other

comprehensive income


December 31,

2011 December 31,

2010 January 1,

2010 Marketable

equity securities ₩ 902,073 ₩ (154,758) ₩ 747,315 ₩ 673,719 ₩ 633,350Non-marketable

equity securities 419,816 14,524 434,340 562,192 508,023 ₩ 1,321,889 ₩ (140,234) ₩ 1,181,655 ₩ 1,235,911 ₩ 1,141,373


74

14. Available-for-sale financial assets (cont’d) Marketable equity securities (including equity securities denominated in foreign currencies) as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the followings (number of shares in thousands and Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010

Company Number of

shares Ownership

(%)

Book value before

valuation

Accumulated other





POSCO 896 1.0 ₩ 420,034 ₩ (79,650) ₩ 340,384 ₩ 270,869 ₩ 309,306

SK C&C 2,000 4.0 283,283 (49,283) 234,000 6,430 50,233

SK Networks Co., Ltd. 7,913 3.2 105,634 (25,716) 79,918 105,791 83,206

Samsung Life Insurance 636 0.3 51,452 - 51,452 65,190 -

Unison Co.,Ltd 1,779 6.1 12,556 1,672 14,228 - -

BEA 2,499 0.1 11,668 (765) 10,903 11,533 1,007

Others 17,446 (1,016) 16,430 213,906 189,598

₩ 902,073 ₩ (154,758) ₩ 747,315 ₩ 673,719 ₩ 633,350

Non-marketable equity securities (including equity securities denominated in foreign currencies) as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the followings (number of shares in thousands and Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010

Company Number of

shares Ownership

(%)

Book value before

valuation

Accumulated other





Consumer Credit Assistant Fund 39 5.4 ₩ 117,849 ₩ - ₩ 117,849 ₩ 117,849 ₩ 117,849

Korea Housing Guarantee 16,942 2.6 77,797 8,082 85,879 77,797 77,577Darby-Hana Emerging Infrastructure 8,964 10.3 43,282 3,256 46,538 43,375 35,659

Panteck 73,706 4.2 29,924 2,138 32,062 29,924 30,662Korea Securities Corp 2,505 3.7 24,501 3,330 27,831 24,510 20,872Kumho Industrial Co., Ltd. (*) 4,363 3.9 21,892 4,503 26,395 55,904 -

HJC Corp. 492 7.2 17,142 (5,097) 12,045 17,141 17,989

ASIABRIDGE 90,303 15.3 10,964 - 10,964 12,390 7,723

SAMT (*) 8,769 11.0 10,041 (456) 9,585 10,041 -Others 66,424 (1,232) 65,192 173,261 199,692

₩ 419,816 ₩ 14,524 ₩ 434,340 ₩ 562,192 ₩ 508,023 (*) Listed shares with disposal restrictions are valued using the data provided by the independent valuers.


75

14. Available-for-sale financial assets (cont’d) Non-marketable equity securities including Consumer Credit Assistance Fund, amounting to ₩154,488 million, ₩187,833 million, and ₩150,492, were valued at cost as of December 31, 2011, December 31, 2010 and January 1, 2010, respectively, since their fair values were not able to be reasonably estimated.

The fair value of the available-for-sale non-marketable equity securities such as Korea Housing Guarantee was measured by an independent valuer using the actuarial assumptions. The fair value was determined based on more than one valuation model such as the discounted cash flow (DCF) model, imputed market value (IMV) model, and risk adjusted discounted cash flow (RADCF) model, depending on the characteristic of the equity securities as deemed appropriate.

Shares held by the Company with the disposal restrictions as of December 31, 2011 are summarized as follows (Korean won in millions):

December 31, 2011

Number of

shares Book value Disposal restriction Pentech Co., Ltd 73,705,677 ₩ 32,062 Until resolution of shareholders associationKumho Industrial Co., Ltd. 4,362,793 26,395 Until December 31, 2014 HJC Corp. 491,714 12,045 Until December 31, 2012 SAMT 8,769,429 9,585 Until June 30, 2013 Kumho Tires 309,600 2,712 Until December 31, 2014 Ssangyong E&C Co., Ltd. 292,180 1,847 Until completion of disposal Daewoo Electronics Co., Ltd. 9,003 1,336 Until March 31, 2013

Hanil E&C 539,600 901 Until December 31, 2013 Cosmotech Co., Ltd 2,126,000 640 Until December 31, 2014 NEX display 12,533 185 Until June 30, 2013 JY Solutec 244,000 130 Until December 31, 2012 Others 6,254,392 - (*)

₩ 87,838 (*) Of the shares included in others that are restricted for the disposal, 4,297,142 shares of Daewoo Electronics Co., Ltd. are restricted unless the bankruptcy occurs, 1,844,400 shares of Kohap Corp. are restricted until its liquidation is completed, and 101,400 shares of Younggwang Stainless and 11,450 shares of Enertech are restricted until December 31, 2012.


76

14. Available-for-sale financial assets (cont’d) Investments in partnerships (including investments in partnerships in foreign currencies) as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010

Book value before

valuation

Accumulated other comprehensive

income Fair value

(Book value)Fair value

(Book value) Fair value

(Book value)United PF 1ST Corporate Financial

Stability Private Equity Fund ₩ 52,000 ₩ - ₩ 52,000 ₩ - ₩ -

Vogo Private Equity Fund 20,637 12,962 33,599 34,153 42,414

Insolvency resolution fund 20,825 - 20,825 35,634 56,366

GS CAP 16,128 - 16,128 14,465 14,361

WOLFENS 14,129 - 14,129 5,705 6,612

Sangam DMC Consortium 13,540 - 13,540 13,541 9,460

Hyundai Consortium PFV 8,764 - 8,764 8,802 -

KTB 2007 Private Equity Fund 8,477 (392) 8,085 9,050 -

Others 12,404 2,194 14,598 31,418 42,501

₩ 166,904 ₩ 14,764 ₩ 181,668 ₩ 152,768 ₩ 171,714 Investments in partnerships amounting to ₩82,337 million, ₩60,784 million, and ₩100,209 million as of December 31, 2011, December 31, 2010 and January 1, 2010, respectively, were stated at the acquisition cost as their fair value cannot be reasonably estimated. Debt securities as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions):

December 31, 2011


cost Amortized

cost Fair value

(Book value) Government and public bonds ₩ 5,993,981 ₩ 6,178,573 ₩ 6,154,611 ₩ 6,238,593Finance bonds 3,208,000 3,199,736 3,200,970 3,205,664Corporate bonds 3,876,800 3,912,775 3,900,407 3,936,904Bonds denominated in foreign currencies 998,688 991,872 989,777 1,013,212

₩ 14,077,469 ₩ 14,282,956 ₩ 14,245,765 ₩ 14,394,373

December 31, 2010


cost Amortized

cost Fair value

(Book value) Government and public bonds ₩ 6,888,725 ₩ 7,036,363 ₩ 7,004,123 ₩ 7,105,017 Finance bonds 2,107,530 2,112,798 2,111,465 2,126,764 Corporate bonds 3,852,388 3,880,202 3,881,067 3,932,519 Bonds denominated in foreign currencies 1,197,095 1,262,479 1,206,571 1,237,816

₩ 14,045,738 ₩ 14,291,842 ₩ 14,203,226 ₩ 14,402,116


77

14. Available-for-sale financial assets (cont’d)

January 1, 2010


cost Amortized

cost Fair value

(Book value) Government and public bonds ₩ 6,498,400 ₩ 6,562,413 ₩ 6,618,910 ₩ 6,544,587Finance bonds 2,816,750 2,807,034 2,812,780 2,806,162Corporate bonds 3,211,505 3,243,531 3,224,797 3,235,756Bonds denominated in foreign currencies 1,434,936 1,424,677 1,438,491 1,470,619

₩ 13,961,591 ₩ 14,037,655 ₩ 14,094,978 ₩ 14,057,124 The fair value of available-for-sale debt securities is measured based on the lower of the valuation provided by KIS Pricing Inc. or the Korea Asset Pricing Co. in the conservative way. Beneficiary certificates securities as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions):

December 31, 2011

Acquisition

cost

Book value before

valuation


income Book value Securities certificates ₩ 193,324 ₩ 219,996 ₩ (26,672) ₩ 193,324 Real estate certificates 29,100 29,111 106 29,217

₩ 222,424 ₩ 249,107 ₩ (26,566) ₩ 222,541

December 31, 2010

Acquisition

cost

Book value before

valuation


income Book value Beneficiary certificates ₩ 296,406 ₩ 307,587 ₩ 19,355 ₩ 326,942 Real estate certificates 29,100 29,100 106 29,206 ₩ 325,506 ₩ 336,687 ₩ 19,461 ₩ 356,148

January 1, 2010

Acquisition

cost Book value Beneficiary certificates ₩ 296,406 ₩ 307,586


78

14. Available-for-sale financial assets (cont’d) Changes in the unrealized gain (loss) of the available-for-sale financial assets for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011

Beginning balance

Unrealized gain (loss)

Realized gain (loss) Tax effect

Ending balance

Equity securities ₩ 299,674 ₩ (139,466) ₩ (172,557) ₩ 75,509 ₩ 63,160 Investments in partnerships 45,219 (12,124) (47,500) 14,455 50

Government and public bonds 78,697 63,670 (83,510) 4,906 63,763

Finance bonds 11,933 1,168 (12,218) 2,702 3,585 Corporate bonds 41,921 14,792 (33,601) 4,553 27,665 Securities denominatedin foreign currencies 24,992 1,201 (10,427) 2,363 18,129

₩ 502,436 ₩ (70,759) ₩ (359,813) ₩ 104,488 ₩ 176,352

2010

Beginning balance

Unrealized gain (loss)

Realized gain (loss) Tax effect

Ending balance

Equity securities ₩ 322,130 ₩ 2,565 ₩ (31,355) ₩ 6,334 ₩ 299,674 Investments in partnerships 44,105 27,559 (26,131) (314) 45,219

Government and public bonds (52,746) 145,336 23,123 (37,016) 78,697

Finance bonds (5,877) 19,684 2,898 (4,772) 11,933 Corporate bonds (7,872) 58,392 5,353 (13,952) 41,921 Securities denominated

in foreign currencies 25,978 15,754 (16,897) 157 24,992 ₩ 325,718 ₩ 269,290 ₩ (43,009) ₩ (49,563) ₩ 502,436 Realized gain and loss from the disposal of available-for-sale financial assets for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Gain Loss Gain Loss

Equity securities ₩ 332,138 ₩ 26,770 ₩ 95,717 ₩ 2,153 Investments

in partnerships 42,894 - 10,627 4,698 Government and public bonds 102,621 836 54,825 134 Finance bonds 8,893 2,480 21,666 565 Corporate bonds 17,762 684 20,718 209 Securities denominated in foreign currencies 21,370 5,853 15,367 1,168 ₩ 525,678 ₩ 36,623 ₩ 218,920 ₩ 8,927


79

14. Available-for-sale financial assets (cont’d) Dividend gain on available-for-sale financial assets for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):

2011 2010 Equity securities ₩ 24,557 ₩ 31,509 Investments in partnerships 11,673 2,240

₩ 36,230 ₩ 33,749 15. Held-to-maturity financial assets Held-to-maturity financial assets as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):

Counterparty

Annualinterest

rate (%)

Book value

December 31, 2011

December 31, 2010

January 1,

2010 Government and

public bonds Treasury bonds 3.8~5.8 ₩ 325,670 ₩ 356,119 ₩ 335,475 Housing bonds 3.0 112,803 110,449 297,416

Regional development bonds - - 1 1

438,473 466,569 632,892Finance bonds Commercial bank

bonds 5.2~7.1 330,000 570,011 1,149,935 Small and

Medium industry finance bonds - - 50,000 179,994

Industrial financial bonds - - - 229,935

330,000 620,011 1,559,864Corporate bonds State owned entity

bonds 4.0~7.0 940,247 1,117,442 1,443,006 Corporate bonds 3.8~6.3 384,526 249,725 1,129,570 1,324,773 1,367,167 2,572,576

Bonds denominated in foreign currencies

Bonds in foreign currencies - 10,149 8,879 33,570

₩ 2,103,395 ₩ 2,462,626 ₩ 4,798,902


80

15. Held-to-maturity financial assets (cont’d)

Details of held-to-maturity financial assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions):

December 31, 2011


cost Amortized

cost Book value Government and public bonds ₩ 473,725 ₩ 425,869 ₩ 438,473 ₩ 438,473 Finance bonds 330,000 330,000 330,000 330,000 Corporate bonds 1,325,238 1,326,568 1,324,773 1,324,773 Bonds denominated in foreign currencies 10,190 10,128 10,149 10,149 ₩ 2,139,153 ₩ 2,092,565 ₩ 2,103,395 ₩ 2,103,395

December 31, 2010


cost Amortized

cost Book value Government and public bonds ₩ 491,183 ₩ 456,227 ₩ 466,569 ₩ 466,569 Finance bonds 620,000 620,011 620,011 620,011 Corporate bonds 1,396,627 1,394,700 1,367,167 1,367,167 Bonds denominated in foreign currencies 8,883 8,877 8,879 8,879 ₩ 2,516,693 ₩ 2,479,815 ₩ 2,462,626 ₩ 2,462,626

