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A n n u a l R e p o r t 2 0 0 7

A DynamicStar Global Financial

Leader

Contents

01 Profile 02 Innovative Progress 04 Letter to Stakeholders 08 Financial Indicators 10 Vision & Strategy 12 2007 Highlights

14 2007 Awards & Recognition 16 Senior Management 18 Organization Chart 20 Passion to Serve 22 Business at a Glance

24 Retail Banking 26 Corporate Banking 28 Credit Card 30 Trust/NHF Management 32 Capital Markets & Treasury 34 Private Banking

36 Creative Mindset 38 KB Systems 40 Credit Management 44 Risk Management 48 Promise to Keep50 Corporate Governance 52 Board of Directors 54 Shareholder Relationship 55 HR Management 56 Customer Satisfaction

58 Ethical Management 62 Social Contribution 64 Financial Section 66 Management’s Discussion & Analysis 80 Auditor’s Report

278 Affiliated Companies 280 Overseas Network 281 Forward Looking Statements

Innovative Progress

Passion to Serve

Creative Mindset

Promise to Keep


Leader

A GLOBAL BANK

LEADINGASIAN FINANCIAL INDUSTRYBased on the vision of a “convenient, sound, and wise” bank, KB has grown alongwith Korea’s economy. KB leads the domestic market and is now poised toemerge as a global bank that leads the Asian financial industry. By understandingand coping with continuously changing financial market trends in areas such asUniversal Banking and Globalization and by further enhancing itscompetitiveness of advanced systems and leadership competencies as a leadingbank, KB will firmly establish itself as an advanced global financial corporation.

ProgressnnovativeI

KB is making a diversified effort to actively prepare for future changes in the financial

environment in order to become a leading financial company. The Bank seeks to heighten its

competitiveness and value as well as satisfy customers and shareholders through qualitative

enhancements in its assets and profitability. KB performed excellently in 2007 as the Bank’s 2007

net income was KRW2,773.8 billion, a significant increase from the previous year’s figure of

KRW2,472.1 billion. Looking ahead, KB will strive to realize its vision of “becoming a global

bank leading the Asian financial industry” through steady management innovation.

Net IncomeKB posted approximately KRW3 trillion in net income as a result of its efforts to enhance asset quality and profitability.

I KOOKMIN BANK ANNUAL REPORT 2007 I

KRW2,773.8 billion

Innovative Progress

Passion to Serve

Creative Mindset

Promise to Keep


Leader

004 KOOKMIN BANK ANNUAL REPORT 2007

As KB embraces a new financial era, the Bank will take on challenges and initiatechanges to gain greater trust and support from customers and shareholders, and willleap forward to becoming a “Global Bank, Leading the Asian Financial Industry.”

On the back of KB’s effort to strengthen future growthengines in 2007, the Bank will firmly establish itself asthe best comprehensive financial group by strengtheningcore growth engines, establishing a platform for globalgrowth, innovating its corporate culture and establishinga comprehensive financial structure.

Stakeholdersetter toL

KOOKMIN BANK ANNUAL REPORT 2007 005

Dear Stakeholders,

We sincerely appreciate the support and encouragement provided to us by all our customers andshareholders.

The Korean economy embarked on a growth trend starting in 2007 mainly due to steady growth inexports. This growth was achieved despite various uncertainties displayed in the domestic andinternational economic environment such as the credit crunch stemming from the U.S. sub-primemortgage crisis, oil and raw material price increases, and appreciation of the Korean Won. As a result ofthe global credit crunch, the domestic financial market faced various uncertainties, including a surge inforeign capital inflow/outflow, an increase in market volatility, and a sudden increase in interest rates dueto lack of capital within the banking industry.

Even in the midst of a tough financial environment, KB adopted a business strategy focused on“Strengthening Future Growth Engines,” and placed significant emphasis on establishing a foundationfrom which KB can leap forward into a global future.

These efforts resulted in KB being ranked number one for two consecutive years in the customer satisfactionsurvey by the Korea Productivity Center, and number one in the customer satisfaction survey by the KoreaManagement Association Consulting, enabling KB to solidify its position as the Best Customer SatisfactionBank. We also expanded the portion of fee income in our profit structure and substantially improved theNPL ratio in our assets. KB was also able to further enhance its reputation by receiving ratings in pari pasuor higher than the sovereign rating from the world’s top three credit rating agencies.

As a global bank, KB delivered several results, including opening new overseas branches and representativeoffices, and establishing a global cash management system through strategic alliances with foreign banks.We also endeavored to fulfill our social roles and responsibilities as a leading bank by making systemiccommunity-friendly social contribution activities.

As for business results, KB’s total assets increased by KRW23.7 trillion to KRW218.9 trillion in 2007.Loans showed the largest increase of KRW21.7 trillion to KRW171.6 trillion. On the funding side,deposits and borrowings increased by KRW8.8 trillion and KRW11.2 trillion to KRW138.9 trillion andKRW50.3 trillion, respectively.

By securing quality assets, KB was also able to significantly improve its asset soundness. As a result, theNPL ratio dropped 0.29%p to 0.74%. NPL coverage ratio rose 42.26%p to 193.03%, while delinquencyratio fell 0.36%p to 0.59%.


These improvements enabled KB to realize KRW4.9 trillion of operating income beforeprovisioning and a net income of KRW2.8 trillion, delivering three consecutive years of overKRW2 trillion in net income for the first time in Korea’s financial history.

The results of 2007 are a consequence of the tremendous efforts made by KB management andemployees to enhance customer satisfaction, improve asset soundness and secure globalcompetitiveness.

We envisage 2008 to be a year of change and innovation. New developments in financialsystems such as the Capital Market Consolidation Act and the New BIS Accord will be thecatalyst for change in the financial market. Market volatility is expected, while the globalfinancial market will continue to show uncertainty due to the U.S. sub-prime mortgage crisis in2007. As the trend for the banking industry to move away from being financial intermediarieswill continue into 2008, funds flow from bank deposits to stock market and indirectinvestment products will also continue, casting another uncertain outlook in the financialindustry.

In light of these uncertainties and expected increase in competition, KB will utilize theenhanced capabilities of management and employees to achieve its objective for the 3rd phaseof integration, “Solidifying KB’s Position as the Leading Domestic Comprehensive FinancialGroup,” by selecting four core tasks.

First, we will further strengthen our core growth engines.

Product competitiveness will be substantially improved by reviewing and enhancing the entiresales process from product development and selection to sales and post-sales management, andwe will also continue to reorganize our sales network in accordance to changes in customerdemographics. In addition to strengthening the bank’s traditional role as a financialintermediary by further developing attractive products focused on loans and deposits, we willalso concentrate on developing structured products.

Second, we will endeavor to establish a global growth platform.


In addition to the recent acquisition of Bank CenterCredit in Kazakhstan, KB opened a branchin Guangzhou (China), and representative offices in Almati (Kazakhstan), Kiev (Ukraine), andHo Chi Minh City (Vietnam) in 2007. We plan to open two more branches in Suzhou andHarbin, China and pursue acquisition opportunities in the “Asian Triangle” region.

Third, we will implement innovative measures across all areas, including organization, HR andcorporate culture.

At the end of December 2007, we initiated a reorganization of our head office and reinforced oursales personnel. In addition to the changes made in 2007, we will make a greater effort to ensurethat the head office supports the branches more effectively, the business groups initiate businessthrough better organic communications, and the overall organization is further strengthened toenhance productivity in all areas of the bank, including head office and branches.

Fourth, we will establish a comprehensive financial system.

Utilizing the strong foundation built through our retail banking business, we will restructureourselves into a comprehensive financial services group that can provide qualitative andquantitative financial services in all areas by expanding our universal banking through theacquisition, re-positioning and maximizing synergies of a securities firm. With the recentacquisition of KB Investment Securities, we will soon be providing retail brokerage andupgraded IB services.

Based on these management principals and through the efforts of management and employeesto enhance their capabilities to cope with the changing market environment, KB will be rebornas a bank of greater trust and support. Through challenges and changes, we hope to move closerto achieving our vision of becoming a “Global Bank, Leading the Asian Financial Industry.”

We hope for your continued support and interest in KB and wish you and your family the bestin health and happiness.

Chung Won KangPresident & Chief Executive Officer


ROA(%) ROE(%) BIS Capital Adequacy Ratio(%) NPL Ratio(%)

Net Income(KRW in Billions)

Total Assets(KRW in Trillions)

Total Liabilities (KRW in Trillions)

Total Shareholders’ Equity(KRW in Trillions)

2,773.8 219 203 16

Credit Rating•KB received top ratings from the global top three credit rating agencies.

Moody’s

S&P

Fitch

Long Term

A1 Aa3

A- A

A A+

Outlook

Stable

Stable

Stable

Remark

Superior to sovereign ratingJuly of 2007

Same as sovereign ratingMarch of 2007

Same as sovereign ratingJune of 2007

inancialIndicatorsF


ROA(%) ROE(%) BIS Capital Adequacy Ratio(%) NPL Ratio(%)



Total Liabilities (KRW in Trillions)

Total Shareholders’ Equity(KRW in Trillions)

KB’s net income rose to KRW2,773.8 billion in 2007 from KWR2,472.1 billion the previous year as a result of the Bank’s continuous effort toenhance asset quality and increase profitability. This resulted in total shareholders’ equity increasing from KRW15 trillion to 16 trillion, whileROA and ROE increased to 1.34% and 18.23%, respectively.In 2007, BIS CAR stood at 12.62% and NPL ratio improved to 0.74% from 1.03% in the year before due to strengthened credit management.

1.34 18.23 12.62 0.74

Customer Satisfaction

’01

4th 4th 6th 6th 2nd 1st 1st

’02 ’03 ’04 ’05 ’06 ’07

•KB is continuously enhancing customer satisfaction.As a result, KB ranked first for two consecutive yearsin NCSI’s banking sector and first in NCSI’s creditcard sector.


Improving the Profit Structure

KB diversified its profit structure to cope with changes in the financialmarket. The Bank enhanced the portion of fee income by promotingsales of non-banking products such as investment and trust products,and bancassurance. KB also improved asset management capabilitiesthrough a PB customer differentiation strategy which included theopening of a PB center exclusively for HNWI (High Net WorthIndividual) customers. At the same time, KB’s loan customer coverageexpanded, allowing the Bank to increase its assets and profits. The Bankis making steady efforts to improve its mid- to long-term profit structurethrough actions such as acquiring a securities firm.

Establishing a Clean Bank

KB will strive to become a leading bank by adhering to basic principles.Despite KB having a wider customer base compared to its competitors, theBank achieved the highest level of asset soundness in terms of NPL ratioand delinquency ratio. KB boasts the lowest level of financial accidents dueto its strong ethical sales practices. As a result, KB received credit ratingwhich were in pari pasu or higher than the sovereign ratings from threeglobally renowned credit rating agencies - Moody’s, S&P and Fitch.

Developing Global Standard Competencies

As Korea’s leading bank, KB laid the foundation to enable it to expandglobally. With a view to increasing the portion of overseas assets, theBank began to expand its global network to such countries as China,Vietnam, Kazakhstan and Ukraine. KB also embarked on building anext-generation IT system. The Bank gained stronger competitiveness bybecoming the only Korean bank to receive approval for the Basel IIFoundation Internal Ratings Based Approach.

Management Philosophy

KB’s philosophy is based on establishing a “Convenient, Sound & Wise”Bank. KB will not only become Korea’s number one bank, but will alsoestablish a growth platform to become a “Global Bank, Leading theAsian Financial Industry.” This will be accomplished by providingdiverse financial solutions that enhances customer satisfaction, and bysecuring customer trust through a stable financial structure and a unifiedorganizational culture.

Efforts to Strengthen Future Growth Engines in 2007

The ceaseless efforts and devotion of all KB management and employeesenabled the Bank to post more than KRW2 trillion in net income forthree consecutive years, a first in Korea’s financial history. In terms ofcustomer satisfaction, KB ranked first in the NCSI (National CustomerSatisfaction Index) for two years in a row helping further elevate itsreputation as a leading bank that has the trust and support of all citizens.In order to cope with macroeconomic challenges and financial policychanges, and to maintain its position as the leading bank, KB established astrategic goal of “Strengthening Future Growth Engines.” Simultaneously,KB initiated measures to “Strengthen its sales capabilities, improve itsprofit structure, establish a clean bank, and develop global standardcompetencies,” enabling the Bank to achieve notable results.

Strengthening Sales Capabilities

KB strengthened its sales capabilities by developing and establishingdiverse products and channels. Based on the market, KB was able toachieve significant results by delivering customized products cateredtowards the needs and lifestyles of a diverse customer base. KB alsoimproved its core competencies by strengthening the Bank’s on andoffline channel marketing efforts through wireless mobile branches andthe opening of a branch at Incheon International Airport. As a result, theBank was able to enhance its sales capabilities.

Strategyision &V


● Improving HR Management Systems to Foster Human Resourceson a Mid- to Long-term BasisKB will establish HR operating plans that are closely linked tomanagement’s mid- to long-term strategies, and by reinforcingspecialized capabilities, KB will be able to focus on fostering humanresources that are internationally competitive.

Overseas Business

KB will either acquire or purchase stakes in overseas banks to search forfuture growth engines in overseas business sectors. At the same time, theBank will continue to expand its global network through overseasbranches, subsidiaries and offices. KB will apply its management systemto all overseas networks. KB will focus not only on serving Koreancorporations and customers, which is too limited a market, but also onserving local corporations and customers.

KB Triangle Network KB’s strategy for its overseas network is to form the “KB TriangleNetwork” to link China, South Asia and the CIS after consideringgeographical proximity, cultural similarity, growth potential andcompetition with Korean banks. In 2007, KB opened offices in Almati(Kazakhstan), Guangzhou (China), Ho Chi Minh City (Vietnam), andKiev (Ukraine). The Bank already received approval from the Koreangovernment for its plan to open offices in Harbin and Suzhou in Chinaand an office in Mumbai, India. In 2008, the Bank will build an overseasnetwork through various methods including M&As in strategic regions.

KB established and implemented its mid- to long-term strategy to achieve management’s vision to leap forward as a “GlobalBank, Leading the Asian Financial Industry.” The Bank further strengthened its future growth engines by enhancing salescapabilities, improving the profit structure, establishing a clean bank and developing global standard competencies. KB willcontinuously implement strategies that include expanding and upgrading core business models, reinforcing the non-bankingportfolio, expanding overseas, establishing and spreading the KB culture, and improving HR management systems to fosterhuman resources on a mid- to long-term basis.

Management Vision and Mid- to Long-term Strategic Goals

“A Global Bank, Leading the Asian Financial Industry”

KB is expanding globally, while firmly positioning itself as Korea’s bestand largest bank. KB’s vision of “A Global Bank, Leading the AsianFinancial Industry” translates to firmly establishing its positiondomestically, creating value through aggressive expansion into the Asianmarket which has high potential for growth, and finally, emerging as aglobal bank that can operate systems and create financial results thatcompare to world-class banks. Utilizing the firmly established systematic and financial platform, KB willfirmly position itself as the leading comprehensive financial group,increase the size of its foreign assets through the acquisition of highlypotential foreign banks, and establish and implement mid- to long-termstrategies to achieve its vision.

●Expanding and Upgrading Core Business ModelsTo cope with a changing financial market, KB will actively expand andimprove core business models such as retail and corporate banking, PBand credit cards.

●Reinforcing the Non-banking Portfolio KB will develop new business sectors, enhance the competitiveness ofits subsidiaries and maximize synergies among business sectors so as tooffer high quality financial services in all financial sectors.

●Expanding OverseasKB will expand the portion of overseas assets by expediting the KBTriangle Network strategy focused on China, Southeast/west Asia,and the CIS.

●Establishing and Spreading the KB CultureKB will establish and promote KB’s unique culture to enable allmanagement and employees to share and make KB’s core value intrinsic.


Ranked First in the NCSI for Two Straight Years

After its rebirth as “the Best Customer Satisfaction Bank,” KB ranked first in the National Consumer Satisfaction Index(NCSI) for the second year in a row in 2007. In addition, the Bank scored the top position in the card sector for 2007.These results are attributed to the bank-wide CS innovation activities initiated in 2005. In 2007, KB also ranked at thetop in the Korea Well-being Consumer Index(KWCI)in September and the Korean Customer Satisfaction Index(KCSI)in October.

Expanded Overseas Sales Network and Business Ties

As KB steadily expands overseas, the Bank opened offices in Almati, Kazakhstan in June, Guangzhou, China in August,Ho Chi Minh City, Vietnam in November and Kiev, Ukraine in December, 2007. At the same time, KB activelyexpanded its sales platform overseas by, KB signing business agreements with the Industrial and Commercial Bank ofChina (January), BBVA of Spain (March) and Sumitomo Mitsui Banking Corporation of Japan (September).

Upward Adjustment of KB’s Credit Rating

As a global bank, leading the Asian financial industry and as a bank that has taken the initiative to change and innovate,KB’s domestic and overseas status has been elevated. On March and June of 2007, S&P and Fitch raised KB’s creditratings in pari pasu to the sovereign rating. In July, Moody’s elevated KB’s credit rating A1 to Aa3. As a result, KBreceived credit ratings in pari pasu or higher than the sovereign rating from the world’s top three credit rating agencies,Moody’s, S&P and Fitch.

Enhanced Brand Power

In 2007, KB significantly enhanced its brand power in various sectors. KB launched a series of advertisements under theslogan of “Beyond Korea’s Number One” which received positive reviews. KB also launched a public serviceadvertisement entitled, “Right Money Campaign” which won an advertising award. KB won a large number of otherawards. The Bank won the Best Korean Retail Bank Award for five consecutive years and the Grand Prize at the BestKorean Company Awards. In addition, KB’s “GOLD & WISE” won the Best Brand Award at the 2007 Korea BrandAwards and the Minister of Culture and Tourism’s Award at the 2007 Korea Communication Awards. The Bank wasalso selected as the 2007 Best Company to Work for in Asia by Hewitt Associates and won the Grand Prize at the 2007“Best Companies for Employees” Awards sponsored by Economy21, a business magazine.

Highlights’07


KB made every effort to systemize the overall business in areas such as “Customer Satisfaction” and“Internal Controls.” As a result, KB ranked first in the National Customer Satisfaction Index (NCSI)survey for two consecutive years, and was selected as “Asia’s Best Bank” for two consecutive years byFinance Asia. Through this, KB was able to firmly establish itself as a customer-oriented bank.

Internet Banking Customers Surpassed the 10 Million Mark and the Construction of a Next-Generation System was Initiated

KB marked its 10 millionth Internet banking customer on December 21, a first for a Korean financial institution. In 2003,this figure was less than three million. At the same time, KB accounted for 25% of all Internet banking customers in Korea.Together with this and in keeping with realizing its 10-year-long dream of growing into a global bank, KB began to buildthe next-generation banking system, “N.Giant.” The new system is being designed to meet customer needs under theslogan “Offering PB-Level Services to 30 Million Customers.”

Launched a Series of Hit Financial Products

New products rolled out by KB continuously record hits. KB’s “Excellent Brand for women free savings deposit”recorded sales of KRW2 trillion in January, 2007, 70 days after its launch in September. The product received theGrand Prize in the product strategy/trend marketing sector of the Hankyung Marketing Awards. In addition, KBlaunched “Wine Time Deposit” targeted toward customers of middle-aged or over in July 2007. “Wine Time Deposit”surprised the market by posting KRW2.0 trillion in sales just thirty five days after its launch. The Financial SupervisoryService of Korea recently designated “Wine Time Deposit” as the Best New Financial Product that contributed to thedevelopment of the financial industry in 2007.

First Bank in Korea to Receive Approval for the Basel II Foundation Internal Ratings BasedApproach

In December 2007, KB received approval for the Basel II foundation internal ratings based approach in the Credit RiskSector from the Financial Supervisory Service, a first for a Korean bank. Basel II is a comprehensive capital regulationsystem promoted globally in order to advance risk management and encourage capital soundness of banks and therefore,elevate the stability and effectiveness of financial systems.

Most Impressive Ad and Public Service Ad Campaign Among Financial Institutions

The “Beyond the Number One in Korea” ad campaign by KB used B-boys (young break dancers), Kim Yun-Ah (a worldclass figure skater) and Lee Seung-Yeop (a baseball star) as its models, providing esteem and dignity to Korean citizens,while reinforcing pride for both customers and KB employees. With these efforts, KB was awarded in television sector of‘Korea AD Awards’. In addition, KB’s corporate image advertisements received positive reviews as they explained thevalue of money through such themes as sharing and hope. The advertisements featured Maestro Chung Myung-Hoon,residents of Bansong-dong and the poet Ahn Do-Hyeon.


1

2007.1. 2 Ranked first in the syndicate loan market for two straight years. (Bloomberg)2007.1. 8 Ranked first in the US Dollar/Won exchange futures sector for four years in a row. (Asia Risk)2007.2. 2 Awarded a patent for a real estate price verification and analysis system.2007.2. 21 KB Partnership Loan won the Grand Prize

at the Financial Product Awards (Maeil Business News).2007.2. 27 KB CEO Kang won the Grand Prize at Korea’s Best CEO Awards (Hankyoreh Economy 21).2007.2. 28 KB CEO Kang won the Grand Prize at the 2007 Most Honorable

Korean Businessmen Awards (Economic Review).2007.3. 5 Won the Tower Prize for Paying KRW900 Billion in National Tax.2007.3. 8 Ranked first in the K-BPI for nine straight years (Korea Management Association Consulting).2007.3. 21 Received an “A” as its international credit rating (S&P).2007.3. 22 KB’s private investment project for the Light Railroad in Eujeongbu

(a satellite town of Seoul) was selected as the Deal of the Year (Euromoney).2007.3. 28 KB CEO Kang was selected as one of Korea’s 100 Best CEOs

for three straight years, a first for a CEO of a Korean bank (Maekyung Economy).2007.3. 30 Ranked 182nd among the Global 2000 Companies (Forbes).2007.4. 4 Topped the banking category in the brand survey among co-eds

(Herald Biz, Campus Herald).2007.4. 9 Selected as the 2007 Best Company to Work for in Korea

(Hewitt Associates, Maeil Business News).2007.4. 16 Topped the banking category in the 2007 Brand Star Survey (Brand Stock).2007.4. 26 Won the 2007 Grand Prize at the Brand Power Awards (Munwha Ilbo).2007.4. 30 Ranked first in the “Most Popular Financial Companies among Job Seekers”

(Job Search Portal Career).

2007.4. 30 Topped the Financial Companies Category of the Best Workplaces for Employees (Incruit).2007.5. 6 Advanced to credit rating”A1,” and gained a “Stable” Prospect rating (Moody’s).2007.5. 16 Awarded a patent for a tailor-made cyber branch system for corporate institutions.2007.6. 8 Selected as Korea’s best retail bank for five straight years. (The Asian Banker). 2007.6. 11 Ranked fourth among the 100 Best Companies in Korea (Hankyung Business).2007.6. 13 Advanced to credit rating, “A+” (Fitch).2007.6. 15 KB private banking, “GOLD&WISE” won the Best Brand Prize

at the 2007 Korea Brand Awards (Korea Economic Daily).2007.6. 20 Won the Ethical Management Prize at the Korea Economic Culture Awards.2007.6. 21 Won the Grand Prize at the 2007 Korea Representative Brand Awards

(imbc, Dong-A.com, Hankyung .com).2007.6. 26 KB CEO Kang won the Innovative Management Prize

at the Korean Economic Leaders Awards (Monthly Chosun).2007.6. 26 Won the Grand Prize at the 2007 “Best Companies for Employees” Awards (Economy21).2007.7. 12 Ranked 349th in the Fortune Global 500 (Fortune).2007.7. 14 Ranked 12th among Asia’s 300 Best Banks (Yazhou Zhoukan).2007.7. 25 Advanced to credit rating “Aa3” (Moody’s).2007.7. 25 KB CEO Kang won the Grand Prize at Korea’s Most Trusted CEO Awards

(Hankook Ilbo, Korea Chamber of Commerce).2007.8. 8 Received an “Excellent” Grade in terms of corporate governance

(Corporate Governance Service).2007.8. 14 Awarded a patent for an online loan management system and method.2007.8. 30 Won the grand prize at Korea’s Best Companies Awards

(Korea Employers Association).

2007 Snapshots

Based on NCSI,KB ranked 1st inthe banking sectorfor the 2ndconsecutive yearand 1st in thecredit card sector inDecember 2007.

NCSI(National Customer Satisfaction Index)is a survey carried-out by the KoreaProductivity Center on specific key industriesin Korea. By receiving official recognition froma distinguished customer satisfaction survey,KB has firmly established itself as the “BestService Bank.”

2On September 2007, at the “CountryAwards for Achievement 2007,” sponsoredby Finance Asia, a Hong Kong basedeconomic magazine, KB was selected the

“Best Bank inAsia” for the 2ndconsecutive year.Among the ninebanks awarded theBest Bank Prizeby country, KBscored the highest

points in 12 categories including ROA,ROE, operating income and asset size.

Selected as the Best Bank inAsia for Two ConsecutiveYears by Finance Asia 3

KB won the Best Korean Retail Bank Awardfrom the Asian Banker in June 2007. KBwas awarded the prize for five consecutiveyears. The prize is awarded to outstandingbanks evaluated by experts on retail bankingin the Asian region. Experts score banks on a

country and sectorbasis. In the totalrankings, KB stood9th among 140banks in the Asianregion.

Won the Best Korean RetailBank Award from the AsianBanker for Five Straight Years

Ranked First in the NCSI forTwo Consecutive Years.

Awards& Recognition’07


2007.9. 4 Topped the service category of the NBCI for four years in a row (Korea Productivity Center).

2007.9. 4 Ranked first in the 2007 KWCI for two straight years (Korea Management Association Consulting, Yonsei University)

2007.9. 6 Won the 2007 Best Bank in Asia Prize at the Country Awards for Achievement for two consecutive years (Finance Asia).

2007.9. 6 Won the 2007 Best Bank in Korea Prize at the Country Awards for Achievement (Finance Asia).

2007.9. 6 Won the 2007 Best Cash Management Bank Prize at the Country Awards for Achievement (Finance Asia).

2007.9. 18 Selected as the 2007 Best Labor-Management Company (Ministry of Labor).2007.9. 27 Selected as the Best Local Cash Management Bank (Asiamoney)2007.9. 27 Selected as the Most Popular Bank to Work for by college graduates

(Herald Biz, Campus Herald).2007.10. 25 Topped the banking service category of the KCSI

(Korea Management Association Consulting).2007.10. 28 Selected as the Best-of-the-Best PB Bank (Hankyung Business).2007. 11. 20 Won the prize in the culture and art sector of the Corporate Social

Contribution Awards for two straight years (Korea Economic Daily).2007. 11. 22 Won the grand prize at the 2007 Korean Customers’ Best Brand Awards

(Korea Brand Management Association).2007. 11. 28 KB’s brand was valued at KRW2.5455 trillion, the highest among banks

(Institute for Industrial Policy Studies).

2007. 11. 29 KB CEO Kang won the grand prize at the Korea CEO Grand Prix Awards (Korea CEO Forum and Money Today).

2007. 12. 5 Won the Presidential Prize for its contribution to the Social Service Voucher program of the Ministry of Health and Culture.

2007. 12. 6 Selected as the Best Bank in Structured Products in the Korean market (Structured Products magazine)

2007. 12. 11 Ranked first in the banking sector of the NCSI for the second year (Korea Productivity Center).

2007. 12. 11 KB Card ranked in the credit card sector of the NCSI (Korea Productivity Center).2007. 12. 12 KB’s GOLD&WISE Magazine won the Minister of Culture and Tourism Award

at the 2007 Korea Communication Awards.2007. 12. 17 Won the Prime Minster’s Prize in the large company category of the

Labor-Management Culture Awards (Ministry of Labor and Korea Labor Foundation).2007. 12. 17 Won the grand prize at the Employee Stock Ownership Plan Awards.2007. 12. 18 Won the Presidential Citation for excellent financial support for small companies

(Small Business Administration).2007. 12. 27 Selected as one of the KNPS companies

(Korea Management Association Consulting).2007. 12. 28 Received approval to use the Foundation Internal Ratings Based approach

for credit risk of the BASEK II, a first for a Korean bank.

5In December 2007, KB received thePresidential Award in recognition of issuingKorea’s first electronic welfare card, KB

Voucher Card, atthe Social ServiceVoucher BusinessPromotion Rallyhosted by theMinistry of Healthand Welfare. Inaddition, KB also

received the Presidential Medal for its supportof small and medium-sized enterprises (SMEs)at the 12th SME Financial Support Awards.

4In its winter edition, Global Custodian, aglobally prominent U.K. magazine, selectedKB as the number one domestic bank in its

“2007 CustodyService Survey.”KB won overHSBC (HSBCranked 1st inboth 2005 and2006) in 2007 asthe bank with the

best domestic custodian capabilities.

Selected as the Number OneCustodian Bank in Korea by“Global Custodian” 6

Chung Won Kang,KB’s CEO, receivedthe top award atthe “2007 CEOGrand Prize” whichwas jointly hostedby Money Today,a business daily,

and the Korea CEO Forum in November2007. The Awards Evaluation Committeecarried-out stringent evaluations on thefinancial statements of companies andevaluated the CEO’s contribution, along withbusiness and social performances to determinethe award winners.

CEO Kang Awarded the TopPrize at the “2007 CEOGrand Prize”

Won Presidential Awards at theSocial Service VoucherBusiness Promotion Rally andfor financially Supporting SMEs


1. Chung Won Kang (President & CEO) 2. In Gyu Choi (Strategy Group)3. Hyung Goo Sim (Marketing Group) 4. Jeung Ho Lee (Commercial Banking Group II)5. Hyo Sung Won (Credit Card Group) 6. Young Han Choi (Capital Market & Treasury Group)7. Sai Yoon Hong (Sales Supporting Group) 8. Kwang Chun Shon (Human Resources Group)

❽ ❼ ❻ ❹ ❷ ❶ ❸ ❺

eniorS Management


1. Yong Hwa Cheong (Chief Audit Executive) 2. Donald H. MacKenzie (Finance Group)3. Dal Soo Lee (Commercial Banking Group I) 4. Yong Kook Oh (Investment Banking/Global Business Group)5. Kyung Woo Nam (Trust/NHF Management Group) 6. Byung Kun Oh (Credit Group)7. Heung Woon Kim (Information Technology Group) 8. Ki Hong Kim (Holding Company Planning Group)

❺ ❸ ❶ ❷ ❹ ❻ ❼ ❽


KB has made changes in its organization with the aim of securing a futuregrowth engine and advancing into a comprehensive financial group. TheBank has laid the foundation for developing into a global bank which willtake the lead in Asian finance on the basis of not only a stable internalcontrol system but also strong asset soundness. KB has become anorganization with 14 groups, 15 divisions, 2 offices and 63 departments to

execute management strategies in preparation for the start of the third termof the integration. As a consequence, KB has not only increased theefficiency of the organization of its headquarters, but has also strengthenedits sales-oriented management and sales power.

With an eye towards shoring up co-marketing among retails, corporates andthe PB sector, the Bank has reorganized regional sales groups. KB also built

The Significance of KB’s New Organizational Structure

Organization Chart

Marketing Group

Credit Card Group

Capital Markets & Treasury Group

Chief Audit Executive

President & CEO

Retail Sales Planning

Retail Sales I

Foreign Exchange Product

Corporate Product

Retail Loan

Retail Product

Credit Card CRM

Credit Card Marketing

Credit Card Affiliation

Trading

Derivatives Sales

Audit Division

Branch Audit

Management Audit

Corporate Banking

Investment Banking

Project Financing

Overseas Branches

Retail Branch

RM

Commercial Banking Group I

Retail Branch

Commercial Banking Group II

Trust/NHF Management Group

Investment Banking/Global

Business Group

PB Center

Call Center

Business Help Center

Private Banking

Global Business

Retail Banking Division

Capital Markets Division

Online Channel

Marketing

Channel Planning

Securities Agency Business

Credit Card Planning

Credit Card Sales Supporting

National Housing Fund

Trust

Pension Business

Fund Management

Corporate Banking Division

Private Banking Division

Retail Regional Head Office

Corporate Regional Head Office

Retail Sales II

Retail Regional Head Office


Product Management Division

Credit Card Marketing Division

Large Corporate Banking

Global Business Division

Investment Banking Division


As part of the Bank’s effort to firmly solidify its status and position as Korea’s leading bank, and to go beyond the domestic market toestablish itself as a “Global Bank, Leading the Asian Financial Industry,” KB enhanced organizational efficiencies. This enabled KB toestablish organizational structure and systems that meet global standards.

up its overseas business capabilities by establishing the Investment Bankingand Global Business Group. The newly created Product ManagementDivision of the Marketing Group manages integrated product departmentssuch as deposits, loans, foreign currencies, investment & trust product andbancassurance.

As a result, we have solidified our base for securing product competitiveness

and promoting complex financial products in preparation for capitalmarket consolidation. In addition, we have newly established the LargeCorporate Banking Department. We have also promoted corporatepension marketing by newly establishing the Pension Business Departmentunder the Trust/NHF Management Group in order to expedite newgrowth engine businesses.

Finance Group

Strategy Group

Information Technology Group

Sales Supporting Group

Chief Compliance Officer

Compliance Supporting

Office of HoldingCompany Planning

※14 Groups, 15 Div., 2 Offices, 63 Dept. (as of January 15, 2008)

Credit Group

Holding Company Planning Group

Secretariat

Legal

Office of Board of Directors

Human Resources Group

Credit Analysis

Credit Analysis Center

Sales SupportingCenter

SettlementSupporting Center

Strategic Planning

Public Relations

CSR

Next Generation IT ServiceDevelopment

Loan & Customer ServiceIT Development

Account Service ITDevelopment

Information Service ITDevelopment

IT Channel ServiceDevelopment

Financial Management

Accounting

IR

ACS Center

Credit ManagementCenter

Card Credit Analysis

Risk Management

Credit Review

IT Service Operations

IT Architecture & Standards

IT Planning

Sales Supporting

Custody

General Affairs

Corporate Purchasing

Credit Planning

HQ Building Planning

Security Control

Credit Management

Human ResourcesDevelopment

Human Resources

Employee RelationshipManagement

Stratagy Division

IT Development Division

Credit Analysis Division

Finance Division

KB Research

Sales Supporting Division


By placing the highest priority on customer satisfaction, employees and management made every

effort to achieve continuous growth through providing financial products and services that satisfy

customer needs. Business performance has visibly improved by strengthening customer

satisfaction and CRM systems. KB will realize steady growth and profitability by endeavoring to

provide differentiated competitive capabilities and by developing creative products and services.

KB will endeavor to turn KB’s growth and development into excellent customer service.

ServeassionPto


KRW4,233.4 billion

Operating IncomeOperating income rose 32.1% to KRW4,233.4 billion due to a steady increase in interest/non-interest incomeand continuing efforts to improve asset soundness.

Innovative Progress

Passion to Serve

Creative Mindset

Promise to Keep


Leader


Retail BankingKB manages all deposits in a stable manner bymaintaining a large market share, securing propermargins, proactively reacting to changing marketconditions and flexibly operating the interest rates. In2007, KB maintained varied product line-ups,continuously improved product power and managedlifecycles, while also increasing prime loans andfocusing on niche markets by developing and sellingproducts that include new loan products, designed tomatch the needs of our customers. Thanks to theseaccomplishments, the Bank enhanced its growthpotential and profitability.

With our clear goal of ranking first in the NCSIfor two years in a row, we elevated customersatisfaction levels to new heights by holdingcustomized customer invitation events andendeavored to promote effective and high-levelmarketing through our CRM system. The Bankexpanded its sales network by focusing on areaswith attractive markets and supported marketingand promotions at branches. KB maximized itssales power with customer-oriented marketingmethods such as developing and selling primehousehold and SOHO loan products andreinforcing SOHO marketing capabilities. Inaddition, we promoted a sound investment cultureby launching various tailor-made products whichreflected customer needs and market situations.

In 2008, KB plans to strengthen its marketingcapabilities in order to enhance customersatisfaction and secure the base of qualitycustomers. We will also elevate customerconvenience and sales capabilities by optimizingand activating the CRM system. In addition, wewill enhance product competitiveness bydeveloping various branch models that mix wellwith the characteristics of market and customersas well as by remodeling loan products forhouseholds and SOHOs.

Corporate BankingKB is faithfully fulfilling its role as a leading bank inthe corporate banking market by offering stablefinancial support and new financial services. In 2007,we developed and provided an array of convenientproducts and services tailored to corporatecustomers’ needs. We also made various efforts toexpand our overseas customer base.

The Bank continuously increased its market share asit successfully closed various big deals in theinvestment banking sector. KB reinforced its marketcontrol in the project financing sector to achieve arank of second in the Korean market (first in theKorean Won currency sector) and fifth in the Asianmarket (excluding the Japanese market) inBloomberg’s 2007 syndicate loan rankings. Weelevated customer satisfaction by holding the ‘CEOCommunity’ and diverse invitation events. KBpromoted employees’ capabilities through trainingprograms such as the training of employees in chargeof foreign currencies and foreign currency marketingby holding training seminars on foreign currencytasks and reinforced cooperative marketing amongbusiness groups.

In 2008, for further qualitative growth, we willbecome the bank that well-performing companieslook to. Under the goal of becoming the main bankfor 5,000 corporations for three years, we aredeveloping products and expanding sales channels.For stronger global competitiveness, KB enhancesoverseas IB sales capabilities as well as making businessties with foreign banks and make further efforts toprovide more diverse customized services. We will alsodevelop new high-profit financial products such asstructured finance to ensure the liquidity ofconstruction companies, the establishment of realestate investment trusts (REITs), the underwriting ofprivate placement-financed asset-backed securities(ABS) and the development of new structuredproducts. We will further reinforce our investmentbanking competitiveness by activating various fundbusinesses and expanding capital investment business.

Credit Card2007 was a year of fierce competition due to changesin the market environment. However, KB managedto sew up product competitiveness while introducingvarious credit card line-ups catered to customerneeds. We secured 1.38 million new members as asteady growth engine. By reversing the trend of asteady drop in the volume of card transactions sincethe credit card crisis, we increased the totaltransactions at KRW54 trillion.

To transform the credit card business into an asset-based business model, KB strived for steady andstable profit generation by strengthening themarketing in 2007. The Bank endeavored to securedifferentiated competitive edges through variousmeans such as establishing comprehensive customermanagement strategies and building an advancedcustomer management system and infrastructure.

Competition in the credit card market is expected toheat up in 2008. Therefore, we will pursue soundgrowth through precise customer management, theexpansion of KB’s business areas, and thestrengthening of our business capabilities. We willtake the lead in creating new paradigms in the creditcard market with stronger asset business andimproved execution of customer managementprograms, along with creative and differentiatedproduct power and services.

at a GlanceusinessB


KB offers retail banking products for individual and SOHO customers and loan products and integrated capital management services forcorporate customers. KB expanded its customer base and increased profits by providing credit card services, differentiated PB services,trust and fund related businesses, and derivative products.

Trust / NHF ManagementIn the money trust sector, KB continued to offerexisting products while developing and introducingnew products. Due to increased reimbursement ofequity-type products and a drop in sales of bond-type products attributable to the stock marketboom, deposits of specified money trust productsfell by 21% to KRW4,237.4 billion, while depositsof money trust products decreased by 13% toKRW8,363.6 billion from the year before.

We intensified sales and marketing activities forcorporate pension by improving work processes andstrengthening consulting education. Throughcustomer segmentation strategies, we postedKRW200 billion, a first for a bank, while alsoaccounting for a 21.2% share in the market.

In 2008, we will raise our trust balance andcommission incomes by developing competitiveproducts that meet customer needs. KB plans toconcentrate on existing product management andnew product development by expanding theconsulting organization to strengthen the growthbase for corporate pension and varying corporatepension funds to elevate the profitability ofcorporate pension products.

Capital MarketsKB cut costs by securing funding sources throughsuch means as enhancing profitability in thetreasury sector, developing and providing thestructured bonds that fit various sales channels. KBrealized a stable profit increase by managing theMoney Market Book as well. In addition, we playedthe role of market maker in the short-term fundmarket by expanding trade using the Korea Inter-Bank Offered Rate (KORIBOR).

In the trading sector, we accomplished a profitvolume of the FX Option Book equivalent toapproximately nine times the profit of 2006 byreinforcing a derivative business infrastructure as wehired more quants and formed business ties withKAIST. We also successfully settled the commodityderivatives and credit derivatives book. In thederivative sector, our business more than doubledfrom 2006 thanks to expanded marketing efforts,sales activities and human resources development.

In 2008, our treasury sector will conduct marketingfor investors, vary borrowing currencies anddiscover new business opportunities in order todiversify funding channels and expand the stablebase for demands. In the trading sector, we willheighten our capabilities in portfolio managementand sales marketing while actively coping withchanges in the business environment.

PB BusinessKB took “Gold & Wise,” a PB brand, to the nextlevel in 2007. KB heightened its status in the PBmarket by recording KRW6.5 trillion undermanagement, an approximate 40% increase from2006 and by differentiating channels along withexpanding the customer base and services for eachcustomer group.

Namely, we expanded the sales base by securing aPB network of 27 branches which involvedcreating nine new branches including theYeouido PB Center. The Yeouido PB Center isdesigned to cater for high net work individuals(HNWI), the majority of whom are individualcustomers and CEOs. KB intensified trainingprograms for asset management specialists andintroduced differentiated products and services,which resulted in stronger asset managementcapabilities. Making headway in these areasenabled KB to scoop a number of prizes atvarious brand awards hosted by mass media.

In 2008, the expansion of our PB branches to atotal of 30, including a new HNWI-only PB Centerin Gangnam, will push our assets undermanagement over KRW9 trillion. In addition, wewill continue to stably manage customer assetsregardless of market changes by fueling ourinvestment consulting power. KB will solidify itsposition as an asset management specialist byoffering the best service in Korea through asystematic customer management program, alongwith checking and improving various systems inpreparation for the introduction of the CapitalMarket Consolidation Act in 2009.


Having established its reputation as the largest bank in Korea, KBmaintained a significant market share in the retail banking business as aresult of early responses to rapidly changing market conditions and flexibleinterest rates, and managed total deposits by securing appropriate interestmargins. The Bank developed and sold customer-oriented products bymaintaining diverse product lineups, steadily improving product value andeffectively controlling product lifecycles. The Bank boosted growth andprofitability by developing loan products that cater to customer needs witha particular focus on prime loans and niche markets.

Results in 2007

Implementing Customer-Oriented Marketing by Utilizing a CRMSystemKB offered superior services to customers by analyzing a variety ofbusiness models to provide customized products and services. The Bankconducted CRM system educational programs catered toward each dutysegment and received positive feedback through evaluation andcompensation based on the utilization level of the CRM system. Inaddition, KB began developing “G-CRM”, which is able to analyzeinternal and external information in a geographical context, in order tostrengthen regional marketing activities by branches.

Supporting Marketing for Branches and Initiating Promotions

To support loan marketing at the branch level, loan consultants fullyutilized sales channels for retail loan products and strengthened supportfor the new housing market. In addition, KB stepped up its effort toattract new loan customers by conducting a SOHO marketing program,the Success Together Program (STP), at 586 branches. The Bankreceived encouraging feedback from SOHO customers on “SpecialCourse for Prime SOHO Customers”, which KB held six times tostrengthen its relationship with SOHO customers.

KB will further advance itself inproduct and marketingcompetitiveness, enabling the Bankto take the lead in financial trends,by developing and sellingcustomer-oriented products after athorough analysis of the needs ofretail and SOHO customers.

Retail Banking


Plans for 2008

Strengthening Marketing to Expand Customer Base

With the aim of expanding customer satisfaction and securing a qualitycustomer bases, KB will steadily push forward with customer invitationevents, product promotions and branch support programs, whilefocusing on youth marketing for teenagers, future potential customers.KB will initiate advanced marketing activities by formulating intensivetraining courses for utilizing the “Success Together Program (STP),” aprogram designed to enhance SOHO marketing. By doing so, KB willaugment its market dominance by maximizing prime loans and profits.

Elevating Consulting and Sales Capabilitiesthrough CRM System

KB will increase customer convenience and employees’ sales competenceby carrying out community-friendly marketing efforts through thedevelopment of G-CRM and the improvement of DM processes and byoptimizing and activating the CRM system. By implementing thesesystems the Bank will minimize incomplete sales and roll out a mileagesystem, providing customized financial services.

Optimizing Sales Network and Developing Various Branch Models

KB will promote network optimization and efficiency by newlyestablishing branches to secure its competitive edge by region andcustomer group and by effectively operating existing branches using ananalytical approach to respond to market changes. The Bank will boostmarketing effects by developing various branch models catered to thefeatures and characteristics of market and customers.

At the same time, KB will promote customer convenience by developinga “P-ATM” system and increasing the number of automated branches.

Developing Loan Products for Household / SOHO

KB will elevate product competitiveness by remodeling existing productsand developing new products such as i) retail loan products: unsecuredloans tailored to customer needs and products linked with derivatives tohedge against interest rate risks, ii) “KB SOHO Package Loan” inresponse to demand of working capital by SOHO customers and iii) “KBMerchants Preferred Loans” which extend unsecured loan limits.

Expanding Sales Network and Enhancing Convenience of ATM

KB established 75 new branches (for retail, corporate and private banking)in attractive areas, including a branch at Incheon International Airport. TheBank optimized its branch network by relocating 39 branches andcombining & reorganizing 8 branches according to changes in the businessenvironment. The Bank improved operation processes for better customerconvenience as it installed a bigger screen mode in ATMS for visuallyimpaired people and introduced ATMs for physically impaired people.

Enhancing Customer Satisfaction through Customized Customer Invitation Events

To rank the 1st in the NCSI survey for two consecutive years, KB helddiverse customer events. The Bank invited approximately 54,000customers to a total of 14 performances including Cats, Miss Saigon andChicago. The Bank also held the National Gate Ball Tournament forsenior customers along with the KB Campus Concert and the World B-Boy Tournament for teen-aged customers, helping KB to pave thefoundation for market expansion.

Various New Customized Products That Cater to Customer Needs and Market Conditions

To cater to customer needs and market conditions, KB launched 49 newproducts including the “KB China Equity-Type Fund”. KB helpedcultivate a sound investment culture by providing long-term investorswith lower sales fees up to 10~30%, a first for sales institutions. KB alsorolled out household loan products such as the “KB Credit Tech Loan”and “KB Unsecured Promise Loan” to expand prime unsecuredhousehold loans along with the “KB Silver Housing Pension Loan” forsenior customers and the “Collateralized Apartment Housing LoanConnected to SWAP,” which combines a collateralized apartmenthousing loan with an interest rate swap, a type of derivatives, to hedgeagainst interest rate risks. The Bank expanded its prime loans forhouseholds and SOHOs by developing the “KB Relationship Loan,” aspecialized product for quality SOHO customers.


KB announced a new customer vision for the corporate banking sector,“A Premier Bank that Helps Corporate Customers’ Success.”

By supporting corporate customers with a stable funding and newfinancial services, KB has positioned itself as a reliable financial partnerand is playing the role of a leading bank in the corporate banking market.

Results in 2007

Development and Sales of Diversified Products

As of the end of 2007, KB’s corporate loans stood at KRW63.5 trillion,an increase of KRW16 trillion from the previous year. In particular, KBfunded 2,841 corporates with KRW2.4 trillion for their working capitalthrough KB Partnership Loans and received the grand prize at theFinancial Product Awards sponsored by the Maeil Business Daily andthe presidential medal in the organization category of the SME FinancialSupport Awards of the Small Business Administration in recognition ofits contribution to cooperation between SME and large companies. Inaddition, KB offered customers more convenient products and servicesby launching customized products, catered toward corporate customers’needs, such as “KB Workplaces-Preferred Loans,” “KB Win-WinCorporate Loans,” World Link Check Issuance Service and upgradedcash management service (CMS) products.

Expanding Base for Global Business

KB expanded its overseas customer base by holding customer seminarsto attract foreign companies and participated in diverse overseas funds insuch sectors as alternative energy funds and global logistics funds. TheBank enabled companies to efficiently manage their funds overseas byoffering global CMS products and services in partnership with TheIndustrial and Commercial Bank of China and SMBC of Japan.

Enhanced Investment Banking Projects

Amid fierce competition in the investment banking sector, KB enhancedits status in the investment banking market by undertaking such bigSOC projects as the New Daegu-Pusan Highway, SIFC and financing ofDaewoo Center Building and C&M takeover, underwriting big M&Adeals as a lead manager and therefore, steadily increasing its market sharein the syndicated loan market.

KB has established itself as a strongfinancial partner for corporatesthrough differentiated products andintegrated capital managementservices. KB’s competitiveness has alsobeen acknowledged in the investmentbanking industry due to its strongperformance in M&A underwritings

Corporate Banking


Enhancing Global Capabilities and Customized Services

With its leading position in the domestic CMS market, KB signedbusiness deals with banks in China and Japan. In 2008, we plan to offerdomestic and global real-time GTS products and services. Moreover, KBwill expand its global network through strategic business alliances withmajor banks in Europe, U.S. and South America.

Developing High-Profit, Market-Leading Financial Products

KB will expedite the launch of structured financing products forconstruction companies using unsold houses as underlying assets. KBwill develop new markets and opportunities to create additional profitsthrough the establishment of real estate investments and trusts (six-yearmaturity / assets of approximately KRW1 trillion). In addition, KBplans to expand into new business areas such as the undertaking ofprivate-equity ABS and the development of new structured financingproducts.

Enhancing Investment Banking Competitiveness

KB will maintain its leadership in Korea’s investment banking marketand lay the foundation for a leading Asian bank to further solidify itsstatus in the investment banking market by diversifying its sales platformand maximizing profit generation through such methods asstrengthening diverse fund-related businesses, expanding capitalinvestments, pushing ahead with large M&A underwriting andstrengthening overseas IB sales capabilities.

Expanding Control over the Project Finance Market

KB underwrote a total of 52 projects including the Yongin DongjinwonUrban Development Project and posted approximately KRW8 trillionin financial underwriting, about KRW80 billion in investment bankingcommissions and KRW600 billion in net increase of asset value.According to a Bloomberg report, KB accounted for 19.2% of the 2007syndicated loan market, 0.3% up from a year earlier. The Bank alsoexpanded its control over the project financing market by rankingsecond in the ABS market (in terms of public offering) as it attractedKRW2,160 billion in new custody deals.

Enhancing Customer Satisfaction

KB enhanced information exchanges and promoted amicable relationsamong CEOs by operating the “CEO Community” to strengthencustomer loyalty. KB also held a variety of events for CEO Communitycustomers, CFOs of large companies and foreign currency customers,and offered high-quality courses for the executives, employees andspouses of corporate customers. Furthermore, we helped our corporatecustomers enjoy success by providing management consulting services insuch areas as management, finance, tax and HR for small corporatecustomers who lack specialized capabilities.

Reinforcement of Employees’ Capabilities and JointMarketing among Business GroupsKB held diverse foreign currency training for personnel in charge offoreign currencies and foreign currency marketing to foster foreigncurrency specialists. In addition, KB is rapidly adapting itself to marketenvironment changes through cyber branch/CFO and B2B financialtraining, along with training on global cash management service(GCMS) to foster TB (Treasury bill) product specialists. KB furtherstrengthened cooperative marketing between business groups byintroducing a profit sharing system with the SOHO, PB and CreditCard Business Groups and operating a help desk to support it.

Plans for 2008

Building Up Loyalty of Prime Corporate Customers

Having realized quantitative growth by expanding prime customersthrough continuous management of asset soundness, KB has prepared aplan to build up the loyalty of prime corporate customers by focusing onquality growth. KB will raise profitability for customers and increase itsmarket share by expanding cross-selling such as deposits, loans, foreigncurrencies, credit cards, transactions with employees of the customersand corporate pensions for existing customers. To this end, under thegoal of securing 5,000 regular customers over the next three years, KBwill concentrate on enhancing customer loyalty by developing newproducts and expanding sales channels.


KB is positioning itself as a leader in the credit card market with 9 millioncredit card customers and 7.5 million check card customers. Whileoffering various products and services preferred by customers, KB is alsoreinforcing its competitiveness by harnessing asset-based business models.

Market Environment in 2007 and Market Outlook for 2008

Marketing Competition Amid Competition Landscape Change

During 2007 a fierce competition to expand market shares ragedbetween small- and medium-sized banks/late entrants to the marketpursuing aggressive growth strategy and large-sized front-runners. Therewas fierce marketing competition as large banks expanded their creditcard businesses to generate new income sources and the industry strivedto cope with a new market blueprint following the merger between LGCard and Shinhan Card. On the other hand, the market was volatilewith numerous changes such as measures taken by financial regulators tocontrol credit card services to curb overheated competition and to lowercredit card companies’ commission rates for merchants.

Market Growth and Risk Factors in 2008

Credit card market is expected to grow approximately by 8~10% in2008 compared to 2007.

However, high-cost marketing competition led by small- and medium-sized banks is expected to continue, therefore, overall competition will bemore intense. In addition, market volatility is expected to increase due torising funding rates, the credit risk burden caused by the sub-primemortgage crisis in the U.S. and a drop in merchant commission rates.

Results in 2007

Preparing Competitive Product Line-up

In 2007, KB introduced various credit card products that reflect customerneeds. The Bank further reinforced its product line-up with new cardssuch as the “E-Mart KB Card,” a card allianced with a discount grocerystore chain, the “KB Golden Life Card” targeting senior customers, the“KB Houstar Card” focusing on the real estate brokerage market, the “KBTEZE Card” and “KB ROVL Card” for VVIP customers, the “it PhoneCard” and “it Study Card” to satisfy the needs of young customers, the“KB Star Check Card” to strengthen KB’s competitiveness in the checkcard market and the “My-biz Corporate Card” for corporate customers.

KB leads the credit card marketthrough its competitive productline-up that caters to the needs ofcustomers, and its advancedcustomer management system.

Credit Card


Plans for 2008

Across the Board Customer Management and Stronger Sales Channel Competitiveness

KB secured a customer base which has expanded over the past two yearsand an advanced customer management infrastructure. By making gooduse of the two, KB will realize precise customer management, a morecomprehensive business scope and stronger business capabilities in 2008.Utilizing these factors, KB will strive for substantial and sound growthby stabilizing its profit-cost structure and reinforcing qualitativecompetitiveness. To this end, KB will steadily enhance competitivenessby practicing comprehensive customer management through a newCRM system for card users and a new PRM system for merchants whilecontinuing to enhance its asset business.

KB will also move ahead with cost-efficient countermeasures by expandingthe development of specialized and financial hybrid products for specificcustomer groups and offering services differentiated according tocustomers’ contributions. KB will attempt to change the paradigm ofproduct competition with creative product development utilizing newtechnology and external networks. Moreover, we will push thecompetitiveness of our sales channels to the next level, while concentratingon growing markets such as pre-paid cards and check cards.

Expanding Customer Base and Increasing Sales

KB secured a steady growth engine by attracting 13.8 million newcustomers through its competitive product line-up, strong sales power anddiverse sales channels. Despite a steady decrease in cash advances since2002, total credit card sales reached KRW 54trillion thanks to a rise inretail sales (an increase of 15% or KRW 37trillion from 2006) whichreversed a downward trend in transactions since the credit card crisis.

Transforming Business Model

It is not easy for credit card companies to maintain stable profits throughtransaction-based credit card business models on account of a stronger high-cost structure due to intense competition in the credit card market, a steadydrop in the proportion of high-margin cash advances, and a rise in costswith the growth of cards and portfolio volatility. Accordingly, in order totransform the credit card business into an asset-based business model, KBincreased card business assets by 15% from a year earlier by pursuingrevolving marketing, cash advance installment (CAI) and strengthening easyloan marketing, and realized steady and stable profits in 2007.

Building an Advanced Customer Management System and Infrastructure

Aiming to secure a differentiated competitive edge in the credit card marketwhere size competition is intense, KB devised comprehensive customermanagement strategies for members and merchants and built a new CRMsystem and infrastructure. The Bank elevated merchants’ loyalty by runninga special PRM program and also beefed up its e-CRM by developing KB’sInternet website to offer individualized services. Increased numbers oftelemarketers will implement customer management across the board.

Major Products and Services of KB- Steady Sellers: KB Star Card, SK Smart KB Card, KB Pointree Card, etc.

- Various Specialized Products by Customer Segment and Need:

·Gas Station: SK Smart KB Card, GS Caltex Smart Save KB Card

·Airline: Korean Air KB SKYPASS Card, Asiana Airline KB Card

·Shopping and Dining: E-Mart KB Card, The CJ KB Card

·Movie: KB CGV Card, KB My One Card

·VVIP Customer: KB TEZE Card, KB ROVL Card

·Female Customer: KB e-Queens Card

·Senior Customer: KB Golden Life Card

·Leisure & Travel: KB 5-Rak (Orak) Card, e-Leisure KB Card, KB Everland Card,

Hana Tour KB Card

·Young Customers: it PhoneCard, it Study Card


KB is developing and selling diverse products by reinforcingcompetitiveness of specified money trust products that cater to the needsof customers who favor bank trust products. KB pushed forward withmanagement strategies on the basis of raising long-term profitability toprovide a stable payout ratio for pension-type unspecified money trustproducts while initiating full-scale sales activities for the corporatepension market that began in December of 2005.

Results in 2007

Money Trust Sales

In 2007, KB improved its Call Loan Type Specified Money Trust(MMT) to launch a Leading Japan Specified Money Trust, investinglong-term in Japanese blue chips, and a China Index Specified MoneyTrust, investing into EFTs linked with Hong Kong’s H Index. The Bankalso continued to offer ELS products. The specified money trust balancedropped by 21% to KRW4,237.4 billion from 2006 with a surge in theredemption of equity-type products due to a boom in the stock marketand sluggish sales of bond-type products such as commercial papers.

We enhanced the payout ratio of individual pension funds, arepresentative pension-type money trust product, by about 0.6%p from2006 by investing a portion of the assets in equity and effectively re-investing assets nearing maturity. The 2007 money trust balance slid by13% to KRW8,363.6 billion due to a drop in sales of specified moneytrust products. Trust fees amounted to KRW75.3 billion, a 4% decreasefrom the previous year.

Corporate Pension Sales and Marketing Activities

KB adopted a corporate pension specialist system at branches and heldspecialized consulting training programs for employees to augment theirexpertise in the corporate pensions sector. In addition, KB improvedcorporate pension operation processes to enhance customer conveniencethrough various methods such as simplifying corporate pension types,developing book-type contract forms and implementing a premiumtransfer reservation system.

Trust/NHFManagement

KB develops and sells diverseproducts to strengthen thecompetitiveness of its money trustbusiness and is further enhancingits sales and marketing efforts forcorporate pensions.


With an eye toward enhancing competitiveness in the corporate pensionmarket, KB will strengthen sales activities for government-run and foreigncompanies operating in Korea by expanding the consulting organizationof the head office. The Bank will vary corporate pension funds to increasetheir profitability as well. In this manner, we will steadily develop newproducts and enhance the management of existing products.

NHF

The National Housing Funds (NHF) began in July 1981 with the aim offinancially supporting builders of national housing and individuals, whopurchase or rent national housing, to enhance housing stability andprovide welfare for people. The government designated KB as theexclusive custody organization when it established the NHF. KB has beencarrying out such tasks as issuance of the National Housing Bonds,registration and acceptance of new subscription savings, loan reviews andmanagement and post-loan management. As of the end of 2007, KB hadabout KRW51 trillion in terms of NHF balance. In 2003, thegovernment selected two additional banks for the NHF. The governmentis scheduled to designate NHF custody organizations through a publicbidding in 2008.

Results in 2007 and Plans for 2008

KB continuously maintains a competitive edge in the NHF market. In2007, KB endeavored to expand its business in areas such as targetmanagement at the branch level, promotional activities to attract newsubscription savings and national housing bonds and PR activities toexpand the base for the NHF market. KB decreased reputational risk indealing in funds by tightening loan evaluation and lending criteria toenhance the soundness of fund assets and by strengthening post-management, such as establishing a Jeonse (key money) refund guaranteesystem for rented workplaces and preparing a program to help tenants ofbankrupt rental apartments which received funding assistance.

In 2008, KB will push forward with related businesses after analyzingthe influences caused by fund market-related changes.

To give customers more choices of corporate pension products, KBdeveloped overseas investment funds. The Bank also developed aprogram that offers periodic information such as reports on fundmanagement. We broke down customer segments to push forward withour marketing at branch level for small companies, at branches and thehead office for mid-sized companies and at the head office level forgovernment-run or large companies. As a result, the Bank achievedKRW200 billion in balance and a market share of 21.2%.

Plans for 2008

Enhancing Product Competitiveness

KB is planning to maintain a stable payout ratio of pension-typeunspecified money trust products by operating asset diversification andeffective reinvestments of funds nearing maturity. KB will focus onexpanding the balance and trust fees through improvements in specifiedmoney trust products and developing new products such as assetmanagement-type products.

In particular, in the specified money trust product sector, KB plans toheighten the volume and rate of trust fee incomes by developing productstailored to customer needs in addition to bond-type products such as “CallLoan-Type,” “CP- and Bond-Type” and “ELS-Type” and equity-typeproducts such as “Wave Riding Type,” “Index Type” and “Theme Type.”In addition, for the Property Trust sector, new customers will be securedby “Collateralized Real Estate Trusts” and “Securities Trusts” to helpfurther increase trust balance and trust fee income.

Expanding Infrastructure for Long-term

Corporate Pension Platform

To enhance its expertise in corporate pensions, KB strengthened itscapabilities in system design and asset management consulting whileexpanding Internet trading functions to increase customer convenience.At the same time, the Bank will concentrate on strengthening thecapabilities of corporate pension specialists at branches across the nation.


KB is extending its market dominance in treasury, trading and sales basedon its strong reputation and reliability as Korea’s leading bank. Standingon the platform of solid financial capabilities accumulated in the capitalmarkets for years, KB has secured diversified funding sources, variation offinancial derivatives and the expansion of its business foundation.

Results in 2007

Strengthening Treasury Profitability and Stable Funding

In 2007, despite an unfavorable business environment such as instabilityin the financial market triggered by the subprime mortgage crisis in theU.S. and various risks due to interest rate hike and fierce competitionamong financial institutions, KB cut costs by enhancing profitability inthe treasury sector and securing diverse funding sources.

KB realized a stable profit increase through substantial management ofthe Money Market Book. By expanding transactions through the KoreaInter-Bank Offered Rate or KORIBOR, KB faithfully played the role ofmarket maker in the short-term money market.

The Bank contributed to securing funding sources and decreasing fundingcosts by developing and providing structured bonds that meet thedemands of various channels including institutions and PB customers. Inaddition, KB funded about US$ 2.5 billion by making use of a variety ofstructured products such as syndicated loans and FRNs through amicablerelationship management with foreign investors. In January, 2007, theBank successfully issued the five-year US$500 million FRN atLibor+23bp, the lowest in the history of Korean commercial banks.

As Korea’s derivative productmarket-maker, KB provides diversefinancial products that cater to diversechannels from corporates toindividuals by strengthening portfoliomanagement capabilities.

Capital Marketsand Treasury


Plans for 2008

Expanding the Demand Base and Diversifying Funding Methods

In the treasury sector, by utilizing KB’s excellent business performance in2007 and its reputation as a leading bank in Korea, the Bank plans toincrease low-cost funding by diversifying funding methods via structuredbonds and ABS in the Korean won sector and by stably expanding thedemand base through investor marketing. In the foreign currency sector,KB will diversify funding sources through i) varying borrowingcurrencies, ii) seeking new investors and iii) REPO, CP programs andNon-US Dollar currency funding.

Strengthening Portfolio Management Capabilities and Expanding Sales Marketing

In the trading sector, KB will proactively cope with changes in thebusiness environment by enhancing operation synergies via functionconcentration and strengthening development of products that meetcustomer needs. In addition, the Bank will enhance portfoliomanagement capabilities by varying the business portfolios through avariety of methods such as activating the Interest Rate Option Book andexpanding the platform for the credit derivatives market.

On the back of a significantly expanded sales platform, KB will provideenhanced services in 2008. In order to expand the customer base fromcorporate to individual, the Bank plans to develop derivative-linkedfinancial products to fit the specific characteristics by channel and tocontinue sales support via training and seminars.

Market Maker of Financial Derivatives

In the trading business, KB expanded its business base in equity derivativesand FX options, for which it established its own books in 2006, andexpanded the volume of FX option profits to about nine times that of2006. The Bank also successfully established books for commodityderivatives and credit derivatives.

These results can be attributed to the Bank’s effort to build up thederivatives business infrastructure over the past two years by increasingthe number of financial market quants and business alliance withKAIST (Korea Advanced Institute of Science and Technology).

KB conducted active derivatives marketing and sales led by theDerivative Sales Department while concentrating its energies on trainingand fostering the sales forces. The Bank delivered i) various currencyoption products and currency swaps to hedge against foreign currencyvolatility risk, ii) derivatives trading related to structured bond issuances,and iii) interest rate swaps to reduce corporate funding costs and hedgeagainst interest rate risks by building a derivatives sales network forcorporate customers across the nation. As a result, the Bank realizedderivatives sales to corporate customers more than double from 2006.

KB won the 2007 Best Derivatives Seller Award from StructuredProducts, a sister magazine of Asia Risk, a renowned Asian globalfinance magazine.


• ‘GOLD & WISE’ Brand Award Performance

•2007 Grand Prize in the PB Sector at Korea’s Best Brand Awards by the Korea Economic Daily.

•2007 Best PB in the Banking Sector by Hankyung Business.

•Grand Prize in the PB Sector at the 6th Annual Herald Biz Marketing Awards.

KB provides differentiated private banking (PB) services for high networth individuals through its “GOLD & WISE,” PB brand. Superiorasset management capabilities and differentiated services for VIPcustomers have positioned KB as a leader in the asset management sector.

Results in 2007

Reinforcing Brand Positioning

2007 witnessed major progress in the internal and external positioningof KB’s PB brand “GOLD & WISE.” The Bank elevated the depositrequirement for membership from KRW300 million to KRW500million and expanded the customer base by integrating PB customermanagement with the PB Center in cooperation with branches. Inaddition, the Bank expanded services for the target customer segment.By doing so, KB made its mark on the PB market. KB established a totalof 27 PB branches by newly launching a total of nine PB centers,including the Yeouido PB Center, exclusively for high net worthindividuals (HNWIs), the majority of whom are individual customerswith more than KRW3 billion in financial assets, and CEOs. As a result,KB secured a stable network for its PB business.

As of the end of 2007, KB’s Assets Under Management (AUM) stood atKRW6.5 trillion, an increase of approximately 40% from 2006. “GOLD& WISE” was highly recognized as a premium brand by winning prizesat brand awards hosted by various mass media companies.

KB is emerging as the leading PBbrand with KRW6.5 trillionunder management as of the endof 2007 by differentiating the PBcustomer channel and securing aproper network.

Private Banking


Enhancing Core Asset Management Capabilities

Amid an unstable market triggered by the uncertain global economy KBwill discreetly manage customers’ assets by developing investment themesand execute effective asset allocation strategies via expanded investmentconsulting capabilities, a core part of asset management and providinginvestment portfolios based on the investment and risk appetite of itscustomers. KB will improve market and product research functions toeffectively support customers’ investment decisions through such meansas rebalancing investment strategies depending on market conditions. Interms of products, KB will launch diverse PB customer-only productssuch as structured products that utilize financial engineering andderivatives and hybrid products that combine tax exemptions and lifecare services to reflect the ever-segmenting needs of customers .

Upgrading Asset Management Capabilities in Preparation forthe Capital Market Consolidation Act

KB will position itself as an institution specializing in asset managementthat is dedicated to principles and standards by reevaluating variousregulations and systems related to sales and compliance so that the Bankadheres to basic principles for protecting investors. Basic principlesinclude KB’s obligation to explain and conform to principles inpreparation for the implementation of the Capital MarketConsolidation Act in February 2009.

With the goal of cultivating experts that are more competitive thanthose of other financial institutions such as securities firms and insurancecompanies, KB will hold wealth management courses in partnershipwith domestic and foreign organizations. By developing programsfocused on either actual practices or case studies of asset management,KB will try to enhance the application of these programs during theactual process of sales activity.

KB will offer customers enhanced profits by securing highly talentedpeople through human resources management based on performance-related compensations.

Enhancing Training for Asset Management Specialists andDifferentiating Products and Services

KB offered various training programs for its PB sales force including theWM Academy and the PB center head training. KB further reinforcedasset management capabilities through advanced financial skills and globaltrends in the asset management industry as a result of the PB-specializedoverseas training program in partnership with specialized foreignorganizations such as the Wealth Management Institution (WMI). KBalso offered differentiated customer services, including the development ofthe “Smart Biz” Service for CEOs and a charity golf tournament.

Plans for 2008

Securing Its Position as the Best PB in Korea

KB will expand its AUM to over KRW9 trillion by expanding its PB salesnetwork to 30 branches, including a newly built PB center for HNWIs inSeoul’s Gangnam area, and by hiring more talented employees throughthe end of 2008. The Bank will expand the base for new customers viadiverse promotions such as MGM (Member-get-member), SGM (Staff-get-member) and through co-marketing with luxury brands.

In addition, KB will advance to the top of the domestic market in terms ofasset management service quality as well as sales volume by buildingsystematic customer management programs in tune with customers’ lifecycles and by offering differentiated products and services targeted todifferent customer segments based on customer analyses. To expand theBank’s wealth management business, KB will hold regular investmentlectures and seminars. KB will also cultivate and develop long-termrelationships with customers through investment classes for customers’children and matchmaking events for singles. The Bank will lay thefoundation for global market advancement by broadening the scope of theBank’s sales through various means such as holding asset managementseminars for PB customers residing in foreign countries in partnershipwith KB’s overseas corporations, branches and representative offices.

As Korea’s leading bank, KB initiated financial innovations with pride and confidence. Since

introducing mobile banking for the first time in Korea, KB is taking the lead in the IT

financial services sector. KB also increased its service competitiveness by selling investment and

trust products and bancassurance ahead of its competitors. KB will firmly establish its position

as the leading Korean bank by taking the lead in financial product and service innovations

through continuous efforts by the Bank, and by differentiating services and systems through

financial innovations based on creative ideas.

MindsetreativeC

10,367 thousand customers

The Number of KB Online Banking CustomersKB has the most online banking users in Korea. The bank had 10,367 thousand customers of its Internet banking service, 2 million customers of its mobile banking service and 3.2 million customers of its phone banking services as of the end of 2007.


36.1%

49.3%

11.5%3.1%

Innovative Progress

Passion to Serve

Creative Mindset

Promise to Keep


Leader


To offer the best customer service and stable and convenient financialservices, KB developed systems for channels, products and customermanagement services and focused on IT capabilities to improve ITservice management and infrastructure performance management. Inaddition, under the goal of building up the base for customer-orientedIT services, KB is steadily developing a next-generation banking system,supporting business management strategies and establishing an advancedIT service management system.

Building a Next-Generation Banking System

for Future Growth

KB is in the midst of building a next-generation banking system tosecure functional capabilities on a par with major global banks whichoffer full-scale financial services such as banking, credit card, securities,insurance and real estate trusts, and IB. KB’s next-generation bankingsystem project aims to provide stable and enhanced high-qualityfinancial services at the same level as that of private banking, to all 30million KB customers. The system is scheduled to begin operation inseven areas including core banking system in February 2010. As of theend of 2007, e-Banking had 10.4 million Internet banking customers,2.0 million mobile banking customers and 3.2 million phone bankingcustomers, the largest number of online banking customers for a Koreanbank. KB is endeavoring to transform the general transactional functionsof its e-banking system into a marketing-oriented online channel whichcan generate a new growth engine.

Results in 2007

IT Support for Enhancing Marketing Activities and Expanding Customer Base

KB developed an IT system to launch new products such as KB VoucherCard and Wine Time Deposits at opportune times. The Bank also carriedout development projects to boost marketing activities such as thesophistication of the Credit Card CRM, the construction of the newSOHO Management System and the Product Information ManagementSystem. Moreover, KB aided in various e-Business promotional projectssuch as the construction of an e-marketing support system and a mobilehousing application system; the development of an Internet bankingservice exclusively for small businesses and KB mobile credit card onlineservice; and the renovation of the Internet banking system.

Implementing IT Projects to Strengthen Business Capabilities

KB pushed forward with the construction of a custody system and a newtrust asset management system to strengthen investment banking. TheBank also built an IT system for its Guangzhou branch in China andexpanded IT systems for its branches in New York, London and HongKong. Furthermore, KB expedited the development of the Basel IIFoundation Internal Ratings Based Approach, the construction of acredit card settlement system and a credit evaluation model verificationsystem for the advancement of risk management.

Through the development of a trulycustomer-oriented next-generationsystem, KB is realizing more stableand efficient IT financial transaction.In addition, the Bank is reinforcing itsmarketing activities through theoptimization of the online channel.

KB Systems


Reinforcing Business Support System in Preparation forChanges in the Financial EnvironmentKB will continue its support for IT to secure future competitivenesssuch as PPR (Process & Paperless Revolution) to innovate operationprocesses and digitalize documents, construct the IFRS (InternationalFinancial Reporting Standards) System and prepare for capital marketconsolidation through CMBS (Capital Market Business System).

Securing Stability of IT Services

KB plans to realize an IT service management system focused on theprevention of accidents and disorders via methods such as thereinforcement of a fingerprint security system, the development of adisorder forecast analysis function and the construction of an integratedquality management system. KB will also launch globally competitive ITservice by building a new main IT center and a BCP (BusinessContinuity Plan) system.

Reinforcing Online Channel Marketing Competencies andEnhancing Online Financial ChannelKB plans to enhance an e-CRM-based marketing process throughimprovements in e-CRM information and analysis/segmentation ofonline customers. The Bank will also enhance the online channelmarketing competencies by launching online-only products andconducting promotions to enhance customer experience. To achieve thisobjective, KB will improve contents and functions focused on marketingby enhancing the convenience of the Bank’s web site and strengtheningindividualized services.

In addition, KB will improve transactions by increasing the number ofactive customers using a chip-less certificate-enabled mobile bankingservice and “KB sERP,” an integrated operation management service forsmall firms while continuously expanding new financial channels such asnetwork electronic cash and large-amount escrow transfer service. In thismanner, KB will build up its future financial competitiveness.

IT Capability Reinforcement for Non-Disorder and Non-Accident

For an accident-free financial environment, KB improved its accidentprevention capabilities by building an integrated IT service managementsystem, replacing old terminals at branches with new ones and increasingthe main computer system capacity. To prevent financial accidents, KBimplemented an internal control system which included the constructionof an integrated account authority management system, the integration ofsuspicious transaction reporting programs, the construction of theControl Self Assessment System, the development of the regularmonitoring system and the risk analysis system.

Reinforcing Online Customer Based Sales Power andExpanding Financial Services for Online CustomersKB enjoyed strong sales of online financial products by launchingonline-only products and enhancing marketing activities. The Bankoffered one-on-one customized financial product information throughits e-CRM-based “e-Financial Product Subscription Clinic” servicewhile conducting marketing activities with mobile branches at 29universities and colleges across the nation to secure potential futurecustomers. In an effort to enhance the sales power of the online channeland offer new value to customers, KB completely renovated its web site.Moreover, the Bank launched the “KB sERP,” an integrated operationmanagement service exclusively for SOHOs and began the KB EscrowTransfer Service, a payment and settlement service.

Plans for 2008

Realizing Customer and Business-Oriented IT Services

KB plans to support core business projects such as the construction of amore customer-friendly Internet banking system, the development of amobile loan consulting system, IT development for derivative-linked loans,the construction of a mobile banking service based on digital certificates, amobile electronic cash service, the development of the Geographical-CRMand the construction of a customized escrow transfer service.


Credit Risk Management

Standing on an integrated credit risk management system comprised ofchecks and balances between sales and risk management organizations, KBachieved excellent results in stable asset expansion and profit generation, aswell as improvement in asset soundness by conducting active riskmanagement-based sales support in 2007. The Bank will continue toconcentrate on enhancing the growth engine, improving profitability andraising asset soundness through risk management in consideration ofprofitability within the scope of its goal in asset soundness.

Direction of Credit Policies

Based on management strategies, KB devised appropriate credit policiesin consideration of economic outlooks, business environments, and assetsoundness trend and internal risk management capabilities. The Bankmanages credit by fund type such as retail, corporate banking and creditcards in accordance with previously set policies. In this fashion, KBapplies consistent credit policies across the Bank.

The basic direction of KB’s credit polices is to maximize the Bank’svalue by minimizing the volatility of mid- to long-term credit coststhrough stable asset soundness that can bring stable profit generationregardless of external economic changes. There fore, KB pursued stableasset expansion mainly focused on superior credit rating on the base ofrisk management as the Bank’s 2007 credit policy.

Results in 2007

Improving Work Processes

The Bank effectively manages credit risk and enhances sales support byapplying different loan approval authorities subject to the level of such risksas credit management capabilities of branches, loan amounts applied, creditratings and collaterals. In addition, for the SOHO sector, KB reinforcedthe graded granting of credit loan limits in accordance with the creditratings of borrowers and the credit levels of businesses by additionallyreflecting the specific characteristics of business sectors to the credit loanlimit calculation system by credit ratings. Meanwhile, for prime retailcustomers, the Bank heightened its sales capability to enable advancedmarketing through various methods such as sending direct mail by assessingavailable unsecured loan amounts and their interest rates in advance.

Moreover, KB further enhanced its marketing capabilities as the Bank wasable to increase the delinquent loan collection rate and alleviate themanagement workload of branches by continuously reshuffling the Bank’spost-loan management organization and processes, and by transferringpost-loan management duties, which include delinquent loanmanagement and loan maturity notices, to the back office.

KB established an advanced riskmanagement system by buildinga risk evaluation system to satisfythe requirements for the approvalof BASEL II through systematicrisk management.

Credit Management


As for credit card easy loan assets and Japanese Yen-denoted loansrelated to Yen carry trades, KB minimized credit risks by devising andoperating contingency plans according to credit risk levels.

In addition, in 2007, KB carried out detailed monitoring on loanincreases for SMEs on a monthly basis to prevent credit loan operationfrom being centralized on a certain sector.

Timely Analysis of Risks for External Economic EnvironmentChanges and Enhancing Countermeasures

To minimize the influence of economic variable changes on assetsoundness, KB upgraded its approval authority when granting new loans bydesignating high economic-sensitivity businesses or those with increasingdelinquencies as supervisory targets. KB carried out stringent riskmanagement by applying certain obligatory reimbursement ratios when alow-rating loan matures. As of the end of 2007, KB selected 12 businessesin such fields as construction and real estate as supervisory targets.

Moreover, KB built up its preemptive capabilities to deal withenvironmental changes by analyzing how loan assets are affected bychanges in external economic variables such as housing prices, foreignexchange rates and the real estate market.

Strengthening the Appropriateness of the Monitoring Systemfor Corporate Credit Ratings

KB regularly checks the appropriateness of credit ratings for corporateloans through various methods such as operating a regular credit ratingadjustment system linked with an early warning system, conductingcredit evaluation of mid- to low-level borrowers with comparably highercredit rating variability every six months, and rechecking the creditratings of companies in business sectors subject to ongoing credit issues.In the meantime, to deal more effectively with household loans andcredit cards, KB calculated a BSS (Behavior Scoring System) that reflectsthe financial transaction status after the loan usage, delinquentinformation, and external credit information, and utilizes it for loanlimit management and post-management.

Improving Credit Analysis Models and SatisfyingRequirements for Approval of BASEL II Foundation InternalRatings Based Approach

Keeping in mind that credit evaluation is an important factor in credit riskmanagement, KB reinforced pre-credit risk management by i) expandingpotential customer groups ii) carrying-out optimal limit managementstrategies, and iii) minimizing potentially delinquent customers throughsteady improvements in the effectiveness of credit evaluation models.

KB supports sales and enhances risk management by managing separatecredit evaluation models for households, corporates, SOHOs (smallbusiness owners) and credit card users, and improves the effectiveness ofcredit ratings through regular improvements in models that reflect thelatest credit loan information and bankruptcy rate information. In thecorporate banking sector, the Bank has been able to appropriate loanlimits and interest rates that match customers’ credit ratings by breakingdown the current 12 ratings into 17. Upgraded individual card BSSmodels were built into the IT system and utilized in reissuing cards,managing limits and devising price strategies. Thanks to these models,KB laid the foundation for up-to-the-minute risk management, whilesupporting sales.

KB’s basic credit strategies are to i) adjust and manage the loan cut-offbase and loan limits utilizing credit evaluation models in consideration ofmarket situations and asset soundness, ii) expand the coverage of loancustomers after proving the effectiveness of a pilot test for a certain periodof time, and iii) progressively expand and adjust the loan cut-offs bytaking into account the allowable risk levels.

In 2007, KB constructed a platform for an advanced risk managementsystem by ceaselessly upgrading and improving credit evaluation models,and thus built a credit evaluation system that can satisfy requirementsfor the approval of the BASEL II (New BIS Accord) FoundationInternal Ratings Based Approach for the first time in Korea.

Stable Portfolio Management

KB built a stable portfolio structure focused on prime ratings throughsystematic credit risk management for all credit risk management sectorsfrom stable credit management based on credit policies, to creditmanagement, credit reviews and post-management.

Reinforcing Pre-credit Risk Management

KB has built and operates a pre-credit risk management system byregularly monitoring the loan operation status by such loan asset types asretail, corporate and credit cards as well as loan assets across the Bankand by reflecting these results in the loan operation standards.

As for major credit issues, KB made a pre-risk management system workby securing consistent credit policies through such means as sharing creditrisk information among groups and preparing countermeasures at theWorking Level Credit Policy Meeting (Credit Group, Marketing Groupand Commercial Banking Group), held on a monthly or occasional basis.


Enhanced Adequacy of Loan Loss Reserves in Preparation forExpected Loss

KB applied different loan loss reserve allocation ratios by business sectorfor normal loans as it elevated by 0.20%P and 0.15%P, respectively, forbusinesses with economic sensitivity and general businesses inpreparation for an increase in expected losses in the corporate sector dueto future economic changes. The Bank additionally allocated reservesabove the lowest reserve ratio by reflecting the experienced loss ratio onprecautionary loans or lower in the household and corporate sector.