January 1, 2010


cost Amortized

cost Book value Government and public bonds ₩ 648,416 ₩ 612,531 ₩ 632,892 ₩ 632,892Finance bonds 1,560,011 1,558,787 1,559,864 1,559,864Corporate bonds 2,576,988 2,570,921 2,572,576 2,572,576Bonds denominated in foreign currencies 33,675 33,567 33,570 33,570 ₩ 4,819,090 ₩ 4,775,806 ₩ 4,798,902 ₩ 4,798,902


81

16. Structured securities included in available-for-sale financial assets and held-to-maturity financial assets The structured securities included in available-for-sale financial assets and held-to-maturity financial assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions and U.S. dollar in thousands):

December 31, 2011 Type Issuer Par value Issued date Maturity Book value Risk

< Available-for-sale financial assets >

Structured securities in Korean won

Interest Range accrual note Shinhan Bank $ 10,000 2007.05.04 2017.05.04 ₩ 10,993 Interest

$ 10,000 ₩ 10,993

< Held-to-maturity financial assets > Structured securities in Korean won

Interest Range accrual note Woori Bank ₩ 50,000 2006.04.10 2016.04.10 ₩ 50,000 Interest

Range accrual note Shinhan Bank 50,000 2006.06.16 2016.06.16 50,000 Interest

Range accrual note SC Bank 50,000 2006.06.30 2016.06.30 50,000 Interest

Range accrual note Korea Student Aid Foundation 50,000 2011.07.13 2021.07.13 50,000

₩200,000 ₩ 200,000

December 31, 2010 Type Issuer Par value Issued date Maturity Book value Risk

< Available-for-sale financial assets>


Interest Range accrual note Shinhan Bank ₩ 20,000 2006.09.18 2011.09.18 ₩ 20,300 Interest




₩ 150,000 ₩ 152,373 Interest

Structured securities in foreign currencies

Interest Interest SIFMA

linked note Citigroup Funding Inc $ 5,000 2007.03.02 2017.03.02 ₩ 5,610

Interest

Range accrual note RBS 10,000 2007.05.04 2017.05.04 11,139 Interest

$ 15,000 ₩ 16,749 Interest

< Held-to-maturity financial assets >






Range accrual note Industrial Bank of Korea 50,000 2010.11.05 2017.11.05 50,000 Interest

Range accrual note Kookmin Bank 30,000 2010.03.25 2015.03.25 30,000 Interest

₩ 280,000 ₩ 280,000


82

16. Structured securities included in available-for-sale financial assets and held-to-maturity financial assets (cont’d)

January 1, 2010 Type Issuer Par value Issued date Maturity Book value Risk

< Available-for-sale financial assets>


Interest Range accrual note Shinhan Bank ₩ 20,000 2006.09.18 2011.09.18 ₩ 20,035 Interest




₩ 150,000 ₩ 149,254 Interest

Structured securities in foreign currencies

Interest Interest SIFMA

linked note Citigroup

Funding Inc $ 5,000 2007.03.02 2017.03.02 ₩ 4,815 Interest

Range accrual note RBS 10,000 2007.05.04 2017.05.04 11,189 Interest

$ 15,000 ₩ 16,004 Interest

Stock Exchangeable bond DPA $ 40,000 2007.08.21 2012.07.05 ₩ 50,440 KOSPI

Exchangeable bond KCC 15,000 2007.10.30 2012.10.30 17,743 KOSPI

Convertible bond LG Display 40,000 2008.06.26 2012.04.18 50,577 KOSPI

$ 95,000 ₩ 118,760 $ 110,000 ₩ 134,764

< Held-to-maturity financial assets >







₩ 220,000 ₩ 220,000 In addition, the Company holds structured securities included in loans (privately-placed convertible securities) amounting to ₩18,890 million, ₩13,552 million, and ₩7,564 million as of December 31, 2011, December 31, 2010 and January 1, 2010, respectively.


83

17. Maturities of debt securities

The maturities of debt securities included in available-for-sale securities and held-to-maturity financial assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011

Government and public

bonds Finance bonds

Corporate bonds and

others

Bonds denominated

in foreign currencies Total

Available-for-sale financial assets

Within 1 month ₩ - ₩ 40,003 ₩ 30,012 ₩ - ₩ 70,015 After 1 month but no

later than 3 months 70,171 79,602 40,130 637 190,540 After 3 months but no

later than 6 months - 259,740 70,056 1,786 331,582 After 6 months but no

later than 1 year 273,090 1,259,765 249,873 56,937 1,839,665 After 1 year but no

later than 3 years 1,454,407 1,556,187 2,400,250 357,044 5,767,888 After 3 year but no

later than 5 years 1,674,823 10,367 956,905 310,483 2,952,578 After 5 year but no

later than 10 years 2,679,030 - 189,678 230,906 3,099,614

Later than 10 years 87,072 - - 55,419 142,491

₩ 6,238,593 ₩ 3,205,664 ₩ 3,936,904 ₩ 1,013,212 ₩ 14,394,373


Within 1 month ₩ 10,059 ₩ - ₩ 29,999 ₩ 4,168 ₩ 44,226 After 1 month but no

later than 3 months 14 - - 4,748 4,762 After 3 months but no

later than 6 months 26 - 114,967 - 114,993 After 6 months but no

later than 1 year 60,154 30,000 89,362 1,233 180,749 After 1 year but no

later than 3 years 201,694 150,000 286,580 - 638,274 After 3 year but no


later than 10 years 33,414 - 473,149 - 506,563

Later than 10 years 54,123 - - - 54,123

₩ 438,473 ₩ 330,000 ₩ 1,324,773 ₩ 10,149 ₩ 2,103,395


84

17. Maturities of debt securities (cont’d)

December 31, 2010


bonds Finance bonds

Corporate bonds and

others

Bonds denominated



Within 1 month ₩ - ₩ 13,629 ₩ - ₩ - ₩ 13,629 After 1 month but no


later than 6 months 20,248 89,062 145,237 15,031 269,578 After 6 months but no

later than 1 year 121,973 270,930 661,069 5,879 1,059,851 After 1 year but no


later than 5 years 3,120,703 124,463 1,051,885 679,366 4,976,417 After 5 year but no

later than 10 years 1,441,176 - 181,424 295,225 1,917,825

Later than 10 years 135,333 - - 70,600 205,933

₩7,105,017 ₩2,126,764 3,932,519 1,237,816 14,402,116


Within 1 month ₩ - ₩ - ₩ - ₩ 3,538 ₩ 3,538 After 1 month but no

later than 3 months 18,934 - 59,994 5,341 84,269 After 3 months but no

later than 6 months 100 10,000 60,000 - 70,100 After 6 months but no

later than 1 year 69,830 50,000 29,965 - 149,795 After 1 year but no



later than 10 years 15,995 350,011 260,159 - 626,165

Later than 10 years 32,936 - 20,000 - 52,936

₩ 466,569 ₩ 620,011 ₩ 1,367,167 ₩ 8,879 ₩ 2,462,626

January 1, 2010


bonds Finance bonds

Corporate bonds and

others

Bonds denominated



Within 1 month ₩ - ₩ 40,019 ₩ - ₩ 32,075 ₩ 72,094 After 1 month but no


later than 6 months 20,001 486,909 168,564 16,554 692,028 After 6 months but no

later than 1 year 10,208 493,409 99,599 121,804 725,020 After 1 year but no


later than 5 years 3,006,430 69,253 784,567 491,011 4,351,261 After 5 year but no

later than 10 years 514,707 - 69,937 284,445 869,089

Later than 10 years 106,637 - - 58,815 165,452

₩ 6,544,587 ₩ 2,806,162 ₩ 3,235,756 ₩ 1,470,619 ₩ 14,057,124


85

17. Maturities of debt securities (cont’d) January 1, 2010


bonds Finance bonds

Corporate bonds and

others

Bonds denominated



Within 1 month ₩ 10,010 ₩ 40,000 ₩ 68,353 ₩ - ₩ 118,363 After 1 month but no

later than 3 months 134 70,000 69,946 33,570 173,650 After 3 months but no

later than 6 months 39,793 209,965 191,517 - 441,275 After 6 months but no

later than 1 year 148,352 699,889 992,140 - 1,840,381 After 1 year but no



later than 10 years 69,301 300,011 244,933 - 614,245

Later than 10 years 19,656 - - - 19,656

₩ 632,892 ₩1,559,864 ₩ 2,572,576 ₩ 33,570 ₩ 4,798,902

18. Pledged assets

Assets pledged as the collateral purpose in bonds under resale agreement from other banks, futures options and securities deposits for membership maintenance at the stock exchange for trading financial assets, available-for-sale financial assets and held-to-maturity financial assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows: (Korean won in millions):

Counterparty

Book value

December 31,

2011 December 31,

2010 January 1,

2010 Financial assets held-for-trading BOK RP ₩ - ₩ 30,491 ₩ 50,504

BOK payment - - 20,417 - 30,491 70,921

Available-for-sale financial assets Intraday overdraft 50,558 49,282 - Client RP - 50,750 100,214 BOK RP - 134,991 111,436

Foreign currency borrowing 828,636 388,511 492,510 Pledged securities 452,659 472,156 - Pledged establishing 37,023 79,695 458,617 Borrowings 264,726 680,913 520,579 BOK payment 1,228,423 1,076,393 1,002,858 Future 32,954 - 19,834 2,894,979 2,932,691 2,706,048

Held-to-maturity financial assets Foreign currency borrowing - 69,495 68,836 Future 71,448 146,590 92,812 BOK payment 111,867 89,500 110,047 Intraday overdraft 79,246 78,624 127,831 Borrowings 176,350 175,393 327,506 Client RP 413,838 814,619 1,157,489 Pledged establishing - - 75,512 Others 182,330 281,284 - 1,035,079 1,655,505 1,960,033

₩ 3,930,058 ₩ 4,618,687 ₩ 4,737,002


86

18. Pledged assets (cont’d) Collateral that is permitted to sell or repledge in the absence of default by the owner of collateral, as of December 31, 2011, December 31, 2010, and January 1, 2010 is as follows (Korea won in millions):

Fair value (*)

December 31, 2011 December 31, 2010 January 1, 2010 Securities ₩ 716,706 ₩ 915,210 ₩ 805,448

(*) Collateral which is sold or repledged as of December 31, 2011, December 31, 2010, and January 1, 2010 is zero.

19. Loans and receivables

Total loans and receivables as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Loans and receivables

Loans in Korean won ₩ 97,825,860 ₩ 89,962,069 ₩ 84,642,404Loans in foreign currencies 6,921,955 6,295,358 5,883,605Domestic import usance 4,062,818 3,221,625 2,424,688Call loans 3,170,608 1,715,551 637,869Bills purchased in Korean won 1,300,472 1,452,322 1,567,482Bills purchased in foreign currencies 2,312,298 2,091,924 1,883,993Advance payments on acceptances and guarantees 60,398 156,462

47,720

Credit card loans - 27 780,543Bonds purchased under resale agreement 880,278 907,573

820,775

Privately-placed corporate bonds 1,029,214 1,337,896 143,514Others 1,234,925 667,822 3,448,174 118,798,826 107,808,629 102,280,767

Plus (less)

Deferred loan fees and expenses 86,002 77,020 60,776Allowance for possible loan losses (986,102) (1,124,842) (791,207)

₩ 117,898,726 ₩ 106,760,807 ₩ 101,550,336


87

19. Loans and receivables (cont’d) Allocations of loans in Korean won and in foreign currencies by customer as of December 31, 2011, December 31, 2010, and January 1, 2010 are listed as follows (Korean won in millions):

December 31, 2011

Korean won Foreign

currencies Total Corporate loans

Large business ₩ 19,095,891 ₩ 9,450,098 ₩ 28,545,989 Small business 30,316,020 4,597,090 34,913,110 Public sector and others 2,067,799 2,365,264 4,433,063 51,479,710 16,412,452 67,892,162

Household loans 50,887,905 18,759 50,906,664 102,367,615 16,431,211 118,798,826

Plus (less) Deferred loan fees and expenses 87,797 (1,795) 86,002 Allowance for possible loan losses (843,260) (142,842) (986,102) ₩ 101,612,152 ₩ 16,286,574 ₩ 117,898,726

December 31, 2010

Korean won Foreign


Large business ₩ 13,773,829 ₩ 7,127,810 ₩ 20,901,639 Small business 30,755,748 4,852,683 35,608,431 Public sector and others 1,805,173 722,926 2,528,099 46,334,750 12,703,419 59,038,169

Household loans 48,748,856 21,604 48,770,460 95,083,606 12,725,023 107,808,629

Plus (less) Deferred loan fees and expenses 77,533 (513) 77,020Allowance for possible loan losses (989,454) (135,388) (1,124,842) ₩ 94,171,685 ₩ 12,589,122 ₩ 106,760,807

January 1, 2010

Korean won Foreign


Large business ₩ 12,703,333 ₩ 6,006,803 ₩ 18,710,136Small business 29,991,663 3,348,742 33,340,405Public sector and others 3,328,296 1,513,354 4,841,650 46,023,292 10,868,899 56,892,191

Household loans 45,382,326 6,250 45,388,576 91,405,618 10,875,149 102,280,767

Plus (less) Deferred loan fees and expenses 61,389 (613) 60,776Allowance for possible loan losses (680,447) (110,760) (791,207) ₩ 90,786,560 ₩ 10,763,776 ₩ 101,550,336


88

19. Loans and receivables (cont’d) The maturity of loans in Korean won and in foreign currencies as of December 31, 2011, December 31, 2010, and January 1, 2010 is summarized as follows (Korean won in millions):

December 31, 2011

Korean won Foreign

currencies Total Within 1 month ₩ 4,687,275 ₩ 5,254,460 ₩ 9,941,735 After 1 month but no later than 3 months 10,691,383 4,025,665 14,717,048

After 3 months but no later than 6 months 19,440,838 3,184,255 22,625,093

After 6 month but no later than 1 year 26,059,224 1,839,829 27,899,053

After 1 year but no later than 3 years 16,648,012 1,366,829 18,014,841

After 3 years but no later than 5 years 6,662,647 377,625 7,040,272

Later than 5 years 18,178,236 382,548 18,560,784 ₩ 102,367,615 ₩ 16,431,211 ₩ 118,798,826

December 31, 2010

Korean won Foreign

currencies Total Within 1 month ₩ 4,633,189 ₩ 3,370,261 ₩ 8,003,450After 1 month but no later than 3 months 11,111,265 3,034,191 14,145,456


After 6 months but no later than 1 year 23,497,026 1,517,519 25,014,545



Later than 5 years 18,006,495 391,320 18,397,815 ₩ 95,083,606 ₩ 12,725,023 ₩ 107,808,629

January 1, 2010

Korean won Foreign

currencies Total Within 1 month ₩ 4,033,104 ₩ 1,980,092 ₩ 6,013,196After 1 month but no later than 3 months 9,916,416 2,828,459 12,744,875


After 6 months but no later than 1 year 21,532,056 1,533,938 23,065,994



Later than 5 years 15,981,693 511,605 16,493,298 ₩ 91,405,618 ₩ 10,875,149 ₩ 102,280,767


89

19. Loans and receivables (cont’d) Changes in deferred loan fees, net of expenses, for the years ended December 31, 2011 and 2010 are summarized as follows (Korean won in millions):

2011

Beginningbalance Increase Decrease

Ending balance

Deferred loan fees, net of expenses ₩ 77,020 ₩ 47,047 ₩ (38,065) ₩ 86,002

2010

Beginningbalance Increase Decrease

Ending balance

Deferred loan fees, net of expenses ₩ 60,776 ₩ 32,154 ₩ (15,910) ₩ 77,020 Changes in allowance for possible loan losses for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011

Loans in

Korean won

Loans in foreign

currencies

Advance payments on acceptances

and guarantees

Bills purchased in foreign currencies

Privately -placed

corporate bonds Others Total

As of January 1, 2011 ₩ 905,785 ₩ 129,639 ₩ 46,546 ₩ 5,092 ₩ 37,627 ₩ 153 ₩ 1,124,842 Disposal of non-performing

loans (78,898) (181) - - - - (79,079)

Write-offs (397,316) (13,467) (3,436) - (40,000) - (454,219)Collection of loans written-off in prior periods 36,688 - - - - - 36,688

Debt-to-equity swap (383) - - - - - (383)Provisions of allowance of possible loan losses, net 331,342 33,740 985 (1,526) 46,159 (153) 410,547 Interest income from impaired loans (31,298) (1,733) (5,416) - (439) - (38,886)Currency fluctuation and others 19,064 (9,368) 1 153 (23,259) 1 (13,408)

As of December 31, 2011 ₩ 784,984 ₩ 138,630 ₩ 38,680 ₩ 3,719 ₩ 20,088 ₩ 1 ₩ 986,102

2010

Loans in

Korean won

Loans in foreign

currencies

Advance payments on acceptances

and guarantees

Bills purchased in foreign currencies

Credit card loans

Privately -placed

corporate bonds Others

Total

As of January 1, 2010 ₩ 635,366 ₩107,065 ₩ 21,447 ₩ 3,380 ₩1,304 ₩22,523 ₩ 122 ₩ 791,207 Disposal of non-performing loans (59,102) - - - - - - (59,102)

Write-offs (245,273) (5,617) (4,424) (1,274) (589) (478) - (257,655)Collection of loans written-off in prior periods 28,767 - - - - - - 28,767

Debt-to-equity swap (78,237) - - - - - - (78,237)Provisions of allowance of possible loan losses, net 660,930 30,669 39,544 3,111 (714) 16,814 31 750,385

Interest income from impaired loans (28,572) (1,640) (10,021) (9) (1) (1,229) - (41,472)

Currency fluctuation and others (8,094) (838) - (116) - (3) - (9,051)

As of December 31, 2010 ₩ 905,785 ₩129,639 ₩ 46,546 ₩ 5,092 ₩ - ₩37,627 ₩ 153 ₩1,124,842


90

20. Derivative instruments Unsettled derivative contracts held-for-trading as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011

Notional amounts Net valuation gain Net valuation loss Assets Liabilities

Currency: Forwards ₩ 70,076,484 ₩ 788,641 ₩ 711,827 ₩ 882,159 ₩ 759,063

Swap 10,992,686 124,144 200,637 287,756 386,851

Options purchased 1,891,498 9,194 11,921 46,313 -

Options sold 1,834,692 10,300 3,653 - 42,418

Futures 17,917 - - - -

84,813,277 932,279 928,038 1,216,228 1,188,332

Interest:

Swap 27,773,235 215,273 149,400 390,176 356,282

Options purchased 1,051,000 6,881 13,456 22,199 -

Options sold 4,500,427 17,679 23,637 - 57,589

Futures 44,438 - - - -

33,369,100 239,833 186,493 412,375 413,871

Stock: Options purchased 1,345,501 34,684 11,712 34,227 -

Options sold 2,524,169 11,712 19,771 - 43,798

Futures 1,193 - - - -

3,870,863 46,396 31,483 34,227 43,798

Credit: Credit swap 117,950 - 1,858 - 1,267

Others: Options purchased 49,085 504 285 904 -

Options sold 36,493 356 500 - 505

85,578 860 785 904 505

₩ 122,256,768 ₩ 1,219,368 ₩ 1,148,657 ₩ 1,663,734 ₩ 1,647,773

December 31, 2010

Notional amounts Net valuation gain Net valuation loss Assets Liabilities

Currency:

Forwards ₩ 65,838,936 ₩ 545,306 ₩ 723,567 ₩ 991,966 ₩ 640,490

Swap 12,422,804 347,144 206,385 355,041 636,687 Options purchased 1,658,393 6,406 17,821 78,055 - Options sold 1,646,977 12,030 5,965 - 49,329 Futures 86,909 - - - -

81,654,019 910,886 953,738 1,425,062 1,326,506Interest:

Swap 43,619,782 294,818 211,556 381,091 556,469 Options purchased 1,135,000 3,381 6,164 26,273 - Options sold 2,756,546 20,344 5,087 - 24,258

47,511,328 318,543 222,807 407,364 580,727


91

20. Derivative instruments (cont’d)

December 31, 2010

Notional amountsNet valuation

gain Net valuation

loss Assets Liabilities Stock:

Options purchased 1,047,008 123,151 9,062 178,183 - Options sold 2,511,060 13,553 120,481 - 205,486 Futures 13,700 - - - -

3,571,768 136,704 129,543 178,183 205,486Credit:

Credit swap 277,780 361 1,340 1,180 337Others:

Options purchased 68,641 1,788 - 8,019 - Options sold 58,641 - 1,564 - 5,854

127,282 1,788 1,564 8,019 5,854 ₩ 133,142,177 ₩ 1,368,282 ₩ 1,308,992 ₩ 2,019,808 ₩ 2,118,910

January 1, 2010 Notional amounts Assets Liabilities

Currency: Forwards ₩ 87,112,406 ₩ 1,897,191 ₩ 927,739 Swap 14,537,909 443,346 1,198,127 Options purchased 2,785,674 308,574 - Options sold 3,568,915 - 157,850 Futures 1,197,070 - -

109,201,974 2,649,111 2,283,716Interest:

Swap 50,944,516 411,216 831,341 Options purchased 2,050,000 33,463 - Options sold 3,829,280 - 36,820 Futures 110,141 - -

56,933,937 444,679 868,161Stock:

Options purchased 392,433 198,663 - Options sold 1,058,766 - 67,848 Futures 35,600 - -

1,486,799 198,663 67,848Credit:

Credit swap 283,520 2,258 435Others:

Options purchased 207,689 15,642 - Options sold 180,175 - 14,345

387,864 15,642 14,345 ₩ 168,294,094 ₩ 3,310,353 ₩ 3,234,505


92

20. Derivative instruments (cont’d) Unsettled derivatives contracts held for hedging as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011

Notional amounts

Net valuation gain

Net valuation

loss Assets LiabilitiesInterest:

Swap ₩ 3,720,621 ₩ 68,469 ₩ 27,499 ₩ 110,440 ₩ 2,624

December 31, 2010

Notional amounts

Net valuation gain

Net valuation

loss Assets LiabilitiesInterest:

Swap ₩ 2,081,405 ₩ 42,081 ₩ 32,282 ₩ 84,639 ₩ 3,593

January 1, 2010 Notional amounts Assets Liabilities

Interest:

Swap ₩ 1,655,087 ₩ 79,817 ₩ 13,152 For a derivative transaction involving both Korean won and foreign currency, the fair value of the unsettled amount for such transaction is presented using the basic foreign exchange rate of the contract amount in foreign currency. For a derivative transaction involving only a foreign currency, the fair value of the unsettled amount is presented by using the basic foreign exchange rate of the foreign currency purchased at the reporting date. The Company has recorded a provision for liquidity adjustment and a provision for credit valuation adjustment for derivative instruments in the amount of ₩6,819 million and ₩9,753 million on December 31, 2011, and ₩5,053 million and ₩38,458 million on December 31, 2010 and ₩13,514 million and ₩241,913 million on January 1, 2010, respectively. Credit derivatives entered into by the Company as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions and U.S. dollar in thousands):

December 31, 2011

Counterparty Amount Transaction type Reference entity

Credit default swap Woori I&S $ 50,000 Sold credit derivative Woori Bank

Credit default swap Woori I&S $ 50,000 Sold credit derivative Shinhan Bank

December 31, 2010

Counterparty Amount Transaction type Reference entity First to default

Credit default swap Woori I&S

₩ 50,000 Sold credit derivative KEPCO and five

other companies First to default


$ 50,000 Sold credit derivative Shinhan Bank and four

other companies First to default


$ 50,000 Sold credit derivative Shinhan Bank and four

other companies


$ 50,000 Sold credit derivative Woori Bank Credit default swap Woori I&S $ 50,000 Sold credit derivative Shinhan Bank


93

20. Derivative instruments (cont’d)

January 1, 2010

Counterparty Amount Transaction type Reference entity

First to default Credit default swap

Woori I&S

₩ 50,000 Sold credit derivative

KEPCO and five other companies


Woori I&S

$ 50,000 Sold credit derivative

Shinhan Bank and four other companies


Woori I&S

$ 50,000 Sold credit derivative

Shinhan Bank and four other companies

Credit default swap Woori I&S $ 50,000 Sold credit derivative Woori Bank Credit default swap Woori I&S $ 50,000 Sold credit derivative Shinhan Bank When a reference entity ceases to be able to secure its financial commitments due to a sharp decline or default in credit rating, the Company guarantees losses incurred arising from transactions for credit derivative instruments on its behalf. 21. Investments in associates Details of investments in associates as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011 Country Number of shares Ownership (%) Book value

Bank of Jilin (*1) China 1,200,000,000 17.0 ₩ 409,572

Taesan LCD Co., Ltd. (*2) Korea 65,567,244 61.3 104,179 UAM Co., Ltd. (*1) Korea 85,050 17.5 104,220 Hana First Private

Equity Fund (*3)

Korea - 30.0 64,783 Korea Credit Bureau (*1) Korea 180,000 9.0 3,765 HCS Private Equity

Fund (*1) Korea 6,788 14.9 6,489 Darby-Hana Infrastructure Fund

Management (“DHIF”) (*1) Korea 79,200 9.9 522 ₩ 693,530

December 31, 2010 Country Number of shares Ownership (%) Book value

Bank of Jilin (*1) China 1,200,000,000 18.3 ₩ 369,567Taesan LCD Co., Ltd. (*2) Korea 65,567,244 61.3 113,292UAM Co., Ltd. (*1) Korea 85,050 17.5 86,222Hana First Private

Equity Fund (*3)

Korea - 30.0 25,533Korea Credit Bureau (*1) Korea 180,000 9.0 3,185HCS Private Equity

Fund (*1) Korea 6,788 14.9 6,228Darby-Hana Infrastructure Fund



94

21. Investments in associates (cont’d)

January 1, 2010 Country Number of shares Ownership (%) Book value

Taesan LCD Co., Ltd. (*2) Korea 49,300,392 59.6 ₩ 80,902UAM Co., Ltd. (*1) Korea 12,250 17.5 11,992Korea Credit Bureau (*1) Korea 180,000 9.0 2,769HCS Private Equity