Increases in Loan Assets and Improvements in Asset Quality

KB’s total loan assets expanded by approximately KRW25.2 trillion(16.5%) mainly due to an increase in prime loans from the end of 2006through risk management-based asset management and stronger salescompetitiveness. In terms of loan type, household, corporate and creditcard loans increased by KRW3.5 trillion, KRW19.0 trillion andKRW2.7 trillion, respectively, achieving an overall stable asset growth.KB also secured a base for expanding non-interest incomes as well asloan interest incomes by creating new prime customers in largecorporations and the SOHO sectors and expanding B2B transactions.

Since 2004, KB has been focusing on improving asset soundness,channeling its energies into preventing delinquent loans through theprime rating-oriented loan operations and the early collection ofdelinquent loans.

As a result, KB’s delinquency ratio fell by 0.36%P to 0.59% from0.95% at the end of 2006, while its NPL Ratio slid by 0.29%P to0.74% from 1.03% at the end of 2006 on the strength of a drop in newdelinquent assets, strengthening collection and write-offs of delinquentloans and NPL clean-up measures through ABS.

The NPL to loan loss reserve ratio substantially rose by 42.26%P to193.03% from 150.77% at the end of 2006 as a result of a decrease inthe NPL amount and the tightened loan loss reserves.

Plans for 2008

The purpose of credit risk management is to maximize corporate valuethrough stable profit generation. Hereafter, the credit group of KB willfocus on growing assets and enhancing profitability while maintaining aproper level of asset soundness based on a stabilized loan portfolio and asystemized credit risk management system.

KB enhanced loan growth through risk management-basedbusiness support and has improvedasset quality by implementingtimely credit policies to create astable profit structure.


ㅣ Delinquency Ratioㅣ

ㅣ NPL Ratioㅣ

ㅣ NPL Coverage Ratioㅣ

Improving Capabilities for Credit Evaluation and Review

KB will steadily reinforce its pre-review functions via an upgrade of itscredit evaluation model. In particular, the Bank will realize moredetailed risk management through the development of a SOHO creditevaluation model exclusively for self-employed persons with total loansof over KRW1 billion and an individual and a credit card evaluationmodel upgraded to include recent information. Moreover, KB willcontinue to enhance the capabilities and specialties of reviewers inpreparation for the expansion of investment banking and overseasbusinesses.

Enhancing Work Efficiencies Through the Integration ofDepartments

In order to support rapid loan-granting decisions and promotespecialties through concentration of similar tasks, KB will integrate theHousehold Loan Review Department and the Corporate Loan ReviewDepartment into the Review Department. The Bank will support rapidloan-granting decisions at work sites by expanding the number ofreviewers at regional review centers. KB will also integrate the CreditManagement Department for arrears post-management and theCorporate Restructuring Department for court receiverships andworkouts into the Credit Management Department; thereby, KB willmaximize the synergies of its loan post-management activities.

Expediting Optimized Credit Risk Management inConsideration of Profitability

Veering away from the risk reduction policy conducted through theconventional loan management, focusing mainly on outstanding creditlevels, KB will concentrate on strengthening growth engines, enhancingprofitability and maintaining stable asset soundness through riskmanagement in consideration of profitability within the targetsoundness level on the basis of a stabilized credit risk managementsystem and loan portfolio structure.


KB has established and operated so comprehensive a risk managementframework that it identifies and measures all material risks facing theBank including its subsidiaries, aggregates them at a bank-wide levelthrough common measure, allocates capital and sets capital limits in asystematic and objective way, reflecting the limit management resultsinto the processes of performance evaluation and decision-making.These material risks measured and managed by KB involve Credit risk,Market risk, Operational risk, Interest rate risk, Liquidity risk, Creditconcentration risk, Strategic risk, and Reputational risk, and all arequantified in a statistical way in terms of Economic Capital orVAR(“Value at Risk”).

Risk Management Organization

Risk Management Committee

The Risk Management Committee is a board level committee that isresponsible for overseeing all risks of the Bank and advising the Board ofDirectors on risk management related issues. It has five directors asmembers. Its major roles include: establishing risk managementstrategies in accordance with the directives of the Board of Directors,determining the Bank’s Risk Appetite, reviewing the level of risks KB isexposed to and the status of its risk management operations andapproving the introduction of and material modifications to various riskmanagement systems and methodologies.

Risk Management Council

The Risk Management Council is the executive decision making bodyfor KB’s risk management operations. It consists of eight seniorexecutive vice presidents, including the CFO as Chairman. Itsresponsibilities include: determining basic principles and major policiesfor risk management, setting Economic Capital(“EC”) limits for eachbusiness group, in reference to the overall Risk Appetite set by the RiskManagement Committee and setting limits for each type of risk, and forintegrated risk levels.

KB established a bank-wide riskmanagement system and adoptedintegrated indicators to operate abank-wide comprehensive riskmanagement system.

Risk Management

Risk ManagementMeeting

Credit RiskManagement

Subcommittee

Market RiskManagement

Subcommittee

Board of Directors


Asset & LiabilitySubcommittee

Risk ManagementCouncil

ALCO

Risk ManagementWorking Functions

Credit ReviewDept

Risk Mgmt Dept

CEO

Card CreditAnalysis Dept

Credit AnalysisDept

Credit AnalysisDivision

Credit Mgmt Dept

Credit PlanningDept

Finance Group Credit Group


Stress Testing

In order to assess capital adequacy, manage credit concentration risk, andset the risk management strategy actively, KB performs stress testing,through which it can analyze potential risk in portfolio under thecircumstance of exceptional but plausible changes of macroeconomicvariables and respond it. At KB, mild recession scenario is used as theprimary methodology for stress testing, with certain event type scenariobeing used as a supplementary measure. Stress testing is conducted on amonthly basis and the result is used in risk limit setting, capital adequacyassessment, strategic decision making and so on.

Market Risk Management

KB has established a robust system for identifying, measuring,monitoring, controlling and reporting on the market risks to which it isexposed, including interest rate, foreign exchange, equity and derivativerelated risks. In July 2005, after strict evaluation of both quantitativeand qualitative items through documentary and on-site examinations,the FSS approved the use of KB’s internal Market Risk model tocalculate market risk VAR.

Market VAR

VAR is a quantitative market risk measure used to control risks inherentin our trading account and our available for sale account. VARrepresents the expected maximum loss of a portfolio during a fixedperiod of time within a certain confidence level under normal marketconditions. In order to calculate the VAR, KB employs the variance-covariance approach to measure the value changes of trading andavailable for sale assets by estimating their correlation with the volatilityof market variables (interest rates, equity prices and exchange rates)based on past historical data. Daily VAR measurements serve as aunified risk indicator, which, in turn, provides a consistent measure ofour risk profile and risk diversification level. Furthermore, our marketrisk VAR is one of the components used in the determination of KB’sbank wide Economic Capital.

Risk Management Subcommittees

Our Risk Management Subcommittees are the EVP or general mangerlevel decision making bodies for KB’s risk management operations. KBhas three Risk Management Subcommittees: Credit Risk ManagementSubcommittee, Market Risk Management Subcommittee, and Asset andLiability Management Subcommittee. They execute the decisions madeby the Risk Management Council and make operational decisionsregarding risk management policies and procedures.

Finance Group

Having stabilized risk management systems, KB integrated RiskManagement Group into Finance Group in December 2007, ensuringthat it manage risk/return/capital effectively through aligning them. OurFinance Group is responsible for identifying, measuring, monitoring, andreporting all risks to which the Bank may be exposed, and for initiatingactions that may be required of other business groups within the Bank.

Credit Risk Management

KB developed credit risk management system to identify and measurecredit risk inherent in on-and-off balance sheet exposures.

Credit VAR

Credit VAR represents the maximum loss that may arise fromdeteriorating creditworthiness of each of individual counterpartiesduring a fixed period of time(usually one year) within a certainconfidence level. Credit VAR is calculated through simulation functionto capture the changes of portfolio value triggered by credit migration,cash flow, correlation as well as default.

Credit Concentration Risk

Credit concentration risk, as a part of Credit risk, means the potential lossthat may additionally occur due to the exposure concentration to anindividual counterparty, or a combination of exposures across broadcategories, or highly correlated assets. KB identifies, measures and monitorsthe risk arising from concentration of obligor, group, and collateral.


Back-Testing

KB conducts back testing on a daily basis to validate the adequacy of itsMarket Risk model. In back testing, KB compares both the actual andhypothetical Profits & Losses with the VAR calculations, and carefullyanalyses any results that fall outside our predetermined confidenceinterval of 99%.

Stress Testing

KB performs stress testing on its trading and AFS portfolios by reflectingthe changes in individual risk factors that may materially affect valuechanges in our portfolio during crisis scenarios, including intrinsicvolatilities of interest rates, equity prices, foreign exchange rates andderivatives. At KB, historical scenario analysis is used as the primarymethodology for stress testing, with hypothetical scenario analysis beingused as a supplementary measure. Stress testing is conducted at leastonce a quarter.

Derivatives

In addition to VAR, position and stop loss limits, scenario loss limitsand sensitivity limits (including delta, gamma, and vega) are used tocontrol our derivative positions.

Interest Rate Risk & Liquidity Risk Management

Interest Rate Risk Management

KB measures interest rate risk for Won and foreign currency-denominated assets and liabilities in its banking book, includingderivatives positions and its principal guaranteed trust accounts. KB’sprincipal interest rate risk management objectives are to manage assetsand liabilities overall to maximize net interest revenues within acceptablerisk boundaries, and to protect our banking book against interest ratefluctuations. KB sets interest rate risk limits based on estimates of futureasset and liability positions, reflecting our annual business plans andestimated interest rate volatilities.

Liquidity Risk Management

KB manages its liquidity risk in order to meet its financial obligationsarising from withdrawals of deposits, redemption of matured debenturesand repayments at maturity of other borrowed funds. KB also requiressufficient liquidity to fund loans, to extend other credits and to invest insecurities. KB’s liquidity management goal is to meet all our liabilityrepayments on time and fund all investment opportunities even underadverse conditions. KB seeks to minimize its liquidity costs by managingthe liquidity position on a daily basis and by limiting the amount of cashat any time that is not invested in interest earning assets or securities.

Systematic and objective riskmanagement is enhanced byquantifying and measuring riskthrough an integrated indicator anda statistical approach.


Operational Risk Management

At KB, operational risk is broadly defined to include all financial andnon-financial risks that may arise from the Bank’s operations. Theobjective of KB’s operational risk management lies not only in satisfyingregulatory requirements, but also in providing internal support throughthe growth of a strong risk management culture, reinforcement ofinternal controls, improvement of work processes and provision oftimely feedback to management members and staff throughout theBank. KB’s operational risk support staff in all departments andbranches conduct Control Self Assessments on all operating processes ona monthly basis to diagnose not only the possibility and impact ofoperational risk but control level. Furthermore, they monitoroperational risk through key risk indicators, each of which has its limit.In addition, according to our Business Continuity Plan for the Bank’sgoing concern under unforeseen contingency, KB has completed toconstruct alternate site, took simulation exercise for each department inHead Office and IT Group, and reviewed BCP framework.

Credit Review and Monitoring

KB’s credit review function is independent of the business groups whichmanage the assets of the bank. KB’s Credit Review Dept. i) reviewscredit related regulations, policies, and systems, ii) analyzes the creditstatus of companies whose credit risk may have increased due toenvironmental changes, iii) checks the appropriateness of the creditratings and approvals made by our branches, credit analysis centers, andheadquarters, iv) assesses the corporate credit risk of potentially insolventcompanies, v) operates our portfolio monitoring system, and vi)monitors and reviews the risk management status & exposures of oursubsidiaries (including the overseas network).

Basel II Implementation

KB has prepared for the introduction of Basel II to upgrade the riskmanagement practice in KB to the level of the world best. In line withthe Basel II standard, KB has improved risk managementmethodologies, loan processes/systems, data, and control structure,thereby upgrading its overall risk management system and having strongrisk culture in place throughout the Bank.

·Credit Risk : KB developed its Credit Risk Weighted Assets(“RWA”) andExpected Loss(“EL”) calculation system in December 2005. In addition,KB has operated its credit rating/scoring systems stably, and updated andrefined its Basel II compliant risk components(PD/EAD/LGD) basedupon the most recent data. As a result, in December 2007, KB acquiredthe FSS’s approval for its use of Basel II Foundation Internal Ratings basedApproach(“F-IRB”), thereby is now able to compute Credit RWA inaccordance with the requirements of Basel II. Since KB is allowed to use itsF-IRB approach which produces capital requirements less thanStandardised approach, the F-IRB use will minimize additional capitalincrease of the Bank and reduce cost of capital, according to which it willbe able to not only maintain its competitive position in capitalmanagement but also operate assets and manage return more flexibly.

·Market Risk : In July 2005, KB’s internal model for Market Risk wasapproved to use for regulatory purpose.

·Operational Risk : KB also developed its Advanced MeasurementApproach(“AMA”) system for Operational Risk in December 2005. Inline with the Basel II introduction schedule that the Korean FinancialSupervisory Service(“FSS”) established, KB will use StandardisedApproach for Operational Risk from the beginning of 2008 forregulatory purpose. For AMA use, KB will apply for the FSS’s approvalfor its use of AMA during 2008.

KB strives to fulfill its corporate social roles & responsibilities as Korea’s leading bank. KB seeks

ways and activities to provide people in need with increased practical help and support through

diverse social contribution activities. At the same time, all employees and management voluntarily

take part in social contribution activities in various sectors. The Bank enhances its productivity and

capabilities by continuously investing in employees’ welfare and self-development.

KeepromisePto

Volunteer Service by KB MembersA total of 54,863 KB members (accumulative number) of volunteer activities helped make Korea a better place tolive through in 2007.


54,863 KB Members (accumulative number)

Innovative Progress

Passion to Serve

Creative Mindset

Promise to Keep


Leader


Board Composition

As of March 2008, the Board of Directors of KB included five executivedirectors and ten non-executive directors. All board members areappointed at the general shareholders meeting for a three year term. Allnon-executive board members are professionals in their respective fieldswith extensive experience in areas such as finance, management, law,accounting and journalism, and are selected from among prominentmembers of society. The qualifications of the non-executive directors arebased on relevant regulations and the Bank’s articles of incorporation. Inaddition, the non-executive directors are all nominated by the non-executive director nominating committee.

The CEO is elected to the position by the Board after being nominatedby the CEO Nominating Committee, which consists of non-executivedirectors and shareholder representatives. The Chairman is elected fromamong the non-executive directors and has an obligation to preside overthe Board and to make sure that the Board is actively working.

Results in 2007

The board convened a total of fifteen meetings in 2007 and carried-outdiscussions on thirty seven resolutions and twenty two reporting items.

During the first quarter board meeting held on February 8, 2007 theBoard passed resolutions to convene the 6th annual general shareholders’meeting, and to approve the 6th annual financial statements. During thesecond quarter Board meeting, the Board decided on resolutions to builda next-generation IT system and a new IT center. In the third quarterboard meeting, the Board passed resolutions to appoint members of theNon-executive Director Nomination Committee that nominates non-executive directors for 2007 and to convene an extraordinary generalshareholders meeting. The Board nominated CEO candidates fromamong the executive directors at a board meeting held September 28,2007. In the fourth quarter Board meeting, members resolved to adopt anew evaluation and compensation system. They also approved the 2008business plan at the December 14, 2007 board meeting.

In addition, through several extraordinary Board meetings, the Boarddiscussed and resolved material corporate issues such as divesting portionsof INGLK shares, acquiring shares in Hannuri Investment & SecuritiesCo., and forming a Holding Company Establishment Committee.

KB efficiently operates six committeesunder the board of directors andstrives to achieve an advancedcorporate governance structure.

Corporate Governance



The Risk Management Committee establishes risk managementstrategies and decides on an acceptable risk level, and approves the newcredit evaluation system, and other major issues for revision. The resultsare then reported to the Board. The Risk Management Committeeconsists of five non-executive directors and one executive director. TheCommittee held seven meetings in 2007. Through these meetings, theCommittee established an acceptable risk level, reported on the results ofthe Economic Capital Management and RAROC (Risk AdjustedReturn on Capital), initiated SOHO ASS Tuning, and upgraded thehousehold and credit card credit evaluation model.

Evaluation & Compensation Committee

The Evaluation & Compensation Committee consists of five non-executive directors. The Committee establishes the basic principles of thecompensation structure, oversees the evaluation and compensation of keymanagement such as directors, and reviews the succession of non-executive directors, the CEO and Chief Audit Executive by managing thepotential candidates. In 2007, during the eighteen meetings held by theCommittee, resolutions were passed regarding performance evaluationsand annual compensations of the CEO and Chief Audit Executive, andnew annual evaluations and compensations for management wereestablished, strengthening the principals based on performance.

Plans for 2008

During 2008, KB will continue to make every effort to establish a modelcorporate governance structure based on international standards bystriving to meet the principles of corporate governance stipulated bydomestic law and the New York Stock Exchange (NYSE). In particular,while promoting understanding between the Board and management,the Bank will take the lead in establishing a productive corporategovernance structure.

Board Committees

Based on the “Bank Act,” the Board maintains an Audit Committee anda Non-executive Director Nominating Committee. To enhance theeffectiveness of the Board, there are four other committees which are theBoard Steering Committee, Risk Management Committee,Management Strategy Committee, and Evaluation & CompensationCommittee. All committees are chaired by non-executive directors andare operated mainly by non-executive directors. Furthermore, allmembers of the Non-executive Director Nominating Committee andEvaluation & Compensation Committee are non-executive directors.

Audit Committee

As an independent body consisting of mainly non-executive directors,the Audit Committee evaluates the appropriateness and effectiveness ofthe overall activities of the Bank and the internal control system. TheAudit Committee appropriately provides insight into vulnerable areasand provides improvement plans, while taking appropriate ex post factoaction. The Audit Committee consists of four non-executive directorsand one executive director. The Audit Committee is chaired by a non-executive director. Members of the committee have qualifications setforth in KB’s regulations and Articles of Incorporation. Pursuant to KB’sArticles of Incorporation and relevant laws, the Board is required tomaintain two financial professionals.

Board Steering Committee

The Board Steering Committee consists of members, including theCEO, Chairman of the Board of Directors and the Chairpersons of eachcommittee under the Board of Directors, and is chaired by theChairman of the Board. The Committee overlooks the improvement ofthe corporate governance structure and operational efficiencies of theBoard and committees. In addition, the Committee is responsible fordeveloping and monitoring training programs for directors, andcontacting shareholders and collecting opinions from shareholders.

Management Strategy Committee

The Management Strategy Committee establishes the Bank’s vision andmid- to long-term strategy, annual business plan, new strategic initiativessuch as new strategic alliances, and major financial strategies. Currently,the committee consists of five non-executive directors and one executivedirector. Through the five meetings held in 2007, various issues weredeliberated and decided. These issues consisted of management strategy& vision, dividend policies, measures to counter the capital consolidationact, 2008 business plan, and contribution limits.


❶

❷

❸

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❺

❻

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❾

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Non-Executive Directors

1. Kee Young Chung - Professor of Accounting at Kyemyung Univ.- Chairman of the Board of Directors and

Chairman of the Board Steering Committee,- Member of Audit Committee

and Management Strategy Committee

2. Jacques P.M. Kemp - CEO of ING Insurance Asia/Pacific- Member of Management Strategy Committee and


3. Dam Cho - Professor, Business Administration at ChonnamNational University

- Chairman of Risk Management Committee and Member of Audit Committee

4. Suk Sig Lim - Professor of Business Administration at Seoul City University

- Chairman of Audit Committee and Member of Risk Management Committee

5. Bo Kyung Byun - CEO of Kolon I’Networks- Chairman of Management Strategy Committee

and Member of Evaluation &Compensation Committee

6. Sang Moon Hahm - Chairman of Graduate School of International Policies at KDI

- Member of Risk Management Committee, Member of Evaluation & Compensation Committee

7. Han Kim - President and CEO of Uclick - Member of Audit Committee and Member of

Management Strategy Committee

8. Chee Joong Kim - Lawyer at Righteous Lawyer Law Firm- Chairman of Evaluation & Compensation Committee

and Member of Audit Committee

9. Beak In Cha - Vice President, Korea Institute of Finance- Member of Management Strategy Committee

and Member of Evaluation & Compensation Committee

10. Thomas C. Kang - Chairman and CEO of Kang & Company- Member of Management Strategy Committee and,

Member of Evaluation & Compensation Committee

BoardofDirectors


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Executive Directors

1. Chung Won Kang President & CEOMember of Board Steering Committee

2. Yong Hwa Cheong Chief Audit ExecutiveMember of Audit Committee

3. In Gyu Choi Senior Executive Vice PresidentMember of Management Strategy Committee

4. Donald H. MacKenzie CFO & Senior Executive Vice PresidentMember of Risk Management Committee

5. Ki Hong Kim Senior Executive Vice President


KB is dedicated to complying with related regulations for maximizingshareholder value through the protection of shareholders interests. Inparticular, KB tried to maximize shareholder value by executing a cashdividend payment of 49% in 2007. KB will continue to devote itsefforts to protecting its shareholders’ rights and improving thetransparency and fairness of its General Shareholders’ Meeting.

Major Activities for Protecting Shareholders’ Rights

Written Absentee Voting System for Shareholders

KB operates a written absentee voting system for shareholders whocannot participate in shareholders’ meeting. Although there are fewlisted companies with a large number of shareholders don’t allow writtenabsentee voting, KB makes it a case to carry-out written absentee votingat each shareholders’ meeting. This is a show of respect to the rights ofits shareholders in exercising their voting rights. In order to implementsuch a system, KB sends written voting ballots to all its shareholders andincludes the returned exercised ballots in the aggregate voting rights ofthe General Shareholders’ Meeting.

Provision of Information on the Convocation of Shareholders’ Meeting KB mails reference materials related to the agenda of the meeting and incase of director appointments, name, career background andrecommender of the pertinent director to all of its shareholders two weeksprior to the general meeting. In the 7th General Shareholders’ Meeting,KB provided necessary information for its shareholders to exercise theirvoting rights by sending a letter of participation along with referencematerials related to the agenda to all its 105,267 shareholders. In addition,in line with the Commercial Act and the Securities and Exchange Act, KBnotified the convocation of the General Shareholders’ Meeting to itsshareholders two weeks prior to the meeting more than twice in two dailynewspapers, and publicized the holding of the General Shareholders’Meeting via its Internet homepage.

Provision of Information on the Decisions of Shareholders’ Meeting

KB conducts the General Shareholders’ Meeting to allow itsshareholders to express their thoughts freely, while also providinginformation to shareholders unable to attend the meeting by uploadingthe video of the shareholders’ meeting on its Internet homepage.

Provision of Business Reference Materials

KB allows its shareholders to access through its 1,200 branches tobusiness reference materials related to shareholders’ meeting agendas andnon-executive director activities two weeks prior to the actual meeting.Subsequent to the General Shareholders’ Meeting, the minutes of theproceedings can be accessed at all of KB’s branches in its effort to satisfyits shareholders’ right to information.

Enhanced Transparency of and Trust in Bank

KB serves as a model for improving the rights and interests of minorityshareholders by not specifying exclusion clauses on concentration votingin its Articles of Incorporation. KB ensured the transparency of and levelof trust in the General Shareholders’ Meeting pursuant to the relatedregulations and processes such as the General Shareholders’ MeetingOperation Guidelines 2005. In addition, KB listens to the opinions ofits shareholders at all times via a shareholder chat room on its Internethomepage to satisfy the interests and information needs of itsshareholders and to provide feedback on their questions.

Shareholder Relationship

KB tries to enhance transparency inmanagement through various effortsto protect shareholders’ voting rightsand shareholders’ rights for access toinformation related to theshareholders’ meeting.


number of employees at its headquarters by 210 via branch transfers,while employing 1,042 new workers and 1,223 new non-regularworkers. The Bank secured human resource pools in major sectors andfostered the career development of its employees by searching for jobcandidates among internal employees and by exchanging employeesbetween the head office and branches.

Diverse Employee Training Programs

KB is striving to foster excellent human resources with global competencies.In 2007, an aggregate of 100,000 persons (some employees were exposedto two or more training programs) were exposed to diverse trainingprograms to enhance their competencies. In particular, the Bank sentlecturers to branches to train 10,800 employees in 2007. To strengthen theexpertise of its employees, KB held campaigns for employees to obtainrecognized asset management certificates such as Associate FinancialPlanner Korea (AFPK) and Certified Financial Planner (CFP).

To help employees internalize the core values of IBP (International BestPractice), which refers to behavioral norms and guidelines commonlyadopted by leading global companies, KB operated the IBP trainingprogram. KB also held diverse programs such as the KB LeadershipProgram and Program to Foster Overseas Specialists to further enhanceemployee capabilities.

Labor-Management Relations

In 2007, the 3rd year of a unified labor union, both labor union andmanagement strived to establish the SOD (Segregation of Duties) systemand improve HR and welfare systems through diverse joint labor-management activities. Standing on an amicable labor union-managementpartnership, both the labor union and management displayed a desirablelabor-management model with the aim of enhancing productivity andfulfilling corporate social responsibilities by mutually cooperating for thedevelopment of the Bank and social contributions.

Plans for 2008

From a mid- to long-term perspective, KB will establish and implementstrategic directions in such areas as HR development, systematicfostering and utilization of core personnel, and reorganization of the HRsupport system in order to focus on the business strategies of eachbusiness. In 2008, to achieve KB’s critical objective of strengtheningcore growth engines, the Bank is preparing various programs tomaximize personnel capabilities such as HR innovations catered towardscustomers, programs to foster and secure globalized personnel andenhance employees’ morale. To foster globalized human resources, theBank plans to initiate diverse programs such as “KB Financial MBA” forhigh performing employees, programs to strengthen managerialcompetencies of branch and team heads, and programs to assistemployees to gain asset management qualification certificates.

On the back of trust and cooperation built over the years between laborand management, KB will actively initiate diverse programs to revitalizethe open management culture and communications between labor andmanagement. This will help further develop the advanced labor /management culture, which will play a critical role in solidifying thefoundation for KB to become a globally leading bank.

In 2007, KB went ahead with a comprehensive reorganization of itshuman resources (HR) management system, reflecting managementstrategies and the changing business environment. As a result ofupgrading the HR system, enhancing employees’ loyalty, diversifyingemployee training programs and strengthening labor-managementrelations, KB was selected as one of the “Top Ten Best Employers inKorea” and was awarded the “The Best Corporate for Labor-Management Culture and the Prime Minister’s Grand Prize for Labor-Management Culture.”

Results in 2007

HR Management

KB pushed ahead with a complete reorganization of its HR managementsystem by establishing a Specialist System and Salary Peak System alongwith improving working conditions for non-regular workers. TheSpecialist and Salary Peak Systems aim to foster and secure excellenthuman resources in future growth engine sectors, while stabilizing theorganization and utilizing the rich experience and know-hows of senioremployees to prepare for opportunities created by an aging society. Withan eye toward strengthening its sales capabilities, KB reduced the

HR Management

KB implemented a variety of trainingprograms to cultivate globalcompetencies in its employees, whilebuilding a corporate culture where KBmembers can enjoy their workthrough trust and cooperation.


Customer-oriented sales systems are one of the core competencies whichKB takes pride in. KB’s number one priority is customer satisfaction.The Bank has concentrated all its competencies on maintaining its statusas the best customer satisfaction bank representing Korea. As a result,KB ranked first in several customer satisfaction surveys, firmly placingKB as the “Best Service Bank.”

Results in 2007

Establishing a Differentiated KB Service Value System

KB announced to its customers and the market the Bank’s differentiated“KB Service Mind,” and reestablished its resolve regarding “ServiceIdentity,” which motivates management and employees to practicecustomer satisfaction. In addition, KB revised its “KB Customer ServiceCharter” and the “KB Main Office Internal Customer SatisfactionCharter,” which embraces a strong resolve for customer satisfactionmanagement. Through this, the Bank established the principles ofconduct for all employees and management.

Results of Efforts to Enhance Customer Satisfaction

Utilizing customer satisfaction competencies accumulated over the years,KB enhanced customer satisfaction by strengthening its customerrelationship management activities on a bank-wide level, and byproviding high quality personnel-based services.

As a result, in 2007, for two consecutive years, KB ranked first in thebanking sector of the NCSI, which was sponsored by the KoreaProductivity Center.

In addition, KB was selected first place in both the banking sector of theKorean Customer Satisfaction Index (KCSI), sponsored by KoreaManagement Association Consulting, and the Korea WellbeingConsumer Index (KWCI), sponsored by Standard & Consulting UnitedKorea. With this, KB was able to firmly establish itself as the “Best ServiceBank” representing Korea. KB also won the Customer Satisfaction GrandPrize in the customer satisfaction category at the 2007 Korea EconomicCulture Awards sponsored by the Economic Review, a business magazine,and the grand prize at the 2007 Korea Financial Culture Awardssponsored by the Asian Economy, a Korean economic daily.

KB established a differentiated KBservice value system through theBank’s core competence incustomer-oriented business practices.KB’s constant efforts to achievecustomer satisfaction resulted in theBank receiving the number one awardin various customer satisfactionsurveys in 2007.



To achieve this, KB will reestablish, expand and stringently operate acustomer satisfaction evaluation and measurement method at the branchand head office level. KB will also steadily decrease the number ofcomplaints by eliminating elements which have the potential to result incustomer complaints.

Together with this, KB plans to hold a variety of activities to satisfyinternal and external customers. We will offer various customerappreciation events for different customer segments while moving aheadwith its social contribution activities. The Bank will reinforce systematiccustomized education programs such as the “KB CS Academy,” and the“Best Service Course” for employees. At the same time, KB will enhancecustomer service capabilities by improving and strengthening its cybercustomer satisfaction (CS) education programs. The Bank will providemore customer-friendly services by expanding various CS promotionssuch as “Customer Love Day” and the “CS Contest”.

Results of Consumer Protection Activities

KB has implemented a bank-wide customer claim management system tocontinuously prevent or minimize customer complaints. To this end, KBdisplayed posters at its branches with photos and contact information ofbranch managers and the person in charge of customer complaints toquickly resolve customer complaints. As for customer complaints at thebranch level, the Bank installed customer complaint help desks. Throughthese help desks, KB dealt with 4,094 complaint alert cases, 298 cases morethan the 3,796 cases recorded in 2006. In addition, KB actively carried-outcomplaint preventive actions such as internal policy improvements oncomplaints received through the Internet homepage or call center.

Thanks to these steady efforts, the total number of written customercomplaints (including those reported to the Financial SupervisoryService) decreased by 16.4% from the previous year, while those receivedthrough the Financial Supervisory Service dropped by 19.3%. In 2006,with the ranking method changed to a grade-based evaluation system,KB received the 3rd grade level (Average) from a grade level range of 1to 5. KB expect to receive the 2nd grade level (Good) for 2007.

In another significant achievement, KB became the only financialinstitution to win an official commendation as an excellent organizationby the Financial Supervisory Service as a result of taking the lead inprotecting financial consumers through the utilization of excellentcustomer protection systems and actively providing financial education forthose who lack financial knowledge and experience.

2008 Implementation Strategies

Establishing KB as a Bank Providing the Best Service

On the back of the results gained from its customer satisfactionactivities, KB will enhance personnel-based service quality, raise itsoverall service level and continuously strengthen service quality at thehead office level in 2008. Through this, KB will be able to maintain itsposition as the "Best Service Bank." In 2008, KB will concentrate onachieving 1st place for the 3rd consecutive year in the NCSI and 1stplace for the 2nd consecutive year in the KCSI.

■ Total Complaints■ Complaints Reported to the FSS

ㅣ Complaint Reduction Status for the Past Four Yearsㅣ


KB established and executed the employees’ code of ethics to enableemployees to be aware of the effects of ethical management on corporatemanagement and the importance of corporate social responsibility. TheBank initiated diverse programs for ethical management such as i)developing an ethical program that can be incorporated into daily life, ii)establishing a consensus through continued training for managementand employees, and iii) preparing for preemptive measures againstunethical behavior.

KB's Initiation Pledge of Ethical Principles

All employees and management are required to make ethical principleinitiation pledges every year to share and implement the Bank's ethicalvalues. During the opening ceremony for the year, after the CEO makes thepledge, all employees and management familiarize themselves with KB’sethical principles and make pledges to enable them to practice sound andappropriate working procedures.

Reflecting Ethical Management Efforts in KPI Evaluation

KB has taken ethical management as one of the core evaluationstandards when evaluating the performance of both employees andmanagement. In the event that an employee or branch violates the Codeof Ethics and conducts sales activities in an immoral or unethicalmanner to increase sales, he or she will end up receiving a rating that isthe same or lower than the average in total evaluations, no matter howgood his or her other evaluations are. This kind of policy is helpingestablish a transparent and equitable competitive culture by placingemphasis on workplace ethics.

KB employees and management shareethical values through the ethicalmanagement practice system andcarry out their duties according tothe code of ethics, enabling KB toestablish itself as a “Clean Bank.”

Ethical Management


Under the supervision and management of the Chief Audit Executive,the Internal Audit Department carries out internal audits in areas suchas general, special and regular audits on the overall duties of the headoffice, branches and subsidiaries. It also functions as a managementconsultant based on risk analyses of each work process by providingrelevant suggestions, and objectively and independently carrying outevaluations on the appropriateness of the internal control system.

Enhancing Audit Efficiencies and Strengthening Audit Capabilities

In 2007, by making advanced improvements to the internal audit system,KB utilized the Risk Analysis System to allocate audit personnel andresources based on the risk level of departments within business groupsand branches. Audit efficiencies were enhanced by conducting automaticinspections through systems and message inspections on standardtransactions or transactions deemed to have minimal risk. As theElectronic Financial Transaction Law took effect, the Bank established anew IT Audit Team. In relation to requesting approval from theFinancial Supervisory Service for the Foundation Internal Ratings BasedApproach in order to implement Basel II, KB carried-out an audit. TheBank also carried-out self assessments on its internal audit activities toenhance the credibility of its internal audit and to search for ways tomake improvements. The quality of the internal audit process wasimproved with continuous improvements to the Risk Analysis System atthe branch level. The Bank put a lot of effort into fostering audit expertsand strengthening internal audit capabilities through various activitiessuch as training courses related to audits at the branch level to enhancethe awareness of the Bank’s audit activities, reinforcing and implementingskill sets of the audit personnel, operating a training roadmap for auditpersonnel and a credit-based course and major / minor course system.

Strengthening Ethical Management Implementation Systems

To be a transparent bank, KB implements ethical management bystipulating concrete behavioral standards for employees. The LegalObservance of the Code of Conduct, which outlines the ethical conductfor all employees and management, has been revised and enacted toreflect issues such as “Respecting the Ethical Standards of Others” and“Fair Trades with Other Companies” that relates to giving work-relatedpresents to others, while preventing KB employees and managementfrom receiving preferential treatment from interest parties.

To raise the level of ethical / legal compliance awareness of employeesand management, all are required to check the Compliance checklist onthe start-up screen every Monday and Thursday mornings. By doing so,they are able to carry-out a self-evaluation regarding their implementationof the ethical codes and pertinent laws and regulations.

Establishing Consensus through Training

KB operates various online and offline training programs simultaneouslyto strengthen the ability of all KB members to practice ethicalmanagement. All employees are trained through cyber training programsand animations related to ethics, compliance and anti-laundering.

Internal Audit

Through the Internal Audit, KB is committed to achieving managementtransparency and stability by evaluating the appropriateness of the internalcontrol systems and work implementation process, and evaluating thecredibility of publicly disclosed financial information. As executive directorof the Audit Committee, the Chief Audit Executive is delegated by theaudit committee to perform certain duties, such as communicating withmanagement and supervisory organizations, carrying out regular audits ondaily management duties, and supervising/controlling the duties of theinternal audit department. The Chief Audit Executive is also committedto ensuring the credibility of financial statements through an appropriateevaluation of internal control systems and internal accounting systems,while complementing the activities of the Audit Committee which isoperated mainly by non-executive directors.

Responsibilities of the Internal Audit Department

As an organization under the control and supervision of the AuditCommittee, the Internal Audit Department carries out independentmanagement monitoring functions and provides advice and suggestionson improvement measures to help protect the Bank’s assets, along withinvestor, shareholder, and customer value.


Firmly Establish the Best Internal Control System

In 2008, KB plans to conduct risk focused audits through a process ofselection and focus, while strengthening the management consultingfunction through cooperation and checks & balances. KB will initiatemanagement audits in high risk areas and carry-out audits on the newBIS accord in order to reinforce audit activities to support management.The Bank will also strengthen audits of overseas branches to preemptivelytake steps to counter any potential problems. Audits will be carried-out toprepare for the introduction of the Capital Markets Consolidation Act.KB plans to initiate audit activities to help firmly establish the bestinternal control system by reinforcing accident preventive measuresthrough the improvement of branch audits and internal controlevaluation policies, and enhancement of the efficiency of regular audits.

Compliance

With a solid compliance mind-set, all employees and management atKB, including the CEO, are trying hard to spread the internal controlculture. The Bank will continuously strengthen its internal controls bycontinuously developing compliance programs, establishing andcomplementing IT systems for efficient management of branch selfaudit systems, reinforcing theme monitoring, and actively carrying-outthe Control Self Assessment (CSA) policy.

Establishing Compliance Related Systems and Spreading the Internal Control Culture

The convenience and efficiency of the assessment was enhanced throughthe digitalization of the CSA, while the self assessment criteria wasimproved to enhance the effectiveness of the self assessment, andmonitoring initiated to check on the actual implementation. Educationand publicity campaigns were strengthened to enhance the mind-set ofemployees regarding the self assessment policy.

In order to allow the actual implementation of the audit duties at thebranch level, guidance and training of the internal control auditor ateach branch was reinforced. Whether the compliance duties werecarried-out appropriately was reflected in the performance results ofbranches. Factors that were reflected as part of the branches performanceincluded items such as activities and training on legal compliance,money laundering, self-assessment duties, etc.

A compliance support IT system was setup to allow convenient andefficient access to the duties of the compliance team, while a suspicioustransaction reporting integration system was created and initiated toenable the Bank to prevent such risks from occurring.

KB practices transparentmanagement by equipping itselfwith the best internal control system,emphasizing a compliance mind-setto all employees and management,and carrying-out integrated internalaudit and compliance activities.


From a compliance perspective, an investigation and deliberation wascarried-out on the appropriateness of major duties of the main officeincluding revision of regulations/policies and important contracts.Efforts were made to reduce legal risk by pre-deliberating on issues suchas management disclosures and financial product disclosures. Regulatoryviolation preventive activities related to fair trade practices such as fairtrade practice laws, unfair trade practice types, cases and cautionarypoints were carried-out.

Compliance training was provided to employees and management duringgroup offline training to enhance the employee’s work ethics and toprevent accidents from occurring, while training was provided to internalcompliance officers at the branch level semi-annually. If requested bybranches, compliance department personnel would be dispatched to thebranch to provide training on money laundering prevention duties,branch audit duties, and accident prevention duties. Customizedprograms such as this were adopted as part of the Bank’s training program.

Plans to Strengthen Internal Control in 2008

In order to enhance the effectiveness of the branch self-assessmentpolicy, KB will reinforce training to strengthen the capabilities of theinternal control assessment personnel and will continuously improve thesystem. Monitoring activities will be initiated to check whether accidentpreventive activities have actually been implemented and policyimprovements have been carried out.

Substantial effort will be taken to establish an anti-money laundering systembased on international standards. At the same time, KB will integrate its ITsystem to efficiently carry-out anti-money laundering duties. Employeetraining and publicity campaigns will also be initiated.

Financial Controls Internal Reporting

KB established and operates an internal accounting management policyin accordance with the corporate external audit regulation, and financialreporting internal controls in accordance to the U.S. Sarbanes-OxleyAct. KB is making every effort to have its employees increase theirawareness of self controls and to make sure that financial reportinginternal controls are actually implemented by having management takethe lead in recognizing the importance of controls and acting upon it.

Operating and Evaluating the Financial Controls Internal Reporting

KB established its internal controls, taking into consideration the fiveelements of COSO (control environment, risk assessment, controlactivities, information and communications, monitoring), a generallyacknowledged internal control standard. All members of the organizationpractice the five elements in their work process. In 2007, KB used a selectand focus approach in evaluating the effectiveness of the financialreporting internal controls. The process included classifying high riskareas that could potentially distort financial reporting from a financialreporting internal controls perspective, focusing the Bank’s evaluationcapabilities, and strengthening the monitoring aspect. In evaluating thedesign and operating status of the financial reporting internal controls,management used the domestic internal accounting management policystandard, and the U.S. financial reporting internal control regulations.From a point of importance, as of December 31, 2007, from theperspective of the internal accounting management regulation standard,KB’s internal accounting management policy has been effectivelyestablished and operated.

Expanding the Financial Reporting Internal Control Culture

KB is taking every effort to enhance the employees’ awareness offinancial reporting internal controls and to spread a control-basedculture. KB incorporated a course on financial reporting internalcontrols into its training program for new employees and for internalcontrol officers in each branch. To effectively implement operatingevaluations, KB made it compulsory for all employees to receive trainingthrough the cyber financial reporting internal control program duringthe second half of 2007. As for senior managers that oversee the overallmanagement of internal controls, publications were provided so thatthey could effectively attain the “Tone at the Top.”