Fund (*1) Korea 6,361 14.9 5,403Darby-Hana Infrastructure Fund


(*1) Those companies are included in investment in associates as the Company exercises a significant influence on the investee’s Board of Directors. (*2) Shares are restricted for disposals until December 31, 2013. (*3) Hana First Private Equity Fund is established on a fund basis and therefore, there are no issued shares. The Company owns 54,000 shares (14.88% equity interest) of Korea Travels and 166,500 shares (18.81% equity interest) of 21st Century Shipbuilding Co., Ltd. However, the carrying values for the investments as of December 31, 2011 are below nil, which has led to the suspension of the equity method application. The Company suspended applying the equity method accounting for Korea Travels as the Company’s share of losses in the investees exceeded its share of net assets. The Company’s unrecognized share of the losses for Korea Travels as of December 31, 2011 and the accumulated losses as of December 31, 2010 amounted to ₩92 million and ₩1,643 million, respectively. The unrecognized share of the losses for 21st Century Shipbuilding Co., Ltd. as at December 31, 2011 amounted to ₩32,121 million. Condensed financial statements as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011

Assets Liabilities Equity (deficit)

Revenue (*1)

Net Income

(loss)(*1)

Comprehensive Income

(loss)(*1)

Bank of Jilin ₩33,540,327 ₩31,324,892 ₩2,215,435 ₩1,081,680 ₩260,777 ₩ 260,777

Taesan LCD Co., Ltd. 482,362 422,804 59,558 932,685 (16,021) (14,097)

UAM Co., Ltd. 3,738,326 3,146,227 592,099 468,220 102,845 102,845

Hana First Private Equity Fund 216,593 423 216,170 8,221 6,079 13,047

Korea Credit Bureau 51,483 9,650 41,833 40,535 6,447 6,447

HCS Private Equity Fund 44,042 688 43,354 522 1,754 1,754 Darby-Hana Infrastructure

Fund Management (“DHIF”)(*2) 6,532 1,259 5,273 4,233 786 786

21st Century Shipbuilding Co., Ltd 95,392 683,673 (588,281) 93,766 (170,739) (170,739)

Korea Travels 28,001 33,849 (5,848) 3,977 (469) (469)

₩ 38,203,058 ₩35,623,465 ₩2,579,593 ₩2,633,839 ₩191,459 ₩ 200,351


95

21. Investments in associates (cont’d)

December 31, 2010

Assets Liabilities Equity (deficit) Revenue

Net Income

(loss)(*1)

Comprehensive Income

(loss)(*1)

Bank of Jilin ₩25,489,804 ₩23,658,955 ₩1,830,849 ₩ 445,507 ₩ (14,476) ₩ (14,476)

Taesan LCD Co., Ltd. 339,643 286,254 53,389 1,480,167 85,144 86,083

UAM Co., Ltd. 1,786,464 1,293,766 492,698 32,607 8,173 8,173

Hana First Private Equity Fund 85,200 - 85,200 30 (1,522) (1,522)

Korea Credit Bureau 45,300 9,914 35,386 33,191 4,619 4,619

HCS Private Equity Fund 41,600 - 41,600 1,823 2,727 2,727 Darby-Hana Infrastructure

Fund Management (“DHIF”)(*2) 5,392 882 4,510 3,377 492 492

21st Century Shipbuilding Co., Ltd 146,888 569,751 (422,863) - - -

Korea Travels 14,816 25,858 (11,042) 2,604 44 44

₩27,955,107 ₩25,845,380 ₩2,109,727 ₩1,999,306 ₩85,201 ₩ 86,140

January 1, 2010

Assets Liabilities Equity (deficit)

Taesan LCD Co., Ltd. ₩ 366,450 ₩ 453,074 ₩ (86,624)

UAM Co., Ltd. 68,710 185 68,525

Korea Credit Bureau 36,807 6,040 30,767

HCS Private Equity Fund 36,013 - 36,013Darby-Hana Infrastructure

Fund Management (“DHIF”)(*2) 4,661 643 4,018Korea Non-Bank Lease

Financing Co., Ltd. 93,272 303,734 (210,462)

Korea Travels 14,241 25,449 (11,208)

₩ 620,154 ₩ 789,125 ₩ (168,971)

(*1) If acquired during the period, profit and loss which occurred after the date of acquisition were considered. (*2) Although the reporting date of Darby-Hana Infrastructure Fund Management is March 31, financial statement as of December 31, 2011 was used in this condensed financial statement. And significant profit and loss occurred between the reporting date of the Company and the associate were properly reflected in the condensed financial statement. Shares of Taesan LCD Co., Ltd. are traded actively in an open market and the closing price at December 31, 2011 amounted to ₩78,353 million (₩1,195 per share) and the fair value provided by the independent valuers in consideration of restrictions on the disposal was ₩72,517 million (₩1,106 per share).


96

21. Investments in associates (cont’d) Changes in the investment in an associate for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011

Ownership (%)

Beginning balance Addition Dividends

Book value before valuation

Equity method valuation

Disposal Book value

Proportionate

net asset value Earnings

(loss)

Other comprehensive

income

Bank of Jilin 17.0 ₩ 369,567 ₩ - ₩ (16,013) ₩ 353,554 ₩ 46,515 ₩ 22,657 ₩ (13,154) ₩ 409,572 ₩ 376,189

Taesan LCD Co., Ltd. 61.3 113,292 - - 113,292 (9,815) 702 - 104,179 27,664

UAM Co., Ltd. 17.5 86,222 - - 86,222 17,998 - - 104,220 103,617

Hana First Private Equity Fund 30.0 25,533 35,340 - 60,873 1,822 2,088 - 64,783 64,783

Korea Credit Bureau 9.0 3,185 - - 3,185 580 - - 3,765 3,765

HCS Private Equity Fund 14.9 6,228 - - 6,228 261 - - 6,489 6,482 Darby-Hana Infrastructure

Fund Management (“DHIF”) 9.9 447 - - 447 75 - - 522 522 21st Century Shipbuilding

Co., Ltd 18.8 - - - - - - - - -

₩ 604,474 ₩ 35,340 ₩ (16,013) ₩ 623,801 ₩ 57,436 ₩ 25,447 ₩ (13,154) ₩ 693,530 ₩ 583,022

2010 Equity method valuation

Ownership (%)

Beginning balance Addition

Book value before valuation Earnings (loss)

Other comprehensive

income Disposal Book valueProportionate net asset value

Bank of Jilin 18.3 ₩ - ₩ 373,658 ₩ 373,658 ₩ (2,587) ₩ (1,504) ₩ - ₩ 369,567 ₩ 334,556

Taesan LCD Co., Ltd. 61.3 80,902 35,852 116,754 (1,205) (2,257) - 113,292 36,777

UAM Co., Ltd. 17.5 11,992 72,800 84,792 1,430 - - 86,222 86,222

Hana First Private Equity Fund 30.0 - 25,935 25,935 (456) 54 - 25,533 25,533

Korea Credit Bureau 9.0 2,769 - 2,769 416 - - 3,185 3,185

HCS Private Equity Fund 14.9 5,403 1,339 6,742 398 - (912) 6,228 6,219 Darby-Hana Infrastructure

Fund Management (“DHIF”) 9.9 398 - 398 49 - - 447 447

₩ 101,464 ₩ 509,584 ₩ 611,048 ₩ (1,955) ₩ (3,707) ₩ (912) ₩ 604,474 ₩ 492,939


97

22. Property and equipment Changes in property and equipment for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

January 1,

2011 Additions DisposalsTransfer in

(out) Others December 31,

2011 Acquisition cost

Land ₩ 762,550 ₩ 353 ₩ (119) ₩ 1,985 ₩ 1 ₩ 764,770 Buildings 430,556 6,751 (148) 10,134 557 447,850 Leasehold improvements 171,122 9,428 (12,970) - 362 167,942 Vehicles, furniture

and fixtures 543,677 21,693 (27,589) 2,494 518 540,793 Construction in progress 23,048 7,376 - (22,620) - 7,804 Other 78,425 128 - - - 78,553

2,009,378 45,729 (40,826) (8,007) 1,438 2,007,712 Accumulated depreciation

Buildings 14,617 13,560 (62) 223 165 28,503 Leasehold improvements 145,193 12,977 (12,346) - 198 146,022 Vehicles, furniture

and fixtures 449,261 42,161 (27,314) - 343 464,451 609,071 68,698 (39,722) 223 706 638,976 ₩ 1,400,307 ₩ (22,969) ₩ (1,104) ₩ (8,230) ₩ 732 ₩ 1,368,736

January 1,

2010 Additions DisposalsTransfer in

(out) Others December 31,

2010 Acquisition cost

Land ₩ 750,863 ₩ - ₩ (988) ₩ 12,654 ₩ 21 ₩ 762,550 Buildings 423,076 3,376 (1,050) 5,006 148 430,556 Leasehold improvements 162,342 9,235 (1,349) 756 138 171,122 Vehicles, furniture

and fixtures 575,362 30,993 (62,356) 186 (508) 543,677 Construction in-progress 13,193 13,484 - (3,629) - 23,048 Other 78,735 - (310) - - 78,425

2,003,571 57,088 (66,053) 14,973 (201) 2,009,378Accumulated depreciation

Buildings 2,085 12,617 (59) (53) 27 14,617 Leasehold

improvements 130,550 15,789 (1,201) - 55 145,193 Vehicles, furniture

and fixtures 455,430 55,191 (60,831) - (529) 449,261 588,065 83,597 (62,091) (53) (447) 609,071 ₩ 1,415,506 ₩ (26,509) ₩ (3,962) ₩ 15,026 ₩ 246 ₩ 1,400,307


98

23. Investment properties Changes in net carrying amount of investment properties for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

January 1,

2011 Additions Disposal Reclassification December 31,

2011 Acquisition cost Land ₩ 227,238 ₩ - ₩ (1,279) ₩ 12,673 ₩ 238,632 Buildings and structures 58,519 - - (4,666) 53,853 285,757 - (1,279) 8,007 292,485Accumulated depreciation

Buildings and structures 1,896 1,786 - (223) 3,459 ₩ 283,861 ₩ (1,786) ₩ (1,279) ₩ 8,230 ₩ 289,026

January 1,

2010 Additions Reclassification December 31,

2010 Acquisition cost Land ₩ 237,892 ₩ - ₩ (10,654) ₩ 227,238 Buildings and structures 61,026 533 (3,040) 58,519 298,918 533 (13,694) 285,757 Accumulated depreciation

Buildings and structures - 1,843 53 1,896 ₩ 298,918 ₩ (1,310) ₩ (13,747) ₩ 283,861

The fair value of the investment properties provided by the independent valuer is amounts to ₩289,026 million. Rental income and operating expenses arising from the Company’s investment properties for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Rental income ₩ 9,717 ₩ 10,119Operating expenses 2,128 2,176

24. Intangible assets Intangible assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011

Acquisition

cost Accumulatedamortization Impairment loss

Book value

Goodwill ₩ 1,349 ₩ - ₩ - ₩ 1,349

Industrial property 103 (41) - 62 Software 59,986 (31,794) - 28,192 System development 240,130 (129,948) - 110,182 Membership 30,008 - (5,375) 24,633 Others 25,988 (18,534) - 7,454

₩ 357,564 ₩ (180,317) ₩ (5,375) ₩ 171,872


99

24. Intangible assets (cont’d)

December 31, 2010

Acquisition

cost Accumulated amortization Book value

Goodwill ₩ 1,343 ₩ - ₩ 1,343

Industrial property 59 (24) 35 Software 50,234 (20,678) 29,556 System development 227,308 (85,536) 141,772 Membership 29,051 - 29,051Others 17,496 (15,224) 2,272

₩ 325,491 ₩ (121,462) ₩ 204,029

January 1, 2010

Acquisition

cost Accumulated amortization Book value

Goodwill ₩ 1,314 ₩ - ₩ 1,314Industrial property 122 (88) 34Software 58,174 (24,779) 33,395System development 217,516 (55,316) 162,200Membership 25,049 - 25,049Others 8,195 (4,848) 3,347

₩ 310,370 ₩ (85,031) ₩ 225,339 Changes in the carrying amount of intangible assets for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

January 1,

2011 Additions Disposal AmortizationImpairment

loss

Others December 31,

2011 Goodwill ₩ 1,343 ₩ - ₩ - ₩ - ₩ - ₩ 6 ₩ 1,349 Industrial property 35 45 - (18) - - 62 Software 29,556 8,964 - (10,481) - 153 28,192 System

development 141,772 12,822 - (44,412) - -

110,182 Membership 29,051 1,204 (247) - (5,375) - 24,633 Others 2,272 8,492 - (3,310) - - 7,454

₩204,029 ₩31,527 ₩ (247) ₩ (58,221) ₩ (5,375) ₩ 159 ₩ 171,872

January 1,

2010 Additions Disposal Amortization Others December 31,

2010 Goodwill ₩ 1,314 ₩ - ₩ - ₩ - ₩ 29 ₩ 1,343Industrial property 34 13 - (12) - 35Software 33,395 6,128 - (9,998) 31 29,556System

development 162,200 20,197 - (42,768) 2,143 141,772Membership 25,049 5,128 (1,126) - - 29,051Others 3,347 6,537 - (7,612) - 2,272

₩ 225,339 ₩ 38,003 ₩ (1,126) ₩ (60,390) ₩ 2,203 ₩ 204,029


100

25. Other assets Other assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Guarantee deposits ₩ 755,179 ₩ 757,316 ₩ 764,460 Accounts receivable 3,043,611 2,691,575 1,100,338 Accrued income 558,255 520,532 572,528 Prepaid expenses 151,188 129,063 157,370 Suspense accounts 77,954 92,499 82,086 Receivables from spot exchange 624,744 466,411 1,828,644 Others 100,918 20,229 27,914 Allowance for possible losses (65,350) (33,916) (7,789) ₩ 5,246,499 ₩ 4,643,709 ₩ 4,525,551

Changes in allowance for possible losses for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 January 1 ₩ 33,916 ₩ 7,789 Write-offs (550) (1,374)Debt-to-equity swap - (25,489)Provision of allowance

for possible losses, net 32,116 54,779Interest income from impaired assets (159) (359)Others 27 (1,430)December 31 ₩ 65,350 ₩ 33,916

26. Financial liabilities held-for-trading Details of financial liabilities held-for-trading as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Trading derivative instruments (*) ₩ 1,647,773 ₩ 2,118,910 ₩ 3,234,505Securities sold 114,565 - - ₩ 1,762,338 ₩ 2,118,910 ₩ 3,234,505

(*) Refer to Note 20.


101

27. Deposits Deposit liabilities as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Demand deposits

Demand deposits in Korean won Checking deposits ₩ 108,790 103,314 ₩ 99,600Household checking deposits 12,016 10,331 11,073Temporary deposits 1,339,394 1,425,988 1,409,971Passbook deposits 1,299,498 1,046,492 1,254,797Public fund deposits 115,325 103,215 132,217Treasury deposits 131 151 64Non-resident deposits in Korean won 2,942 17,974 3,599Non-resident deposits in free-won 2,970 13,303 3,952

2,881,066 2,720,768 2,915,273Demand deposits in foreign currency

Checking deposits 120,631 84,441 55,222Passbook deposits 2,545,244 1,923,235 1,597,546Notice deposits 1,984 18,219 1,279Temporary deposits 3,398 23,646 3,017

2,671,257 2,049,541 1,657,064Time and savings deposits

Time and savings deposits in Korean won Household savings deposits 10,628,136 10,366,658 8,779,298Individual savings deposits 464,209 470,567 443,815Corporate savings deposits 14,684,180 11,414,057 11,271,226Time deposits 67,469,388 57,836,266 48,844,129Housing-application deposits 402,797 469,195 535,013Installment saving deposits 144,642 163,084 200,752Non-resident deposits in Korean won 26,751 52,196 32,943Non-resident deposits in free-won 121,742 93,630 109,631Long-term housing savings deposits 383,548 542,537 2,045,149Workers’ preferential savings deposits 660 1,101 1,817Mutual installment deposits 2,130,439 2,198,881 2,264,017Mutual installment deposits for housing 46,937 61,510 81,642Others 52 60 114

96,503,481 83,669,742 74,609,546Time and saving deposits in foreign currency

Time deposits 3,941,463 2,807,252 3,377,417Certificate of deposits 426,995 3,419,710 8,572,765 ₩106,424,262 ₩94,667,013 ₩91,132,065


102

27. Deposits (cont’d) Allocations of deposits by customer as of December 31, 2011, December 31, 2010, and January 1, 2010 are listed as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Individuals ₩ 40,343,275 ₩ 35,320,314 ₩ 34,271,942 Corporations 26,692,157 24,409,144 21,910,662 Other banks 3,797,928 3,864,711 3,161,563 Public institutions 2,301,712 3,604,540 4,140,494 Other financial institutions 19,902,119 14,985,190 14,313,483 Government 3,438,785 2,977,214 4,507,511 Non-profit corporations 6,389,996 5,811,672 5,597,279 Foreign corporations 767,733 781,114 600,762 Others 2,790,557 2,913,114 2,628,369 ₩ 106,424,262 ₩ 94,667,013 ₩ 91,132,065

28. Borrowings Borrowings as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

Lender

Annual interest rate (%)

December 31, 2011

December 31, 2010

January 1,2010

Borrowings in Korean won:

BOK borrowings BOK 1.5 ₩ 368,848 ₩ 344,730 ₩ 494,366 Government

borrowings Korean government 2.0~4.6 612,355 168,296 75,424

Other borrowings Small & medium Business

Corporation and others 0.0~5.6 1,234,409 1,450,459 2,600,033

2,215,612 1,963,485 3,169,823Borrowings


Bank overdrafts Foreign banks and others - 30,666 118,155 37,528

Other borrowings Mizuho Corporate Bank

Seoul branch and others 0.0~5.4 6,704,458 4,707,875 4,220,599

6,735,124 4,826,030 4,258,127

Call money: Call money in Korean won

Shinhan BNP Paribas and others - - - 607,900

Call money in foreign currencies

Export Import Bank of Korea and others 0.4~5.1 259,458 829,571 1,592,511

259,458 829,571 2,200,411Bonds sold under

repurchase agreements:

Bonds sold under repurchase agreements in Korean Won

Korea Housing Finance Corporation and others 0.0~6.8 395,964 874,397 960,049

Bonds sold under repurchase agreements in foreign currencies Nomura International and others 0.9~2.3 578,968 277,348 292,872

974,932 1,151,745 1,252,921Bills sold

Hyo-dong Construction Co., Ltd.

and others 0.0~4.0 103,714 309,213 674,499

₩ 10,288,840 ₩ 9,080,044 ₩ 11,555,781


103

29. Debentures Debentures as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

Lender


(%)December 31,

2011December 31,

2010 January 1,

2010

Debentures in Korean won: Debentures Financial institutions 3.3~8.0 ₩ 7,880,000 ₩ 8,759,580 ₩ 8,489,845

Subordinated bonds Various investors 4.5~8.4 3,844,004 2,942,826 3,043,699 Net gain (loss) on fair value hedges

(this term) 6,121 12,229 - Net gain (loss) on fair value hedges

(before the previous term) 10,805 (178) 992

(less present value discount) (12,400) (6,395) (6,965)

11,728,530 11,708,062 11,527,571

Debentures in foreign currencies:

Debentures (*) Citi Bank and others 1.1~6.5 4,266,385 2,496,824 1,696,882

Subordinated bonds Barclays and others 5.4 576,650 1,025,010 1,058,824

Floating rate bonds - 132,636 454,873 Net gain (loss) on fair value hedges

(this term) 26,720 (7,243) - Net gain (loss) on fair value hedges

(before the previous term) 52,521 74,901 68,852

(less present value discount) (13,923) (9,205) (12,576)

4,908,353 3,712,923 3,266,855

₩ 16,636,883 ₩ 15,420,985 ₩ 14,794,426 (*) The Korean government has provided the Company with a payment guarantee of US $1,091,267 thousand as of December 31, 2011. 30. Severance and retirement benefits The actuarial assumptions as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows:

Rate (%)

December 31,

2011 December 31,

2010 January 1,

2010 Content Discount rate 4.26 5.04 6.02 AAA bank bonds Expected return on

plan assets 3.55 3.86 3.86

Past rate of return Future salary increases 3.89~11.89 3.61~13.73 4.27 ~ 13.42 Past 5 years average Details of severance and retirement benefits as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Present value of defined benefit obligation ₩ 293,560 ₩ 223,306 ₩ 201,056 Fair value of plan assets (260,261) (217,741) (189,358)Severance and retirement benefits, net ₩ 33,299 ₩ 5,565 ₩ 11,698


104

30. Severance and retirement benefits (cont’d) Changes in present value of defined benefit obligation for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Beginning balance ₩ 223,306 ₩ 201,056 Current service cost 41,070 36,677 Interest cost on benefit obligation 12,401 11,861 Actuarial losses (gains) on obligation 44,783 (9,042)Benefits paid (27,961) (17,259)Others (39) 13 ₩ 293,560 ₩ 223,306

Details in provision for severance and retirement benefits as of December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Current service cost ₩ 41,070 ₩ 36,677 Interest cost on benefit obligation 12,401 11,861 Expected return of plan assets (9,233) (8,397)Actuarial losses (gains) on obligation 45,092 (7,460) ₩ 89,330 ₩ 32,681

Details in the fair value of plan assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011 December 31, 2010 January 1, 2010 Time deposits ₩ 259,846 ₩ 217,182 ₩ -Others 415 559 189,358 ₩ 260,261 ₩ 217,741 ₩ 189,358

Changes in the fair value of plan assets for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Fair value of plan assets ₩ 217,741 ₩ 189,358 Expected return of plan assets 9,233 8,397 Actuarial losses on obligation (309) (1,582)Employer contributions 33,611 21,588 Others (15) (20) ₩ 260,261 ₩ 217,741

The Company is expected to contribute ₩45,332 million for severance and retirement benefits in relation to the defined benefit plan.


105

31. Provisions Details of provisions as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Allowance for possible losses on acceptances

and guarantees

Financial acceptances and guarantees(*) ₩ 3,638 ₩ 4,493 ₩ 989 Non-financial acceptances and guarantees 23,631 28,388 34,695 Bills endorsed 7 18 7 27,276 32,899 35,691Allowances for unused commitments 32,260 52,026 46,573Other allowance

Allowances for restoration obligation 21,585 18,860 15,616 Allowance for lawsuits 9,561 60,834 55,300

Allowance for liquidity adjustment 6,819 5,053 13,514Allowance for credit valuation adjustment 9,753 38,458 241,913

Others 8,363 3,666 5,900 56,081 126,871 332,243 ₩ 115,617 ₩ 211,796 ₩ 414,507

On initial recognition, the Company has recognized the amount of financial guarantee contracts subsequently measured which exceeds the unamortized balance as provisions for acceptances and guarantees. The unamortized balance amounts to ₩2,308 million, ₩2,706 million, and ₩1,357 million as of December 31, 2011, December 31, 2010 and January 1, 2010, respectively, and is categorized as the financial guarantee contract liability. Changes in provisions for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

January 1,

2011

Net expense of allowance(reversal of allowance)

Allowance used Others

December 31, 2011

Allowance for possible losses on acceptances and guarantees ₩ 32,899 ₩ (5,339) ₩ - ₩ (284) ₩ 27,276 Allowances for unused commitments 52,026 (19,417) - (349) 32,260 Other allowances Allowances for

restoration obligation 18,860 1,469 (589) 1,845 21,585 Allowance for lawsuits 60,834 4,424 (55,697) - 9,561

Liquidity adjustment 5,053 1,763 - 3 6,819 Credit valuation

adjustment 38,458 (28,715) - 10 9,753 Others 3,666 5,756 - (1,059) 8,363 126,871 (15,303) (56,286) 799 56,081 ₩ 211,796 ₩ (40,059) ₩ (56,286) ₩ 166 ₩ 115,617


106

31. Provisions (cont’d)

January 1,

2010

Net expense of allowance(reversal of allowance)

Allowance used Others

December 31, 2010

Allowance for possible losses on acceptances and guarantees ₩ 35,691 ₩ (2,967) ₩ - ₩ 175 ₩ 32,899

Allowances for unused commitments 46,573 4,381 - 1,072 52,026 Other allowance Allowances

for restoration obligation 15,616 1,513 (337) 2,068 18,860 Allowance for lawsuits 55,300 5,581 (47) - 60,834

Liquidity adjustment 13,514 (8,458) - (3) 5,053 Credit valuation adjustment 241,913 (203,453) - (2) 38,458 Others 5,900 691 - (2,925) 3,666 332,243 (204,126) (384) (862) 126,871 ₩ 414,507 ₩ (202,712) ₩ (384) ₩ 385 ₩ 211,796 Details of guarantees as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Acceptances and guarantees

Financial guarantees in Korean won:

Corporate debentures ₩ 207 ₩ 207 ₩ 359 Collateral for loans 30,881 26,888 20,001

Loans for credit card - - 1,330,934 Loans for purchase 1,300,760 1,169,497 - 1,331,848 1,196,592 1,351,294 Financial guarantees in foreign currencies 229,122 187,210 192,508 Confirmed acceptance and guarantees

in Korean won 735,194 617,848 684,751 Confirmed acceptance and guarantees

in foreign currencies: Acceptance on letter of credit 884,066 961,285 943,750

Acceptance on letter of guarantees 42,694 50,162 48,796 Others 3,807,549 2,788,623 3,052,268

4,734,309 3,800,070 4,044,814 Contingent acceptance and guarantees Letters of credit 3,349,166 2,830,302 2,217,885 Others 942,179 840,425 905,816 4,291,345 3,670,727 3,123,701 Bills endorsed 1,904 6,120 6,011 ₩ 11,323,722 ₩ 9,478,567 ₩ 9,403,079


107

31. Provisions (cont’d) Details of unused commitments as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Commitments on loans in Korean won ₩ 30,892,476 26,850,053 ₩21,546,451 Commitments on loans in foreign currencies 13,402,711 9,079,888 8,737,826 Commitments on off-shore loans in foreign currencies 2,408 2,378 11,181 Commitments on purchase of asset-backed

commercial papers 134,550 284,650 60,000 Commitments on credit lines on asset-backed

securities 36,000 61,800 61,800 Commitments on purchase of securities 682,762 386,356 459,156 ₩ 45,150,907 ₩ 36,665,125 ₩30,876,414

As of December 31, 2011, the Company has involved in 583 lawsuits as a plaintiff and 136 lawsuits as a defendant. The aggregate amount of claims as a plaintiff and a defendant amounts to approximately ₩184,042 million and ₩190,446 million, respectively. The Company’s material lawsuits in progress as a defendant are summarized as follows (Korean won in millions):

Plaintiff Amount

Status of lawsuit

Content First trial On appeal POSCO Engineering

Co., Ltd. ₩ 18,000 In-progress - Confirmation of non-existence

of obligation

BSE Co., Ltd. 27,214 Partially Loss In-progress Disgorgement of improper gainsDong-Ah Construction