2008 Operating Plan for Effective Financial ReportingInternal Controls

KB will further strengthen the risk assessment of its financial reportinginternal controls, and will continue to take every effort to ensure that thefinancial reporting internal controls are effectively and efficiently establishedand operated by differentiating evaluation methods. In addition, through asystematic control training program, KB will be able to spread the controlculture, and by securing specialists the Bank will be able to make theoperating of the financial reporting internal controls meet global standards.

As the largest domestic financial institution that is trying to fulfill itssocial roles and obligations, KB established a Corporate SocialResponsibility Department in October 2006, the first of its kind in anyKorean financial organization, for the purpose of integrating themanagement and social contribution activities into one. By establishingthis department, KB was able to initiate more diverse social contributionactivities in a more systematic manner and provides valuable assistanceto recipients. KB is implementing diverse activities for teenagers in low-income families as part of the Bank’s focus on supporting teenagers,which forms a core part of its social contribution activities. The Bankcontinues to carry out its community sharing program to create a societywhere people live in harmony by having management and employeesparticipate in community friendly volunteer social activities. As a resultKB received the “Hope 2006 Neighborhood Support MeritoriousAward,” a presidential award, and the “Social Contribution Best Award”from the Korea Economic Daily in 2006. KB also received the SocialContribution Best Award in the Cultural and Arts section from theKorea Economic Daily in 2007.

Youth Support Programs

KB provides diverse support to youth, mainly focused on educationalsupport since KB regards the support of youth, the future leaders, animportant part of its social activities. In April 2007, KB signed anagreement with the Seoul Metropolitan Government to jointly supportyouth. The Bank is trying to establish an ideal social contribution modelwhereby corporates, the government and NGOs come together tocooperate with each other.

KB’s Youth Support Programs

Social Contribution


Program Detail Partners

- Holding an English camp for children of low-income families Seoul Metropolitan

KB English - Dividing courses into‘beginners’and Government,Camp intensive learning courses. Seoul English Village, etc.

Expanded programs to cover provincial areas. (A total of 3,200 participants in 2007)

- Supporting children in study rooms Seoul Metropolitan KB Hope through diverse academic programs Government, KYC,

Study Rooms - Improving studying room facilities and Kids and the Future supporting their operation. Foundation

KB Scholarship Offering college students from low-income Yonsei University and for Exchange families opportunities to study abroad 4 other universities

Students

Providing lunches for 1,800 students at Korea Food for Support School elementary and middle schools across the Hungry InternationalLunches the nation

Overseas Volunteer Recruiting and educating college students to Service Team of organize an Overseas Volunteer Service Team YMCA KoreaCollege Students and aiding them in carrying out overseas activities

Supporting the Small Library project by

Others donating soccer balls to children’s soccer teams Arts Council Koreaand giving scholarships to students from low-income families

KB established a dedicated socialactivities department for the first timeamongst Korean banks in 2006, andKB continues to provide communitysharing activities through diversemeans such as providing support toyouth for a more systematic means ofproviding social contributions.

Educational and Scholastic Support

By providing development funds for colleges and private middle andhigh schools in financial difficulty, KB enabled these educationalinstitutions to concentrate on human resource development. We alsocontributed to the development of the Korean financial industry bysponsoring major academic financial organizations such as the KoreaFinancial Management Association, the Korea Money and FinanceAssociation and the International Economic Association.

Promoting New Mecenat (Cultural Patronage) Activities

KB is well known for its cultural patronage activities. In 2007, KBcontributed to the popularization of traditional Korean culture throughthe 2007 Cheonggyecheon Stream Sound Promenade. KB suggested anew direction for mecenat activities whereby corporates andgovernment cooperate, by renovating the Haneul Theater, an outdoortheater of the National Theater of Korea into the all-weather KBHaneul Theater for Youth.

Support for the Promotion of Sports

KB operates a basketball team, a soccer team and a shooting team. Withan eye toward promoting Korean sport in international events, KB isproud to be an official sponsor of the Korean baseball, basketball andvolleyball teams for the 2008 Beijing Olympic Games. By sponsoringBaduk (the game of go, an Asian strategy game), KB gave people thechance to cultivate their national sentiment, while elevating Korea’sstatus in the Baduk world.

Promoting Social Contribution Activities Abroad

As a bank preparing itself to become a “Global Bank, Leading the AsianFinancial Industry,” the Bank is trying to help spread the warmth spirit ofKorea and KB through various activities: KB’s Sharing Love for Hangeul(Vietnam, Indonesia, Mongolia), Support for Free School Lunches(Indonesia), Support for a Better School Environment (Cambodia), FreeClinics / Improving the School Environment (Cambodia), Support forStudy Materials (Vietnam), Support for Scholarships (Kazakhstan), andSupport for the General Korean Educational Center (Kazakhstan).

KB will fulfill its social responsibilities as a sincere corporate citizen bybuilding a better world to live in and by doing its best to deliver worthycorporate contributions to society.

Strengthening Community Friendly Social Volunteer Activities

KB was able to establish itself as a leading corporate in socialcontribution activities in 2007. In 2007 alone, through communityfriendly social volunteer activities, as many as 54,863 (accumulativenumber) management and employees participated in volunteeractivities. This translates to a total of 233,634 person hours (approx.9.73 hours per employee on average, 233,634 hours / 24,000 people).

KB’s volunteer activities were not limited to any specific activity. Thescope of the Banks’ social service activities reached across diverse agegroups, such as senior citizens, children, teenagers and the physicallyimpaired people. All KB employees took part in KB’s Volunteer ServiceDay which involved making winter kimchi and delivering free heatingbriquettes to needy families, which has become a yearly event. InDecember, 2007, KB donated KRW1 billion to clean up areascontaminated by the oil spill in the sea off Taean in Chungcheong-nam-do, 700 staff voluntarily participated in clean up activities. Furthermore,KB supported community development projects such as expanding theKB English Camp and KB Hope Studying Room programs intoregional areas, sponsoring the Gwangju International Performing ArtsFestival and supporting the Citizens’ Coalition to Build a Green DaejonCity. The Bank continued to invest in communities in various wayssuch as broadening donations to educational and welfare facilities andpromoting social welfare. KB continued to provide support for the social& welfare development of regional communities through the Bank’ssocial volunteer team in 2007.

KB’s Community-friendly Social Contribution Activities

Continued Interest in Social Welfare

Since 2005, as Korea’s largest financial institution that practices sharingand caring for the community, KB donated a total of KRW7 billion, thelargest amount by a single Korean company, to the Community Chest ofKorea to assist needy families at the end of every year. In addition, KBprovided a total of KRW400 million in charity funds including donationsfrom employees to the Korean Salvation Army. KB spared no effort insupporting estranged members of society by holding holiday events forforeign laborers living in Korea, providing them with medical support andproviding cultural and athletic programs for the handicapped.


Object Number of Times Number of Participants Number of Hours

Senior Citizens 1,347 13,739 56,331

Children/Teenagers 1,034 12,221 53,948

The Handicapped 1,129 12,849 52,388

Cooperation with 836 9,094 42,174Social Welfare Centers

Others 902 4,501 19,754

Environmental Protection 251 2,459 9,039

Total 5,499 54,863 233,634


Financial Contents 66 Management’s Discussion & Analysis 80 Auditor’s Report 278 Affiliated Companies

280 Overseas Network 281 Forward Looking Statements


Financial SectionStrong Financial FoundationIn 2007, KB realized an outstanding performance by maintaining a strong asset soundness and recording

a net income of KRW2,773.8 billion. These achievements are attributed to the hard work and painstaking

efforts of all employees and management, and will lay the foundation for continuous development. Going

forward, KB will use its strong financial base to become a “Global Bank, Leading the Asian Financial

Industry” through the strongest competitiveness, customer satisfaction, and system innovation.

FS


As a global bank leading the Asian financial industry, 2007 was a meaningful year in which KB was able to establish an expansive platform to secure future growthengines. Even with the difficult market circumstances stemming from changes in the financial paradigm and the global financial impact caused by the sub-primemortgage crisis in the U.S., KB was able to achieve significant results by implementing its 4 core objectives, which include strengthening sales competencies,improving its profit structure, establishing a Clean Bank, and developing global standard competencies. As a consequence of having management and employees focustheir competencies to achieve results, KB was able to realize another first in Korea by achieving a net income in excess of KRW2 trillion for the 3rd consecutive year.

By continuously focusing on customer satisfaction, KB was again ranked as the number one bank for two consecutive years in the NCSI (National CustomerSatisfaction Index) in 2007, enabling the Bank to firmly establish itself as the most superior customer satisfaction bank. The Bank was also able to enhance its corecompetencies by strengthening sales competitiveness and organizational efficiencies through reorganizing its sales organization and expanding the sales network.In addition, as part of KB’s continued effort to improve its profitability structure, the Bank improved its margin ratio by expanding its loan customer-base,reinforced its wealth management business competencies and expanded the portfolio of new products catered towards the changing financial trends and the needsof its customers, resulting in a diversified profit structure.

As Korea’s only bank to achieve credit ratings that were either in pari pasu or higher than the sovereign credit rating from the three global major credit ratingagencies, KB demonstrated its relentless effort to establish itself as a “Clean Bank.” KB also achieved significant results in enhancing competencies based on globalstandards. The results of which include i) obtaining approval for the Basel II Foundation Internal Ratings Based Approach from the Financial SupervisoryServices in 2007, the first and only bank in Korea to achieve this honor, ii) establishing an advanced work system by implementing its next generation IT systemand adopting the IFRS 1st Phase Project, and iii) expanding its overseas network.

As a result of the Bank’s effort to enhance customer satisfaction and the Bank receiving the highest credit rating, KB was able to firmly realize stable asset growth,achieve increases in interest income and non-interest income, secure decreases in provisions as a result of quality improvement in assets, and deliver increase innon-operating income, enabling KB to establish a strong foundation for a firm profitability platform by again achieving over KRW2 trillion in net income atKRW2,773.8 billion. This resulted in KB achieving an ROA and ROE of 1.34% and 18.23%, an improvement of 0.05%p and 0.75%p, respectively.

Despite the increased competition in the loan market, KB was able to achieve KRW6,961.7 billion in interest income, a 2.7% increase over the previous year. Asa result of increases in fee income from key fee-based businesses such as bancassurance and ITC, and the increase in the sales of securities, non-interest incomeincreased by 71.4% to KRW1,589.6 billion in 2007 from KRW927.3 billion the previous year. As a result of an aggressive effort to reinforce its salescompetitiveness through increased investments in IT and expansion of the Bank’s sales network, SG&A increased to KRW3,693.3 billion, an increase of 14.5%.As for provisioning, through the efforts of KB to improve asset soundness, it decreased by 51.0%, resulting in operating income improving by a significant 32.1%to KRW4,233.4 billion. With an increase of non-operating income to KRW296.4 billion in 2007 from KRW202.6 billion the previous year, KB was able toimprove net income by 12.2% to KRW2,773.8 billion from KRW2,472.1 billion in 2006.

KB was able to achieve a strong increase of 12.1% in total assets to KRW218,866.0 billion as a result of the Bank focusing on enhancing asset quality andsuccessfully implementing an efficient and diversified loan and credit card asset growth strategy. At the same time, to secure stable funding souces, the Bankincreased deposits by 6.8% to KRW138,858.7 billion. By recording another significant net income in 2007, KB was able to realize an increase in totalshareholders’ equity of KRW16,037.7 billion, a 6.5% increase over the previous year.

BIS CAR, which indicates the level of stability of a bank, decreased by 1.55%p to 12.62% in 2007 from 14.17% due to the increase in prime corporate loans.Tier I stood at 9.74% in 2007 from 10.07% the previous year, a drop of 0.33%p.

KB was able to improve its delinquency ratio and NPL coverage ratio as a result of the Bank’s credit management strategy focused on prime lending and earlycollection of delinquencies. The Bank was able to achieve a delinquency ratio of 0.59%, an improvement of 0.36%p from 0.95% in 2006, and NPL ratio of0.74% from 1.03%, an improvement of 0.29%p, enabling the Bank to maintain a continuous asset soundness trend. As a result of the NPLs decreasingsubstantially and provisioning guidelines being adjusted upward, NPL Coverage increased by 42.3%p to 193.0%. This strong asset soundness will provide thebasis for KB to enhance profitability.

Management’s Discussions & Analysis


Operating Results

Income Statement Summary(KRW in Billions)

Change2007 2006

Amounts %

Net-interest income 6,961.7 6,778.4 183.3 2.7%

Non-interest income 1,589.6 927.3 662.3 71.4%

General & administrative expenses 3,693.3 3,225.1 468.2 14.5%

Operating income before provisioning 4,858.0 4,480.6 377.4 8.4%

Provision expenses 624.6 1,275.6 (651.0) -51.0%

(Provision for loan losses) 544.6 948.5 (403.9) -42.6%

Operating income 4,233.4 3,205.0 1,028.4 32.1%

Non-operating income 296.4 202.6 93.8 46.3%

Net income before taxes 4,529.8 3,407.6 1,122.2 32.9%

Taxes 1,756.0 935.5 820.5 87.7%

Net income 2,773.8 2,472.1 301.7 12.2%

KB’s net income stood at KRW2,773.8 billion, a 12.2% increase over the previous year’s KRW2,472.1 billion. This was aresult of the efforts of all the employees and management at KB to enhance asset quality and improve profitability, whichresulted in interest and non-interest income maintaining a steady increase and a decline in provisioning expenses.

Despite elevated market competition which resulted in reduced margins, the net-interest income increased by 2.7% toKRW6,961.7 billion in 2007 as a result of asset growth driven by corporate loans. Non-interest income increased by arelatively large 71.4% compared to the previous year due to the increase in fee income and the sales of LG Card. As forcommissions and fees, although NHF Management and Trust commissions decreased by 29.2% and 3.8%, respectively, feeincome from ITC products and bancassurance increased by a large amount by 97.3% and 21.7%, respectively, leading toan overall increase in commissions and fees of close to 10%.

General & administrative expenses increased by 14.5% to KRW3,693.3 billion compared to the previous year due toinvestments carried-out in establishing next generation IT systems and expanding KB’s sales network. However, due to theincrease in both interest income and non-interest income, operating income before provisioning showed an increase of8.4% to KRW4,858.0 billion in 2007.

As for provision expenses, it decreased to KRW624.6 billion in 2007, a 51.0% reduction from the previous year, a result ofcontinuous improvements in asset soundness. Non-operating income increased by 46.3% partly due to the sales of INGshares during the 3rd quarter of 2007.

In conclusion, despite the additional corporate tax paid during fiscal year 2007, the continuous increase in interest and non-interest income, and enhanced asset quality, enabled KB to realize a 12.2% growth in net income to KRW2,773.8 billion.

5,000

4,000

3,000

2,000

1,000

4,233.4

’06

3,205.0

’07

Operating Income(KRW in Billions)

2,800

2,700

2,600

2,500

2,400

2,773.8

’06

2,472.1

’07



Net-interest Income(KRW in Billions)

Change2007 2006

Amounts %

Interest income 13,636.6 12,062.9 1,573.7 13.0

Interest on loans 12,146.9 10,652.6 1,494.3 14.0

Interest on securities 1,440.2 1,350.3 89.9 6.7

Interest on due from bank, etc. 49.5 60.0 (10.5) (17.5)

Interest expenses 6,674.9 5,284.5 1,390.4 26.3

Interest on deposits 4,144.1 3,433.5 710.6 20.7

Interest on debentures 1,719.4 1,139.1 580.3 50.9

Interest on borrowings, etc. 811.4 711.9 99.5 14.0

Net interest income 6,961.7 6,778.4 183.3 2.7

Even with the continuous decrease in net interest margins due to increased competition in the loan market, the stable andcontinuous increase in interest-bearing assets led to the net-interest income recording KRW6,961.7 billion, a 2.7% increaseover the previous year. In detail, interest on loans, which constitutes the largest portion of interest income, increased by 14.0%to KRW12,146.9 billion compared to the previous year, on the back of a rise in sound assets concentrated on quality loans.Interest on securities increased by 6.7% from KRW1,350.3 billion in 2006 to KRW1,440.2 billion in 2007.

From a funding perspective, taking into consideration the increased funding cost stemming from the overall rise in interest,interest on deposits and interest on borrowings increased by KRW710.6 billion and KRW99.5 billion, respectively. In thefuture, KB believes that interest income will continue to rise through a continuous influx of quality interest-bearing assetsand efforts to expand low cost deposits.


6,900

6.800

6,700

6,600

6,500

6,400

6,300

6,200

6,100

6,961.7

’06

6,778.4

’07

Net-interest Income(KRW in Billions)


Non-interest Income(KRW in Billions)

Change2007 2006

Amounts %

Commissions & Fees 1,071.4 974.5 96.9 9.9

ITC Product 469.4 237.9 231.5 97.3

Bancassurance 188.2 154.7 33.5 21.7

NHF Mgmt. 121.7 171.8 (50.1) (29.2)

Trust 93.4 97.1 (3.7) (3.8)

Other Won Commissions 155.6 267.2 (111.6) (41.8)

Commissions in F/C 43.1 45.8 (2.7) (5.9)

Gain or Loss on Securities 709.7 146.7 563.0 383.8

Gain on Sales & Valuation 742.6 178.9 563.7 315.1

Impairment Loss (43.9) (39.7) (4.2) N/A

Others (191.5) (193.9) 2.4 N/A

Deposit Insurance Fees & Credit Guarantee Fees (481.6) (423.9) (57.7) N/A

Gain or Loss on Sales of Loans 18.6 19.1 (0.5) (2.6)

Non-interest income 1,589.6 927.3 662.3 71.4

As of the end of 2007, non-interest income increased by 71.4% as a result of an increase in commission and fees of 9.9%and significant increases in gain on securities through the sales of LG Card

Looking at this in more detail, commission & fees increased by a strong 9.9% compared to the previous year. Commissionsfrom NHF management declined 29.2% due to the accrual in commissions according to the revised Housing EnforcementRegulations, while trust commissions decline slightly as a result of declines in trust assets. However, as ITC productsincreased by 97.3% due to the increase in sales of installment-type funds, and as bancassurance fees increased by 21.7% toKRW188.2 billion, achieving the number one position in terms of market share, core products in the fee businessescontinued to show an increasing trend.

Gain on securities realized a significant increase of 383.8% compared to the previous year, which was mainly due to the one-off income gained from the sales of LG card. Despite the increase in negative deposit insurance fees, the increase in gainsfrom foreign currency and derivative products enabled other income to remain at an almost similar level as the previous year.

In 2008, non-interest income is expected to maintain an upward trend considering the expectation that income fromcommission and fees will continue to maintain a growth trend, such as the favorable trend in sales of funds and bancassurancedue to the continued growth of the capital markets.

2,000

1,500

1,000

500

1,589.6

’06

927.3

’07

Non-interest Income(KRW in Billions)


General & Administrative Expenses(KRW in Billions)

Change2007 2006

Amounts %

General & administrative expense 3,693.3 3,225.1 468.2 14.5

Labor expenses 1,820.7 1,612.1 208.6 12.9

Administrative expenses 1,332.0 1,184.4 147.6 12.5

Depreciation and amortization expenses 422.7 324.4 98.3 30.3

Taxes and dues 117.9 104.2 13.7 13.1

Cost-income ratio 43.0% 41.9% 1.1%p

General & administrative expenses increased to KRW3,693.3 billion from KRW3,225.1 billion in 2006, a 14.5% increaseover the previous year. Labor expenses increased by KRW208.6 billion to KRW1,820.7 billion as a result of the Bank’seffort to strengthen its sales capabilities by hiring new employees. Administrative expenses also increased by 12.5% toKRW1,332.0 billion in 2007 from KRW1,184.4 billion the previous year due to increased investments in IT and increasedsales network to support the Bank’s effort to strengthen its sales capabilities. Depreciation and amortization expenses, andtaxes and dues each increased by 30.3% and 13.1%, respectively. In conclusion, the cost-income ratio for 2007 slightlyincreased by 1.1%p to 43.0%.

Operating Income before Provisioning(KRW in Billions)

Change2007 2006

Amounts %

Operating income before provisioning 4,858.0 4,480.6 377.4 8.4

Provision expenses 624.6 1,275.6 (651.0) (51.0)

Provision for loan losses 544.6 948.5 (403.9) (42.6)

Household 83.0 383.1 (300.1) (78.3)

Corporate 407.2 300.4 106.8 35.6

Credit card 54.4 265.0 (210.6) (79.5)

Others 80.0 327.1 (247.1) (75.5)

Operating income 4,233.4 3,205.0 1,028.4 32.1

In 2007, operating income before provisioning recorded KRW4,858.0 billion, an 8.4% increase over the previous year due to acontinuous increasing trend for interest income and substantial growth in non-interest income. Despite additional reserves ofKRW131.7 billion (before tax) added to the provision expenses due to the upward adjustment of the corporate loanprovisioning guideline during the 4th quarter, provision expenses for 2007 dropped by 51.0% to KRW624.6 billion, mainly dueto the Bank’s effort to improve asset soundness. In detail, although corporate provision for loan losses increased by KRW106.8billion, household and credit card provision for loan losses decreased by 78.3% and 79.5% to KRW83.0 billion and KRW54.4billion, respectively. This was a result of the Bank’s continuous effort to improve asset soundness.


4,000

3,500

3,000

3,693.3

’06

3,225.1

’07

General & Administrative Expenses(KRW in Billions)

4,800

4,600

4,400

4,200

4,858.0

’06

4,480.6

’07

Operating Incomebefore Provisioning(KRW in Billions)


Non-operating Income(KRW in Billions)

Change2007 2006

Amounts %

Non-operating income 296.4 202.6 93.8 46.3%

Gain or loss on disposal of tangible assets 9.0 7.8 1.2 15.4%

Gain or loss on using Equity Method 260.0 110.4 149.6 135.5%

Gain on valuation using Equity Method of Accounting 99.7 108.6 (8.9) -8.2%

Gain or Loss on Sales of Securities using160.3 1.8 158.5 N/AEquity Method of Accounting

Others 27.4 84.4 (57.0) -67.5%

Non-operating income increased by 46.3% to KRW296.4 billion compared to the previous year. Although other non-interestincome fell by KRW57.0 billion due to refunds of dormant accounts, the gain on using equity method increased by 135.5% asa result of the sales of shares in ING Life Insurance during the 3rd quarter. This enabled KB to achieve substantial growth innon-operating income. Gain or loss on disposal of tangible assets also increased by 15.4% to KRW9.0 billion.

350

300

250

200

150

100

50

296.4

’06

202.6

’07

Non-operating Income(KRW in Billions)


Financial Status

Balance Sheet Summary(KRW in Billions)

Change2007 2006

Amounts %

Total assets 218,866.0 195,206.5 23,659.5 12.1

Cash & due from banks 6,544.8 6,568.3 (23.5) (0.4)

Securities 30,777.0 29,382.5 1,394.8 4.7

Loans 171,550.0 149,867.2 21,682.8 14.5

Tangible assets 2,298.7 2,137.7 161.0 7.5

Other assets 7,695.2 7,250.8 444.4 6.1

Total liabilities 202,828.3 180,151.5 22,676.8 12.6

Deposits 138,858.7 130,019.9 8,838.8 6.8

Borrowings 15,355.8 14,060.2 1,295.6 9.2

Debentures 34,894.6 24,982.5 9,912.2 39.7

Other liabilities 13,719.1 11,088.9 2,630.2 23.7

Total shareholders' equity 16,037.7 15,055.0 982.7 6.5

Total liabilities & shareholders' equity 218,866.0 195,206.5 23,659.5 12.1

Even with the increased competition among financial institutions, KB’s total assets recorded KRW218.9 trillion in 2007, a12.1% increase over the previous year’s KRW195.2 trillion. This was the result of KB’s focus on enhancing asset qualityand its effort to steadily expand profit-based assets. Securities and tangible assets each increased by KRW1,394.8 billion andKRW161.0 billion, respectively. With loans increasing by KRW21,682.8 billion in 2007, KB was able to maintain a steadyincrease in sound assets.

Even in the midst of increased funding cost and funding competition that goes beyond banks, KB has been focusing ondiverse deposit-related new products by being able to secure a stable funding source. And so, after investing a lot of energyinto securing core deposits, deposits have maintained a steady increase of 6.8% to KRW138,858.7 billion, a KRW8,838.8billion increase over the previous year. In the funding market, depending on the competition and the affects from thediversification of funding sources, debentures have shown a relatively high increase to KRW34,894.6 billion, a 39.7%increase over the previous year. Other liabilities increased by 23.7% to KRW13,719.1 billion in 2007. Total liabilitiesincreased by 12.6% to KRW202,828.3 billion from KRW180,151.5 billion in 2006.

By achieving net income in excess of KRW2 trillion for three consecutive years and continuously retaining profits, totalshareholders’ equity increased by KRW982.7 billion to KRW16,037.7 billion in 2007.


220

200

180

218.9

’06

195.2

’07


210

190

170

202.8

’06

180.2

’07

Total Liabilities(KRW in Trillions)


Loans Portfolio(KRW in trillions)

Change2007 2006

Amounts %

Loans in won 152,446.2 133,074.1 19,372.1 14.6%

Household loans 88,896.2 85,519.3 3,376.9 3.9%

Mortgage loans 41,240.7 39,074.5 2,166.2 5.5%

General loans 47,655.5 46,444.8 1,210.7 2.6%

Corporate loans 63,550.0 47,554.8 15,995.2 33.6%

SME loans 49,671.4 36,373.7 13,297.7 36.6%

Large loans & others 7,692.4 3,681.8 4,010.6 108.9%

PPB 6,186.2 7,499.3 (1,313.1) -17.5%

Credit card receivables 10,436.9 8,969.0 1,467.9 16.4%

Credit sales 5,559.2 4,705.3 853.9 18.1%

Cash advance 2,479.6 2,469.4 10.2 0.4%

Card loan 2,337.0 1,748.9 588.1 33.6%

Others 61.1 45.4 15.7 34.6%

Total loans 162,883.1 142,043.1 20,840.0 14.7%

As a result of the Bank’s profit-focused and stable loan policy, and continuous efforts to develop customized loan productscatered towards its customers, loans in Won increased by 14.6% from KRW133,074.1 billion in 2006 to KRW152,446.2billion in 2007. Despite the overall contraction in the real estate market, mortgage loans showed a steady growth after the3rd quarter, resulting in household loans increasing by KRW3,376.9 billion to KRW88,896.2 billion in 2007. In detail,mortgage loans and general loans each recorded KRW41,240.7 billion and KRW47,655.5 billion, a 5.5% and 2.6%increase, respectively.

With the right mix of a marketing strategy focused on quality customers and the corporate customer management system,SME Loans, inclusive of SOHO loans, increased by 36.6% to KRW49,671.4 billion. Large loans & others also increasedby 108.9% to KRW7,692.4 billion as the funding needs by large corporates and others increased. This resulted in totalcorporate loans increasing by 33.6% to KRW63,550.0 billion in 2007.

Credit card receivables recorded KRW10,436.9 billion in 2007, a 16.4% increase over the previous year, mainly due to thesubstantial increase in credit sales and card loans. Credit card balance realized a relatively large increase of KRW1 trillion inthe 4th quarter alone, which was due to the increase in credit sales as a result of the recovery in consumer spending. Goingforward, this can interpreted as a sign for a steady growth in card assets. The reason for the sound growth in loans can beattributed to internal and external factors including new products developed to cater to the needs of customers, continuousincrease in demand by the market, and effective sales strategy focused on achieving quality growth of assets.

160

140

120

162.9

’06

142.0

’07

Total Loans(KRW in Trillions)


Deposit and Debenture Composition(KRW in Billions)

Change2007 2006

Amounts %

Deposits in Won 119,580.6 119,008.9 571.7 0.5%

Core deposits 47,106.3 49,308.7 (2,202.4) -4.5%

Pass book deposits 15,531.7 15,176.9 354.8 2.3%

General savings deposits 17,846.6 20,826.7 (2,980.1) -14.3%

Corporate free savings deposits 9,500.6 8,302.4 1,198.2 14.4%

Others 4,227.4 5,002.7 (775.3) -15.5%

Time & savings deposits 72,474.3 69,700.2 2,774.1 4.0%

Time deposits 61,808.6 57,136.5 4,672.1 8.2%

Mutual installment deposits 6,012.1 7,676.3 (1,664.2) -21.7%

Others 4,653.6 4,887.4 (233.8) -4.8%

Certificates of deposit 17,617.6 9,579.7 8,037.9 83.9%

Total Deposits 137,198.2 128,588.6 8,609.6 6.7%

Total Debenture 34,894.6 24,982.5 9,912.1 39.7%

Deposits in Won increased by KRW571.7 billion to KRW119,580.6 billion in 2007. Although core deposits showed adecrease compared to last year, time & savings deposits increased by KRW2,774.1 billion in 2007. During the first half of2007, as funds from low cost deposits such as demand deposits flowed into securities firms’ CMA accounts and the capitalmarkets continued to grow, deposits in Won showed a decrease year-on-year. However, by improving the fundingstructure, deposits in Won experienced an upward trend starting in the second half of 2007. Even with intensifiedcompetition in the deposit market, time & savings deposits mainly focused on time deposits showed a steady increase toKRW72,474.3 billion, a 4.0% increase over the previous year.

With the diversification of KB’s funding source, certificate of deposits increased by 83.9% to KRW17,617.6 billion in2007 from KRW9,579.7 billion the previous year. As a result, total deposits increased by KRW8,609.6 billion, a 6.7%increase to KRW137,198.2 billion. By effectively coping with the intensified competition in the deposit market, totaldebentures increased by 39.7% compared to last year to KRW34,894.6 billion.


120

110

100

119.6

’06

119.0

’07

Deposits in Won(KRW in Trillions)


BIS Capital Adequacy Ratio (CAR)(KRW in Billions)

Change2007 2006

Amounts %

Tier I capital 15,157 13,329 1,828 13.7%

Paid in capital 1,682 1,682 0 0.0%

Capital reserves 6,098 6,098 0 0.0%

Retained earnings 7,775 6,242 1,533 24.6%

Treasury stock 0 0 0 n.a.

others (398) (693) 295 n.a.

Supplementary (Tier II capital) 4,477 5,423 (946) -17.4%

Revaluation reserves 177.2 177.2 0 0.0%

Provisions 1,953.0 1,667.0 286 17.2%

45% of securities revaluation gain 61.0 312.0 (251) -80.4%

Subordinated term debt 2,227.0 3,432.0 (1,205) -35.1%

others 440.0 472.0 (32) -6.8%

(Adjusting item on Tier II capital) (381) (637) 256 n.a.

Total BIS capital 19,634 18,752 882 4.7%

Risk weighted assets 155,599 132,373 23,226 17.5%

Balance sheet assets 148,632 127,229 21,403 16.8%

Off-balance sheet assets 6,967 5,144 1,823 35.4%

BIS CAR 12.62% 14.17% -1.55%p

Tier I 9.74% 10.07% -0.33%p

Tier II 2.88% 4.10% -1.22%p

The total BIS capital in 2007 increased to KRW19,634.0 billion, a 4.7% increase over the previous year. With the increasein retained earnings, Tier I Capital increased by 13.7%. Despite the increase in provisions by 17.2%, supplementary (TierII Capital) dropped by 17.4% mainly due to a decrease in securities and subordinated debt by 80.4% and 35.1% toKRW61.0 billion and KRW2,227.0 billion, respectively. Risk weighted assets increased by 17.5% to KRW155,599.0billion due to the increase in assets such as loans.

Even with the increase in Tier I Capital, BIS CAR dropped by 1.55%p from 14.17% in 2006 to 12.62% as a result ofSupplementary (Tier II Capital) decreasing from repayment of subordinated debt, and assets increasing. This was aconsequence of lowering supplementary capital (Tier II Capital) that has a high funding costs, while expanding capitalconcentrated on Tier I Capital. By securing a satisfactory level of asset soundness and profitability, shareholders’ equitysecured a stable platform for asset growth.

14.0

12.0

10.0

12.62

’06

14.17

’07

BIS CAR(%)


Asset Quality(KRW in Billions)

Change2007 2006

Amounts %

Total loans for NPL management 177,476.1 152,323.0 25,153.1 16.5

Normal 174,735.8 149,025.0 25,710.8 17.3

Precautionary 1,426.8 1,723.0 (296.2) (17.2)

Substandard 557.3 725.2 (167.9) (23.2)

Doubtful 483.4 555.6 (72.2) (13.0)

Estimated loss 272.8 294.2 (21.4) (7.3)

Substandard & below loans (NPLs) 1,313.5 1,575.0 (261.5) (16.6)

Substandard & below loans ratio (NPL ratio) 0.74% 1.03% (0.29%p)

Loan loss reserves (LLR) 2,535.5 2,374.5 161.0 6.8

NPL coverage ratio 193.03% 150.77% 42.26%p

Delinquency ratio 0.59% 0.95% (0.36%p)

Write-offs 866.5 1,760.4 (893.9) (50.8)

NPL sales 316.1 452.9 (136.8) (30.2)

Total loans for NPL management, which is the basis for classifying sound assets, increased by 16.5% to KRW177,476.1billion. While normal loans increased by 17.3%, precautionary and NPLs each decreased by 17.2% and 16.6%,respectively as a result of sound management focused on enhancing the quality of assets. Despite the additional provisionsreserved in the amount of KRW131.7 billion due to the adjustment in corporate loan provisioning guidelines, provisionsdecreased by 42.6% to KRW544.6 billion in 2007 compared to KRW948.5 billion the previous year.

Precautionary and NPLs continued to decrease, while the NPL coverage ratio steadily increased, showing substantialimprovements. As of the end of 2007, the NPL coverage ratio increased by 42.26%p to 193.03%. With the delinquencyratio improving by 0.36%p from 0.95% to 0.59% in 2007, asset quality in all areas improved, including NPL ratios.


1,600

1,400

1,200

1,313.5

’06

1,575.0

’07

NPLs(KRW in Billions)


NPL by Segment(KRW in Billions)

2007 2006 Change

NPL Ratio(a) NPL Ratio(b) a-b

Household 573.6 0.64% 637.9 0.74% (64.30) -0.1%p

General 282.0 0.59% 348.2 0.74% (66.20) -0.16%p

Mortgage 291.6 0.71% 289.7 0.74% 1.90 -0.03%p

Corporate 649.3 0.85% 825.7 1.43% (176.50) -0.58%p

SME 575.4 1.05% 713.2 1.72% (137.90) -0.67%p

Large 73.9 0.34% 112.5 0.69% (38.60) -0.35%p

Credit card 90.6 0.80% 111.4 1.29% (20.70) -0.49%p

Total 1,313.5 0.74% 1,575.0 1.03% (261.50) -0.29%p

Due to KB’s strict loan management system, NPLs decreased in all areas including household, corporate and credit cards.Compared to the satisfactory loan growth, the NPL ratios for household, corporate and credit cards all dropped by 0.1%p,0.58%p and 0.49%p, respectively, resulting in total NPL ratio improving by 0.29%p.

As a result of the strict loan evaluation policy related to income level, repayment capabilities and collateral value, NPL ratiofor household loans stood at 0.64% in 2007, while the corporate loan NPL ratio recorded 0.85% as a result of the Bankfocusing on SOHOs and outstanding corporate loans. By also focusing on enrolling outstanding credit card members andstrengthening credit management, the NPL ratio for credit cards improved by 0.49%p to 0.80%.

1.2

1.0

0.8

0.6

0.4

0.2

0.74

’06

1.03

’07

NPL Ratio(%)


Loan Loss Provisions(KRW in Billions)

2007 2006 Change

Coverage Ratio(a) Coverage Ratio(b) a-b

Household 1,251.0 218.1% 1,267.0 198.6% -1.3% 19.5%p

General 655.2 232.3% 685.2 196.8% -4.4% 35.5%p

Mortgage 595.8 204.3% 581.8 200.8% 2.4% 3.5%p

Corporate 1,029.6 158.6% 863.2 104.5% 19.3% 54.1%p

SME 805.3 140.0% 678.5 95.1% 18.7% 44.9%p

Large 224.3 303.4% 184.7 164.0% 21.4% 139.4%p

Credit card 254.9 281.5% 244.3 219.3% 4.3% 62.2%p

Total 2,535.5 193.0% 2,374.5 150.8% 6.8% 42.2%p

Loan loss provisions increased from KRW2,374.5 billion to KRW2,535.5 billion in 2007. As a result, the NPL coverageratio for NPLs improved by 42.2%p from 150.8% in 2006 to 193.0%. This was the result of KBs effort to reducedelinquent assets and strengthen provisioning. The NPL coverage ratio for corporates improved by 54.1%p to 158.6%,showing the most notable improvement, while the NPL coverage ratio for households stood at 218.1%, showing a 19.5%pimprovement. This shows KB’s very conservative approach to provisioning regarding risk.

Delinquency(KRW in Billions)

2007 2006 Change

Delinquency Ratio Delinquency Ratio (a-b)

Household 607.4 0.68% 793.6 0.92% -23.5% (0.24%p)

General 243.9 0.51% 288.3 0.62% -15.4% (0.11%p)

Mortgage 363.5 0.88% 505.3 1.29% -28.1% (0.41%p)

Corporate 299.7 0.41% 406.2 0.74% -26.2% (0.33%p)

SME 297.4 0.56% 395.6 0.98% -24.8% (0.42%p)

Large 2.3 0.01% 10.6 0.07% -78.3% (0.06%p)

Credit card 115.9 1.11% 214.1 2.47% -45.9% (1.36%p)

Total 1,023.0 0.59% 1,413.9 0.95% -27.6% (0.36%P)

The delinquency ratio is the early indicator for determining future potential delinquencies and size of potential delinquentloans. Through loan management focused on outstanding loans, KB concentrated on preventing delinquent loans fromoccurring and early collection of delinquent loans. As a result, the delinquency ratio was reduced by 0.36%p from 0.95% in2006 to KRW0.59% in 2007. By segment, delinquency ratios for household loans, corporate loans and credit cards stoodat 0.68%, 0.41% and 1.11%, respectively, which was a significant improvement from the previous year.


250

200

150

100

50

193.0

’06

150.8

’07

NPL Coverage Ratio(%)

1.0

0.8

0.6

0.4

0.2

0.59

’06

0.95

’07

Delinquency Ratio(%)


2008 Outlook

Even with the tough internal and external business environment in 2007, KB made every efforts to improve profitability,maintain a sound financial structure and focus on strengthening its sales capabilities. As a result, the Bank was able toachieve a record business performance with a net income of KRW2,773.8 billion.

KB will continue to concentrate on enhancing asset quality, improving customer service and maintaining profitability. Atthe same time the Bank will continue to develop customer-oriented products by accurately understanding the needs of itscustomers, and will take every effort to reduce cost and enhance work efficiencies.

In 2008, KB expects a continuation of global market uncertainties marked by intensified competition within the financialindustry and sustained markets volatility. However, on the back of KB’s effort to strengthen internal capabilities and securea stable profitability platform, the Bank will be able to successfully overcome these difficult and rapidly changing times,enabling KB to firmly establish its position as the best comprehensive financial group domestically.

By providing differentiated financial services that cater to individual customers, diversifying the Bank’s asset portfolio, andimproving profitability through the growth expansion of the non-interest income businesses, KB will be able to firmlyestablish itself as a leading domestic bank. Not only will KB lead the financial industry in Asia, it will also expand towardsbecoming a global bank.

To secure future growth engines in order for KB to cope with the implementation of the Capital Market Consolidation Actand the rapidly changing international financial market environment, the Bank will continuously look overseas forexpansion and make every effort to strengthen sales capabilities by strengthening IT systems and employee training in orderto provide expert financial services.

As a socially aware corporate, KB will expand the scope of its social contribution activities and offer increased opportunitiesfor participation. In order to meet the expectations of its shareholders, customers, social requirements and expectations, KBwill do its best to fulfill its role and obligations as leading bank centered on innovation, change and creativity in order torealize a sustainable business.

Notice to ReadersThis report is effective as of March 3, 2008, the auditors’report date. Certain subsequent events or circumstances may have occurred between the auditors’report date and thetime the auditors’report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modifications to theauditors’report.

Independent Auditors’ Report


English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of Kookmin Bank

We have audited the accompanying non-consolidated balance sheets of Kookmin Bank (the “Bank”) as of December 31, 2007 and 2006, andthe related non-consolidated statements of income, appropriations of retained earnings, changes in shareholders’ equity and cash flows for theyears then ended, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility isto express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessingthe 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 Bank as of December31, 2007 and 2006, and the results of its operations, the changes in its retained earnings and its shareholders’ equity, and cash flows for the yearsthen ended in conformity with accounting principles generally accepted in the Republic of Korea.

Accounting principles and audit standards and their application in practice vary among countries. The accompanying financial statements arenot intended to present the financial position, results of operations and changes in retained earnings and shareholders’ equity, and cash flows inaccordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, theprocedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted andapplied in other countries. Accordingly, this report and the accompanying financial statements are for use by those knowledgeable about Koreanaccounting procedures and audit standards and their application in practice.