Industrial Co., Ltd. 7,620 Loss In-progress Return of investments The estimated damages arising from the lawsuits have been recorded as a provision for potential losses. Trust accounts with a guarantee of principal repayment of the years ended December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Guarantee of principal

repayment

Fair value ₩ 390,390 ₩ 502,943 ₩ 676,449 Book value 216,280 389,082 243,429

Total 606,670 892,025 919,878 Principal of money trust 626,269 865,716 1,064,725 Accrued profit from trust 24,782 23,833 19,501


108

32. Other liabilities Details of other liabilities as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Accounts payables ₩ 3,004,833 ₩ 4,491,347 ₩ 1,174,848 Interest payable on hybrid

equity securities - 847 72 Accrued expense payables 1,371,525 1,518,890 1,784,367 Income in advance 76,765 61,635 84,713 Deposits for letter of guarantees and others 80,000 130,733 141,305 Present value discounts (1,121) (1,080) (1,244)Borrowing from trust accounts 1,031,938 888,062 998,205 Foreign exchanges settlement credits 95,730 232,287 104,917 Domestic exchange settlement credits 1,454,107 1,845,283 2,230,872 Taxes withheld 59,829 52,564 51,391 Security deposits received 24,600 25,933 6,082 Accounts for agency businesses 65,377 105,885 105,204 Liability incurred by agency relationship 186,362 683,278 589,648 Others 94,308 56,481 43,297 ₩ 7,544,253 ₩ 10,092,145 ₩ 7,313,677

33. Capital stock and capital surplus The Company is authorized to issue 2,000,000,000 shares of common stock and has 219,799,157 shares issued and outstanding amounting to ₩1,147,404 million as of December 31, 2011. Capital surplus as of December 31, 2011, December 31, 2010, and January 1, 2010 consists of the following (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Issued capital in excess of par value ₩ 2,447,370 ₩ 2,447,370 ₩ 2,447,370 Gain on sales of treasury stock 170,841 170,841 170,841 Other capital surplus 118,189 105,870 105,939 ₩ 2,736,400 ₩ 2,724,081 ₩ 2,724,150


109

34. Retained earnings Retained earnings as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):

December 31,

2011 December 31,

2010 January 1,

2010 Regal reserve

Regal reserve (*1) ₩ 794,400 ₩ 695,800 ₩ 668,400 Other reserve (*2) 12,903 12,114 11,483 807,303 707,914 679,883 Voluntary reserve Reserve for business rationalization 10,600 10,600 10,600 Reserve for financial structure improvement (*3) 84,200 84,200 84,200 Other voluntary reserve 3,091,073 4,138,255 4,155,193 3,185,873 4,233,055 4,249,993 Inappropriate retained earnings 2,173,678 17,470 1,187,040 ₩ 6,166,854 ₩ 4,958,439 ₩ 6,116,916

(*1) Article 40 of the Banking Act requires the Company to appropriate a minimum of 10% of annual net income as a legal reserve when the Company distributes dividends from net earnings until the legal reserve equals the paid-in capital. This reserve is only available when transfer to capital stock or used to reduce an accumulated deficit. (*2) The Tokyo branch of the Company appropriates up to 10% of net earnings as legal reserve in accordance with the relevant banking laws and regulation of Japan. (*3) Pursuant to the Financial Supervisory Service’s recommendation, since 2002, the Company has appropriated a minimum of 10% of its net earnings (after offsetting any accumulated deficit) as a reserve for capital improvement until the capital adequacy ratio reaches 5.5%. This reserve may not be utilized for cash dividends but may only be used to offset a deficit, if any, or be transferred to capital.


110

35. Other consolidated comprehensive income Changes in the other consolidated comprehensive income for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011

Gain (loss) on valuation of

available-for sale securities


securities using the equity method

Currency translation

differences in foreign

operations Total Beginning balance ₩ 502,436 ₩ (899) ₩ 3,426 ₩ 504,963 Changes in the unrealized gain of available-for-sale financial assets (70,759) - - (70,759)

Realized loss of available-for-sale financial assets (including disposal) (359,813) - - (359,813)

Changes in gain on valuation of securities using the equity method - 24,260 - 24,260

Realized gain of securities using equity method (including disposal) - 1,186 - 1,186

Changes in currency translation differences in foreign operations - - 32,466 32,466

Income tax effect 104,488 (6,133) (7,857) 90,498 ₩ 176,352 ₩ 18,414 ₩ 28,035 ₩ 222,801

2010


available-for sale securities


securities using the equity method

Currency translation

differences in foreign

operations Total Beginning balance ₩ 325,718 ₩ 13,560 ₩ - ₩ 339,278 Changes in the unrealized gain of available-for-sale financial assets 269,290 - - 269,290

Realized loss of available-for-sale financial assets (including disposal) (43,009) - - (43,009)

Changes in gain on valuation of securities using the equity method - (896) - (896)

Realized loss of securities using equity method (including disposal) - (17,643) - (17,643)

Changes in currency translation differences in foreign operations - - 4,393 4,393

Income tax effect (49,563) 4,080 (967) (46,450) ₩ 502,436 ₩ (899) ₩ 3,426 ₩ 504,963


111

36. Operating income and operating expenses Operating income for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):

2011 2010

Interest income ₩ 6,920,109 ₩ 6,630,779

Fees and commission income 500,733 518,727Gains on financial assets and liabilities held-for-trading 7,784,228 8,549,090Gains on fair value hedging derivatives Instruments 112,020 74,108Other income on financial instruments 581,309 276,504Gains on foreign currency translation and transactions 842,956 1,855,669Other operating income 97,537 254,568

₩ 16,838,892 ₩ 18,159,445

Operating expenses for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010

Interest expense ₩ 3,984,417 ₩ 3,749,203

Fees and commission expenses 110,838 101,449Losses on financial assets and liabilities held-for-trading 7,740,953 8,525,200Losses on fair value hedging derivatives instruments 112,620 81,719Other losses on financial instruments 74,566 75,205Losses on foreign currency translation and transactions 807,400 1,761,984Impairment loss of financial instruments 507,451 832,781General and administrative expenses 1,555,655 1,295,592Other operating expense 344,317 301,838

₩ 15,238,217 ₩ 16,724,971


112

37. Net interest income Interest income for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):

2011 2010 Interest income on due from banks ₩ 57,763 ₩ 81,418Interest income on available-for-sale financial assets 603,670 690,852Interest income on held-to-maturity financial assets 125,360 199,511Interest income on loans 5,999,432 5,525,490Others 92,388 99,758 6,878,613 6,597,029Interest income on held-for-trading financial assets 41,496 33,750 ₩ 6,920,109 ₩ 6,630,779

Interest expenses for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Interest expense on deposit liabilities ₩ 3,022,048 ₩ 2,756,297Interest expense on borrowings 164,104 201,250Interest expense of debentures 733,053 758,095Others 65,212 33,561 ₩ 3,984,417 ₩ 3,749,203

38. Net fees and commission income Fees and commission income for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Commissions received from loans and others ₩ 400,304 ₩ 399,178Commissions received on credit card 69 15,859Commissions received on guarantee 21,544 23,280Commissions received from redemption before maturity 727 785Rental commissions on securities 2,309 1,639Commissions related foreign exchange 75,780 77,986 ₩ 500,733 ₩ 518,727

Fees and commission expenses for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Commissions paid borrowings and others ₩ 81,835 ₩ 72,146Commissions paid on credit card 1 45Trust commissions 658 2,849Rental fees on securities 149 295Commissions related foreign exchange 28,195 26,114 ₩ 110,838 ₩ 101,449


113

39. Net trading income Gains (or losses) from financial assets and liabilities held-for-trading for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Gains on financial assets and liabilities held-for-trading

Financial assets held-for-trading Gain on valuation ₩ 1,574 ₩ 4,600Gain on disposal 70,632 97,613Dividend income 257 269

72,463 102,482Trading derivative instruments

Currency related derivatives 7,052,183 7,424,544Interest related derivatives 488,480 742,671Stock related derivatives 163,583 269,549Credit related derivatives 2,210 3,081Others 5,209 4,297

7,711,665 8,444,142Others 100 2,466

7,784,228 8,549,090Losses on financial assets and liabilities held-for-trading

Financial assets held-for-trading Loss on valuation 446 493Loss on disposal 80,240 34,515

80,686 35,008Trading derivative instruments

Currency related derivatives 7,009,538 7,366,551Interest related derivatives 479,288 851,210Stock related derivatives 155,869 261,598Credit related derivatives 1,858 1,340Others 8,849 3,380

7,655,402 8,484,079Others 4,865 6,113

7,740,953 8,525,200 ₩ 43,275 ₩ 23,890


114

40. Net loss on derivative financial instruments used for hedging Gain (loss) related fair value hedging derivatives instruments for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Gains on fair value hedging derivatives instruments

Hedged item Gain on valuation of available-for-sale financial assets ₩ - ₩ 1,814

Gain on valuation of loans 108 -Gain on redemption of debentures 15,563 -Gain on valuation of debentures 25,376 27,924 Gain on valuation of deposits 2,420 2,289 43,467 32,027

Fair value hedging derivatives instruments Gain on disposal of interest related derivatives 84 -Gain on valuation of interest related derivatives 68,469 42,081 68,553 42,081

112,020 74,108 Losses on fair value hedging derivatives instruments

Hedged item Loss on valuation of available-for-sale financial assets 96

-

Loss on disposal of loans - 39 Loss on valuation of debentures 58,217 32,910 Loss on disposal of deposits 88 6,191 Loss on valuation of deposits 11,178 9,542 69,579 48,682

Fair value hedging derivatives instruments Loss on disposal of interest related derivatives 15,542 755 Loss on valuation of interest related derivatives 27,499 32,282

43,041 33,037 112,620 81,719 ₩ (600) ₩ (7,611)


115

41. Net other income on financial instruments Net other income on financial instruments for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Other income on financial instruments

Gain on disposal of available-for-sale financial assets ₩ 525,678 ₩ 218,751

Gain on redemption of available-for-sale financial assets - 169

Dividend income from available-for-sale financial assets 36,230 33,749

Gain on disposal of held-to-maturity financial assets 76 109

Gain on disposal of loans 19,325 23,726 581,309 276,504Other losses on financial instruments

Loss on disposal of available-for-sale financial assets 36,623 8,927

Loss on disposal of held-to-maturity financial assets 11 -Loss on disposal of loans 35,680 66,060Loss on redemption of debentures 2,252 218

74,566 75,205 ₩ 506,743 ₩ 201,299

42. Impairment loss of financial instruments Impairment loss on financial instruments for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):

2011 2010 Impairment loss of available-for-sale financial assets ₩ 64,788 ₩ 27,617Provision for possible loan losses 410,547 750,385Provision for possible other assets losses 32,116 54,779 ₩ 507,451 ₩ 832,781


116

43. General and administrative expenses General and administrative expenses for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010

Salaries ₩ 571,068 ₩ 500,767 Provision for severance and retirement benefits 89,330 32,681Early retirement benefits 96,346 6,264Employee benefits 138,000 114,930Rental expense 122,690 120,363 Entertainment expenses 21,728 22,912 Depreciation 70,484 85,440Amortization 58,221 60,390 Taxes and dues 63,661 56,540 Advertising expense 71,395 61,794 Servicing expenses 122,401 114,358 Supplies expenses 8,961 8,306 Others 121,370 110,847 ₩ 1,555,655 ₩ 1,295,592

44. Other operating income

Other operating income for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Reversal of allowance for possible losses on acceptances and guarantees ₩ 5,339 ₩ 2,967Reversal of allowances for unused

commitments 19,417 -Trust commissions 43,642 39,620Reversal of credit valuation adjustment 28,715 203,453Reversal of liquidity adjustment - 8,458Others 424 70 ₩ 97,537 ₩ 254,568


117

45. Other operating expenses

Other operating expenses for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Contribution to guarantee fund ₩ 161,271 ₩ 144,326Insurance fee on deposit 135,119 118,920Contribution to housing credit guarantee fund 28,498 22,275Provision of allowance for lawsuits 4,424 5,581Provision of liquidity adjustment 1,763 -Provision of allowances for unused commitments - 4,381Provision of allowances for asset restoration

obligation 1,469 1,513Provision of other allowance 5,756 691 Others 6,017 4,151 ₩ 344,317 ₩ 301,838 46. Other non-operating income Other non-operating income for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):

2011 2010 Rental fee income ₩ 9,717 ₩ 10,119Gain on obsolescence 231 74Gain on disposal of property and equipment 313 404Others 24,427 51,415 ₩ 34,688 ₩ 62,012 47. Other non-operating expenses Other non-operating expenses for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Loss on obsolescence ₩ 94 ₩ 123 Impairment loss on intangible assets 5,375 -Loss on disposal of property and equipment 811 1,861Others 75,255 95,527 ₩ 81,535 ₩ 97,511


118

48. Income tax expense The components of income tax expense for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

December 31, 2011 December 31, 2010 Current income taxes

Income taxes ₩ 433,117 ₩ 348,523 Additional payment (refund) of

prior year’s income tax (12,270) 27,409 Changes in deferred income tax assets

(liabilities) (112,569) 6,663 Current and deferred income taxes

recognized directly to equity 78,824 (42,990)Tax effect of consolidated tax returns (21,111) (33,682)Income tax expense ₩ 365,991 ₩ 305,923

Reconciliations of income tax expense applicable to the net income before income tax expense at the Korea statutory tax rate to income tax expense at the effective income tax rate of the Company for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

December 31, 2011 December 31, 2010Net income before income tax expense ₩ 1,611,264 ₩ 1,397,020 Tax at domestic statutory income tax rate of 24.2% 389,899 338,052 Non-taxable income (10,657) (987)Expenses not deductible for tax purposes 11,344 8,542 Tax deduction - (6,717)Income tax expense of foreign branches and

subsidiaries 22,520 20,840 Tax effect of consolidated tax return (21,111) (33,682)Additional payment (refund) of prior year’s income

tax (12,270) 27,409 Effect of tax rates change and others (6,503) (26,197)Others (7,231) (21,337)Income tax expense ₩ 365,991 ₩ 305,923 Effective income tax rate (%) 22.7 21.9


119

48. Income tax expense (cont’d) Temporary differences and deferred income tax assets (liabilities) as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011

Deductible (taxable)

temporary differences

Deferred income

tax assets (liabilities)

Gain on valuation of trading securities ₩ 37,783 ₩ 9,144 Impairment loss on investments 200,023 48,405 Investment in an associates and subsidiaries (42,853) (10,371)Gain on valuation of derivatives (82,563) (19,980)Deemed dividends 1,677 406 Deferred loan fees and expenses (86,002) (20,812)Accrued interest income (161,659) (39,122)Allowance for temporary depreciation (143) (35)Accrued expenses 48,543 11,747 Allowance for possible losses on acceptance guarantees 27,276 6,601 Deposit for severance and retirement benefits (260,073) (62,938)Provision for severance and retirement benefits 260,814 63,117 Allowance for other losses 67,144 16,249 Loans written-off 417,680 101,079Depreciation 28,244 6,835 Fair value valuation resulting from merger (13,397) (3,242)Dormant deposits 23,131 5,598 Advanced depreciation provision (117,849) (28,519)Deemed cost for property and equipment (596,722) (144,407)Available-for-sale financial assets (231,859) (56,110)Others (28,603) (6,922) ₩ (509,408) ₩ (123,277)Domestic deferred income tax liabilities ₩ (123,277)Foreign deferred income tax assets (*) 11,320

₩ (111,957)


120

48. Income tax expense (cont’d)

December 31, 2010



Deferred income


Gain on valuation of trading securities ₩ 59,164 ₩ 13,016 Impairment loss on investments 96,644 21,262 Investment in an associates and subsidiaries 8,701 1,914 Gain on valuation of derivatives 58,720 12,918 Deemed dividends 541 119 Deferred loan fees and expenses (77,020) (16,944)Accrued interest income (212,010) (46,810)Allowance for temporary depreciation (247) (54)Accrued expenses 64,362 14,160 Allowance for possible losses on acceptance guarantees 32,879 7,233 Deposit for severance and retirement benefits (206,480) (45,426)Provision for severance and retirement benefits 191,531 42,137 Allowance for other losses 157,087 34,559 Loans written-off 65,850 179 Depreciation 32,050 7,051 Fair value valuation resulting from merger (13,397) (2,947)Dormant deposits 16,983 3,736 Advanced depreciation provision (117,849) (25,927)Deemed cost for property and equipment (581,932) (128,025)Compensation costs for share options (24) (5)Available-for-sale financial assets (644,569) (141,805)Others 54,372 12,004 ₩ (1,014,644) ₩ (237,655)Domestic deferred income tax liabilities ₩ (237,655)Foreign deferred income tax assets (*) 9,648

₩ (228,007)


121

48. Income tax expense (cont’d)

January 1, 2010



Deferred income


Gain on valuation of trading securities ₩ (16,257) ₩ (3,577)Impairment loss on investments 99,703 21,935 Investment in an associates and subsidiaries (5,018) (1,238)Gain on valuation of derivatives (101,411) (22,311)Deemed dividends 521 115 Deferred loan fees and expenses (60,776) (13,371)Accrued interest income (29,905) (6,635)Allowance for temporary depreciation (500) (110)Accrued expenses 62,024 13,645 Allowance for possible losses on acceptance guarantees 35,355 7,778 Deposit for severance and retirement benefits (184,498) (40,590)Provision for severance and retirement benefits 177,880 39,134 Allowance for other losses 369,298 81,246 Loans written-off (233,710) (70,609)Depreciation 14,768 3,249 Fair value valuation resulting from merger (13,412) (2,951)Dormant deposits 11,802 2,596 Advanced depreciation provision (117,849) (25,927)Deemed cost for property and equipment (586,494) (129,029)Available-for-sale financial assets (419,789) (92,817)Others (62,921) (13,708) ₩ (1,061,189) ₩ (253,175)Domestic deferred income tax liabilities ₩ (253,175)Foreign deferred income tax assets (*) 13,108

₩ (240,067) (*) Deferred income tax assets of foreign branches are not offset against the deferred income tax liabilities due to the differences in tax jurisdictions. The effective income tax rate of 24.2%, 22% and 22% as of December 31, 2011, December 31, 2010, and January 1, 2010, respectively, is applied when calculating deferred income tax assets or liabilities. Also, deferred income tax assets are recognized when it is foreseeable that future taxable income will be incurred and that future tax credits will be realized.


122

48. Income tax expense (cont’d) Details of deferred income taxes charged (credited) directly to equity as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):

December 31, 2011

Before tax amounts Deferred income

tax assets (liabilities) Gain (loss) on valuation of available-for-sale financial assets ₩ 231,859 ₩ (56,110)Gain on valuation of

equity method investments 24,550 (5,941)Loss on valuation of

equity method investments (258) 63 Exchange differences on translation

of foreign operations 2,523 (611) ₩ 258,674 ₩ (62,599)

December 31, 2010



equity method investments 609 (134)Loss on valuation of

equity method investments (1,763) 388Exchange differences on translation

of foreign operations (779) 173 ₩ 642,636 ₩ (141,378)

January 1, 2010



equity method investments 17,642 (3,881)Loss on valuation of

equity method investments (259) 57 ₩ 437,172 ₩ (96,641)


123

49. Earnings per share Basic earnings and diluted per share for the years ended December 31, 2011 and 2010 are as follows: Weighted averaged number of shares outstanding (Shares except for number of days):

Fixed date Shares of

common stock Days Accumulated sharesWeighted averaged

number of common shares

2011.12.31. 219,799,157 365 80,226,692,305 219,799,157

(Korean won in units and in number of shares) 2011 2010

Net income ₩ 1,224,926,030,242 ₩ 1,070,110,291,646 Dividends of hybrid equity securities (20,515,539,791) (25,711,603,660)Net income attributable to common stock ₩ 1,204,410,490,451 ₩ 1,044,398,687,986Weighted averaged number of common shares

of outstanding 219,799,157 219,799,157 Basic and diluted earnings per share ₩ 5,480 ₩ 4,752 50. Share-based payment transaction HFG was granted stock options to the Company’s employees and directors. Accordingly, the Company has accounted for the expected compensation costs for stock options granted by the Company as a liability in accrued expenses. Details of stock options granted by HFG as of December 31, 2011 are summarized as follows: First grant Second grant Third grant Date March 24, 2006 March 23, 2007 March 28, 2008Settlement method (*1) (*1) (*1) Exercisable period (*2) (*2) (*2) All assumptions based on estimation of fair value for share options: Fair value measurement model Black-Sholes Black-Sholes Black-Sholes Risk free rate 5.00% 4.76% 5.18% Expected exercise period 3.5 year 3.5 year 3.5 year Estimated share volatility 50.45% 34.00% 30.40% Estimated dividend ₩ - ₩ 2,792 ₩ 3,999Stock price at grant date ₩ 45,750 ₩ 49,450 ₩ 41,100Fair value of share options ₩ 19,633 ₩ 13,430 ₩ 9,659

(*1) HFG chooses one of the following at its discretion: additional equity issue grant, treasury stock grant or cash settlement. (*2) The above stock options will vest after a two-year period and become exercisable within 3 years after the vesting date, except if the Company’s employees or directors retire at the regular retirement age or for reasons not attributable to the fault of the employees or directors, such options will vest and become exercisable immediately within six months from the retirement date (one year for the second grant options). Upon the death of a Company employee or directors, such options will vest and become exercisable immediately within one year from the date of death. In addition, when the Company employee or director leaves the employment for two years after the vesting date, such options are to be exercised within 30 days of the departure.


124

50. Share-based payment transaction (cont’d) Change in stock options granted by HFG for the year ended December 31, 2011 is summarized as follows (Korean won and number of shares in units):

Beginning

Exercised Extinguishment Ending Exercisable Exercise priceFirst 598,000 (575,000) (23,000) - - ₩ 44,400Second 594,300 - (88,600) 505,700 505,700 ₩ 49,900Third 114,000 (28,500) (2,000) 83,500 83,500 ₩ 40,600

Stock granted by HFG is summarized as follows:

First grant Second grant Date 2010.1.1 2011.1.1 Settlement method (*1) (*1) Settlement period (appraisal period) 2010.1.1~2012.12.31 2011.1.1~2013.12.31 Payment date 2012.12.31 2013.12.31 Estimated vested shares as of December 31, 2011 4,070 shares(*2) 54,985 shares(*2)

(*1) HFG chooses one of the following at its discretion: Treasury stock grant or cash settlement. (*2) The maximum number of shares to be compensated is pre-determined before the grant date, and vested shares are determined by the performance measures. The Company has debited the compensation costs of ₩2,426 million for stock granted by HFG. The Company’s share-based payment liability recorded in accrued expenses amounted to ₩ 7,556 million, ₩21,157 million, and ₩25,852 million as of December 31, 2011, December 31, 2010 and January 1, 2010, respectively, and the stock grant liability recorded in accrued expenses amounted to ₩2,498 million and ₩71 million as of December 31, 2011 and 2010, respectively 51. Cash flow information Cash on hand as of December 31, 2011, December 31, 2010, and January 1, 2010 is summarized as follows (Korean won in millions):


Currencies ₩ 721,398 ₩ 642,304 ₩ 681,468Checks and bills 834,491 778,096 934,809Due from banks in BOK 1,808,470 2,159,225 1,936,672Due from banks in other banks 2,720,247 2,948,441 2,833,690 6,084,606 6,528,066 6,386,639Restricted balances (2,422,491) (2,741,547) (3,047,176)Deposits which have a maturity period of three months or above (735,252) (733,321) (205,850)

(3,157,743) (3,474,868) (3,253,026) ₩ 2,926,863 ₩ 3,053,198 ₩ 3,133,613


125

51. Cash flow information (cont’d) Significant non-cash transactions for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010

Written-off loans ₩ 454,219 ₩ 257,655Changes in the unrealized gain (loss) of available-for-sale financial assets (430,572) 226,281

Decrease in allowance for possible loan losses due to sale of non-performing loans 79,079 59,102

Appropriation for losses on capital reduction - 175,031 Cash flows from the interest and dividend for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):

2011 2010 Interest receipts ₩ 6,871,621 ₩ 6,635,158Interest payments 4,126,767 4,014,291Dividend receipts 36,487 34,018

52. Related parties Ownership percentages among the Company and its affiliates as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Number of shares in units):

Invest

or

Investee

Country


Number of

shares Ownership

(%) Number of

shares Ownership

(%) Number of

shares Ownership

(%) HFG Hana Bank Korea 219,799,157 100.0 219,799,157 100.0 219,799,157 100.0

Hana Daetoo Securities

Korea 35,060,263 100.0 35,060,263 100.0 35,060,263 100.0

Hana SK Card Co., Ltd.

Korea 60,000,000 51.0 60,000,000 51.0 60,000,000 100.0

Hana Capital Korea 7,261,199 50.1 7,261,199 50.1 7,261,199 50.1

Hana Daol Trust

Korea 5,800,000 58.0 5,800,000 58.0 6,020,101 50.0

Hana INS Korea 1,600,000 100.0 1,600,000 100.0 1,600,000 100.0

HIF Korea 640,000 100.0 640,000 100.0 640,000 100.0Hana Bank

Hana Funding Ltd.

Cayman Islands 1 100.0 1 100.0 1 100.0

Hana Bank China (*)

China - 100.0 - 100.0 - 100.0

PT Bank Hana Indonesia 75,100 75.1 37,550 75.1 36,050 72.1

LS leading Solution no.109

and 5 other private equity investment institutions

Korea - - - - - -

Hana CSP Co., Ltd.and 4 other SPEs

Korea - - - - - -

Trust Accounts Korea - - - - - - (*) Hana Bank China was incorporated as a partnership and therefore, there is no issued share.


126

52. Related parties (cont’d) Transactions with related parties for the years ended December 31, 2011 and 2010 are summarized as follows (Korean won in millions):

2011 2010

Related parties

Type

Income

Provision for

possible loan

losses (reversal) Expense Income

Provision for

possible loan

losses (reversal) Expense

HFG Controlling company

₩ 1,933 ₩ - ₩39,062 ₩ 1,381 ₩ - ₩ 2,284

UAMCO Investment in an associate

455 - - 43,784 12 17,094

Korea Travels Investment in an associate

604 - 606 481 - 262

Korea Credit Bureau Investment in an associate

- - 75 - - 57

Darby-Hana Infrastructure Fund

Management

Investment in an associate

- - 152 1 - 109 Taesan LCD

Co., Ltd. Investment in

an associate

928 (184) 210 1,156 (14,948) 122,506 21st Shipbuilding Co.,

Ltd. Investment in

an associate

2,148 48,059 18,066 2,049 47,133 45,964 4,135 47,875 19,109 47,471 32,197 185,992 Hana Daetoo Securities Member of the

same group

4,256 (8) 3,214 18,376 5 44,385 Hana SK Card Co., Ltd. Member of the

same group

43,716 - 1,038 48,958 - 859Hana Capital Member of the

same group

550 (59) 174 655 (119) 109 Hana Daol Trust Member of the

same group

31 - 71 2 - 53 Daol Asset Management Co., Ltd.