March 3, 2008

14Fl., Hanwha Securities Bldg., 23-5 Yoido-dong,Youngdeungpo-gu, Seoul150-717, Korea

Tel:+82 2 6676 1000, 1114Fax: +82 2 6674 2114www.deloitteanjin.co.kr

Korean Won2007 2006

(In millions)ASSETS

Cash and due from banks (Notes 3 and 20) ￦ 6,544,754 ￦ 6,568,306Securities (Notes 4 and 20) 30,777,359 29,382,480Loans (Notes 5, 6, 7 and 20) 171,549,993 149,867,182Tangible assets (Note 8) 2,298,743 2,137,732Other assets (Note 9) 7,695,189 7,250,781

￦ 218,866,038 ￦ 195,206,481LIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES:

Deposits (Notes 10 and 20) ￦ 138,858,691 ￦ 130,019,916Borrowings (Notes 11 and 20 ) 50,250,481 39,042,684Other liabilities (Notes 12, 13, 14, 15 and 16) 13,719,105 11,088,924

202,828,277 180,151,524SHAREHOLDERS’ EQUITY (Note 17):

Common stock 1,681,896 1,681,896Capital surplus 6,258,297 6,258,297Accumulated other comprehensive income 356,412 899,542Retained earnings 7,741,156 6,215,222

16,037,761 15,054,957￦ 218,866,038 ￦ 195,206,481

See accompanying notes to non-consolidated financial statements.

Non-consolidated Balance Sheets


AS OF DECEMBER 31, 2007 AND 2006

Korean Won2007 2006

(In millions except per share amounts)OPERATING REVENUE:

Interest income:Interest on due from banks (Note 21) ￦ 13,007 ￦ 27,973Interest on securities (Note 21) 1,440,186 1,350,320Interest on loans (Note 21) 12,146,901 10,652,569Other interest income 36,522 32,026

13,636,616 12,062,888Gain on valuation and disposal of securities:

Gain on valuation of trading securities 3,570 14,113Gain on disposal of trading securities 95,174 53,230Gain on disposal of available-for-sale securities 808,396 182,325Reversal of impairment loss on available-for-sale securities (Note 4) 31,784 84,443

938,924 334,111Gain on disposal of loans 27,112 36,311Foreign exchange trading income 533,862 245,067Commission income 1,571,103 1,341,814Fees and commissions from trust accounts (Note 27) 93,406 97,141Dividends income 10,956 7,492Other operating income:

Gain on derivatives trading 2,922,375 4,419,007Gain on valuation of derivatives (Note 19) 1,262,897 935,487Gain on valuation of fair value hedged items (Notes 10, 11 and 19) 212,295 35,828Other operating income 72,280 103,728

4,469,847 5,494,050Total operating revenues 21,281,826 19,618,874

OPERATING EXPENSES:Interest expenses:

Interest on deposits (Note 21) 4,144,124 3,433,480Interest on borrowings (Note 21) 2,449,474 1,796,009Other interest expenses 81,336 54,991

6,674,934 5,284,480Loss on valuation and disposal of securities:

Loss on valuation of trading securities 50,745 7,191Loss on disposal of trading securities ￦ 88,785 ￦ 48,084

(Continued)

Non-consolidated Statements of Income


FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

Korean Won2007 2006

(In millions except per share amounts)Loss on disposal of available-for-sale securities ￦ 24,977 ￦ 15,283Impairment loss on available-for-sale securities (Note 4) 75,710 124,266

240,217 194,824Loss on valuation and disposal of loans:

Provision for possible loan losses (Note 7) 533,952 1,009,498Loss on disposal of loans 8,555 17,222

542,507 1,026,720Foreign exchange trading losses 309,848 295,880Commission expenses 593,123 464,400General and administrative expenses (Note 22) 3,693,254 3,225,155Other operating expenses:

Provision for acceptances and guarantees losses 18,125 8,932Loss on derivatives trading 2,785,890 4,080,808Loss on valuation of derivatives (Note 19) 1,548,944 1,015,822Loss on valuation of fair value hedged items (Notes 10, 11 and 19) 4,061 31,517Other operating expenses 637,537 785,353

4,994,557 5,922,432Total operating expenses 17,048,440 16,413,891

OPERATING INCOME 4,233,386 3,204,983NON-OPERATING REVENUE (Note 23) 444,899 366,293NON-OPERATING EXPENSES (Note 23) 148,415 163,681INCOME BEFORE INCOME TAX 4,529,870 3,407,595INCOME TAX EXPENSE (Note 24) 1,756,027 935,484NET INCOME (Note 26) ￦ 2,773,843 ￦ 2,472,111BASIC NET INCOME PER SHARE (In currency units) (Note 25) ￦ 8,246 ￦ 7,349DILUTED NET INCOME PER SHARE (In currency units) (Note 25) ￦ 8,228 ￦ 7,349



Korean Won2007 2006

(In millions)RETAINED EARNINGS BEFORE APPROPRIATIONS:

Retained earnings carried forward from prior years ￦ 95 ￦ 59Effect on valuation of securities using the equity method (20,400) (1,582)Net income 2,773,843 2,472,111

2,753,538 2,470,588APPROPRIATIONS:

Legal reserve (Note 17) 277,400 247,300Voluntary reserve 1,651,500 994,900Dividend (Note 17) 824,129 1,227,784Other reserve 476 509

2,753,505 2,470,493UNAPPROPRIATED RETAINED EARNINGS

TO BE CARRIED FORWARD TO SUBSEQUENT YEARS ￦ 33 ￦ 95

Non-consolidated Statements of Appropriations of Retained Earnings



Accumulated other

Capital Capital Capital comprehensive Retained stock surplus adjustments income earnings Total

(In millions)January 1, 2006 ￦ 1,681,896 ￦ 6,254,786 ￦ (5,772) ￦ 512,742 ￦ 3,929,948 ￦12,373,600Dividend - - - - (184,889) (184,889)Retained earnings after

appropriations - - - - 3,745,059 12,188,711 Net income - - - - 2,472,111 2,472,111 Valuation of available-for-sale

securities - - - 372,188 - 372,188 Valuation of held-to-maturity

securities - - - (328) - (328)Valuation of securities using the

equity method - - - 14,940 (1,582) 13,358 Exercise of stock option - - (3,888) - - (3,888)Disposal of treasury stock - 3,511 9,660 - - 13,171 Others - - - - (366) (366)December 31, 2006 ￦ 1,681,896 ￦ 6,258,297 ￦ - ￦ 899,542 ￦ 6,215,222 ￦15,054,957

January 1, 2007 ￦ 1,681,896 ￦ 6,258,297 ￦ - ￦ 899,542 ￦ 6,215,222 ￦15,054,957Dividend - - - - (1,227,784) (1,227,784)Retained earnings after

appropriations - - - - 4,987,438 13,827,173 Net income - - - - 2,773,843 2,773,843 Valuation of available-for-sale

securities - - - (518,226) - (518,226)Valuation of held-to-maturity

securities - - - (56) - (56)Valuation of securities using the

equity method - - - (24,848) (20,400) (45,248)Others - - - - 275 275 December 31, 2007 ￦ 1,681,896 ￦ 6,258,297 ￦ - ￦ 356,412 ￦ 7,741,156 ￦16,037,761


Non-consolidated Statements of Changes in Shareholders’ Equity



Korean Won2007 2006

(In millions)CASH FLOWS FROM OPERATING ACTIVITIES:

Net income ￦ 2,773,843 ￦ 2,472,111 Adjustments to reconcile net income to net cash used in operating activities:

Loss on valuation of trading securities 50,745 7,191 Impairment loss on available-for-sale securities 75,710 124,266 Loss on valuation of securities accounted for using the equity method 364 2,813 Provision for possible loan losses 533,952 1,009,498 Depreciation and amortization 422,726 324,373 Loss on disposal of tangible assets 1,598 2,686 Loss on valuation of derivatives 1,548,944 1,015,822 Loss on valuation of fair value hedged items 4,061 31,517 Provision for severance benefits 191,064 165,533 Gain on valuation of trading securities (3,570) (14,113)Reversal of impairment loss on available-for-sale securities (31,784) (84,443)Gain on valuation of securities accounted for using the equity method (100,064) (111,407)Gain on disposal of tangible assets (10,504) (10,470)Gain on valuation of derivatives (1,262,897) (935,487)Gain on valuation of fair value hedged items (212,295) (35,828)Others, net 202,167 225,140

1,410,217 1,717,091 Changes in assets and liabilities resulting from operations:

Net decrease (increase) in trading securities (2,464,946) 972,462 Net decrease in available-for-sale securities 776,303 1,308,351 Net increase in held-to-maturity securities (83,935) (704,763)Net decrease in loans (22,155,347) (15,383,155)Net decrease (increase) in accounts receivable 80,770 (1,706,151)Net increase in accrued income (93,249) (168,609)Net increase in prepaid expenses (12,496) (96,431)Net decrease (increase) in deferred income tax assets (129,075) 322,584 Net increase in accounts payable 272,287 1,523,331 Net increase (decrease) in accrued expenses 534,793 (92,635)Net increase in unearned revenues 26,860 7,904 Payment of severance benefits (24,160) (16,664)

(Continued)

Non-consolidated Statements of Cash Flows



Korean Won2007 2006

(In millions)Net increase in severance insurance deposits ￦ (136,903) ￦ (98,450)Others, net 378,434 (903,627)

(23,030,664) (15,035,853)Net cash used in operating activities (18,846,604) (10,846,651)

CASH FLOWS FROM INVESTING ACTIVITIES:Net increase in restricted due from banks (730,504) (1,037,901)Net decrease (increase) in securities accounted for using the equity method 103,858 (20,613)Disposal of tangible assets 20,176 23,708 Purchase of tangible assets (489,909) (364,345)Disposal of intangible assets 75 -Disposal of non-business use properties 308 26 Purchase of intangible assets (80,843) (45,164)Net increase in guarantee deposits paid (139,350) (4,515)Net decrease (increase) in domestic exchange settlement debits 208,727 (241,817)Net cash used in investing activities (1,107,462) (1,690,621)

CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits 8,840,201 3,734,898 Net increase in borrowings 11,075,499 8,809,936 Net increase (decrease) in other liabilities 512,094 (170,300)Exercise of stock options - 10,615 Dividend (1,227,784) (184,889)Net cash provided by financing activities 19,200,010 12,200,260

NET DECREASE IN CASH AND DUE FROM BANKS (754,056) (337,012)CASH AND DUE FROM BANKS, BEGINNING OF YEAR 3,287,819 3,624,831 CASH AND DUE FROM BANKS, END OF YEAR (Note 31) ￦ 2,533,763 ￦ 3,287,819



1. GENERAL:Kookmin Bank (the “Bank”) was established in 1963 under theCitizens National Bank Act to provide and administer funds forfinancing to the general public and small businesses. Pursuant to therepeal of the Citizens National Bank Act, effective January 5, 1995,the Bank has conducted its operations in accordance with theprovisions of the General Banking Act.

The Bank merged with Korea Long Term Credit Bank on December31, 1998 and with Daegu, Busan, Jeonnam Kookmin Mutual Savings& Finance Co., Ltd. on August 22, 1999. Also, under the decision ofthe Financial Supervisory Commission in accordance with theStructural Improvement of the Financial Industry Act, the Bankpurchased certain assets, including loans classified as normal orprecautionary, and assumed most of the liabilities of Daedong Bankon June 29, 1998. Also, the Bank completed the legal consolidationwith Housing and Commercial Bank (“H&CB”) on October 31,2001 and merged with Kookmin Credit Card Co., Ltd., a majority-owned subsidiary, on September 30, 2003.

The Bank’s shares have been listed on the Korea Stock Exchange sinceSeptember 1994. As a result of the business combination withH&CB, the former shareholders of the Bank and H&CB receivednew common shares of the Bank on the basis of a pre-determinedratio. The new common shares of the Bank were listed on the KoreaStock Exchange on November 9, 2001. In addition, the Bank listed itsAmerican Depository Shares (“ADS”) on the New York StockExchange (“NYSE”) as of November 1, 2001 following theconsolidation with H&CB. H&CB listed its ADS on the NYSE as ofOctober 3, 2000 prior to the business combination. As of December31, 2007, the Bank’s paid-in capital is ￦1,681,896 million.

The Bank is engaged in the banking, trust, credit card and otherrelevant businesses according to the provisions of the General BankingAct, Trust Business Act, and Specialized Credit Financial BusinessAct, respectively. The Bank operates through 1,205 domestic branchesand offices (excluding 260 automated teller machine stations) and fouroverseas branches (excluding two subsidiaries and three offices) as ofDecember 31, 2007.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:Basis of Non-consolidated Financial Statement PresentationThe Bank maintains its official accounting records in Korean Wonand prepares statutory non-consolidated financial statements in theKorean language (Hangul) in conformity with the accountingprinciples and banking accounting standards generally accepted in theRepublic of Korea. Certain accounting principles and bankingaccounting standards applied by the Bank that conform with financialaccounting standards and accounting principles in the Republic ofKorea may not conform with generally accepted accounting principlesand banking accounting practices in other countries. Accordingly,these financial statements are intended for use by those who areinformed about Korean accounting principles and practices. Theaccompanying financial statements have been condensed, restructuredand translated into English (with certain expanded descriptions) fromthe Korean language financial statements. Certain informationincluded in the Korean language financial statements, but not requiredfor a fair presentation of the Bank's financial position, results ofoperations or cash flows, is not presented in the accompanyingfinancial statements.

The significant accounting policies followed by the Bank in preparingthe accompanying non-consolidated financial statements aresummarized below.

Interest Income Recognition The Bank applies the accrual basis in recognizing interest incomerelated to deposits, loans and securities, except for non-secureduncollectible receivables. Interest on loans, whose principal or interestis past due at the balance sheet date, is generally not accrued, with theexception of interest on certain loans secured by guarantee ofgovernments or government agencies, or collateralized by bankdeposits. When a loan is placed on non-accrual status, previouslyaccrued interest is generally reversed and deducted from currentinterest income; and future interest income is recognized on the cashbasis in accordance with the banking industry accounting standards.As of December 31, 2007 and 2006, the principal amount of loansand securities of which the accrued interest income was not recordedin the accompanying financial statements based on the above criteria

Notes to Non-consolidated Financial Statements



amounted to ￦4,917,003 million and ￦6,052,684 million,respectively, and the related accrued interest income not recognizedamounted to ￦602,835 million and ￦527,528 million, respectively.

Classification of SecuritiesAt acquisition, the Bank classifies securities into one of the followingcategories: trading, available-for-sale, held-to-maturity and securitiesaccounted for using the equity method, depending on marketability,purpose of acquisition and ability to hold. Debt and equity securitiesthat are bought and held for the purpose of selling them in the nearterm and actively traded are classified as trading securities. Debtsecurities with fixed and determinable payments and fixed maturitythat the Bank has the positive intent and ability to hold to maturityare classified as held-to-maturity securities. Securities that should beaccounted for under the equity method are classified as securitiesaccounted for using the equity method. Debt and equity securities notclassified as above are categorized as available-for-sale securities.

If the objective and ability to hold securities of the Bank change,available-for-sale securities can be reclassified to held-to-maturitysecurities and held-to-maturity securities can be reclassified to available-for-sale securities. Whereas, if the Bank sells held-to-maturity securitiesor exercises early redemption right of securities to issuer in the currentyear or the proceeding two years, and if it reclassifies held-to-maturitysecurities to available-for-sale securities, all debt securities that areowned or purchased cannot be classified as held-to-maturity securities.On the other hand, trading securities cannot be recategorized toavailable-for-sale securities or held-to-maturity securities and vice versa.Nevertheless, trading securities are reclassified to available-for-salesecurities only when the trading securities lose their marketability.

Valuation of Securities(1) Valuation of Trading SecuritiesTrading equity and debt securities are initially recognized atacquisition cost plus incidental expenses determined by the individualmoving average method (the specified identification method for debtsecurities). When the face value of trading debt securities differs fromtheir acquisition cost, the effective interest method is applied toamortize the difference over the remaining term of the securities. After

initial recognition, if the fair value of trading securities differs from thebook value, trading securities are stated at fair value and the resultingvaluation gain or loss is included in current operations.

(2) Valuation of Available-for-sale SecuritiesAvailable-for-sale securities are initially recognized at acquisition costplus incidental expenses, determined by the individual moving averagemethod (the specified identification method for debt securities). Theeffective interest method is applied to amortize the difference betweenthe face value and the acquisition cost over the remaining term of thedebt security. After initial recognition, available-for-sale securities arestated at fair value, with the net unrealized gain or loss presented as gainor loss on valuation of available-for-sale securities in accumulated othercomprehensive income, which is charged to current operations in alump sum at the time of disposal or impairment recognition. Non-marketable equity securities are stated at acquisition cost on the financialstatements if the fair value of the securities is not reliably determinable.

If the fair value of equity securities (net asset fair value in case of non-marketable equity securities stated at acquisition cost) is below theacquisition cost and the pervasive evidence of impairment exists, thecarrying value is adjusted to fair value and the resulting valuation lossis charged to current operations. If the collectible value of debtsecurities is below the amortized cost and the pervasive evidence ofimpairment exists, the carrying value is adjusted to collectible valueand the resulting valuation loss is charged to current operations. Withrespect to impaired securities, any unrealized valuation gain or loss ofsecurities previously included in the accumulated other comprehensiveincome is reversed.

(3) Valuation of Held-to-maturity SecuritiesHeld-to-maturity securities are stated at acquisition cost plusincidental expenses, determined by the specific identification method.When the face value of held-to-maturity securities differs from itsacquisition cost, the effective interest method is applied to amortizethe difference over the remaining term of the securities. If collectiblevalue is below the amortized cost and the pervasive evidence ofimpairment exists, the carrying value is adjusted to collectible valueand the resulting valuation loss is charged to current operations.


(4) Valuation of Securities Accounted for using the Equity MethodEquity securities held for investment in companies in which the Bankis able to exercise significant influence over the investees (inaccordance with the Banking Act, if the Bank holds more than 15percent of the total issued shares, the Bank is considered being able toexercise significant influence) are accounted for using the equitymethod. The Bank’s share in net income or net loss of investees isincluded in current operations. Changes in the retained earnings ofinvestee are reflected in the retained earnings. Changes in the capitalsurplus, capital adjustments or accumulated other comprehensiveincome of investee are reflected as gain or loss on valuation ofsecurities accounted for using the equity method in accumulated othercomprehensive income.

When the book value of equity securities accounted for using theequity method is less than zero due to the cumulative losses of theinvestees, the Bank discontinues applying the equity method and doesnot provide for additional losses. If the investee subsequently reportsnet income, the Bank resumes applying the equity method only afterits share of that net income equals the share of net losses notrecognized during the period that the equity method was suspended.

In addition, any gain or loss from the disposal of equity securities ofcertain consolidated subsidiaries is accounted for as accumulated othercomprehensive income resulting from applying the equity method inthe balance sheets if the subsidiaries are still consolidated even after theBank disposes of a portion of equity securities.

(5) Reversal of Impairment Loss on Available-for-sale Securities andHeld-to-maturity Securities

If the reasons for impairment losses on available-for-sale securities nolonger exist, the recovery is recorded in current operations underoperating revenue up to amount of the previously recognizedimpairment loss as reversal of impairment loss on available-for-salesecurities and any excess is included in accumulated othercomprehensive income as gain on valuation of available-for-salesecurities. However, if the increases in the fair value of the impairedsecurities are not regarded as the recovery of the impairment, theincreases in the fair value are recorded as gain on valuation of available-

for-sale securities in accumulated other comprehensive income. Fornon-marketable equity securities, which were impaired based on thenet asset fair value, the recovery is recorded up to their acquisition cost.

For held-to-maturity securities, the recovery is recorded in currentoperations under operating revenue within the amount of amortizedcost that would have been recorded according to the original scheduleif the impairment losses had not been recognized as reversal ofimpairment loss on held-to-maturity securities.

(6) Reclassification of SecuritiesWhen held-to-maturity securities are reclassified to available-for-salesecurities, those securities are accounted for at fair value on thereclassification date and the difference between the fair value and bookvalue is reported in accumulated other comprehensive income as gainor loss on valuation of available-for-sale securities. When available-for-sale securities are reclassified to held-to-maturity securities, gain or losson valuation of available-for-sale securities, which had been recordeduntil the reclassification date, continue to be included in accumulatedother comprehensive income and be amortized using the effectiveinterest rate method and the amortized amount is charged to interestincome until maturity. The difference between the fair value at thereclassification date and face value of the reclassified securities to held-to-maturity securities is amortized using effective interest rate methodand the amortized amount is charged to interest income. In addition,when certain trading securities lose their marketability, such securitiesare reclassified as available-for-sale securities at fair market value as ofreclassification date.

Transfer of SecuritiesWhen the realization, expiration or sale of the right to obtain theeconomic benefits arises and the control of securities is lost from thesale of the securities, the unrealized valuation gain or loss of securitiesincluded in the accumulated other comprehensive income is added toor deducted from the gain or loss on disposal of securities. The gain orloss is the difference between the net proceeds receivable or receivedand its carrying value. When securities are transferred without losingcontrol of the securities, the transaction is recorded as securedborrowing transaction.



Allowance for Possible Losses on CreditsThe Supervisory Regulation of Banking Business (the “SupervisoryRegulation”) legislated by the Financial Supervisory Commission(FSC) requires the Bank to classify all credits into five categories asnormal, precautionary, substandard, doubtful, or estimated loss basedon borrowers’ repayment capability and historical financial transactionrecords. The Supervisory Regulation also requires the Bank to providethe minimum rate of loss provision for each category balance using theprescribed minimum percentages as described below.

As required by the Supervisory Regulation, the Bank classifiescorporate credits (loans, confirmed acceptances and guarantees) basedon borrowers’ capability to repay in consideration of borrowers’business operation, financial position and future cash flows (ForwardLooking Criteria) as well as past due period and status of anybankruptcy proceedings (Historical Repayment Criteria). However,credits to small companies and to households are classified not byevaluating the debt repayment capability of a borrower or customerbut by past due period and status of bankruptcy proceedings. TheBank generally classifies all credits to a single borrower in the samecategory of classification but credits guaranteed or collateralized bybank deposits, real estate or other assets may be classified differentlybased on the guarantor’s capability to service such guarantee or basedon the value of collateral securing such credits.

Based on the Bank’s corporate credit evaluation model, credits to aborrower are classified into 17 grades from AAA to D (AAA, AA+,AA, A, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC, CC, Cand D). Credits of grades of AAA to B are classified as normal, creditsof grade B- to CCC as precautionary, credits of grade CC assubstandard, credits of grade C as doubtful and credits of grade D asestimated loss. Credits are finally classified reflecting past due periodand bankruptcy considerations. An allowance is then calculated on thecategory balances using the prescribed percentages of 0.85 (0.9 percentfor loans to economy-sensitive industries) ~ 6.9 percent for normal, 7~ 19.9 percent for precautionary, 20 ~ 49.9 percent for substandard,50 ~ 99.9 percent for doubtful and 100 percent for estimated loss.However, the Bank does not provide allowances for call loans, bondsbought under resale agreements and inter-bank loans that are classified

as normal, as it is not required by the Accounting Standards for theBanking Industry.

In addition, as required by the Supervisory Regulation, based on theclassification of household loans and credit card receivables by pastdue period and status of bankruptcy proceedings, allowance forhousehold loans and credit card receivables are calculated on thecategory balances using the prescribed percentages of 1 ~ 9.9 percentand 1.5 ~ 14.9 percent for normal, 10 ~ 19.9 percent and 15 ~ 19.9percent for precautionary, 20 ~ 54.9 and 20 ~ 59.9 percent forsubstandard, 55 ~ 99.9 percent and 60 ~ 99.9 percent for doubtful,and 100 percent for estimated loss.

Pursuant to the Supervisory Regulation of Banking Business, the Bankprovides allowance for possible losses on confirmed acceptances andguarantees, unconfirmed acceptances and guarantees, and notesendorsed based on the credit classification, minimum rate of lossprovision prescribed by the Financial Supervisory Service and the cashconversion factor. In addition, the Bank provides other allowances forthe unused credit limit of credit card and unused credit line of consumerand corporate loans based on the cash conversion factor and minimumrate of loss provision prescribed by the Financial Supervisory Service.

Pursuant to the amended Supervisory Regulation, the Bank increasedthe minimum rate of loss provision for corporate credits in 2007. Dueto this change, provision for possible loan losses, allowance foracceptances and guarantees, and other allowance for unused creditlimit increased by ￦125.0 billion, ￦6.7 billion and ￦25.2 billion,respectively, and net income for the year then ended decreased by￦113.8 billion.

In addition, when an allowance for possible loan losses required by theSupervisory Regulation is less than the amount calculated based on thehistorical loss rate, which is estimated through objective andreasonable method in accordance with the accounting principle in theRepublic of Korea, historical loss rate is reflected in the provision forpossible loan losses.


The method and data used for determining the allowances for loanlosses based on historical loss rate by the Bank’s lending portfolios aredetermined as follows:

Period of Period ofhistorical recovery

Lending portfolios Methodology loss rate ratioImpaired corporate loans DCF & Migration N/A N/ANon-impaired

corporate loans Migration analysis 1 year 5 yearsConsumer loans Migration analysis 1 year 5 yearsCredit card loans Roll-rate analysis 1 year 5 years

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

Restructuring of LoansThe equity interest in the debtors, net of real estates and/or otherassets received as full or partial satisfaction of the Bank’s loans,collected through reorganization proceedings, court mediation or debtrestructuring agreements of parties concerned, is recorded at fair valueat the time of the restructuring. In cases where the fair value of theassets received are less than the book value of the loan (book valuebefore allowances), the Bank offsets first the book value againstallowances for loan losses and then recognizes provisions for loanlosses. Impairment losses for loans that were restructured in a troubleddebt restructuring involving a modification of terms are computed bythe difference between the present value of future cash flows underdebt restructuring agreements discounted at effective interest rates atthe time when loans are originated and the book value beforeallowances for loan losses. If the amount of allowances alreadyestablished is less than the impairment losses, the Bank establishesadditional allowances for the difference. Otherwise, the Bank reversesthe allowances for loan losses.

Deferred Loan Origination Fees and Costs The Bank defers loan origination fees associated with originating loansand loan origination costs that have future economic benefits. Loanbalances are reported net of these loan origination fees and costs. Thedeferred loan origination fees and costs are amortized using the

effective interest method with the amortization recognized asadjustments to other interest income.

Valuation of Receivables and Payables at Present ValueReceivables and payables incurred through long-term installmenttransactions, long-term borrowing and lending transactions, and othersimilar transactions are stated at the present value of expected futurecash flows, and the gain or loss on valuation of related receivables andpayables is reflected in current operations, unless the differencebetween nominal value and present value is immaterial. Present valuediscount or premium is amortized using the effective interest ratemethod and credited or charged to interest income or interest expense.

Bonds under Resale or Repurchase AgreementsBonds purchased under resale agreements are recorded as loans andbonds sold under repurchase agreements are recorded as borrowingswhen the Bank purchases or sells securities under such agreements.

Tangible Assets and Related DepreciationTangible assets are recorded at cost or production cost includingincidental expenses. Routine maintenance and repairs are expensed asincurred. Expenditures that result in the enhancement of the value orthe extension of the useful lives of the facilities involved are capitalizedas additions to tangible assets.

Depreciation is computed by using the declining-balance method(straight-line method for building and structures) based on theestimated useful lives of the assets as follows:

Depreciation Estimated Tangible assets method useful lifeBuildings and structures Straight-line 40 yearsLeasehold improvements Declining balance 4-5 yearsEquipment and vehicles Declining balance 4-5 years

Intangible Assets and Related AmortizationIntangible assets included in other assets are recorded at theproduction costs or purchase costs plus incidental expenses lessaccumulated amortization. Intangible assets are amortized using thestraight-line method over the estimated economic useful lives of therelated assets or the activity method as follows:



Depreciation Estimated Intangible assets method useful lifeGoodwill Straight-line 9 yearsTrademarks Straight-line 5-20 yearsOthers Straight-line 3-30 years

The Bank recorded goodwill as a result of the merger with H&CB, asthe cost of the merger exceeded the fair value of the net assets acquired.Expenditures incurred in conjunction with the development of newproducts or technology and others, in which the elements of costs canbe individually identified and future economic benefits are probablyexerted, are capitalized as development costs. The Bank estimates theuseful lives of endowment assets that are beneficial upon usage based onthe term of the contract and are classified under other intangible assets.

Valuation Allowance for Non-Business Use PropertyNon-business use property included in other assets is recorded whenthe Bank acquires collateral by foreclosure on the mortgage for loans.If the latest auction price is lower than book value, the difference isprovided as a valuation allowance and the valuation loss is charged tocurrent operations. In addition, the difference between the sellingprice and book value is recorded as a disposition gain or loss.

Recognition of Impairment of AssetsWhen the book value of assets (other than securities and assets valuedat present value) exceeds the collective value of the assets due toobsolescence, physical damage or a sharp decrease in market value andthe difference is material, the book value are adjusted to collectivevalue in the balance sheet and the resulting impairment loss is chargedto current operations. If the collective value of the assets increases insubsequent years, the increase in value is credited to operations as gainuntil the collective value equals the book value of assets that wouldhave been determined had no impairment loss been recognized. TheBank assessed the collective value based on expected selling price orappraisal value.

Amortization of Discounts (Premiums) on DebenturesDiscounts or premiums on debentures issued are amortized over theperiod from issuance to maturity using the effective interest ratemethod. Amortization of discounts or premiums is recognized asinterest expense on the debentures.

Contingent LiabilitiesA possible obligation that arises from past events and whose existencewill be confirmed only by the occurrence or non-occurrence of one ormore uncertain future events not wholly within the control of theBank is recognized as contingent liabilities when it is probable that anoutflow of resources embodying economic benefits required and theamount of the obligation can be measured with sufficient reliability.Where the effect of the time value of money is material, the amount ofthe liabilities is the present value of the expenditures expected to berequired to settle the obligation. In addition, as some or allexpenditures required to settle a provision are expected to bereimbursed by another party, the reimbursement is recognized asseparate assets in the balance sheet and related income may be offsetagainst expense in the income statement.

Accrued Severance BenefitsEmployees and directors and temporary employees with at least oneyear of service as of December 31, 2007 are entitled to receive a lump-sum payment upon termination of their employment with the Bank,based on their length of service and rate of pay at the time oftermination. The accrued severance benefits that would be payableassuming all eligible employees and directors were to resign areincluded in other liabilities.

The Bank has purchased severance benefits insurance, which meets thefunding requirement for tax purposes, and made deposits with KyoboLife Insurance Co., Ltd and others. Withdrawal of these deposits isrestricted to the payment of severance benefits. These are presented asa deduction from the accrued severance benefits.

Accounting for Derivative InstrumentsThe Bank accounts for derivative instruments pursuant to theInterpretations on Financial Accounting Standards 53-70 onaccounting for derivative instruments. Derivative instruments areclassified as used for trading activities or for hedging activitiesaccording to their transaction purpose. All derivative instruments areaccounted for at fair value with the valuation gain or loss recorded asan asset or liability. If the derivative instrument is not part of atransaction qualifying as a hedge, the adjustment to fair value isreflected in current operations.


The accounting for derivative transactions that are part of a qualifiedhedge based both on the purpose of the transaction and on meetingthe specified criteria for hedge accounting differs depending onwhether the transaction is a fair value hedge or a cash flow hedge. Fairvalue hedge accounting is applied to a derivative instrumentdesignated as hedging the exposure to changes in the fair value of anasset or a liability or a firm commitment (hedged item) that isattributable to a particular risk. The gain or loss both on the hedgingderivative instruments and on the hedged item attributable to thehedged risk is reflected in current operations. Cash flow hedgeaccounting is applied to a derivative instrument designated as hedgingthe exposure to variability in expected future cash flows of an asset or aliability or a forecasted transaction that is attributable to a particularrisk. The effective portion of gain or loss on a derivative instrumentdesignated as a cash flow hedge is recorded as accumulated othercomprehensive income and the ineffective portion is recorded incurrent operations. The effective portion of gain or loss recorded asaccumulated other comprehensive income is reclassified to currentearnings in the same period during which the hedged forecastedtransaction affects earnings. If the hedged transaction results in theacquisition of an asset or the incurrence of a liability, the gain or lossin accumulated other comprehensive income is added to or deductedfrom the asset or the liability.

Accounting for Share-based PaymentThe terms of the arrangement for share-based payment transactionsprovide the Bank with a choice of whether the transaction is settled incash or by issuing equity instruments. In accordance with theresolution of the Board of Directors on August 23, 2005 to settle thetransaction in cash, the compensation cost is recorded in otherliabilities (accrued expense). The compensation cost of stock optionsgranted before and after the effective date of the Statements of KoreaAccounting Standards No. 22 (Share-based Payment) was measuredusing the intrinsic value method in accordance with the Interpretationson Financial Accounting Standards 39-35 “Accounting for StockOptions,” and the fair value method, respectively.

National Housing Fund The Bank, as designated by the Korean government under theHousing Law (former Housing Construction Promotion Law),

manages the sources and uses of funds of the National Housing Fund(the “NHF”) and records the related NHF account in other liabilities.In addition, the Bank pays interest to NHF, which is computed bymultiplying the average balance of the NHF account by the passbookdeposit interest rate.

Accounting for Trust AccountsThe Bank separately maintains the books of accounts and financialstatements in connection with the trust operations (the trust accounts)from those of the bank accounts in accordance with the TrustBusiness Act. When surplus funds are generated through themanagement of trust assets, such funds are deposited with the Bankand are recorded as due to trust accounts of the bank accounts. Also,the borrowings from the bank account are recorded as due from trustaccounts of the bank accounts. The Bank receives fees for operationand management of the trust business and accounts for them as feesand commissions from trust accounts. With respect to certain trustaccount products, the Bank guarantees the repayment of the principalof the trust accounts and, in certain cases, a fixed rate of return. Ifincome from such trust accounts is insufficient to pay the guaranteedamount, such a deficiency is satisfied by using special reservesmaintained in the trust accounts, offsetting trust fee payable to thebank accounts and receiving compensation contributions from thebank accounts of the Bank. If the Bank pays compensatingcontributions to the guaranteed return trusts to cover suchdeficiencies, these contributions are reflected as operating expense ofthe bank accounts and as other income of the trust accounts.

Income Tax ExpenseIncome tax expense is the amount currently payable for the periodadded to or deducted from the changes in deferred income taxes.However, deferred income tax assets are recognized only if the futuretax benefits from accumulated temporary differences and any tax losscarryforwards are realizable. The difference between the amountcurrently payable for the period and income tax expense is accountedfor as deferred income tax assets or liabilities, which will be charged orcredited to income tax expense in the period the related temporarydifference reverses in the future. Deferred income tax assets orliabilities are calculated based on the expected tax rate to be applied atthe reversal period of the related assets or liabilities. Tax payable and



deferred income tax assets or liabilities regarding to certain items arecharged or credited directly to related components of shareholders'equity.

Accounting for Foreign Currency Transactions and TranslationThe Bank maintains its accounts in Korean Won. Transactions inforeign currencies are recorded in Korean Won based on the basic rateof exchange on the transaction date. The Korean Won equivalent ofassets and liabilities denominated in foreign currencies are translatedin these financial statements based on the basic rate (￦938.20 and￦929.60 to US$ 1.00 at December 31, 2007 and 2006, respectively)announced by Seoul Money Brokerage Service, Ltd. or cross rates forother currencies other than U.S. Dollars at the balance sheet dates.Translation gains and losses are credited or charged to operations.Financial statements of overseas branches are translated based on thebasic rate at balance sheet dates.

Discontinued OperationA discontinued operation refers to a component of the Bank that iscapable of being distinguished operationally for financial reportingpurposes and is capable of being identified as a major line of businessor geographical area of operations, and that the Bank, pursuant to asingle plan of discontinuance, substantially disposes in its entirety,such as by selling it in a single transaction; sells off its assets and settlesits liabilities individually or in small groups; or terminates it through

abandonment. The income (loss) from continuing operation anddiscontinued operation was not distinguished and separately presentedas there was no discontinued operation in the prior year and currentperiod.

Application of the Statement of Korea Accounting Standards The Korea Accounting Standard Board (KASB) under the KoreaAccounting Institute (KAI) issued the Statements of KoreaAccounting Standards (SKAS) for achieving a set of Koreanaccounting standards that should be internationally acceptable andcomparable based on SKAS Act 92. The Bank adopted SKAS No.1(Accounting Changes and Error Corrections) through SKAS No. 20(Related Party Disclosures) (excluding SKAS No. 11 and No. 14) asof or before December 31, 2006, and SKAS No. 11 (DiscontinuedOperation) and SKAS No. 21 (Preparation and Presentation ofFinancial Statements) through SKAS No. 25 (Consolidated FinancialStatements) have been adopted since January 1, 2007.

With the adoption of SKAS No. 21 (Preparation and Presentation ofFinancial Statements) and SKAS No. 24 (Preparation andPresentation of Financial Statements [Financial Industry]), the Bankincluded the statement of changes in shareholders’ equity in thefinancial statements, and reclassified the components of the balancesheets as follows:

Classification Before AfterAssets - Cash and due from banks - Cash and due from banks

- Securities - Securities- Loans - Loans- Fixed assets - Tangible assets- Other assets - Other assets

Liabilities - Deposits - Deposits- Borrowings - Borrowings- Debentures - Other liabilities- Other liabilities

Shareholders’ Equity - Common stock - Common stock- Capital surplus - Capital surplus- Retained earnings - Capital adjustments- Capital adjustments - Accumulated other comprehensive income

- Retained earnings


In addition, a discontinued operation is separately presented in the income statements and extraordinary items are no longer reported separately.The Bank has reclassified the components of the income statements; such as, gains or losses relating to available-for-sale securities and sale ofloans that were presented under non-operating revenue (expenses) are currently presented under operating revenue (expenses). According to theamended SKAS No.16 (Tax accounting), refund of prior year’s income tax and additional income tax for prior year that were presented undernon-operating revenue (expense) are currently included in income tax expense. The effect of the changes in the classification of the incomestatement for the year ended December 31, 2007 is as follows :

(Unit: In millions)

Classification Before After EffectOperating Revenue ￦ 20,410,477 ￦ 21,281,826 ￦ 871,349Operating Expenses 16,926,406 17,048,440 122,034Operating Income 3,484,071 4,233,386 749,315Non-operating Revenue 1,312,410 444,899 (867,511)Non-operating Expenses 752,706 148,415 (604,291)Income before Income Tax 4,043,775 4,529,870 486,095Income Tax Expense 1,269,932 1,756,027 486,095Net Income ￦ 2,773,843 ￦ 2,773,843 ￦ -Basic Net Income per Share (In currency units) ￦ 8,246 ￦ 8,246 ￦ -Diluted Net Income per Share (In currency units) ￦ 8,228 ￦ 8,228 ￦ -

(*) Income from continuing operation was not separately presented as there was no gain (loss) from discontinued operation.

The financial statements for the prior year were restated for comparative purposes due to the application of SKAS NO. 16 (revision), No. 21 andNo. 24. The restatement did not affect the previously reported prior year’s net income or shareholders’ equity. The effect of the restatement onthe income statement for the year ended December 31, 2006 is as follows :

(Unit: In millions)

Classification Before After EffectOperating Revenue ￦ 19,308,604 ￦ 19,618,874 ￦ 310,270Operating Expenses 16,236,889 16,413,891 177,002Operating Income 3,071,715 3,204,983 133,268Non-operating Revenue 689,085 366,293 (322,792)Non-operating Expenses 336,714 163,681 (173,033)Income before Income Tax 3,424,086 3,407,595 (16,491)Income Tax Expense 951,975 935,484 (16,491)Net Income ￦ 2,472,111 ￦ 2,472,111 ￦ -Basic Net Income per Share (In currency units) ￦ 7,349 ￦ 7,349 ￦ -Diluted Net Income per Share (In currency units) ￦ 7,349 ￦ 7,349 ￦ -




In addition, the Bank has reclassified the components of the cash flows; such as, changes in available-for-sale securities, held-to-maturitysecurities and loans that were presented under cash flows from investing activities are currently presented under cash flows from operatingactivities. The accompanying non-consolidated statement of cash flows for the year ended December 31, 2006, which is presented forcomparative purposes, was restated due to the application of SKAS No. 21 and No. 24.

The prior year financial statements were neither restated nor the earnings per share adjusted to reflect the effect of the application of SKAS No.22 (Share-based Payment) and No. 23 (Earnings per Share), which is in accordance with the transition provision.

3. CASH AND DUE FROM BANKS:(1) Cash and due from banks as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Cash and checks ￦ 2,287,607 ￦ 2,725,644Foreign currencies 189,463 151,406Due from banks 4,067,684 3,691,256

￦ 6,544,754 ￦ 6,568,306

(2) Due from banks as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Financial institution Interest (%) 2007 2006Due from banks in Won:

Bank of Korea - ￦ 3,897,542 ￦ 3,195,224Shinhan Bank and others 0.00~0.10 3,693 9,377JP Morgan Chase & Co. and others - 3,920 6,006

3,905,155 3,210,607Due from banks in foreign currencies:

Bank of Korea - ￦ 88,361 ￦ 75,026Wachovia Bank, NA. and others 0.00~5.43 74,168 87,235Qingdao International Bank and others - - 318,388

162,529 480,649￦ 4,067,684 ￦ 3,691,256


(3) Restricted due from banks as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Financial institution 2007 2006 Reason for restrictionDue from banks in Won:

BOK ￦ 3,897,542 ￦ 3,195,224 BOK ActWoori Bank 214 4,605 Escrow accountKB Futures Co., Ltd. and others 2,804 4,492 Futures margin accountsKorea Exchange 250 Market entry due

Due from banks in foreign currencies:BOK 88,361 75,026 BOK Act J.P. Morgan Futures Inc. and others 14,501 890 Futures margin accountsICBC NANFANG SUB-BR and others 7,319 - China’s New Foreign Bank Regulations

￦ 4,010,991 ￦ 3,280,487

(4) Due from banks by financial institution as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Financial institution 2007 2006Due from banks in Won:

BOK ￦ 3,897,542 ￦ 3,195,224Other banks 3,693 9,377Other financial institution 3,920 6,006


BOK 88,361 75,026Other banks 72,556 404,733Other financial institution 1,612 890

162,529 480,649￦ 4,067,684 ￦ 3,691,256



(5) Term structure of due from banks as of December 31, 2007 was as follows :

(Unit: In millions)

Due after 3 Due after 6 Due after 1 Due in 3 months months year

months or through 6 through 1 through 3 More than less months year years 3 years Total

Due from banks in Won ￦ 3,905,054 ￦ - ￦ - ￦ 101 ￦ - ￦ 3,095,155 Due from banks in foreign currencies 162,529 - - - 162,529

￦ 4,067,583 ￦ - ￦ - ￦ 101 ￦ - ￦ 4,067,684

Term structure of due from banks as of December 31, 2006 was as follows :

(Unit: In millions)



Due from banks in Won ￦ 3,206,002 ￦ 4,029 ￦ 475 ￦ 101 ￦ - ￦ 3,210,607Due from banks in foreign currencies 429,521 51,128 - - - 480,649

￦ 3,635,523 ￦ 55,157 ￦ 475 ￦ 101 ￦ - ￦ 3,691,256

4. SECURITIES:(1) Securities as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Trading securities ￦ 5,013,286 ￦ 2,589,719Available-for-sale securities 13,870,764 15,113,898Held-to-maturity securities 11,042,998 10,939,331Securities accounted for using the equity method 850,311 739,532

￦ 30,777,359 ￦ 29,382,480


(2) The valuation of securities excluding securities accounted for using the equity method as of December 31, 2007 consisted of :

(Unit: In millions)

Adjusted by effective

Acquisition interest rate Classification Face value cost(*) method Book valueTrading securities:

Equity securities ￦ - ￦ 58,771 ￦ - ￦ 58,224Beneficiary certificates 192,563 199,332 - 200,355Government and public bonds 882,707 861,787 864,265 858,293Finance bonds 3,686,754 3,673,300 3,677,731 3,638,082Corporate bonds 260,565 259,674 259,222 257,193Asset-backed securities 1,146 1,133 1,141 1,139

￦ 5,023,735 ￦ 5,053,997 ￦ 4,802,359 ￦ 5,013,286Available-for-sale securities:

Equity securities ￦ - ￦ 955,361 ￦ - ￦ 1,165,443Equity investments - 24,159 - 24,153Beneficiary certificates 101,361 101,268 - 102,673Government and public bonds 3,894,299 3,815,903 3,830,706 3,755,700Finance bonds 7,367,361 7,346,992 7,351,026 7,259,328Corporate bonds 1,235,413 1,195,948 1,177,706 1,167,059Asset-backed securities 728,260 688,102 320,392 363,127Other debt securities 33,379 24,239 - 33,281

￦ 13,360,073 ￦ 14,151,972 ￦ 12,679,830 ￦ 13,870,764Held-to-maturity securities:

Government and public bonds ￦ 6,747,919 ￦ 6,575,112 ￦ 6,611,911 ￦ 6,611,911Finance bonds 1,758,146 1,756,205 1,756,315 1,756,315Corporate bonds 2,409,986 2,410,960 2,403,786 2,403,786Asset-backed securities 271,000 270,943 270,986 270,986

￦ 11,187,051 ￦ 11,013,220 ￦ 11,042,998 ￦ 11,042,998(*)The book value before valuation has been recognized for equity securities classified as available-for-sale.



The valuation of securities excluding securities accounted for using the equity method as of December 31, 2006 consisted of :

(Unit: In millions)

Adjusted by effective

Acquisition interest rate Classification Face value cost(*) method Book valueTrading securities:

Equity securities ￦ - ￦ 55,871 ￦ - ￦ 57,196Beneficiary certificates 100,285 100,737 - 103,488Government and public bonds 387,598 375,518 369,206 376,597Finance bonds 1,961,888 1,953,158 1,955,278 1,951,106Corporate bonds 101,311 100,947 101,705 101,332

￦ 2,551,082 ￦ 2,586,231 ￦ 2,426,189 ￦ 2,589,719Available-for-sale securities:

Equity securities ￦ - ￦ 1,337,214 ￦ - ￦ 1,975,847Equity investments - 510 - 3,840Beneficiary certificates 601,394 601,194 - 608,242Government and public bonds 3,130,037 3,117,853 3,120,855 3,105,038Finance bonds 7,830,928 7,767,030 7,793,953 7,782,194Corporate bonds 1,000,411 965,657 950,345 950,200Asset-backed securities 991,092 927,660 672,357 671,827Other debt securities 18,412 8,843 - 16,710

￦ 13,572,274 ￦ 14,725,961 ￦ 12,537,510 ￦ 15,113,898Held-to-maturity securities:

Government and public bonds ￦ 6,708,303 ￦ 6,633,496 ￦ 6,644,907 ￦ 6,644,907Finance bonds 2,208,000 2,208,271 2,208,185 2,208,185Corporate bonds 1,879,779 1,887,352 1,881,270 1,881,270Asset-backed securities 205,000 204,906 204,969 204,969

￦ 11,001,082 ￦ 10,934,025 ￦ 10,939,331 ￦ 10,939,331(*) The book value before valuation has been recognized for equity securities classified as available-for-sale.

The fair values of trading and available-for sale debt securities in Won were assessed by applying the average of base prices as of balance sheetdates, provided by the bond pricing service institutions.

The fair value of the available-for-sale non-marketable equity securities such as Korea Housing Guarantee Co., Ltd. and 21 others, and therestricted available-for-sale marketable equity securities such as Hyundai Engineering and Construction Co., Ltd. and 3 others were reliablymeasured by an independent appraisal institute using reasonable judgment. The fair value was determined based on more than one valuationmodels such as Discounted Cash Flow (DCF) Model, Imputed Market Value (IMV) Model, Discounted Free Cash Flow to Equity (FCFE)Model, Dividend Discount (DD) Model and Risk Adjusted Discounted Cash Flow (RADCF) Model depending on the equity securities.


(3) Available-for-sale securities, which were not valuated at fair value as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

Company 2007 2006Bad Bank Harmony (preferred stock) ￦ 33,896 ￦ 58,848Non-performing Asset Management Fund 23,650 -Korea Asset Management Corp. 15,667 15,667Samsung Life Insurance Co., Ltd. 7,479 7,479Korea Highway Corp. 6,248 6,248Tianjin Samsung Opto_Electronics 916 908CLS 871 5,128CMB Hankang Cable TV Co., Ltd. 835 835Solomon Credit Information Co., Ltd. 791 791Others 6,623 15,549

￦ 96,976 ￦ 111,453

(4) The impairment loss and the reversal of impairment loss on available-for-sale securities for the years ended December 31, 2007 and 2006were as follows :

(Unit: In millions)

2007 2006Impairment Reversal Impairment Reversal

Equity securities ￦ 7,341 ￦ - ￦ 16,953 ￦ 83,485Equity investments 2 23,650 1 -Corporate bonds - - - 958Asset-backed securities 68,367 8,134 107,312 -

￦ 75,710 ￦ 31,784 ￦ 124,266 ￦ 84,443



(5) Structured notes relating to stock and interest rate and credit risk and bonds with call option as of December 31, 2007 was as follows :

(Unit: In millions)

ForeignWon currencies Total

Structured notes relating to stock:Convertible bonds ￦ - ￦ 468 ￦ 468

Structured notes relating to interest rate:Long-term government bond floating rates notes (“FRN”) 145,015 - 145,015Others 110,035 - 110,035

255,050 - 255,050Structured notes relating to Credit:

Synthetic CDO - 17,412 17,412Bonds with call option 16,000 - 16,000

￦ 271,050 ￦ 17,880 ￦ 288,930

Structured notes relating to stock, interest rate and credit risk bonds with call option as of December 31, 2006 were as follows :

(Unit: In millions)

ForeignWon currencies Total

Structured notes relating to stock:Convertible bonds ￦ - ￦ 24,121 ￦ 24,121

Structured notes relating to interest rate:Long-term government bond FRN 378,840 - 378,840Dual indexed FRN 19,931 - 19,931Inverse FRN 20,115 - 20,115Others 110,236 - 110,236

529,122 - 529,122Structured notes relating to Credit:

Synthetic CDO - 9,290 9,290Bonds with call option 20,000 - 20,000

￦ 549,122 ￦ 33,411 ￦ 582,533


(6) Private beneficiary certificates included in beneficiary certificates of available-for-sale securities as of December 31, 2007 and 2006 werecomposed of :

(Unit: In millions)

2007 2006Stocks ￦ 43,474 ￦ 90,874Government and public bonds 1,955 115,929Finance bonds 77,085 359,282Corporate bonds 1,065 27,943Asset-backed securities - 10,000Call loans 6,076 48,091Others 22,629 59,878

Assets 152,284 711,997Liabilities 138 2,504

￦ 152,146 ￦ 709,493

(7) The portfolio of securities excluding securities accounted for using the equity method, by industry, as of December 31, 2007 and 2006 wereas follows :

(Unit: In millions)

2007 2006By industry type Amount Percentage(%) Amount Percentage(%)Trading securities:

Government and government-invested public companies ￦ 1,089,568 21.73 ￦ 479,367 18.51

Financial institutions 3,874,691 77.29 2,063,151 79.67Others 49,027 0.98 47,201 1.82

￦ 5,013,286 100.00 ￦ 2,589,719 100.00Available-for-sale securities:

Government and government-invested public companies ￦ 4,227,736 30.48 ￦ 3,662,749 24.24

Financial institutions 8,420,589 60.71 10,413,843 68.90Others 1,222,439 8.81 1,037,306 6.86

￦ 13,870,764 100.00 ￦ 15,113,898 100.00Held-to-maturity securities:



￦ 11,042,998 100.00 ￦ 10,939,331 100.00



(8) The portfolio of securities excluding securities accounted for using the equity method, by security type, as of December 31, 2007 and 2006were as follows :

(Unit: In millions)

2007 2006By security type Amount Percentage(%) Amount Percentage(%)Trading securities:

Stocks ￦ 58,224 1.16 ￦ 57,196 2.21Fixed rate bonds 4,719,666 94.14 2,328,953 89.93 Floating rate bonds 35,041 0.70 100,082 3.86 Beneficiary certificates 200,355 4.00 103,488 4.00


Stocks ￦ 1,165,443 8.40 ￦ 1,975,847 13.07Fixed rate bonds 11,478,627 82.75 11,215,054 74.20 Floating rate bonds 602,988 4.35 579,663 3.84 Subordinated bonds 463,131 3.34 690,028 4.57 Convertible bonds 468 0.00 24,121 0.16 Beneficiary certificates 102,673 0.74 608,242 4.02 Others 57,434 0.42 20,943 0.14


Fixed rate bonds ￦ 10,954,917 99.20 ￦ 10,879,331 99.45Floating rate bonds 88,081 0.80 60,000 0.55

￦ 11,042,998 100.00 ￦ 10,939,331 100.00


(9) The portfolio of securities excluding securities accounted for using the equity method, by country, as of December 31, 2007 and 2006 wereas follows :

(Unit: In millions)

2007 2006By country type Amount Percentage(%) Amount Percentage (%)Trading securities:

Korea ￦ 5,013,286 100.00 ￦ 2,589,719 100.00Available-for-sale securities:

Korea ￦ 13,666,140 98.52 ￦ 15,019,533 99.38USA 96,463 0.70 27,794 0.18India 26,842 0.20 9,685 0.07UK 22,022 0.16 4,605 0.03Kazakhstan 17,631 0.13 - - Russia 17,004 0.12 33,573 0.22Japan 8,802 0.06 - - Ireland 8,030 0.06 9,290 0.06Bangladesh 4,079 0.03 1,583 0.01China 1,912 0.01 1,894 0.01Others 1,839 0.01 5,941 0.04


Korea ￦ 11,014,917 99.75 ￦ 10,939,331 100.00USA 28,081 0.25 - -

￦ 11,042,998 100.00 ￦ 10,939,331 100.00

(10) Term structure of securities except for stocks and equity investments in available-for-sale and held-to-maturity securities as of December 31,2007 was as follows :

(Unit: In millions)

Due after 1 Due after 5 Due in 1 year year through years through More than

or less 5 years 10 years 10 years TotalAvailable-for-sale securities:

Fair value ￦ 3,388,686 ￦ 8,981,074 ￦ 213,651 ￦ 97,757 ￦ 12,681,168Held-to-maturity securities:

Book value 1,679,184 6,704,311 2,630,804 28,699 11,042,998Fair value ￦ 1,671,746 ￦ 6,505,130 ￦ 2,477,642 ￦ 25,639 ￦ 10,680,157



Term structure of securities except for stocks and equity investments in available-for-sale and held-to-maturity securities as of December 31,2006 was as follows :

(Unit: In millions)

Due after 1 Due after 5 Due in 1 year year through years through More than

or less 5 years 10 years 10 years TotalAvailable-for-sale securities:


Book value 3,211,790 5,276,939 2,450,602 - 10,939,331Fair value ￦ 3,207,704 ￦ 5,229,016 ￦ 2,440,235 ￦ - ￦ 10,876,955

(11) Acquisition of common stocks of Visa Inc.Before October 2007, Visa enterprise consisted of the regional incorporated Visa organizations (i.e. Visa USA, Visa Canada, Visa Europe) andunincorporated Visa International Service Association (i.e. Visa AP, Visa LAC and Visa CEMEA). In October 2007, Visa Inc. was establishedwith the restructuring of the Visa enterprise and is planning to go public through an initial public offering (IPO) in 2008. As a part of Visarestructuring, members of the regional Visa organizations exchanged their respective membership interests for common stock of Visa Inc.

In relation to Visa restructuring, as a member of Visa International Service Association, the Bank received 1,995,930 common shares of Visa Inc.In accordance with the stock exchange agreements, a part of the common shares will be reimbursed in cash at the time of the IPO, and the sale ofthe remaining shares will be restricted for a period of three years.

The Bank considered the acquisition of the common shares of Visa Inc. as an exchange for the existing membership interest. The Bank estimatedthe acquisition cost of the newly acquired common shares based on the financial statements of Visa Inc. since the market value of independentappraisal institutes was not available. Thus, with respect to the transaction, the Bank recorded ￦39,343 million of available-for-sale securities asof December 31, 2007.


(12)Securities accounted for using the equity method as of December 31, 2007 was summarized as follows :

(Unit: In millions)

No. of Owner-ship Acquisition Net asset shares (%) cost value Book value

Domestic stocks:KB Investment Co., Ltd. 8,951,293 99.99 ￦ 155,384 ￦ 104,735 ￦ 104,735KB Futures Co., Ltd. 3,999,200 99.98 19,996 30,117 30,117KB Data System Co., Ltd. 799,960 99.99 8,001 21,059 16,707KB Real Estate Trust 15,999,930 99.99 76,103 116,381 116,411KB Asset Management 6,134,040 80.00 39,015 77,001 77,001KB Credit Information 1,249,040 99.73 14,291 40,416 40,057KB Life Insurance Co., Ltd. 7,140,000 51.00 35,826 25,978 -KLB Securities Co., Ltd. (*1) 4,854,713 36.41 10,316 - -Jooeun Industrial Co., Ltd. (*1) 1,999,910 99.99 23,994 - -ING Life Insurance Korea Co., Ltd. 1,162,200 14.90 75,818 140,914 140,914Balhae Infrastructure Fund (*2) 8,425,031 12.61 85,714 87,135 87,135Korea Credit Bureau Co., Ltd. (*3) 180,000 9.00 4,500 2,836 2,836

548,958 646,572 615,913Foreign stocks:

Kookmin Bank Singapore Ltd. (*1) 30,000,000 100.00 19,468 - 1,629Kookmin Finance Asia Ltd. (HK) (*1) 700,000 100.00 7,489 - 228Kookmin Bank Int'l Ltd. (London) 20,000,000 100.00 36,884 60,966 60,966Kookmin Bank Hong Kong Ltd. 2,000,000 100.00 49,782 76,562 76,562Sorak Financial Holdings PTE Ltd. 1,422,216 25.00 79,216 85,234 85,234

192,839 222,762 224,619Equity investments:

KB06-1 Venture Investment Partnership 200 50.00 10,000 9,779 9,779￦ 751,797 ￦ 879,113 ￦ 850,311



Securities accounted for using the equity method as of December 31, 2006 were summarized as follows :

(Unit: In millions)

No. of Owner-ship Acquisition Net asset shares (%) cost value Book value

Domestic stocks:KB Investment Co., Ltd. 8,951,293 99.99 ￦ 155,384 ￦ 94,443 ￦ 94,443KB Futures Co., Ltd. 3,999,200 99.98 19,996 28,077 28,077KB Data System Co., Ltd. 799,960 99.99 8,001 17,603 14,609KB Real Estate Trust 15,999,930 99.99 76,103 99,539 99,544KB Asset Management 6,134,040 80.00 39,015 65,271 65,271KB Credit Information 1,249,040 99.73 14,291 35,314 34,735KB Life Insurance Co., Ltd. 3,060,000 51.00 15,426 16,271 -KLB Securities Co., Ltd. (*1) 4,854,713 36.41 10,316 - -Jooeun Industrial Co., Ltd. (*1) 1,999,910 99.99 23,994 - -ING Life Insurance Korea Co., Ltd. 1,400,000 20.00 21,769 123,587 123,587Balhae Infrastructure Fund (*2) 4,486,305 12.61 45,126 45,589 45,589Korea Credit Bureau Co., Ltd. (*3) 180,000 9.00 4,500 3,297 3,297

433,921 528,991 509,152Foreign stocks:

Kookmin Bank Singapore Ltd. (*1) 30,000,000 100.00 18,173 - 1,614Kookmin Finance Asia Ltd. (HK) (*1) 700,000 100.00 7,420 - 226Kookmin Bank Int'l Ltd. (London) 20,000,000 100.00 35,900 56,496 56,496Kookmin Bank Hong Kong Ltd. 2,000,000 100.00 49,326 72,130 72,130Sorak Financial Holdings PTE Ltd. 1,422,216 25.00 73,947 87,299 87,299

184,766 215,925 217,765Equity investments:

Pacific IT Investment Partnership (*4) 700 50.00 6,252 1,958 1,958NPC02-4 Kookmin Venture Fund (*4) 70 33.33 7,000 8,204 8,204KB06-1 Venture Investment Partnership 50 50.00 2,500 2,453 2,453

15,752 12,615 12,615￦ 634,439 ￦ 757,531 ￦ 739,532

(*1) KLB Securities Co., Ltd., Jooeun Industrial Co., Ltd., Kookmin Bank Singapore Ltd. and Kookmin Finance Asia, Ltd. are all in the process of liquidation as of December 31, 2007.

(*2) The Bank may exercise its voting right at the board meeting or at an equally significant decision making body of the investee.

(*3) The Bank has significant influence in electing the board member who may participate in the decision making process relating to the financial and business policy of the investee.

(*4) The liquidation of Pacific IT Investment Partnership and NPC02-4 Kookmin Venture Fund has been finalized in 2007.


(13)The valuation of securities accounted for using the equity method for the year ended December 31, 2007 was as follows :

(Unit: In millions)

Book Foreign Equity Other value exchange gain compre- Book before Acquisition trading (loss) on hensive Retained value after

valuation (disposition) Dividend income (loss) investment income (loss) earnings valuationDomestic stocks:

KB Investment Co., Ltd. ￦ 94,443 ￦ - ￦ (2,238) ￦ - ￦13,204 ￦ (674) ￦ - ￦104,735KB Futures Co., Ltd. 28,077 - (1,200) - 3,240 - - 30,117KB Data System Co., Ltd. (*1) 14,609 - (800) - 2,898 - - 16,707KB Real Estate Trust 99,544 - (12,000) - 28,876 (9) - 116,411KB Asset Management 65,271 - (6,134) - 17,789 75 - 77,001KB Credit Information (*2) 34,735 - (187) - 5,509 - - 40,057KB Life Insurance Co., Ltd. (*1 and 3) - 20,400 - - - - (20,400) -KLB Securities Co., Ltd. (*3) - - - - - - - -Jooeun Industrial Co., Ltd. (*3) - - - - - - - -ING Life Insurance Korea Co., Ltd. 123,587 27,914 - - 9,132 (19,719) - 140,914Balhae Infrastructure Fund 45,589 40,588 (1,603) - 2,561 - - 87,135Korea Credit Bureau Co., Ltd. 3,297 - - - (190) (271) - 2,836

509,152 88,902 (24,162) - 83,019 (20,598) (20,400) 615,913Foreign stocks:

Kookmin Bank Singapore Ltd. 1,614 - - 15 - - - 1,629Kookmin Finance Asia Ltd. (HK) 226 - - 2 - - - 228Kookmin Bank Int'l Ltd. (London) 56,496 - - 1,547 3,002 (79) - 60,966Kookmin Bank Hong Kong Ltd. 72,130 - - 668 5,050 (1,286) - 76,562Sorak Financial Holdings PTE Ltd. 87,299 - (3,251) 6,057 6,540 (11,411) - 85,234

217,765 - (3,251) 8,289 14,592 (12,776) - 224,619Equity investments:

Pacific IT Investment Partnership 1,958 (1,958) - - - - - -NPC02-4 Kookmin Venture Fund 8,204 (7,083) (3,443) - 2,263 59 - -KB06-1 Venture Investment Partnership 2,453 7,500 - - (174) - - 9,779

12,615 (1,541) (3,443) - 2,089 59 - 9,779￦739,532 ￦ 87,361 ￦(30,856) ￦ 8,289 ￦99,700 ￦(33,315) ￦(20,400) ￦850,311



The valuation of securities accounted for using the equity method for the year ended December 31, 2006 was as follows :

(Unit: In millions)

Book Foreign Equity Other value currency gain compre- Book before Acquisition translation (loss) on hensive Retained value after

valuation (disposition) Dividend gain (loss) investment income (loss) earnings valuationDomestic stocks:

KB Investment Co., Ltd. ￦ 85,462 ￦ - ￦ (2,238) ￦ - ￦ 10,974 ￦ 245 ￦ - ￦ 94,443KB Futures Co., Ltd. 27,312 - (1,000) - 1,823 (58) - 28,077KB Data System Co., Ltd. (*1) 15,582 - (2,399) - 1,426 - - 14,609KB Real Estate Trust 81,068 - - - 18,337 139 - 99,544KB Asset Management 52,485 - (6,134) - 18,909 11 - 65,271KB Credit Information (*2) 27,837 - (624) - 7,522 - - 34,735KB Life Insurance Co., Ltd.(*1 and 3) - - - - - 1,582 (1,582) -KLB Securities Co., Ltd. (*3) - - - - - - - -Jooeun Industrial Co., Ltd. (*3) - - - - - - - -ING Life Insurance Korea Co., Ltd. 77,529 - - - 31,308 14,750 - 123,587Balhae Infrastructure Fund - 45,126 (11) - 474 - - 45,589Korea Credit Bureau Co., Ltd. - 4,500 - - (1,203) - - 3,297

367,275 49,626 (12,406) - 89,570 16,669 (1,582) 509,152Foreign stocks:

Kookmin Bank Singapore Ltd. 1,759 - - (145) - - - 1,614Kookmin Finance Asia Ltd. (HK) 246 - - (20) - - - 226Kookmin Bank Int'l Ltd. (London) 50,523 - - 2,237 4,262 (526) - 56,496Kookmin Bank Hong Kong Ltd. 69,958 - - (5,760) 8,044 (112) - 72,130Sorak Financial Holdings PTE Ltd. 82,401 - (6,009) (438) 7,065 4,280 - 87,299

204,887 - (6,009) (4,126) 19,371 3,642 - 217,765Equity investments:

KICO No. 2 Venture Investment Partnership 130 (93) - - (37) - - -

KICO No. 3 Venture Investment Partnership 147 (117) - - (30) - - -

Pacific IT Investment Partnership 4,950 (1,496) - - (1,496) - - 1,958NPC02-4 Kookmin Venture Fund 12,128 (3,000) (2,129) - 1,263 (58) - 8,204KB06-1 Venture Investment

Partnership - 2,500 - - (47) - - 2,45317,355 (2,206) (2,129) - (347) (58) - 12,615

￦589,517 ￦ 47,420 ￦ (20,544) ￦ (4,126) ￦108,594 ￦20,253 ￦(1,582) ￦739,532


(*1) The significant unrealized income eliminated for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

Related accounts 2007 2006

KB Data System Co., Ltd. Tangible assets (sales) ￦ 1,390 ￦ 914

KB Life Insurance Co., Ltd. Commissions (deferred acquisition cost) 20,855 3,730

￦ 22,245 ￦ 4,644

(*2) The difference between the cost of the investment and the amount of the underlying equity in the net assets of KB Credit Information amounting to ￦ 1,128 million, which resulted from the

additional purchase of shares in October 2004, is amortized over 5 years using the straight-line method and credited to the gain on valuation of securities accounted for using the equity method. As a

result, ￦ 226 million were credited to current operation for the years ended December 31, 2007 and 2006, respectively, and the balance of the difference amounts to ￦ 394 million and ￦ 620

million as of December 31, 2007 and 2006, respectively.

(*3) The equity method is no longer applied to securities of KLB Securities Co., Ltd. and Jooeun Industrial Co., Ltd. due to accumulated deficit, and to securities of KB Life Insurance Co., Ltd. due to

unrealized income elimination, which led to a decrease in the book value below zero.

The unrecognized accumulated deficit and change due to the equity method as of December 31, 2007 was as follows :

(Unit: In millions)

Deficit Change due to equity method Total

KLB Securities Co., Ltd. ￦ 4,148 ￦ - ￦ 4,148

Jooeun Industrial Co., Ltd. 64,001 - 64,001

KB Life Insurance Co., Ltd. 23,157 14,583 37,740

￦ 91,306 ￦ 14,583 ￦ 105,889

The unrecognized accumulated deficit and change due to the equity method as of December 31, 2006 was as follows :

(Unit: In millions)

Deficit Change due to equity method Total

KLB Securities Co., Ltd. ￦ 4,148 ￦ - ￦ 4,148

Jooeun Industrial Co., Ltd. 72,686 - 72,686

KB Life Insurance Co., Ltd. 27,217 3,436 30,653

￦ 104,051 ￦ 3,436 ￦ 107,487

(14) Significant financial data of companies of which stocks were accounted for using the equity method as of and for the year ended December31, 2007 was as follows :

(Unit: In millions)

Assets Liabilities Sales Net income (loss)KB Investment Co., Ltd. ￦ 107,867 ￦ 3,126 ￦ 22,217 ￦ 13,204KB Futures Co., Ltd. 126,143 96,020 15,184 3,241KB Data System Co., Ltd. 49,116 28,056 79,125 4,257KB Real Estate Trust 259,049 142,668 69,980 28,851KB Asset Management 104,926 8,675 53,527 22,235KB Credit Information 47,620 7,095 59,820 5,304KB Life Insurance Co., Ltd. ￦ 1,166,081 ￦ 1,115,143 ￦ 577,273 ￦ 892

(Continued)



(Unit: In millions)

Assets Liabilities Sales Net income (loss)Jooeun Industrial Co., Ltd. ￦ 81,921 ￦ 145,924 ￦ 194,071 ￦ 9,129ING Life Insurance Korea Co., Ltd. 12,127,088 11,181,360 3,444,537 42,064Balhae Infrastructure Fund 692,375 1,102 24,259 20,319Korea Credit Bureau Co., Ltd. 36,662 5,147 22,671 (2,418)Kookmin Bank Int'l Ltd. (London) 415,878 354,912 27,048 3,002Kookmin Bank Hong Kong Ltd. 397,041 320,479 33,146 5,601Sorak Financial Holdings PTE Ltd. 5,426,808 5,085,873 639,013 26,724KB06-1 Venture Investment Partnership ￦ 19,561 ￦ 3 ￦ 175 ￦ (348)

Audited or reviewed financial statements as of December 31, 2007 were used for the application of the equity method, except for JooeunIndustrial Co., Ltd., Balhae Infrastructure Fund, Korea Credit Bureau Co., Ltd. and KB06-1 Venture Investment Partnership, of whichunaudited financial statements as of December 31, 2007 were used for the application of the equity method, and ING Life Insurance Korea Co.,Ltd. and Sorak Financial Holdings PTE Ltd. of which unaudited financial statements as of November 30, 2007 were used for the application ofthe equity method. The significant events from the closing dates of the investees to that of the Bank were properly reflected in applying theequity method. There was no material exception as a result of analytical review, such as analysis of major accounts to assess reliability of thosefinancial statements.

Significant financial data of companies of which stocks were accounted for using the equity method as of and for the year ended December 31,2006 was as follows :

(Unit: In millions)

Assets Liabilities Sales Net income (loss)KB Investment Co., Ltd. ￦ 96,296 ￦ 1,848 ￦ 20,030 ￦ 10,974KB Futures Co., Ltd. 67,145 39,062 11,487 1,824KB Data System Co., Ltd. 33,471 15,868 67,588 2,277KB Real Estate Trust 206,392 106,853 66,122 18,424KB Asset Management 92,220 10,631 44,826 23,636KB Credit Information 43,938 8,529 71,532 7,329KB Life Insurance Co., Ltd. 700,438 668,535 409,302 4,187Jooeun Industrial Co., Ltd. 110,193 182,882 64,404 2,253ING Life Insurance Korea Co., Ltd. 9,635,249 9,017,312 3,149,367 156,539Balhae Infrastructure Fund 362,440 4,410 6,404 3,765Korea Credit Bureau Co., Ltd. 42,826 6,193 13,963 (5,645)Kookmin Bank Int'l Ltd. (London) 315,938 259,442 20,634 3,736Kookmin Bank Hong Kong Ltd. 395,935 323,805 27,568 7,963Sorak Financial Holdings PTE Ltd. 5,197,633 4,848,437 680,311 33,189Pacific IT Investment Partnership 1,986 28 - (1,496)NPC02-4 Kookmin Venture Fund 24,852 240 5,459 3,790KB06-1 Venture Investment Partnership ￦ 5,067 ￦ 162 ￦ 67 ￦ (95)


Audited or reviewed financial statements as of December 31, 2006 were used for the application of the equity method, except for Pacific ITInvestment Partnership, Balhae Infrastructure Fund, Korea Credit Bureau Co., Ltd. and KB06-1 Venture Investment Partnership of whichunaudited financial statements as of December 31, 2006 were used for the application of the equity method, and ING Life Insurance KoreaCo., Ltd. and Sorak Financial Holdings PTE Ltd., of which unaudited financial statements as of November 30, 2006 were used for theapplication of the equity method. The significant events from the closing dates of the investees to that of the Bank were properly reflected inapplying the equity method. There was no material exception as a result of analytical review, such as analysis of major accounts to assessreliability of those financial statements.

(15) Changes in accumulated other comprehensive income for the year ended December 31, 2007 were as follows :

(Unit: In millions)

Increase DisposalBeginning (Decrease) (Realization) Ending

Gain on valuation of available-for-sale securities:Equity securities ￦ 846,123 ￦ 157,634 ￦ (548,546) ￦ 455,211Debt securities in Won 22,669 (109,321) (4,433) (91,085)Debt securities in foreign currencies 4,010 (9,480) (899) (6,369)Beneficiary certificates 5,050 775 (4,807) 1,018Others 5,704 851 - 6,555

883,556 40,459 (558,685) 365,330Gain on valuation of held-to-maturity securities:

Debt securities in Won 98 - (56) 42Gain (loss) on valuation of securities

accounted for using the equity method 15,888 (23,384) (1,464) (8,960)￦ 899,542 ￦ 17,075 ￦ (560,205) ￦ 356,412

Changes in accumulated other comprehensive income for the year ended December 31, 2006 were as follows :

(Unit: In millions)


Gain on valuation of available-for-sale securities:Equity securities ￦ 454,250 ￦ 470,552 ￦ (78,679) ￦ 846,123Debt securities in Won 32,614 (3,203) (6,742) 22,669 Debt securities in foreign currencies 5,867 1,671 (3,528) 4,010 Beneficiary certificates 16,858 4,894 (16,702) 5,050Others 1,779 3,925 - 5,704

511,368 477,839 (105,651) 883,556Gain on valuation of held-to-maturity securities:

Debt securities in Won 426 - (328) 98Gain on valuation of securities accounted

for using the equity method 948 15,522 (582) 15,888￦ 512,742 ￦ 493,361 ￦ (106,561) ￦ 899,542



(16) Securities provided as collateral as of December 31, 2007 were as follows :

(Unit: In millions)

Provided to Book value Collateral amount Provided forKorea Securities Depository & others ￦ 7,100,192 ￦ 7,150,000 Bonds sold under repurchase agreementsBOK 532,709 540,000 Borrowings from BOKBOK 319,623 332,200 Overdrafts and settlement risk Samsung Futures & others 649,187 664,000 Derivative settlement Others 12 1,628 Other

￦ 8,601,723 ￦ 8,687,828

Securities provided as collateral as of December 31, 2006 were as follows :

(Unit: In millions)

Provided to Book value Collateral amount Provided forKorea Securities Depository & others ￦ 7,070,657 ￦ 7,100,000 Bonds sold under repurchase agreementsBOK 725,902 725,700 Borrowings from BOKBOK 330,294 330,600 Overdrafts and settlement risk Samsung Futures & others 294,760 307,500 Derivative settlement Others 402 1,628 Other

￦ 8,422,015 ￦ 8,465,428

(17) Securities lent as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006 Provided toGovernment and public bonds ￦ 68,609 ￦ 119,614 Korea Securities Depository and othersFinance bonds - 23,671 Korea Securities Depository

￦ 68,609 ￦ 143,285


5. LOANS:(1) Loans as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Call loans ￦ 1,665,800 ￦ 1,247,109Domestic import usance bill 1,710,427 1,256,747Credit card receivables 10,435,991 8,667,740 Bills bought in foreign currencies 1,622,013 1,270,314 Bills bought in Won 152,009 16,587 Bonds purchased under repurchase agreements - 500,000Loans 152,049,279 131,579,881 Factoring receivables 20,638 30,948 Advances for customers 28,695 19,209 Private placed bonds 6,186,180 7,499,208 Loans for debt-equity swap 1,968 1,968

173,873,000 152,089,711Allowance for possible loan losses (2,501,865) (2,360,867)Deferred loan origination fees and costs 178,858 138,338

￦ 171,549,993 ￦ 149,867,182

(2) Loans in Won and loans in foreign currencies as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Loans in Won:

Commercial Working capital loansGeneral purpose loans ￦ 34,401,542 ￦ 27,161,083Notes discounted 1,287,720 697,235Overdraft accounts 376,219 286,724Trading notes 786,364 612,305Others 6,656,691 4,297,074

43,508,536 33,054,421Facilities loans

General facilities loans 11,210,650 5,107,519Others 1,191,002 995,730

12,401,652 6,103,249￦ 55,910,188 ￦ 39,157,670

(Continued)



(Unit: In millions)

2007 2006Households General purpose loans ￦ 47,210,192 ￦ 45,946,145

Housing loans 41,189,639 39,007,176Remunerations on mutual installment savings 88,781 147,672Others 406,234 416,103

88,894,846 85,517,096Public sector Public operation loans 1,430,050 894,178

Public facilities loans 24,450 3,6871,454,500 897,865

Other Property formation loans 702 1,013Others 690 1,173

1,392 2,186146,260,926 125,574,817

Loans in foreign currencies:Domestic funding loans 4,671,798 4,441,975Overseas funding loans 658,087 429,836Inter-bank loans 458,468 1,133,253

5,788,353 6,005,064￦ 152,049,279 ￦ 131,579,881

(3) Loans in Won and loans in foreign currencies, classified by borrower type, as of December 31, 2007 were as follows :

(Unit: In millions)

Loans in foreign By borrower type Loans in Won currencies Total Percentage (%)Large corporations ￦ 6,238,814 ￦ 4,037,145 ￦ 10,275,959 6.76Small and medium corporations 49,671,375 1,553,023 51,224,398 33.69Households 88,896,238 54,302 88,950,540 58.50Others 1,454,499 143,883 1,598,382 1.05

￦ 146,260,926 ￦ 5,788,353 ￦ 152,049,279 100.00


Loans in Won and loans in foreign currencies, classified by borrower type, as of December 31, 2006 were as follows :

(Unit: In millions)

Loans in foreign By borrower type Loans in Won currencies Total Percentage (%)Large corporations ￦ 2,783,921 ￦ 3,795,539 ￦ 6,579,460 5.00Small and medium corporations 36,373,749 758,998 37,132,747 28.22Households 85,519,282 46,069 85,565,351 65.03Others 897,865 1,404,458 2,302,323 1.75

￦ 125,574,817 ￦ 6,005,064 ￦ 131,579,881 100.00

(4) Loans classified by borrower’s country or region as of December 31, 2007 were as follows :

(Unit: In millions)

Loans in foreign

By country Loans in Won currencies Others Total Percentage(%)Korea ￦ 146,260,926 ￦ 5,314,559 ￦ 21,441,992 ￦ 173,017,477 99.51 Southeast Asia - 25,480 - 25,480 0.01 China - 36,552 - 36,552 0.02 Japan - 307,026 86 307,112 0.18 Central and South America - 4,750 3 4,753 0.00USA - 8,359 2,034 10,393 0.01 Others - 91,627 379,606 471,233 0.27

￦ 146,260,926 ￦ 5,788,353 ￦ 21,823,721 ￦ 173,873,000 100.00

Loans classified by borrower’s country or region as of December 31, 2006 were as follows :

(Unit: In millions)

Loans in foreign

By country Loans in Won currencies Others Total Percentage(%)Korea ￦ 125,574,817 ￦ 5,749,511 ￦ 20,430,801 ￦ 151,755,129 99.79Southeast Asia - 25,525 1 25,526 0.02China - 7,019 - 7,019 0.00Japan - 172,447 78 172,525 0.11Central and South America - 4,142 1 4,143 0.00USA - 84 2,438 2,522 0.00Others - 46,336 76,511 122,847 0.08

￦ 125,574,817 ￦ 6,005,064 ￦ 20,509,830 ￦ 152,089,711 100.00



(5) Loans classified by industry as of December 31, 2007 were as follows :

(Unit: In millions)

Loans in foreign

By industry Loans in Won currencies Others Total Percentage(%)Corporations:

Finance and insurance ￦ 1,578,760 ￦ 588,884 ￦ 2,500,193 ￦ 4,667,837 2.69 Manufacturing 14,627,954 2,138,794 4,668,057 21,434,805 12.33 Services 24,477,777 1,855,042 1,616,239 27,949,058 16.07 Others 16,470,984 1,144,938 3,789,517 21,405,439 12.31

Households 88,896,238 54,302 8,962,915 97,913,455 56.31 Public sector 209,213 6,393 286,800 502,406 0.29

￦ 146,260,926 ￦ 5,788,353 ￦ 21,823,721 ￦ 173,873,000 100.00

Loans classified by industry as of December 31, 2006 were as follows :

(Unit: In millions)

Loans in foreign


Finance and insurance ￦ 622,860 ￦ 1,181,085 ￦ 2,727,468 ￦ 4,531,413 2.98Manufacturing 11,148,580 1,624,177 4,371,916 17,144,673 11.27Services 16,337,444 920,649 1,799,334 19,057,427 12.53Others 11,779,703 2,226,334 3,728,378 17,734,415 11.66

Households 85,519,282 46,069 7,504,999 93,070,350 61.20Public sector 166,948 6,750 377,735 551,433 0.36

￦ 125,574,817 ￦ 6,005,064 ￦ 20,509,830 ￦ 152,089,711 100.00

(6) Loans to financial institutions as of December 31, 2007 were as follows :

(Unit: In millions)

Other financial Bank institutions Total

Loans in Won ￦ - ￦ 1,578,760 ￦ 1,578,760Loans in foreign currencies 458,468 130,416 588,884Others 1,739,639 760,554 2,500,193

￦ 2,198,107 ￦ 2,469,730 ￦ 4,667,837


Loans to financial institutions as of December 31, 2006 were as follows :

(Unit: In millions)


Loans in Won ￦ - ￦ 622,860 ￦ 622,860Loans in foreign currencies 1,133,253 47,832 1,181,085Others 1,780,151 947,317 2,727,468

￦ 2,913,404 ￦ 1,618,009 ￦ 4,531,413

(7) The classification of asset quality for loans as of December 31, 2007 is summarized as follows :

(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalCall loans ￦ 1,665,800 ￦ - ￦ - ￦ - ￦ - ￦ 1,665,800Domestic import usance bill 1,682,026 17,315 10,050 407 629 1,710,427 Credit card receivables 10,193,580 152,011 734 46,861 42,805 10,435,991 Bills bought (*) 1,768,121 3,073 144 1,223 1,461 1,774,022 Loans 149,645,593 1,246,799 508,281 432,921 215,685 152,049,279 Factoring receivables 20,638 - - - - 20,638 Advances for customers 673 1,368 20,742 562 5,350 28,695 Privately placed bonds 6,178,619 2,961 2,720 - 1,880 6,186,180 Loans for debt-equity swap - - - 1,968 - 1,968

￦ 171,155,050 ￦ 1,423,527 ￦ 542,671 ￦ 483,942 ￦ 267,810 ￦ 173,873,000

The classification of asset quality for loans as of December 31, 2006 is summarized as follows :

(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalCall loans ￦ 1,247,109 ￦ - ￦ - ￦ - ￦ - ￦ 1,247,109Domestic import usance bill 1,210,010 16,025 26,497 3,126 1,089 1,256,747Credit card receivables 8,341,239 215,089 648 71,227 39,537 8,667,740Bills bought (*) 1,283,897 2,338 283 297 86 1,286,901Bond purchased under

repurchase agreements 500,000 - - - - 500,000Loans 128,711,695 1,484,362 667,689 474,730 241,405 131,579,881Factoring receivables ￦ 30,948 ￦ - ￦ - ￦ - ￦ - ￦ 30,948

(Continued)



(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalAdvances for customers ￦ 133 ￦ 508 ￦ 8,753 ￦ 1,833 ￦ 7,982 ￦ 19,209Privately placed bonds 7,498,067 - 650 - 491 7,499,208Loans for debt-equity swap - - - 1,968 - 1,968

￦ 148,823,098 ￦1,718,322 ￦ 704,520 ￦ 553,181 ￦ 290,590 ￦ 152,089,711(*) Bill bought in Won included

(8) The term structure of loans as of December 31, 2007 was as follows :

(Unit: In millions)

Loans in foreign Loans in Won currencies Others Total

Due in 3 months or less ￦ 15,517,553 ￦ 729,464 ￦ 12,294,291 ￦ 28,541,308Due after 3 months through 6 months 16,554,146 1,034,815 1,657,411 19,246,372 Due after 6 months through 1 year 31,947,618 604,734 2,738,213 35,290,565 Due after 1 year through 2 years 14,196,004 1,326,638 3,331,225 18,853,867 Due after 2 years through 3 years 17,208,889 604,309 780,289 18,593,487 Due after 3 years through 4 years 2,989,649 723,408 635,933 4,348,990 Due after 4 years through 5 years 2,645,414 166,622 57,991 2,870,027 More than 5 years 45,201,653 598,363 328,368 46,128,384

￦ 146,260,926 ￦ 5,788,353 ￦ 21,823,721 ￦ 173,873,000

The term structure of loans as of December 31, 2006 was as follows :

(Unit: In millions)


Due in 3 months or less ￦ 15,122,967 ￦ 1,471,927 ￦ 10,008,593 ￦ 26,603,487Due after 3 months through 6 months 14,837,648 997,738 1,537,897 17,373,283Due after 6 months through 1 year 30,049,634 788,702 2,532,032 33,370,368Due after 1 year through 2 years 10,138,015 346,373 2,654,949 13,139,337Due after 2 years through 3 years 11,764,066 1,172,993 2,498,390 15,435,449Due after 3 years through 4 years 4,847,371 200,535 226,555 5,274,461Due after 4 years through 5 years 2,399,378 647,661 706,345 3,753,384More than 5 years 36,415,738 379,135 345,069 37,139,942

￦ 125,574,817 ￦ 6,005,064 ￦ 20,509,830 ￦ 152,089,711


(9) Disposal of loansThe Bank disposed loans amounting to ￦ 205,789 million of principal to KB 9th Securitization Specialty Co., Ltd., loans amounting to ￦173,846 million of principal to KB 10th Securitization Specialty Co., Ltd. and loans amounting to ￦ 550,000 million of principal to KB Bond1st Securitization Specialty Co., Ltd. and recognized a gain of ￦ 23,112 million, a loss of ￦ 8,468 million and a loss of ￦ 87 million,respectively, for the year ended December 31, 2007. In addition, the Bank disposed written-off loans to Asia Capital, and recognized a gain of ￦4,000 million for the year ended December 31, 2007.