Member of the

same group

- - 86 - - 39 Hana INS Member of the

same group

510 - 28,735 631 - 26,420 HIF Member of the

same group

7 - 4,350 - - 4,343 UBS Hana Asset Management Co., Ltd.

Member of the same group

- - 651 4,430 - 841

AJ Rent a Car Co., Ltd. Member of the same group

3,586 (34) 6 1,659 44 6

Odin2.LLC Member of the same group

969 104 - - - -

Doosan Capital Co., Ltd.

Member of the same group

2,324 (15) - 2,851 (20) 61

A&D Credit Information Member of the same group

- - - - - -

55,949 (12) 38,325 77,562 (90) 77,116 ₩ 62,017 ₩ 47,863 ₩ 96,496 ₩126,414 ₩ 32,107 ₩ 265,392


127

52. Related parties (cont’d) Outstanding balances with related parties arising from the below transactions as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions):


Related parties

Type Assets

Allowance for possible loan losses Liabilities Assets

Allowance for possible loan losses Liabilities Assets

Allowance for possible loan losses Liabilities

HFG Controlling company ₩ - ₩ - ₩1,895,771 ₩ - ₩ - ₩2,244,293 ₩ - ₩ - ₩ 13,087 UAMCO Investment in an associate 14,726 12 4 15,309 12 3 - - 4,990 Korea Travels Investment in an associate - - 20,462 - - 5,909 - - 8,373 Korea Credit Bureau Investment in an associate - - 2,005 - - 4,005 - - 1,504 Darby-Hana Infrastructure

Fund Management Investment in an associate - - 4,623 - - 3,902 - - 3,229 Taesan LCD Co., Ltd. Investment in an associate 32,260 2,275 10,162 32,217 2,459 20,570 32,303 17,407 9,599 21st Shipbuilding Co., Ltd. Investment in an associate 59,473 103,476 1 117,969 55,417 29,144 115,230 8,284 3,814 106,459 105,763 37,257 165,495 57,888 63,533 147,533 25,691 31,509 Hana Daetoo Securities Member of the same group 8,049 - 68,984 31,040 8 65,351 32,266 3 283,910 Hana SK Card Co., Ltd. Member of the same group 554 - 55,299 261 - 61,736 - - 95,644 Hana Capital Member of the same group 51,000 79 8,025 85,014 138 8,163 180,015 257 12,318 Hana Daol Trust Member of the same group - - 7,118 22 - 7,128 - - - Daol Asset Management

Co., Ltd. Member of the same group - - 4,108 - - 3,468 - - 798 Hana INS Member of the same group - - 7,725 - - 9,894 - - 7,836 HIF Member of the same group - - 2,081 - - 261 - - 2,170 UBS Hana Asset Management Co., Ltd. Member of the same group - - 18,326 - - 20,194 - - 21,656 AJ Rent a Car Co., Ltd. Member of the same group 50,600 145 607 57,883 179 11 10,040 135 96 Odin2.LLC Member of the same group 19,105 104 - - - - - - - Doosan Capital Co., Ltd. Member of the same group 20,000 58 - 45,000 73 3 45,000 93 10,000 149,308 386 172,273 219,220 398 176,209 267,321 488 434,428 ₩ 255,767 ₩ 106,149 ₩2,105,301 ₩ 384,715 ₩ 58,286 ₩2,484,035 ₩ 414,854 ₩ 26,179 ₩ 479,024


128

52. Related parties (cont’d) Guarantee and collateral provided by the Company and its related parties as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions):

Related parties December 31, 2011 Benefactor Beneficiary Transactions Amounts Content

Hana Bank Hana Funding Ltd. Guarantee for F/X

₩ 230,660 Confirmed

Guarantee

Hana Bank Hana SK Card Co., Ltd. Guarantee for F/X 6,689 Confirmed

Guarantee

Hana Capital Hana Bank Collateral 382,129 Lease Receivables

and others Hana SK Card Co., Ltd. Hana Bank Collateral 8,700 Deposits Hana Bank Hana Cymbidium Co., Ltd. Granting of credit 23,066 Credit-line for ABSHana Bank Hana Aphrodite Co., Ltd. Granting of credit 23,066 Credit-line for ABS

Related parties December 31, 2010 Benefactor Beneficiary Transactions Amounts Content

Hana Bank Hana Funding Ltd. Guarantee for F/X ₩ 227,780 Confirmed Guarantee

Hana Bank Hana SK Card Co., Ltd. Guarantee for F/X 6,606 Confirmed Guarantee

Hana Capital Hana Bank Collateral 395,694 Lease Receivables and others

Hana Daetoo Securities Hana Bank Collateral 30,000 Finance bond Hana SK Card Co., Ltd. Hana Bank Collateral 10,530 Deposits Hana Bank Hana Cymbidium Co., Ltd. Granting of credit 22,778 Credit-line for ABSHana Bank Hana Aphrodite Co., Ltd. Granting of credit 22,778 Credit-line for ABSHana Bank Hana Swap Plus Co., Ltd. Granting of credit 45,556 Credit-line for ABS

Hana Bank Post Pine Asset Securitization Specialty Co., Ltd.

Purchase agreement 150,000

ABCP Purchase Agreement

Hana Bank Grandpot 2008 Co., Ltd. Purchase

agreement 41,000 ABCP Purchase

Agreement

Hana Bank TD Soleil Co., Ltd. Purchase


Agreement


129

52. Related parties (cont’d)

Related parties January 1, 2010 Benefactor Beneficiary Transactions Amounts Content

Hana Bank Hana Funding Ltd. Guarantee for F/X ₩ 233,520 Confirmed

Guarantee

Hana Capital Hana Bank Collateral 395,694 Lease Receivables

and others

Hana Daetoo Securities Hana Bank Collateral 28,205

Small and medium industry finance bonds

Hana Bank Global 2008 Securitization Specialty Co., Ltd. Granting of credit 123,534 Credit-line for ABS

Hana Bank Hana Swap Plus Co., Ltd. Granting of credit 46,696 Credit-line for ABSHana Bank Hana Cymbidium Co., Ltd. Granting of credit 23,348 Credit-line for ABSHana Bank Hana Aphrodite Co., Ltd. Granting of credit 23,348 Credit-line for ABS

Hana Bank First Class Master Co., Ltd. Purchase


Agreement

Hana Bank

Post Pine Asset Securitization Specialty Co., Ltd.

Purchase agreement

150,000

ABCP Purchase Agreement

Hana Bank Bigpot 2007 Co., Ltd. Purchase


Agreement

Hana Bank Grandpot 2008 Co., Ltd. Purchase


Agreement Details of compensation for standing directors and executive officers for the years ended December 31, 2011 and 2010 are summarized as follows (Korean won and number of people in units):

2011

Number of directors Compensation

Registered directors

Unregistereddirectors

Short-term employee payment

Severance payment

Stock options Total

Hana Bank 10 18 ₩ 8,367 ₩ 478 ₩ 1,276 ₩ 10,121Hana Bank China 7 3 837 - - 837 17 21 ₩ 9,204 ₩ 478 ₩ 1,276 ₩ 10,958

2010

Number of directors Compensation Registered directors

Unregistered directors

Short-term employee payment

Severance payment Total

Hana Bank 9 19 ₩ 6,418 ₩ 861 ₩ 7,279 Hana Bank China 7 2 706 62 768 16 21 ₩ 7,124 ₩ 923 ₩ 8,047


130

53. Explanation of transition to K-IFRS

Reconciliation on the statement of financial position of the Company as at January 1, 2010 under K-GAAP and K-IFRS is summarized as follows (Korean won in millions):

Description Assets Liabilities Equity

K-GAAP ₩ 137,806,102 ₩ 128,315,148 ₩ 9,490,954 Reconciliations:

Allowance for possible loan losses(*1) 705,544 (103,006) 808,550 Fair value of derivative assets and liabilities(*2) 166,875 255,459 (88,584)

Hybrid equity securities(*3) - (400,000) 400,000 Revaluation of property (land and buildings)(*4) 597,039 15,616 581,423 Investment of subsidiaries and

associates(*5) 517,164 592,266 (75,102)Hedge accounting(*6) (6,302) 791 (7,093)

Recognition of accrued interest(*7) 7,057 - 7,057 Defined benefit obligation(*8) - (6,619) 6,619

Tax effects (64,567) 254,375 (318,942)Others 2,030 4,746 (2,716)

1,924,840 613,628 1,311,212 K-IFRS ₩ 139,730,942 ₩ 128,928,776 ₩ 10,802,166 Reconciliation between statements of financial position and financial performance of the Company as of and for the year ended December 31, 2010 under K-GAAP and K-IFRS is summarized as follows (Korean won in millions):

Description Assets Liabilities Equity Net

income

Total comprehensive

income

K-GAAP ₩ 141,680,847 ₩ 133,068,428 ₩ 8,612,419 ₩ 986,112 ₩ 1,150,469

Reconciliations: Allowance for possible loan losses(*1) 597,179 (98,831) 696,010 (226,217) (226,217)Fair value of derivative assets and liabilities(*2) 53,200 43,521 9,679 211,930 211,930

Hybrid equity securities(*3) - (400,000) 400,000 25,840 25,840 Revaluation of property (land and buildings)(*4) 599,286 18,855 580,431 (993) (993)

Investment of subsidiaries and associates(*5) (944,853) (897,815) (47,038) 63,821 47,183

Hedge accounting(*6) (1,294) (2,289) 995 8,119 8,090

Recognition of accrued interest(*7) 8,662 (205) 8,867 1,810 1,810

Defined benefit obligation(*8) - (14,949) 14,949 7,029 7,029

Tax effects - - - (23,971) -

Impairment of equity securities (53,664) 238,717 (292,381) 28,896 26,468

Others 4,665 4,911 (246) 8,721 5,560

263,181 (1,108,085) 1,371,266 104,985 106,700

K-IFRS ₩ 141,944,028 ₩ 131,960,343 ₩ 9,983,685 ₩ 1,091,097 ₩ 1,257,169


131

53. Explanation of transition to K-IFRS (cont’d) (*1) Allowance for possible loan losses is calculated in accordance with the concept of ‘incurred but not reported’. (*2) Valuation of derivatives takes into consideration the effect of bid-ask quotes and credit risk of counterparties. (*3) Hybrid instruments are accounted for as equity instruments due to the economic substance. (*4) The Company revalued its property at fair value on the date of transition to K-IFRS and used revalued amount as a deemed cost. (*5) Scope of associates is changed and investment in subsidiaries and associates are measured at book value as of the Bank’s date of transition. (*6) Calculation method of hedge ratio is changed. (*7) Accrued interest is not recognized by past due but by the impairment standards. (*8) Under the K-IFRS, pension liabilities are recognized on an actuarial basis. Changes in consolidated subsidiaries as of December 31, 2010 are as follows:

K-GAAP K-IFRS Reason for differences Hana Bank China Hana Bank China - PT Bank Hana PT Bank Hana - Hana Funding Ltd Hana Funding Ltd - General Unspecified Money Trusts General Unspecified Money Trusts -

Development Trust Development Trust - Private Pension Trust -

Excluded because the Company does not have the majority of risks and rewards.

Retirement Trust - Retirement annuity Trust - New Private Pension Trust - Pension Trust - New Retirement Trust - Seoul Retirement Trust - Seoul Private Trust -

- Hana 2nd Securitization Specialty

Co., Ltd.

Included because the Company has the majority of risks and rewards due to its credit line facilities provision.

- Hana Cymbidium Co., Ltd. - Hana Aphrodite Co., Ltd. - Sevenstar Co., Ltd. - Bigpot 2007 Co., Ltd. - Grandpot 2008 Co., Ltd.

- Global 2008 Securitization

Specialty Co., Ltd.

- Post Pine Asset Securitization

Specialty Co., Ltd. - TD Soleil Co., Ltd. - First Class Master Co., Ltd. - Hana Swap Plus Co., Ltd. - Hana Minerba Co., Ltd.


132

53. Explanation of transition to K-IFRS (cont’d)

The cash flows for acquiring and disposing equity or debt instruments, except held-for-trading assets, which was classified as cash flows from operations under K-GAAP, have been classified as cash flows from investments under K-IFRS. There is no significant difference between the statement of cash flows prepared under K-GAAP and K-IFRS except for the aforementioned.

K-GAAP K-IFRS Reason for differences

- LS Leading Solution PEF Invest

Trust 87

Included because the Company has the majority of risks and reward by owning more than 50 percent shares

- Samsung Partner PEF Invest

Trust 20 - Korea Investment PEF Basic 39

- Hana UBS Power PEF Invest

Trust 9

- Hana UBS Power PEF Invest

Trust 10

consolidated english report hana bank 2011 ye draft...

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