(10) Credit card receivables as collateralThe Bank offers the credit card receivables amounting to ￦ 542,603 million and ￦ 253,591 million (before deducting the allowance) ascollateral for the transaction of credit card receivables to SPC as of December 31, 2007 and 2006, respectively.

(11) The changes in deferred loan origination fees and costs for the year ended December 31, 2007 were as follows :

(Unit: In millions)

Beginning Increase Decrease EndingDeferred loan origination fees and costs ￦ 138,338 ￦ 84,713 ￦ 44,193 ￦ 178,858

6. RESTRUCTURED LOANS:(1) The loans that were restructured by means of principal reduction, debt-equity swap, interest reduction because of workouts for the year

ended December 31, 2007 were as follows :

(Unit: In millions)

Amount before Principal Conversion to Interest Extension restructuring exemption equity securities reduction of maturity

Workout plan ￦ 129,543 ￦ - ￦ 12,691 ￦ 5,094 ￦ 111,758Debt restructuring 1,071 - - - 1,071

￦ 130,614 ￦ - ￦ 12,691 ￦ 5,094 ￦ 112,829

The loans that were restructured by means of principal reduction, debt-equity swap, interest reduction because of workouts for the year endedDecember 31, 2006 were as follows :

(Unit: In millions)


Composition ￦ 6,178 ￦ - ￦ - ￦ - ￦ 6,178Workout plan 236,287 301 4,083 25,374 206,529Debt restructuring 894 - - - 894

￦ 243,359 ￦ 301 ￦ 4,083 ￦ 25,374 ￦ 213,601



(2) Changes in the present value discounts relating to the outstanding restructured loans for the year ended December 31, 2007 were as follows :

(Unit: In millions)

Present value discountsBeginning Ending

Amount balance Addition Deduction balanceCourt receivership ￦ 6,586 ￦ 1,034 ￦ - ￦ 570 ￦ 464Composition 9,885 1,275 558 1,083 750 Workout plan 51,161 6,867 9,117 12,825 3,159 Others 22,312 2,837 28 1,457 1,408

￦ 89,944 ￦ 12,013 ￦ 9,703 ￦ 15,935 ￦ 5,781

Changes in the present value discounts relating to the outstanding restructured loans for the year ended December 31, 2006 were as follows :

(Unit: In millions)


Amount balance Addition Deduction balanceCourt receivership ￦ 9,336 ￦ 2,035 ￦ 1,034 ￦ 2,035 ￦ 1,034Composition 13,143 2,238 1,689 2,652 1,275Workout plan 111,064 11,371 11,206 15,710 6,867Others 32,470 4,371 - 1,534 2,837

￦ 166,013 ￦ 20,015 ￦ 13,929 ￦ 21,931 ￦ 12,013

If the loans are restructured by means of reduction of interest rates, cash flows of fixed rate loans are discounted by effective interest ratesoriginally agreed upon and cash flows of floating rate loans are discounted by interest rates determined by adding a credit risk premium, which iscalculated at the restructuring date, assuming that debtors’ credit at the origination date is effective to the restructuring date, to a benchmarkinterest rate. The difference between the book value and the present value is presented as an allowance for possible loan losses.

7. ALLOWANCE FOR POSSIBLE LOAN LOSSES:(1) The allowance for possible loan losses as of December 31, 2007 is summarized as follows :

(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalDomestic import usance bill ￦ 14,470 ￦ 1,447 ￦ 4,676 ￦ 203 ￦ 629 ￦ 21,425Credit card receivables 152,904 22,802 147 28,116 42,805 246,774 Bills bought (*) 15,137 229 29 750 1,461 17,606 Loans 1,416,806 128,737 106,704 273,135 215,685 2,141,067Factoring receivables ￦ 1,484 ￦ - ￦ - ￦ - ￦ - ￦ 1,484

(Continued)


(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalAdvances for customers ￦ 6 ￦ 96 ￦ 9,297 ￦ 281 ￦ 5,350 ￦ 15,030Privately placed bonds 53,873 214 544 - 1,880 56,511Loans for debt-equity swap - - - 1,968 - 1,968

￦ 1,654,680 ￦ 153,525 ￦ 121,397 ￦ 304,453 ￦ 267,810 ￦ 2,501,865

The allowance for possible loan losses as of December 31, 2006 is summarized as follows :

(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalDomestic import usance bill ￦ 8,470 ￦ 1,653 ￦ 12,677 ￦ 2,977 ￦ 1,089 ￦ 26,866Credit card receivables 129,619 32,263 130 42,736 39,537 244,285Bills bought (*) 8,987 259 57 182 86 9,571Loans 1,146,535 169,033 143,955 307,982 241,405 2,008,910Factoring receivables 2,910 - - - - 2,910Advances for customers 1 36 4,096 1,124 7,982 13,239Privately placed bonds 52,486 - 161 - 491 53,138Loans for debt-equity swap - - - 1,948 - 1,948

￦ 1,349,008 ￦ 203,244 ￦ 161,076 ￦ 356,949 ￦ 290,590 ￦ 2,360,867(*) Bill bought in won included

(2) The changes in allowance for possible loan losses for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Beginning balance (*1) ￦ 2,463,079 ￦ 2,500,777Provision for possible loan losses 533,952 1,009,498Reclassification from other allowances (*2) (174) 304,954Collection of previously written-off loans 530,637 474,278Repurchase of NPLs sold 763 5,897Sales of loans (70,198) (115,222)Loans written-off (822,794) (1,693,468)Exemption of loans (4,691) (4,582)Debt-equity swap (11,037) -Changes in exchange rates and others (3,540) (19,053)Ending balance (*1) ￦ 2,615,997 ￦ 2,463,079

(*1) Allowance for possible loan losses includes present value discounts amounting to ￦5,781 million and ￦12,013 million as of December 31, 2007 and 2006, respectively, and allowances for other

assets amounting to ￦114,132 million and ￦102,212 million, respectively.

(*2) Other allowances for credit lines to Kookmin Card 16th Securitization Specialty Co., Ltd. and FNSTAR 3rd Securitization Special Co., Ltd. amounting to ￦159,888 million and ￦145,066 million,

respectively, were transferred to allowances for possible loan losses for the year ended December 31, 2006.



(3) The allowance for possible losses on other assets as of December 31, 2007 and 2006 are summarized as follows :

(Unit: In millions)

2007 2006Suspense receivable ￦ 6,250 ￦ 7,425Uncollected guarantee deposits for rent 2,745 4,847Settlement costs for financial accident 94,221 87,122Derivative instruments 4,631 2,597Others 6,285 221

￦ 114,132 ￦ 102,212

(4) The allowance for possible loan losses compared to total loans, net of present value discount, is summarized as follows :

(Unit: In millions)

Allowance forLoans possible loan losses Percentage (%)

December 31, 2007 ￦ 173,873,000 ￦ 2,501,865 1.44December 31, 2006 152,089,711 2,360,867 1.55December 31, 2005 ￦ 138,139,657 ￦ 2,453,275 1.78

8. TANGIBLE ASSETS: (1) Tangible assets as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Tangible assets ￦ 3,951,893 ￦ 3,855,268Less: accumulated depreciation (1,636,783) (1,702,001)

accumulated impairment loss (16,367) (15,535)￦ 2,298,743 ￦ 2,137,732


(2) Tangible assets as of December 31, 2007 consisted of :

(Unit: In millions)

Accumulated Accumulated Acquisition cost depreciation impairment losses Book value

Land ￦ 994,544 ￦ - ￦ 6,751 ￦ 987,793Buildings 1,054,106 204,644 9,616 839,846 Leasehold improvements 289,086 217,947 - 71,139 Equipment and vehicles 1,608,012 1,214,192 - 393,820 Construction in progress 6,145 - - 6,145

￦ 3,951,893 ￦ 1,636,783 ￦ 16,367 ￦ 2,298,743

Tangible assets as of December 31, 2006 consisted of :

(Unit: In millions)


Land ￦ 984,270 ￦ - ￦ 7,115 ￦ 977,155Buildings 986,420 181,228 8,420 796,772 Leasehold improvements 233,156 177,676 - 55,480 Equipment and vehicles 1,648,763 1,343,097 - 305,666 Construction in progress 2,659 - - 2,659

￦ 3,855,268 ￦ 1,702,001 ￦ 15,535 ￦ 2,137,732

(3) The changes in book value of tangible assets for the year ended December 31, 2007 were as follows :

(Unit: In millions)

Change inReplace- Deprecia- Impair- foreign

Beginning Acquisition ment Disposal tion ment currencies Ending Land ￦ 977,155 ￦ 16,548 ￦ 2,617 ￦ 7,399 ￦ - ￦ (1,154) ￦ 26 ￦ 987,793Buildings 796,772 12,334 58,056 1,717 22,987 (1,831) (781) 839,846Leasehold improvements 55,480 314 60,796 294 45,174 - 17 71,139Equipment and vehicles 305,666 335,758 - 1,816 245,845 - 57 393,820Construction in progress 2,659 124,955 (121,469) - - - - 6,145

￦ 2,137,732 ￦ 489,909 ￦ - ￦ 11,226 ￦ 314,006 ￦ (2,985) ￦ (681) ￦ 2,298,743



The changes in book value of tangible assets for the year ended December 31, 2006 were as follows :

(Unit: In millions)


Beginning Acquisition ment Disposal tion ment currencies Ending Land ￦ 979,413 ￦ 3,349 ￦ 2,873 ￦ 8,151 ￦ - ￦ (290) ￦ (39) ￦ 977,155Buildings 774,519 5,745 49,422 6,289 22,059 (4,449) (117) 796,772Leasehold improvements 44,363 113 45,504 142 34,337 - (21) 55,480Equipment and vehicles 239,795 254,835 - 22,915 165,986 - (63) 305,666Construction in progress 155 100,303 (97,799) - - - - 2,659

￦ 2,038,245 ￦ 364,345 ￦ - ￦ 37,497 ￦ 222,382 ￦ (4,739) ￦ (240) ￦ 2,137,732

(4) The published value of the land was ￦1,402,681 million and ￦ 1,307,078 million as of December 31, 2007 and 2006, respectively, basedon the Laws on Disclosure of Land Price and Valuation of Land

(5) Tangible assets, which have been insured as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

Type of insurance Asset insured 2007 2006 Insurance companyProperty composite Buildings ￦ 895,795 ￦ 829,507 Samsung Fire & Marine Insurance

Leasehold improvements 153,126 120,043 Co., Ltd. & othersEquipment and vehicles 368,641 196,152

￦ 1,417,562 ￦ 1,145,702

9. OTHER ASSETS: (1) Other assets as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Guarantee deposits paid ￦ 1,303,888 ￦ 1,166,454Accounts receivable 2,064,500 2,145,266Accrued income 1,260,212 1,166,963Prepaid expenses 98,143 79,594Deferred income tax assets (Note 24) 146,491 23,886Derivatives assets (Note 19) 1,652,756 1,260,748Domestic exchange settlement debits 753,523 962,250Intangible assets 337,307 371,312Non-business use assets - 499Less: valuation allowance - (169)Sundry assets 192,501 176,190Less: Allowances for other assets losses (114,132) (102,212)

￦ 7,695,189 ￦ 7,250,781


(2) Intangible assets as of December 31, 2007 consisted of :

(Unit: In millions)

Accumulated Acquisition cost amortization Book value

Goodwill ￦ 705,108 ￦ 483,129 ￦ 221,979Others 195,193 79,865 115,328

￦ 900,301 ￦ 562,994 ￦ 337,307

Intangible assets as of December 31, 2006 consisted of :

(Unit: In millions)


Goodwill ￦ 705,108 ￦ 404,784 ￦ 300,324Others 125,502 54,514 70,988

￦ 830,610 ￦ 459,298 ￦ 371,312

(3) The changes in intangible assets for the year ended December 31, 2007 were as follows :

(Unit: In millions)

Beginning Increase Decrease EndingGoodwill ￦ 300,324 ￦ - ￦ 78,345 ￦ 221,979Others 70,988 80,843 36,503 115,328

￦ 371,312 ￦ 80,843 ￦ 114,848 ￦ 337,307

The changes in intangible assets for the year ended December 31, 2006 were as follows :

(Unit: In millions)

Beginning Increase Decrease EndingGoodwill ￦ 378,669 ￦ - ￦ 78,345 ￦ 300,324Others 19,435 75,199 23,646 70,988

￦ 398,104 ￦ 75,199 ￦ 101,991 ￦ 371,312



(4) Non-business use properties as of December 31, 2006 consisted of :

(Unit: In millions)

Acquisition cost Valuation allowance Book valueNon-business use land ￦ 18 ￦ 12 ￦ 6Non-business use building 481 157 324

￦ 499 ￦ 169 ￦ 330

(5) Sundry assets as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Receivables on cash sent to other banks ￦ 100 ￦ 410Supplies 21,261 18,608 Deposit money to court (*) 16,089 14,883 Unsettled foreign currency 25,672 27,303Suspense receivable 128,780 114,684Others 599 302

￦ 192,501 ￦ 176,190(*) Securities are included in deposit money to court of which book value, face value and fair value are ￦10,299 million, ￦10,587 million and ￦12,818 million, respectively.

10. DEPOSITS:(1) Deposits as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Demand deposits ￦ 47,950,172 ￦ 50,113,689Time deposits 73,290,876 70,326,526Negotiable certificates of deposits 17,617,643 9,579,701

￦ 138,858,691 ￦ 130,019,916


(2) Details of deposits as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Demand deposits in Won:

Checking deposits ￦ 122,495 ￦ 231,953Household checking deposits 373,938 477,770Temporary deposits 3,501,046 4,066,769Passbook deposits 15,531,698 15,176,852Public fund deposits 199,358 199,948National Treasury deposits 4,437 2,641General savings deposits 17,846,651 20,826,726Corporate savings deposits 9,500,554 8,302,353Nonresident’s deposit in Won 50,569 45,343

47,130,746 49,330,355Demand deposits in foreign currencies:

Checking deposits 52,954 43,875 Passbook deposits 761,365 736,034 Temporary deposits 1,514 2,378 Other 3,593 1,047

819,426 783,334 ￦ 47,950,172 ￦ 50,113,689

Time deposits in Won:Time deposits ￦ 61,808,649 ￦ 57,138,595 Installment savings deposits 859,989 1,097,474 Property formation savings 472 541 Workers’ savings for housing 2 2 Time and savings deposits of non-residents in Won 199,675 171,636 Long-term savings deposits for workers 3,294 4,334 Long-term housing savings deposits 3,505,814 3,057,236 Long-term savings for households 2,245 3,711 Workers’ preferential savings deposits 57,760 530,867 Mutual installment deposits 3,038,971 3,833,573 Mutual installment for housing 2,973,114 3,842,727

72,449,985 69,680,696 Loss (gain) on valuation of fair value hedged item (current year portion) (1,427) 3,740 Loss (gain) on valuation of fair value hedged item (prior year portion) 1,607 (2,133)

￦ 72,450,165 ￦ 69,682,303 (Continued)



(Unit: In millions)

2007 2006Time deposits in foreign currencies:

Time deposits ￦ 840,131 ￦ 643,404 Installment savings deposits 445 620 Others 135 199

840,711 644,223￦ 73,290,876 ￦ 70,326,526

Negotiable certificates of deposits ￦ 17,617,643 ￦ 9,579,701

(3) Deposits with financial institutions as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

Financial institutions 2007 2006Demand deposits & time deposits Banks ￦ 3,510,187 ￦ 630,490

Others 6,637,257 3,068,23510,147,444 3,698,725

Negotiable certificates of deposits Banks 147,783 3,935Others 4,930,409 6,304,672

5,078,192 6,308,607￦ 15,225,636 ￦ 10,007,332

(4) Term structure of deposits as of December 31, 2007 was as follows :

(Unit: In millions)

Due after 3 Due after 6 Due after 1 Due in 3 months months year months through 6 through 1 through 3 More than 3 or less months year years years Total

Demand deposits ￦ 47,950,172 ￦ - ￦ - ￦ - ￦ - ￦ 47,950,172Time deposits 25,060,079 12,130,325 27,564,502 5,015,650 3,520,320 73,290,876Negotiable certificate

of deposits 7,123,647 4,370,178 5,742,012 381,806 - 17,617,643￦ 80,133,898 ￦ 16,500,503 ￦ 33,306,514 ￦ 5,397,456 ￦ 3,520,320 ￦ 138,858,691


(Unit: In millions)



of deposits 5,996,076 2,526,968 1,056,503 154 - 9,579,701￦ 80,012,070 ￦ 11,704,701 ￦ 28,126,162 ￦ 6,958,305 ￦ 3,218,678 ￦130,019,916

11. BORROWINGS: (1) Borrowings as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Call money ￦ 814,128 ￦ 165,086Bills sold 506,378 462,479Bonds sold under repurchase agreements 5,916,630 7,053,755Borrowings 8,118,704 6,378,858Debentures 34,960,688 25,140,672Less: Discount on debentures (66,047) (158,166)

￦ 50,250,481 ￦ 39,042,684

(2) Call money as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Annual interest Account Lender rates (%) 2007 2006Call money in Won Seoul Guarantee Insurance and others 4.65~4.93 ￦ 179,700 ￦ 117,700Call money in Export-Import Bank of

foreign currencies Korea and others 0.55~8.87 634,428 47,386￦ 814,128 ￦ 165,086



(3) Bills sold and bonds sold under repurchase agreements as of December 31, 2007 and 2006 consisted of the following :

(Unit: In millions)

Annual interest Account Lender rates (%) 2007 2006Bills sold Teller’s Sales 3.72~5.84 ￦ 506,378 ￦ 462,479Bonds sold under Person, group & corporations

repurchase agreements 3.65~6.50 5,916,630 7,053,755￦ 6,423,008 ￦ 7,516,234

(4) Borrowings as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Annual interest Account Lender rates (%) 2007 2006

Borrowings in Won:Borrowings from the BOK BOK 3.25 ￦ 488,139 ￦ 681,965Borrowings from the Korean Ministry of Finance and

government Economy, and others 0.00~6.50 623,177 557,789Borrowings from banking

institutions Industrial Bank of Korea 3.75~4.59 53,187 76,646Borrowings from National

Housing Fund National Housing Fund 8.00 645 1,222Borrowings from non-

banking financial institutions Korea Development Bank 2.00~4.39 19,238 4,380Other borrowings Small Business Corporation and others 1.20~5.40 1,312,597 1,180,477

2,496,983 2,502,479Borrowings in foreign currency:

Due to Banks Wachovia Bank, N.A and others 0.00~5.35 106,544 56,320Borrowings from banking

institutions DBS Bank Ltd., Singapore and others 0.97~6.97 3,631,048 2,807,267Off-shore borrowings in Overseas-Chinese Banking Corp

foreign currencies and others 4.86~6.71 748,134 152,308Other borrowings from

banking institutions IBRD 5.89 4,123 6,845Other borrowings in foreign

currencies DRESDEFF and others - 1,131,872 853,6395,621,721 3,876,379

￦ 8,118,704 ￦ 6,378,858


(5) Debentures as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Annual interest rate (%) 2007 2006

Debentures in Won:Hybrid debentures 6.00~7.00 ￦ 903,668 ￦ 903,668Structured debentures 4.29~9.20 3,335,635 1,587,701Subordinated fixed rate debentures in Won 4.19~15.02 6,335,762 6,670,799KCC subordinated fixed rate debentures 7.10~8.00 205,000 205,000KCC fixed rate debentures 5.54~5.87 200,000 200,000Fixed rate debentures 3.18~6.85 21,572,939 13,198,004

32,553,004 22,765,172Gain on valuation of fair value hedged items (current year portion) (206,807) (14,544)Gain on valuation of fair value hedged items (prior year portion)(*) (51,419) (40,790)

32,294,778 22,709,838Discounts on debentures (64,147) (158,575)

32,230,631 22,551,263Debentures in foreign currency:

Floating rates debentures 1.00 ~ 6.42 2,665,910 1,964,851Fixed rates debentures - - 475,099

2,665,910 2,439,950Loss on valuation of fair value hedged items (current year portion) - 6,493Gain on valuation of fair value hedged items (prior year portion) - (15,609)

2,665,910 2,430,834Premiums on debentures - 1,771Discounts on debentures (1,900) (1,362)

2,664,010 2,431,243￦ 34,894,641 ￦ 24,982,506

(*) The Bank recognized ￦13,031 million of gain on prior redemption of fair value hedged items for the year ended December 31, 2007.



(6) Hybrid debentures and subordinated debentures as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

Issued date Expiration date Annual interest rate (%) 2007 2006Subordinated fixed rate Feb-98 ~ Aug-01 Feb-03~Aug-07 - ￦ 6,364 ￦ 313,401

debentures in Won Nov-98 Nov-09 15.02 48,900 76,900Nov-00 Nov-10~Dec-10 9.57~9.65 162,051 162,051Jun-01 Mar-08~Mar-09 7.68~7.86 377,529 377,529Sep-01 Mar-08 6.69~6.73 150,000 150,000Mar-02 Jan-08 7.06~7.10 241,684 241,684Jul-02 Jan-08 6.96~7.00 302,399 302,399Sep-02 Mar-08~Mar-13 6.27~6.70 500,000 500,000Nov-02 May-08~May-13 6.07~6.55 558,775 558,775Dec-02 Jan-08 8.00 110,000 110,000Dec-02 Jun-08~Dec-14 6.20~6.65 180,370 180,370Jan-03 Feb-08 7.65 50,000 50,000Mar-03 Apr-08 7.10 45,000 45,000Oct-03 Jan-09~Jan-14 5.18~5.60 449,051 449,051Feb-04 Aug-09~Aug-14 5.65~6.16 700,000 700,000Sep-04 Dec-18 5.12 57,784 57,784Dec-04 Jun-10 4.19~4.20 700,000 700,000Mar-06 Jan-12 5.67~5.70 1,900,855 1,900,855

6,540,762 6,875,799Hybrid debentures Jun-03 Jun-33 6.00 105,145 105,145

Aug-03 Aug-33 7.00 533,355 533,355Oct-03 Oct-33 6.80 265,168 265,168

903,668 903,668￦ 7,444,430 ￦ 7,779,467

(7) Call money and borrowings with financial institutions as of December 31, 2007 were as follows :

(Unit: In millions)

BOK Other banks Others TotalCall money ￦ - ￦ 475,588 ￦ 338,540 ￦ 814,128Borrowings 488,139 5,584,307 81,693 6,154,139

￦ 488,139 ￦ 6,059,895 ￦ 420,233 ￦ 6,968,267


Call money and borrowings with financial institutions as of December 31, 2006 were as follows :

(Unit: In millions)


￦ 681,965 ￦ 3,956,656 ￦ 165,835 ￦ 4,804,456

(8) Term structure of borrowings as of December 31, 2007 was as follows :

(Unit: In millions)

Due after 3 Due after 6 Due in 3 months months Due after 1

months or through 6 through 1 year through More than 3 less months year 3 years years Total

Call money ￦ 814,128 ￦ - ￦ - ￦ - ￦ - ￦ 814,128Bills sold 134,057 12,173 360,148 - - 506,378Bonds sold under

repurchase agreements 3,660,301 939,852 1,316,477 - - 5,916,630Borrowings 2,968,084 1,422,871 1,280,496 1,250,200 1,197,053 8,118,704Debentures 5,202,808 4,481,367 2,137,409 14,640,752 8,498,352 34,960,688

￦ 12,779,378 ￦ 6,856,263 ￦ 5,094,530 ￦15,890,952 ￦ 9,695,405 ￦ 50,316,528

Term structure of borrowings as of December 31, 2006 was as follows :

(Unit: In millions)




repurchase agreements 4,589,657 1,250,944 1,212,944 210 - 7,053,755Borrowings 2,155,505 1,432,150 694,982 1,225,467 870,754 6,378,858Debentures 2,246,140 1,169,430 6,309,297 8,729,425 6,686,380 25,140,672

￦ 9,467,575 ￦ 3,915,793 ￦ 8,305,246 ￦ 9,955,102 ￦ 7,557,134 ￦ 39,200,850



12. OTHER LIABILITIES:Other liabilities as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Accounts payable ￦ 2,630,128 ￦ 2,357,841Accrued expenses 4,413,729 3,876,420Unearned revenues 114,416 87,556Withholding taxes 179,281 114,630Guarantees deposits received 111,723 99,325Accounts for agency business 281,084 151,479Domestic exchange settlement credits 494,487 141,042Foreign currency bills payable 54,797 54,515Agency 363,757 171,024Derivatives liabilities (Note 19) 1,824,727 1,148,033Due to trust accounts (Note 27) 1,427,154 1,281,185Accrued severance benefits (Note 13) 703,261 536,347Less: Severance insurance deposits (471,882) (334,979)Allowance for possible losses on acceptances and guarantees (Note 14) 36,512 18,772Other allowances (Note 15) 745,768 776,661Sundry liabilities (Note 16) 810,163 609,073

￦ 13,719,105 ￦ 11,088,924

13. ACCRUED SEVERANCE BENEFITS:The changes in accrued severance benefits for the year ended December 31, 2007 were as follows :

(Unit: In millions)

OtherBeginning Provision Payment changes (*) Ending

Accrued severance benefits ￦ 536,347 ￦ 191,064 ￦ 24,160 ￦ 10 ￦ 703,261Severance insurance deposits (334,979) (141,386) (4,483) - (471,882)

￦ 201,368 ￦ 49,678 ￦ 19,677 ￦ 10 ￦ 231,379


The changes in accrued severance benefits for the year ended December 31, 2006 were as follows :

(Unit: In millions)


Accrued severance benefits ￦ 387,491 ￦ 165,533 ￦ 16,664 ￦ (13) ￦ 536,347Severance insurance deposits (236,529) (100,218) (1,768) - (334,979)

￦ 150,962 ￦ 65,315 ￦ 14,896 ￦ (13) ￦ 201,368(*) Loss (gain) on foreign currency translation of the accrued severance benefit of the Tokyo branch office.

As of December 31, 2007, part of severance benefits was contributed to pension funds of Kyobo Life Insurance Co., Ltd. and others in which thebeneficiary is a respective employee.

14. ACCEPTANCES AND GUARANTEES AND ALLOWANCES FOR POSSIBLE LOSSES:(1) Acceptances and guarantees as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

Types 2007 2006Confirmed acceptances and guarantees in Won:

Payment guarantee for issuance of debentures ￦ 1,331 ￦ 1,150Payment guarantee for loans 61,274 53,237 Others 2,140,172 894,893

2,202,777 949,280 Confirmed acceptances and guarantees in foreign currencies:

Acceptances on letters of credit 131,766 93,017 Acceptances for letters of guarantee for importers 63,431 56,089 Guarantees for performance of contracts 151,701 76,385 Guarantees for bids 3,186 4,082 Guarantees for borrowings 46,928 36,128 Guarantees for repayment of advances 1,889,250 1,101,403 Others 808,871 387,923

3,095,133 1,755,027 5,297,910 2,704,307

Unconfirmed acceptances and guarantees:Letters of credit 2,651,655 1,266,858 Others 1,292,869 1,037,576

3,944,524 2,304,434 Bills endorsed 63 4,540

￦ 9,242,497 ￦ 5,013,281



(2) Acceptances and guarantees, by customer, as of December 31, 2007 were as follows :

(Unit: In millions)

By customer Confirmed Unconfirmed Bills endorsed Total Percentage (%)Large corporations ￦ 3,851,519 ￦ 2,420,568 ￦ - ￦ 6,272,087 67.86Small and medium corporations 1,367,541 1,489,214 63 2,856,818 30.91Public sector and others 78,850 34,742 - 113,592 1.23

￦ 5,297,910 ￦ 3,944,524 ￦ 63 ￦ 9,242,497 100.00

Acceptances and guarantees, by customer, as of December 31, 2006 were as follows :

(Unit: In millions)

By customer Confirmed Unconfirmed Bills endorsed Total Percentage (%)Large corporations ￦ 1,841,739 ￦ 1,586,005 ￦ 1,213 ￦ 3,428,957 68.40Small and medium corporations 522,820 676,432 3,247 1,202,499 23.99Public sector and others 339,748 41,997 80 381,825 7.61

￦ 2,704,307 ￦ 2,304,434 ￦ 4,540 ￦ 5,013,281 100.00

(3) Acceptances and guarantees, by industry, as of December 31, 2007 were as follows :

(Unit: In millions)

By industry Confirmed Unconfirmed Bills endorsed Total Percentage (%)Public sector ￦ 306 ￦ 155,808 ￦ - ￦ 156,114 1.69Finance 692,748 9,729 - 702,477 7.60Service 655,662 41,679 - 697,341 7.54Manufacturing 2,913,605 3,057,802 - 5,971,407 64.61Others 1,035,589 679,506 63 1,715,158 18.56

￦ 5,297,910 ￦ 3,944,524 ￦ 63 ￦ 9,242,497 100.00

Acceptances and guarantees, by industry, as of December 31, 2006 were as follows :

(Unit: In millions)

By industry Confirmed Unconfirmed Bills endorsed Total Percentage (%)Public sector ￦ 68 ￦ 78,563 ￦ - ￦ 78,631 1.57Finance 343,714 - - 343,714 6.86 Service 393,552 39,330 - 432,882 8.63 Manufacturing 1,593,449 1,723,450 2,623 3,319,522 66.21 Others 373,524 463,091 1,917 838,532 16.73

￦ 2,704,307 ￦ 2,304,434 ￦ 4,540 ￦ 5,013,281 100.00


(4) Acceptances and guarantees, by country, as of December 31, 2007 were as follows :

(Unit: In millions)

By country Confirmed Unconfirmed Bills endorsed Total Percentage(%)Korea ￦ 4,805,158 ￦ 3,944,524 ￦ 63 ￦ 8,749,745 94.67Others 492,752 - - 492,752 5.33

￦ 5,297,910 ￦ 3,944,524 ￦ 63 ￦ 9,242,497 100.00

Acceptances and guarantees, by country, as of December 31, 2006 were as follows :

(Unit: In millions)

By country Confirmed Unconfirmed Bills endorsed Total Percentage(%)Korea ￦ 2,453,216 ￦ 2,304,434 ￦ 4,540 ￦ 4,762,190 94.99Others 251,091 - - 251,091 5.01

￦ 2,704,307 ￦ 2,304,434 ￦ 4,540 ￦ 5,013,281 100.00

(5) Allowance for possible losses on acceptances and guarantees and others as of December 31, 2007 was as follows :

(Unit: In millions)

Confirmed acceptances Unconfirmed and guarantees acceptances

Foreign and Bills Won currencies guarantees endorsed Total

Normal ￦ 2,199,575 ￦ 3,094,283 ￦ 3,935,515 ￦ 63 ￦ 9,229,436Precautionary 2,589 820 6,536 - 9,945Substandard 198 2 2,187 - 2,387Doubtful 415 - 103 - 518Estimated loss - 28 183 - 211

￦ 2,202,777 ￦ 3,095,133 ￦ 3,944,524 ￦ 63 ￦ 9,242,497Allowance for possible losses ￦ 13,525 ￦ 12,862 ￦ 10,124 ￦ 1 ￦ 36,512Ratio (%) 0.61 0.42 0.26 0.90 0.40



Allowance for possible losses on acceptances and guarantees and others as of December 31, 2006 were as follows :

(Unit: In millions)



Normal ￦ 946,453 ￦ 1,746,240 ￦ 2,283,303 ￦ 4,295 ￦ 4,980,291Precautionary 2,446 3,186 7,490 - 13,122Substandard 30 5,586 7,244 40 12,900Doubtful 350 - 434 205 989Estimated loss 1 15 5,963 - 5,979

￦ 949,280 ￦ 1,755,027 ￦ 2,304,434 ￦ 4,540 ￦ 5,013,281Allowance for possible losses ￦ 3,650 ￦ 7,613 ￦ 7,268 ￦ 241 ￦ 18,772Ratio (%) 0.38 0.43 0.32 5.31 0.37

(6) The percentage of allowance for possible losses on acceptances and guarantees and others as of December 31, 2007 and 2006, 2005 was as follows :

(Unit: In millions)

Guarantees and acceptances and others Allowance Percentage (%)

December 31, 2007 ￦ 9,242,497 ￦ 36,512 0.40December 31, 2006 ￦ 5,013,281 ￦ 18,772 0.37December 31, 2005 ￦ 3,772,662 ￦ 10,141 0.27

15. OTHER ALLOWANCES:Other allowances as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Mileage rewards ￦ 100,828 ￦ 89,025KAMCO loans sold (Note 19) - 252Credit commitments to SPC (Note 19) 2,466 3,602Dormant accounts 42,662 27,689Unused credit limit 539,051 566,655Others 60,761 89,438

￦ 745,768 ￦ 776,661

The unused credit limit for other allowances amounts to ￦78,183,377 million and ￦76,832,125 million as of December 31, 2007 and 2006,respectively.


16. SUNDRY LIABILITIES:Sundry liabilities as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Suspense payable ￦ 48,916 ￦ 190,575Borrowings for others’ business 42,644 94,769Prepaid card and debit card liabilities 22,402 20,947Subscription deposits 52,857 71,665Income tax payable 642,311 230,184Others 1,033 933

￦ 810,163 ￦ 609,073

17. SHAREHOLDERS’ EQUITY:(1) Capital stockAs of December 31, 2007 and 2006, the Bank has 1 billion common shares authorized with a par value per share of ￦5,000 and 336,379,116shares (￦1,681,896 million) issued.The Bank’s major shareholders were Euro-Pacific Growth Fund (18,377,910 shares, 5.46 percent) andNational Pension Service (14,951,343 shares, 4.44 percent) as of December 31, 2007.

As a result of the legal consolidation with H&CB, the registered shareholders of both the Bank and H&CB, as of October 31, 2001, received179,775,233 shares and 119,922,229 shares, respectively.The new shares were distributed based on an exchange ratio of one new Bank shareeach for 1.688346 old Bank shares and one new Bank share for one H&CB share. The new shares were listed on the Korea Stock Exchange onNovember 9, 2001.Furthermore, as a result of the merger with Kookmin Credit Co., Ltd., the Bank issued 8,120,431 shares.

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

(2) Capital surplusThe capital surplus as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Paid-in-capital in excess of par value ￦ 5,655,840 ￦ 5,655,840Gain on business combination 397,669 397,669Revaluation increment 177,229 177,229Gain on disposal of treasury stock 27,559 27,559

￦ 6,258,297 ￦ 6,258,297

The gain on business combination was due to the difference between the business combination consideration and the net asset value acquiredfrom the merger with KLB on December 31, 1998.



(3) Retained earnings1) Retained earnings as of December 31, 2007 and 2006 are summarized as follows :

(Unit: In millions)

2007 2006Legal reserve ￦ 1,078,393 ￦ 830,309Voluntary reserve 3,909,225 2,914,325Retained earnings before appropriations 2,753,538 2,470,588

￦ 7,741,156 ￦ 6,215,222

2) Legal reserveThe Korean Banking Law Act 40 requires banks to appropriate at least 10 percent of net income to legal reserve until such reserve equals 100percent of its paid-in capital.This reserve is not available for cash dividends and can only be transferred to capital or can be used to reduce deficit.The Tokyo branch appropriate 10 percent of net income after income tax to legal reserve in accordance with the Japanese Banking Law.

3) Voluntary reserveIn 2002, the Finance Supervisory Service recommended banks to appropriate at least 10 percent of net income after deducting loss carriedforward to reserve for financial structure improvement until simple capital ratio equals 5.5 percent. This reserve can only be used to reduce deficitor be transferred to capital.

(4) Accumulated other comprehensive incomeThe changes in accumulated other comprehensive income for the years ended December 31, 2007 and 2006 are as follows :

(Unit: In millions)

2007Beginning Disposal or Ending

balance Changes realization balanceGain on valuation of available-for-sale securities ￦ 883,556 ￦ 40,459 ￦ (558,685) ￦ 365,330Gain on valuation of held-to-maturity securities 98 - (56) 42Gain (loss) on Valuation of securities

using the equity method 15,888 (23,384) (1,464) (8,960)￦ 899,542 ￦ 17,075 ￦ (560,205) ￦ 356,412


(Unit: In millions)

2006Beginning Disposal or Ending

balance Changes realization balanceGain on valuation of available-for-sale securities ￦ 511,368 ￦ 477,839 ￦ (105,651) ￦ 883,556Gain on valuation of held-to-maturity securities 426 - (328) 98Gain (loss) on Valuation of securities

using the equity method 948 15,522 (582) 15,888￦ 512,742 ￦ 493,361 ￦ (106,561) ￦ 899,542

(5) DividendsThe calculation of dividends for the years ended December 31, 2007 and 2006 was as follows:

2007 2006Issued stocks (shares) 336,379,116 336,379,116Treasury stock (shares) - -Dividend stocks (shares) 336,379,116 336,379,116Dividend rate (%) 49.00 73.00The amount of dividend (Won in million) 824,129 1,227,784Dividend propensity (%) 29.71 49.67Dividend yield ratio (%) 3.55 4.87

18. SHARE-BASED PAYMENT:(1) The Bank granted stock options to employees and executives including the president several times. When the stock options are exercised, theBank has the option to settle either through issuance of new shares or treasury stock, or through payment of cash equivalent to the differencebetween the market price and the exercise price. In accordance with the resolution of the Board of Directors on August 23, 2005, the Bank haschanged the settlement method from issuance of treasury stock to payment of cash equivalent to the difference between the market price and theexercise price only after the remaining treasury stock is issued. Accordingly, the compensation cost of stock options granted before and after theeffective date of SKAS No. 22 (Share-based Payment) was measured using the intrinsic value method in accordance with the Interpretations onFinancial Accounting Standards 39-35 “Accounting for Stock Options,” and the fair value method, respectively. The details of the stock optionsas of December 31, 2007 were as follows :

Grant date Exercise period (years) Granted shares Grant conditionsSeries 2 01.03.15 8 214,975 Offer service: 1 yearSeries 6 01.03.24 6 111,000 Offer service: 3 yearsSeries 7 01.11.16 8 850,000 Offer service: 3 years

(Continued)



Grant date Exercise period (years) Granted shares Grant conditionsSeries 8-1 (*2) 02.03.22 8 132,000 Offer service: 1 year, 3 yearsSeries 8-2 (*3) 02.03.22 8 490,000 Offer service: 1 year, 3 yearsSeries 9 (*3) 02.07.26 8 30,000 Offer service: 3 yearsSeries 10-1 (*2) 03.03.21 8 140,000 Offer service: 3 yearsSeries 10-2 (*3) 03.03.21 8 180,000 Offer service: 3 yearsSeries 11 (*3) 03.08.27 8 30,000 Offer service: 3 yearsSeries 12 (*3) 04.02.09 8 85,000 Offer service: 1 yearSeries 13-1 (*2) 04.03.23 8 20,000 Offer service: 1 yearSeries 13-2(*3) 04.03.23 8 10,000 Offer service: 1 yearSeries 14 (*2,*3) 04.11.01 8 700,000 Offer service: 3 years

Targets to achieve (*5)

Series 15-1 (*2) 05.03.18 8 165,000 Offer service: 3 yearsSeries 15-2 (*3) 05.03.18 8 765,000 Offer service: 3 yearsSeries 16 (*3) 05.04.27 8 15,000 Offer service: 3 yearsSeries 17 (*3) 05.07.22 8 30,000 Offer service: 3 yearsSeries 18 (*3) 05.08.23 8 15,000 Offer service: 3 yearsSeries 19 (*1) 06.03.24 8 940,000 Offer service: 1 year, 2 years, 3 yearsSeries 20 (*1) 06.04.28 8 30,000 Offer service: 3 yearsSeries 21 (*1) 06.10.27 8 20,000 Offer service: 2 yearsSeries 22 (*1) 07.02.08 8 885,000 Offer service: 1 year, 3 yearsSeries 23 (*1) 07.03.23 8 30,000 Offer service: 3 yearsSeries Kookmin Credit

Card -1 (*4) 01.03.22 10 22,146 Offer service: 1 yearSeries Kookmin Credit

Card -2 (*2,*4) 02.03.29 9 9,990 Offer service: 2 yearsStock Grant 07.11.01 3 66,540 Offer service: 3 years


5,986,651(*1) The exercise price is adjusted by the rate of increase in the market value of the major competitors’ stock as of balance sheet dates.

(*2) The exercise price is adjusted by the rate of increase in the average stock price index of the banking industry as of balance sheet dates.

(*3) As the actual number of exercisable granted shares is determined in accordance with the management performance for the contract period of service, the number of granted shares used for the

calculation of compensation cost is computed based on the assumption that the performance result falls into the highest level in the bracket.

(*4) The Bank took over the stock options granted by Kookmin Credit Card Co., Ltd. of which the exercise price and number of shares were adjusted in proportion to the merger ratio.

(*5) 300,000 shares are vested when targeted ROE is accomplished; 200,000 shares vested when targeted BIS ratio is achieved; 200,000 shares vested when targeted return on shareholders’ equity is met.

(*6) 15,860 shares are vested when targeted assets growth rate is accomplished; 15,860 shares vested when targeted ROA is achieved; 31,730 shares vested when targeted Relative TSR is met.


(2) The changes in granted shares and the weighted average exercise price for the year ended December 31, 2007 are follows :

(Unit: In Won and shares)

Remaining Granted shares Exercise period to

Beginning Granted Exercised Expired Ending price maturity (year)Series 2 88,107 - 18,384 - 69,723 ￦ 28,027 1.21Series 6 8,633 - 8,633 - - 25,100 -Series 7 150,000 - 75,000 - 75,000 51,200 1.88 Series 8-1 28,863 - 600 - 28,263 57,100 2.22 Series 8-2 263,565 - 66,734 - 196,831 57,100 2.22 Series 9 23,899 - - - 23,899 58,800 2.57 Series 10-1 43,414 - 3,351 - 40,063 47,360 3.22 Series 10-2 70,993 - - - 70,993 35,500 3.22 Series 11 5,091 - - - 5,091 40,500 3.66 Series 12 75,539 - 21,289 - 54,250 46,100 4.11 Series 13-1 20,000 - - - 20,000 48,650 4.23 Series 13-2 10,000 - 10,000 - - 47,200 -Series 14 700,000 - - 90,000 610,000 50,600 4.84 Series 15-1 135,259 - - 9,897 125,362 59,969 5.22 Series 15-2 580,069 - - 61,875 518,194 46,800 5.22 Series 16 15,000 - - 6,173 8,827 45,700 5.33 Series 17 30,000 - - - 30,000 49,200 5.56 Series 18 15,000 - - 7,788 7,212 53,000 5.65 Series 19 940,000 - - 10,000 930,000 81,718Series 20 30,000 - - - 30,000 85,500 6.33 Series 21 20,000 - - - 20,000 79,700 6.83 Series 22 - 885,000 - - 885,000 77,100 7.11 Series 23 - 30,000 - - 30,000 84,500 7.23 Stock Grant - 66,540 - - 66,540 - 2.84 Series Kookmin

Credit Card -1 22,146 - - - 22,146 71,538 3.22 Series Kookmin

Credit Card -2 9,990 - - - 9,990 129,100 3.24 3,285,568 981,540 203,991 185,733 3,877,384 ￦ 63,663 5.41

The weighted average stock price of the stock option exercised for the year ended December 31, 2007 is ￦82,353.



The changes in granted shares and the weighted average exercise price for the year ended December 31, 2006 are follows :



Beginning Granted Exercised Expired Ending price maturity (year)Series 2 133,695 - 45,588 - 88,107 ￦28,027 2.21Series 4 60,754 - 60,754 - - 27,600 -Series 6 36,726 - 28,093 - 8,633 25,100 0.23Series 7 650,000 - 500,000 - 150,000 51,200 2.88Series 8-1 42,047 - 13,184 - 28,863 57,100 3.22Series 8-2 276,904 - 13,339 - 263,565 57,100 3.22Series 9 23,899 - - - 23,899 58,800 3.57Series 10-1 63,443 - 20,029 - 43,414 46,962 4.22Series 10-2 89,560 - 17,910 657 70,993 35,500 4.22Series 11 5,091 - - - 5,091 40,500 4.66Series 12 75,539 - - - 75,539 46,100 5.11Series 13-1 20,000 - - - 20,000 48,650 5.23Series 13-2 10,000 - - - 10,000 47,200 5.23Series 14 700,000 - - - 700,000 51,000 5.84Series 15-1 165,000 - - 29,741 135,259 59,288 6.22Series 15-2 765,000 - - 184,931 580,069 46,800 6.22Series 16 15,000 - - - 15,000 45,700 6.33Series 17 30,000 - - - 30,000 49,200 6.56Series 18 15,000 - - - 15,000 53,000 6.65Series 19 - 940,000 - - 940,000 80,900 7.23Series 20 - 30,000 - - 30,000 84,600 7.33Series 21 - 20,000 - - 20,000 79,000 7.83Series Kookmin

Credit Card -1 22,146 - - - 22,146 71,538 4.22Series Kookmin

Credit Card -2 9,990 - - - 9,990 129,100 4.243,209,794 990,000 698,897 215,329 3,285,568 ￦65,986 5.77



(3) Series 22 and Series 23 are measured at fair value based on the Black-Scholes Model, and the factors used in determining the fair value are asfollows :

(Unit: In Won)

Expected Stock Exercise stock price Maturity Expected Risk free

Series price price volatility (%) (years) dividend rate (%) Fair valueSeries 22-1

(Director) ￦ 68,600 ￦ 77,100 25.54 4.00 ￦ 5,797 4.31 ￦ 11,844Series 22-2

(Employee) 68,600 77,100 26.07 4.86 6,919 4.32 13,636Series 23 ￦ 68,600 ￦ 84,500 25.12 4.11 ￦ 5,953 4.31 ￦ 9,730

The expected weighted average exercise period was separately estimated for directors and employees in order to reflect the possibility of an earlyexercise. The historical stock price volatility during the respective expected exercise period was applied to the calculation of the expected stockprice volatility and estimated based on the cross volatility of the stock price between the Bank and its competitors in order to adjust the exerciseprice in proportion to the change of the market value of the competitors.

(4) As of December 31, 2007 and 2006, the accrued expenses under the share-based payment amount to ￦38,482 million and ￦42,754million, respectively, and the intrinsic value of the vested share option amount to ￦22,900 million and ￦21,694 million, respectively. Thecompensation cost recorded as selling and administration expense amounts to ￦2,516 million and ￦13,232 million for the years endedDecember 31, 2007 and 2006, respectively.

19. CONTINGENCIES AND COMMITMENTS:(1) The Bank holds written-off loans, of which the claim for borrowers and guarantors have not been terminated, amounting to ￦11,542,448million and ￦12,005,064 million as of December 31, 2007 and 2006, respectively.

(2) As of December 31, 2007, the Bank has reversed allowances of ￦87 million, for losses in relation to the possible future repurchase of loans,which the Bank sold to Korea Asset Management Corporation (“KAMCO”). As of December 31, 2006, the Bank has provided allowances of￦252 million, for losses in relation to the possible future repurchase of loans, which the Bank sold to KAMCO for ￦666 million.

(3) As of December 31, 2007 and 2006, the Bank recorded receivables amounting to ￦1,828,928 million and ￦1,900,684 million,respectively, and payables amounting to ￦1,828,435 million and ￦1,900,506 million, respectively, for unsettled foreign currency spottransactions, respectively.



(4) As of December 31, 2007 and 2006, the Bank has entered into commitments to provide credit line of ￦480,882 million and ￦1,158,800million, respectively, and to purchase commercial papers amounting to ￦1,235,400 million and ￦1,224,200 million, respectively, with severalspecial purpose companies. As of December 31, 2007 and 2006, under these commitments, the Bank extended loans of ￦5,617 million and￦12,497 million, respectively, to the companies and recognized ￦2,466 million and ￦3,602 million, respectively, of expected loss as otherallowance. The Bank has purchased commercial papers of ￦136,700 million as of December 31, 2007, and the Bank has no balance ofcommitment to purchase commercial papers as of December 31, 2006.

(5) The Bank entered into the business cooperation agreements with Citibank and Nonghyup regarding the credit card business. Accordingly,the Bank shares the related revenue from such business operation.

(6) The Bank has filed 95 lawsuits involving aggregate claims of ￦238,347 million and faces 175 lawsuits involving aggregate damages of￦961,479 million, which arose in the normal course of the business and are still pending as of December 31, 2007. The Korea Lottery ServiceInc. (“KLS”) filed a suit against the Bank in relation to the commitment fee (2 cases with aggregate claims of ￦465,434 million)However, thegovernment (lottery fund) will be substantially liable for the damages if the court rules in favor of the plaintiff; thus, it is expected that the suitwould not affect the Bank’s financial position. The government also filed a civil lawsuit against KLS, the accounting firm, the Bank and theirresponsible persons with aggregate claims amounting to ￦320,800 million for the overpayment of lottery service commission fees to KLS. Thislitigation is pending at the first trial as of December 31, 2007. In 2007, at the first trial of the criminal lawsuit, filed by the Korea ProsecutoryAuthorities against the Bank’s employee, the court convicted the Bank’s employee of malpractice. However, it is uncertain that the Bank will beultimately liable for the aforementioned aggregate claims in the civil lawsuit, and a reliable estimate can not be made of the amount of thepotential liabilities as of December 31, 2007.

(7) Hannuri Investment & Securities Co., Ltd. Stock Purchase AgreementThe Bank entered into the stock purchase agreement with J.D.K Investment Co., Inc in order to acquire the shares of Hannuri Investment &Securities Co., Ltd. on November 14, 2007. With the approval of the authorities concerned, the Bank will acquire 9,580,000 shares(shareholding ratio of 95.8 percent) of Hannuri Investment & Securities Co., Ltd. at ￦266,324 million (￦27,800 per share) in March 2008.

(8) The face value of the consumer investment securities amounts to ￦316,429 million and ￦217,754 million as of December 31, 2007 and2006, respectively.

(9) The Bank has been assessed on income tax and others of ￦438,975 million as a consequence of the regular tax audit performed by the SeoulRegional Tax Office from February 7, 2007 to April 19, 2007. The Bank has filed an appeal against the above assessment through proper legalprocedures.


(10) DerivativesThe notional amounts outstanding for derivative contracts as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Type Trading Hedge Total Trading Hedge TotalInterest rate:

Interest rate forwards ￦ - ￦ - ￦ - ￦ 92,960 ￦ - ￦ 92,960Interest rate futures 3,505,978 - 3,505,978 1,470,054 - 1,470,054Interest rate swaps 54,359,227 4,805,938 59,165,165 42,563,389 3,718,967 46,282,356Interest rate options

purchased 160,000 - 160,000 110,000 - 110,000Interest rate options

sold 100,000 - 100,000 300,000 - 300,00058,125,205 4,805,938 62,931,143 44,536,403 3,718,967 48,255,370

Currency:Currency forwards 87,443,884 - 87,443,884 80,949,167 - 80,949,167Currency futures 4,230,709 - 4,230,709 3,237,813 - 3,237,813Currency swaps 13,132,398 - 13,132,398 7,888,681 - 7,888,681Currency options

purchased 3,694,060 - 3,694,060 518,421 - 518,421Currency options sold 2,410,698 - 2,410,698 348,144 - 348,144

110,911,749 - 110,911,749 92,942,226 - 92,942,226Stock:

Stock index futures 49,237 - 49,237 187,454 - 187,454Stock options

purchased 503,022 - 503,022 723,790 - 723,790Stock options sold 744,651 - 744,651 987,929 - 987,929Stock swaps 100,000 - 100,000 8,008 - 8,008

￦ 1,396,910 ￦ - ￦ 1,396,910 ￦ 1,907,181 ￦ - ￦ 1,907,181Other:

Gold index options purchased ￦ 22,961 ￦ - ￦ 22,961 ￦ - ￦ - ￦ -

Gold index optionssold 22,961 - 22,961 - - -

Merchandise forwards 109,626 - 109,626 - - - Merchandise Swaps 468 - 468 - - - Other derivatives 200,000 - 200,000 - - -

356,016 - 356,016 - - -￦ 170,789,880 ￦ 4,805,938 ￦ 175,595,818 ￦ 139,385,810 ￦ 3,718,967 ￦ 143,104,777

(*) For transaction between Won and foreign currencies, unsettled amount of transaction is presented using the basic foreign exchange rate based on the contract amount in foreign currencies. For

transaction between foreign currencies and foreign currencies, unsettled amount is presented using the basic foreign exchange rate based on foreign currencies purchased at balance sheet dates.



The details of derivatives as of December 31, 2007 and the valuation of derivatives for the year ended December 31, 2007 were as follows :

(Unit: In millions)

Gain on valuation (P/L) Loss on valuation (P/L) Gain (loss) on valuation(B/S)Type Trading Hedge Total Trading Hedge Total Assets Liabilities

Interest rate:Interest rate swaps ￦ 308,558 ￦ 4,061 ￦ 312,619 ￦ 376,181 ￦ 212,740 ￦ 588,921 ￦ 389,788 ￦ 637,513Interest rate

options purchased 330 - 330 566 - 566 2,608 - Interest rate

options sold 79 - 79 693 - 693 - 983308,967 4,061 313,028 377,440 212,740 590,180 392,396 638,496

Currency:Currency forwards 773,310 - 773,310 758,470 - 758,470 786,481 808,537Currency swaps 68,094 - 68,094 108,919 - 108,919 289,617 181,702Currency options

purchased 61,037 - 61,037 2,223 - 2,223 51,344 14,103Currency options sold 2,474 - 2,474 21,065 - 21,065 1,915 42,570

904,915 - 904,915 890,677 - 890,677 1,129,357 1,046,912Stock:

Stock options purchased 25,266 - 25,266 36,078 - 36,078 125,116 -

Stock options sold 14,405 - 14,405 27,179 - 27,179 - 133,659Stock swaps 527 - 527 453 - 453 501 501

40,198 - 40,198 63,710 - 63,710 125,617 134,160Other:

Gold index options purchased 184 - 184 128 - 128 1,028 -

Gold index options sold 215 - 215 118 - 118 - 1,028Merchandise forwards 2,059 - 2,059 1,966 - 1,966 2,059 1,966Merchandise swaps 193 - 193 191 - 191 193 191Other derivatives 2,105 - 2,105 1,974 - 1,974 2,106 1,974

4,756 - 4,756 4,377 - 4,377 5,386 5,159￦1,258,836 ￦ 4,061 ￦1,262,897 ￦1,336,204 ￦ 212,740 ￦1,548,944 ￦ 1,652,756 ￦1,824,727


The details of financial derivatives as of December 31, 2006 and the valuation of financial derivatives for the year ended December 31, 2006were as follows :

(Unit: In millions)


Interest rate:Interest rate forwards ￦ 9 ￦ - ￦ 9 ￦ - ￦ - ￦ - ￦ 9 ￦ -Interest rate swaps 118,137 31,517 149,654 178,630 35,828 214,458 174,514 217,850Interest rate options

purchased 856 - 856 604 - 604 2,261 - Interest rate options sold 1,086 - 1,086 30 - 30 - 675

120,088 31,517 151,605 179,264 35,828 215,092 176,784 218,525Currency:

Currency forwards 529,587 - 529,587 651,899 - 651,899 537,474 667,386Currency swaps 233,340 - 233,340 128,390 - 128,390 427,425 210,503Currency options

purchased 1,756 - 1,756 1,717 - 1,717 1,912 3,882Currency options sold 1,189 - 1,189 1,005 - 1,005 357 1,806

765,872 - 765,872 783,011 - 783,011 967,168 883,577Stock:

Stock options purchased 10,004 - 10,004 3,983 - 3,983 116,784 -Stock options sold 7,915 - 7,915 13,657 - 13,657 - 45,919Stock swaps 91 - 91 79 - 79 12 12

18,010 - 18,010 17,719 - 17,719 116,796 45,931￦903,970 ￦ 31,517 ￦935,487 ￦979,994 ￦ 35,828 ￦1,015,822 ￦ 1,260,748 ￦1,148,033

The Bank uses various derivative instruments for its trading activities, including interest rate and foreign exchange swaps, futures, forwards andoptions, to manage the interest rate characteristics of certain assets or liabilities and to economically hedge against the effects of fluctuations ininterest rates or foreign exchange rates.

The Bank holds derivative instruments accounted for as fair value hedges applied to subordinated bonds, structured bonds and structureddeposits. The Bank recognized ￦212,295 million and ￦35,828 million of gains and ￦4,061 million and ￦31,517 million of losses onvaluation of fair value hedged items for the years ended December 31, 2007 and 2006, respectively. In addition, the interest rate swap covers thefair value changes of the hedged items resulted from the fluctuation in interest rate. The difference of the valuation between the interest rate swapdesignated as the fair value hedging instrument and the structured bond, the hedged item, is ￦445 million for the year ended December 31,2007.



(11) The Bank purchased synthetic Collateralized Default Obligation (CDO) with embedded Credit Default Swap (CDS) for the purpose ofearning income such as commission income as of December 31, 2007. The details of synthetic CDO as of December 31, 2007 are as follows :

(Unit: In USD thousands)

Counterparty Date of contract Date of maturity Amount Reference EntityBNP Paribas 2006.08.24 2013.12.20 10,000 143 Global BondsUBS 2007.07.23 2017.06.20 10,000 109 Global Bonds

The Bank could receive less than par and incur loss in relation to the purchase of the synthetic CDO in case of credit events such as the default ofthe reference entity.

The details of the credit default swap as of December 31, 2007 were as follows :

(Unit: Won in millions)

Counterparty Date of contract Date of maturity Amount Reference EntityKorea Development Bank 2007.11.23 2009.09.20 3,000 Korea large corporations

Loss can be incurred in relation to the sale of the credit default swap in case of the credit events such as the default of the reference entity.

20. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES:Significant assets and liabilities denominated in foreign currencies as of December 31, 2007 and 2006 were as follows:

2007 2006

USD KRW USD KRWequivalent equivalent equivalent equivalent

(In thousands) (In millions) (In thousands) (In millions)Assets:

Foreign currencies US$ 201,942 ￦ 189,463 US$ 162,872 ￦ 151,406Due from banks in foreign currencies 173,234 162,529 517,050 480,649Securities in foreign currencies 1,279,895 1,200,798 891,936 829,144Loans in foreign currencies (*) 7,992,732 7,498,780 7,811,759 7,261,811Bills bought in foreign currencies 1,728,857 1,622,013 1,366,517 1,270,314Call loans in foreign currencies 411,213 385,800 195,685 181,909

Liabilities:Deposits in foreign currencies US$ 1,769,490 ￦ 1,660,137 US$ 1,535,668 ￦ 1,427,557Borrowings in foreign currencies 5,992,029 5,621,721 4,169,943 3,876,379Call money in foreign currencies 676,219 634,428 50,975 47,386Debentures in foreign currencies 2,841,516 2,665,910 2,614,924 2,430,834Foreign currency bills payable 58,407 54,797 58,643 54,515

(*) Domestic import usance bill included.

Foreign currencies other than U.S. dollars were translated into U.S. dollars at the basic rates of exchange at balance sheet dates.


21. INTEREST REVENUE AND EXPENSES:The average balance of the interest bearing assets and liabilities, and the related interest revenue and expenses as of and for the years endedDecember 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Average Interest revenue Interest rate Average Interest revenue Interest rate balance /expense (%) balance /expense (%)

Interest revenueDue from banks(*) ￦ 350,602 ￦ 13,007 3.71 ￦ 677,666 ￦ 27,973 4.13Securities 28,455,563 1,440,186 5.06 28,573,543 1,350,320 4.73Loans 161,678,112 12,146,901 7.51 143,416,597 10,652,569 7.43

￦190,484,277 ￦ 13,600,094 7.14 ￦172,667,806 ￦ 12,030,862 6.97

(Unit: In millions)

2007 2006Average Interest revenue Interest rate Average Interest revenue Interest rate balance /expense (%) balance /expense (%)

Interest expenseDeposits ￦130,751,328 ￦ 4,144,124 3.17 ￦124,932,357 ￦ 3,433,480 2.75Borrowings 47,096,377 2,449,474 5.20 37,667,436 1,796,009 4.77

￦177,847,705 ￦ 6,593,598 3.71 ￦162,599,793 ￦ 5,229,489 3.22(*)Excluding the average balance of reserve deposits with BOK

22. GENERAL AND ADMINISTRATIVE EXPENSES:(1) General and administrative expenses for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Salaries ￦ 1,620,826 ￦ 1,433,569Provision for severance benefits (Note 13) 191,064 165,533 Severance benefits for voluntary resignation 8,735 13,041 Other employee benefits 518,982 473,416 Rent expenses 124,179 90,770 Depreciation 314,006 222,382 Amortization 108,720 101,991 Taxes and dues 141,730 128,619 Advertising 113,579 118,866 Development expenses 159,843 137,579 Others 391,590 339,389

￦ 3,693,254 ￦ 3,225,155



(2) Other general and administrative expenses for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Communication ￦ 50,657 ￦ 44,169Electricity and utilities 18,166 17,271Publication 24,076 21,906Repairs maintenance 18,583 17,379Vehicle 28,809 27,630Travel 5,680 4,541Training 34,456 25,832Service fees 91,320 79,943Others 119,843 100,718

￦ 391,590 ￦ 339,389

23. NON-OPERATING REVENUE AND EXPENSES:Non-operating revenue and expenses for the years ended December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Non-operating revenue:

Gain on valuation of securities accounted for using the equity method ￦ 100,064 ￦ 111,407Gain on disposal of securities accounted for using the equity method 161,145 1,764Gain on disposal of tangible assets 10,504 10,470Reversal of tangible assets impairment loss 109 841 Rental income 3,253 3,338 Others 169,824 238,473

￦ 444,899 ￦ 366,293Non-operating expenses:

Loss on valuation of securities accounted for using the equity method ￦ 364 ￦ 2,813Loss on disposal of securities accounted for using the equity method 783 -Loss on disposal of tangible assets 1,598 2,686Impairment loss on tangible assets 3,094 5,580Others 142,576 152,602

￦ 148,415 ￦ 163,681


24. INCOME TAX EXPENSE:(1) The differences between pretax accounting income and taxable income pursuant to Korean Corporate Income Tax Law for the years endedDecember 31, 2007 and 2006are summarized as follows :

(Unit: In millions)

2007 2006Income before income tax ￦ 4,529,870 ￦ 3,407,595Taxable and non-deductible items:

Temporary difference ￦ 2,542,827 ￦ 1,650,033Permanent difference 515,843 3,058,670 1,272,701 2,922,734

Deductible and non-taxable items: Temporary difference (2,056,002) (2,617,995)Permanent difference ￦ (1,261,684) (3,317,686) ￦ (651,176) (3,269,171)

Taxable income ￦ 4,270,854 ￦ 3,061,158

(2) Reconciliation items between accounting income and taxable income pursuant to the Corporate Income Tax Law of Korea for the yearsended December 31, 2007 and 2006 are as follows :

(Unit: In millions)

2007 2006Temporary Permanent Temporary Permanent

Accounts difference difference difference differenceTaxable and non-deductible items:

Loss (gain) on fair value hedges ￦ 62,843 ￦ - ￦ 58,096 ￦ -Other allowances 745,768 - 776,661 -Accrued interest 431,301 - 349,024 -Tangible asset impairment losses 16,366 - 15,535 -Deferred loan organization fee and cost 138,338 - 52,025 -Interest on ELD ￦ 11,295 ￦ - ￦ 13,936 ￦ -Stock options 38,301 - 42,754 -Allowance for possible losses

on acceptances and guarantees 36,512 - 18,772 -Loss (gain) on valuation ofderivatives 217,187 - 94,654 -Goodwill 78,345 - 78,345 -Present value discount 1,292 - 1,370 -Dividends from SPC 14,202 - 17,373 -Others 751,077 515,843 131,488 1,272,701

￦ 2,542,827 ￦ 515,843 ￦ 1,650,033 ￦ 1,272,701(Continued)



(Unit: In millions)

2007 2006Temporary Permanent Temporary Permanent

Accounts difference difference difference differenceDeductible and non-taxable items:

Loss (gain) on fair value hedges ￦ 258,177 ￦ - ￦ 62,843 ￦ -Other allowances 776,661 - 875,835 -Allowance for loan losses - - 37,626 -Accrued interest 475,473 - 431,301 -Tangible asset impairment losses 15,535 - 11,466 -Deferred loan organization fee and cost 178,858 - 126,531 -Interest on ELD 15,732 - 25,737 -Stock options 42,754 - 46,905 -Allowance for possible losses on

acceptances and guarantees 18,772 - 10,141 -Loss (gain) on valuation ofderivatives 38,403 - 5,512 -Present value discount 1,370 - 1,713 -Dividends from SPC 259 - 89,177 -Others 234,008 1,261,684 893,208 651,176

￦ 2,056,002 ￦ 1,261,684 ￦ 2,617,995 ￦ 651,176

(3) Changes in cumulative temporary differences for the years ended December 31, 2007 and 2006, and deferred income tax assets (liabilities) asof December 31, 2007 and 2006 are as follows :

(Unit: In millions)

2007Beginning balance (*1) Deduction Addition Ending balance

(Deductible temporary differences)Other allowances ￦ 801,451 ￦ 776,661 ￦ 745,768 ￦ 770,558Allowance for loan losses 276 - - 276Tangible asset impairment losses 15,535 15,535 16,366 16,366Interest on ELD 19,307 15,732 11,295 14,870Stock options 42,754 42,754 38,301 38,301Allowance for possible losses on

acceptances and guarantees 18,772 18,772 36,512 36,512Loss (gain) on valuation ofderivatives 38,403 38,403 217,187 217,187Present value discount 1,370 1,370 1,292 1,292Dividends from SPC ￦ 205,255 ￦ 259 ￦ 5,828 ￦ 210,824

(Continued)


(Unit: In millions)


Allowance for repurchase SPC ￦ 80,204 ￦ - ￦ - ￦ 80,204Others 181,650 33,254 726,145 874,541

￦ 1,404,977 ￦ 942,740 ￦ 1,798,694 ￦ 2,260,931The exclusion of deferred income tax assets (*2):

Other allowances ￦ 7,238 ￦ 512Dividends from SPC 205,255 210,824Allowance for repurchase SPC 80,204 80,204Others 72,556 80,105

1,039,724 1,889,286Statutory tax rate 27.5% 27.5%Deferred income tax assets 285,924 519,554(Taxable temporary differences)

Loss (gain) on fair value hedges (62,843) ￦ (62,843) ￦ (258,177) (258,177)Accrued interest (431,301) (431,301) (475,473) (475,473)Deferred loan organization fee and cost (138,338) (138,338) (178,858) (178,858)Goodwill (300,324) (78,345) - (221,979)Dividends from SPC (8,374) (8,374) - -Others (350,727) (24,932) (200,754) (526,549)

(1,291,907) ￦ (744,133) ￦ (1,113,262) (1,661,036)The exclusion of deferred income tax liabilities:

Goodwill (300,324) (221,979)Others (72,406) (82,464)

(919,177) (1,356,593)Statutory tax rate 27.5% 27.5%Deferred income tax liabilities (252,774) (373,063)Net deferred income tax assets ￦ 33,150 ￦ 146,491

(*1) The adjustment based on the final tax return was reflected in the beginning deferred income tax assets.

(*2) As ofDecember 31, 2007, other allowances of ￦512 million, dividends from SPC of ￦210,824 million, allowances for repurchase SPC of ￦80,204 million and other (equity method) of ￦80,105

million in deductible temporary differences are not recoverable in the future; therefore, these were not recognized as deferred tax assets.



(Unit: In millions)


(Deductible temporary differences)Other allowances ￦ 900,625 ￦ 875,835 ￦ 776,661 ￦ 801,451Allowance for loan losses 37,626 37,626 - -Tangible asset impairment losses 11,466 11,466 15,535 15,535Interest on ELD 31,108 25,737 13,936 19,307Stock options 46,905 46,905 42,754 42,754Allowance for possible losses on

acceptances and guarantees 10,141 10,141 18,772 18,772Present value discount 1,713 1,713 1,370 1,370Dividends from SPC 268,685 80,803 17,373 205,255Allowance for repurchase SPC 80,204 - - 80,204Others 396,882 59,697 128,360 465,545

￦ 1,785,355 ￦ 1,149,923 ￦ 1,014,761 ￦ 1,650,193The exclusion of deferred income tax assets(*2):

Other allowances ￦ - ￦ 7,238Dividends from SPC 268,685 205,255Allowance for repurchase SPC 80,204 80,204Others 57,611 72,556

1,378,855 1,284,940Statutory tax rate 27.5% 27.5%Deferred income tax assets 379,185 353,359(Taxable temporary differences)

Loss (gain) on fair value hedges (58,096) ￦ (58,096) ￦ (62,843) (62,843)Accrued interest (349,024) (349,024) (431,301) (431,301)Deferred loan organization fee and cost (52,025) (52,025) (126,531) (126,531)Loss (gain) on valuation ofderivatives (94,654) (94,654) (5,512) (5,512)Goodwill (378,669) (78,345) - (300,324)Dividends from SPC - - (8,374) (8,374)Others 194,453 425,084 (405,299) (635,930)

(738,015) ￦ (207,060) ￦ (1,039,860) (1,570,815)The exclusion of deferred income tax liabilities:

Goodwill (378,669) (300,324)Others (44,567) (72,406)

(314,779) (1,198,085)Statutory tax rate 27.5% 27.5%Deferred income tax liabilities (86,564) (329,473)Net deferred income tax assets ￦ 292,621 ￦ 23,886

(*1) The adjustment based on the final tax return was reflected in the beginning deferred income tax assets.(*2) As of December 31, 2007, other allowances of ￦7,238 million , dividends from SPC of ￦205,255 million, allowances for repurchase SPC of ￦80,204 million and other (equity method) of￦72,556 million in deductible temporary differences are not recoverable in the future; therefore, these were not recognized as deferred tax assets.


(4) Income tax payable and income tax refund receivable as ofDecember 31, 2007 and 2006 are as follows :

(Unit: In millions)

2007 2006Income tax refund receivable ￦ 533,838 ￦ 617,690Income tax payable 1,174,141 845,887Net income tax payable (Note 16)(*) ￦ 640,303 ￦ 228,197

(*) Income tax payable of ￦ 2,008 million and ￦1,987 million as of December 31, 2007 and 2006, respectively, are due to overseas branch and others. Therefore, these are not eligible for set-off to

income tax refund receivable.

(5) Income tax expense for the year ended December 31, 2007 and 2006 is summarized as follows :

(Unit: In millions)

2007 2006Income tax currently payable(*) ￦ 1,660,237 ￦ 829,396Changes in deferred tax assets (113,341) 268,735Income tax expense of overseas branch 4,878 4,752Total income tax effect 1,551,774 1,102,883Income tax expense or benefit allocated directly to shareholder’s equity 204,253 (167,399)

￦ 1,756,027 ￦ 935,484(*) Income tax currently payable include additional income taxes payable of ￦486,315 million and ￦3,221 million, and income tax refund receivable of ￦219 million and ￦19,712 million as of

December 31, 2007 and 2006, respectively.

(6) The statutory income tax rates applicable to the Bank, including resident tax surcharges, are 27.5 percent for the years ended December 31,2007 and 2006, respectively. However, due to tax adjustments, the effective tax rates for the years ended December 31, 2007 and 2006 are 38.77percent and 27.45 percent, respectively.

25. EARNINGS PER SHARE:(1) Basic net income per share Basic net income per share were calculated for common stock by dividing net income available to common shareholders by the weighted averagenumber of outstanding common stock.



Net income per share for common stock for the years ended December 31, 2007 and 2006 was computed as follows: 1) Outstanding capital stock for the years ended December 31, 2007 and 2006 were as follows:

2007 2006Number of shares Number of shares

Number of shares x number of days Number of shares x number of daysNumber of common shares

outstanding-beginning balance 336,379,116 122,778,377,340 336,379,116 122,778,377,340Number of treasury stock

outstanding-beginning balance - - (217,935) (79,546,275)Sale of treasury stock - - 217,935 77,348,731

336,379,116 122,778,377,340 336,379,116 122,776,179,796

Weighted average number of common shares outstanding (2007):122,778,377,340 ÷ 365 days = 336,379,116 shares

Weighted average number of common shares outstanding (2006):122,776,179,796÷ 365 days = 336,373,095 shares

2) The basic net income per share for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In Won)

2007 2006Net income ￦ 2,773,843,133,424 ￦ 2,472,111,192,678Weighted average number of common shares outstanding 336,379,116 336,373,095Net income per share ￦ 8,246 ￦ 7,349

(2) Diluted net income per shareDiluted net income for the years ended December 31, 2007 and 2006 represent diluted net income divided by the number of common sharesand diluted securities.Diluted net income per share for the years ended December 31, 2007 and 2006 was computed as follows :

(Unit: In Won)

2007 2006Diluted net income ￦ 2,773,843,133,424 ￦ 2,472,111,192,678Weighted average number of common shares

outstanding and diluted securities (*) 337,132,891 336,375,518Diluted net income per share ￦ 8,228 ￦ 7,349

(*) The fair value of the service to be received has been reflected in the exercise price in calculating the diluted shares. The diluted shares included in the outstanding common shares are 753,775 shares and

2,423 shares as of December 31, 2007 and 2006, respectively.


26. COMPREHENSIVE INCOME:Comprehensive income for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Net income ￦ 2,773,843 ￦ 2,472,111Other comprehensive income:

Gain (loss) on valuation of available-for-sale securities (518,226) 372,188Loss on valuation of held-to-maturity securities (56) (328) Gain (loss) on valuation of securities using the equity method (24,848) 14,940

￦ 2,230,713 ￦ 2,858,911

27. TRUST ACCOUNTS:(1) Major financial information related to the trust accounts as of and for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Operating revenue of trust operation:

Trust fees and commissions from trust accounts ￦ 93,406 ￦ 97,141Commissions from early redemption in trust accounts 21 19

￦ 93,427 ￦ 97,160Operating expenses of trust operation:

Accrued interest on trust accounts ￦ 73,746 ￦ 48,231Assets:

Accrued receivable trust fees ￦ 86,063 ￦ 81,650Liabilities:

Due to trust accounts ￦ 1,427,154 ￦ 1,281,185Accrued interest on trust accounts 3,048 3,017

￦ 1,430,202 ￦ 1,284,202



(2) As of December 31, 2007 and 2006, trust accounts for which the Bank provided the guarantees for a fixed rate of return and/or therepayment of principal consisted of following :

(Unit: In millions)

2007 2006Name of fund Book value Fair value Book value Fair value

Trust accounts guaranteeing the repayment of principal: Old age pension (*1 & 2) ￦ 10,231 ￦ 10,164 ￦ 13,331 ￦ 13,305

Personal pension (*1 & 2) 2,244,478 2,185,306 2,256,483 2,230,879Pension trust 556,333 556,333 463,785 463,785Retirement trust 456,460 456,460 512,951 512,951New personal pension 68,092 68,092 68,648 68,648New old age pension 50,569 50,569 100,176 100,176

3,386,163 3,326,924 3,415,374 3,389,744Trust accounts guaranteeing

a fixed rate of return and Development money trust (*1) 73,427 73,440 70,464 70,478the repayment of principal: Unspecified monetary trust (*1) 151 151 153 153

73,578 73,591 70,617 70,631￦ 3,459,741 ￦ 3,400,515 ￦ 3,485,991 ￦ 3,460,375

(*1) These funds were not stated at fair value but at book value.

(*2) The book value is greater than the fair value, but the Bank is not obligated to pay the difference since these are yield-based dividend instruments.

28. SEGMENT INFORMATION:(1) As of December 31, 2007 and 2006, the Bank’s operating segments are consumer banking, corporate banking, credit card operation, treasuryoperation of investment in securities (including derivatives) and funding, and other operations of general administration and trust. Geographicalsegment are segregated into two segments: domestic and overseas operations.

As of and for the year ended December 31, 2007, financial information on the Bank’s operating segments was as follows :

(Unit: In millions)

Consumer Corporate Credit card Capital market Other TotalSecurities ￦ - ￦ 15,179 ￦ 127,866 ￦ 27,845,957 ￦ 2,788,357 ￦ 30,777,359Loans 87,650,627 72,497,327 9,140,764 2,088,198 173,077 171,549,993Operating income

before provision ￦ 1,958,694 ￦ 1,024,232 ￦ 763,786 ￦ (21,538) ￦ 1,132,756 ￦ 4,857,930


As of and for the year ended December 31, 2006, financial information on the Bank’s operating segments was as follows :

(Unit: In millions)

Consumer Corporate Credit card Capital market Other TotalSecurities ￦ - ￦ 222,892 ￦ 84,156 ￦ 25,946,509 ￦ 3,128,923 ￦ 29,382,480Loans 84,258,294 55,001,230 7,608,708 2,872,625 126,325 149,867,182Operating income

before provision ￦ 2,075,623 ￦ 860,563 ￦ 997,825 ￦ 18,116 ￦ 528,418 ￦ 4,480,545

(2) Financial information on the Bank’s geographical segments as of and for the year ended December 31, 2007 was as follows :

(Unit: In millions)

Domestic Overseas TotalSecurities ￦ 30,763,051 ￦ 14,308 ￦ 30,777,359Loans 170,905,003 644,990 171,549,993Operating income before provision ￦ 4,842,362 ￦ 15,568 ￦ 4,857,930

Financial information on the Bank’s geographical segments as of and for the year ended December 31, 2006 was as follows :

(Unit: In millions)

Domestic Overseas TotalSecurities ￦ 29,382,480 ￦ - ￦ 29,382,480Loans 149,481,281 385,901 149,867,182Operating income before provision ￦ 4,464,429 ￦ 16,116 ￦ 4,480,545

29. RELATED PARTY TRANSACTIONS:(1) The subsidiaries of the Bank as of December 31, 2007 and 2006 were as follows:

2007 2006Domestic Subsidiaries KB Investment Co., Ltd. KB Investment Co., Ltd.

KB Futures Co., Ltd. KB Futures Co., Ltd.KB Data System Co., Ltd. KB Data System Co., Ltd.KB Asset Management Co., Ltd. KB Asset Management Co., Ltd.KB Real Estate Trust Co., Ltd. KB Real Estate Trust Co., Ltd.KB Credit Information Co., Ltd. KB Credit Information Co., Ltd.KB Life Insurance Co., Ltd. KB Life Insurance Co., Ltd.

NPC 02-4 Kookmin Venture Fund(*)

Overseas Subsidiaries Kookmin Bank International Ltd. (London) Kookmin Bank International Ltd. (London)Kookmin Bank Hong Kong Ltd. Kookmin Bank Hong Kong Ltd.

(*) Excluded from consolidated subsidiaries due to the beginning of liquidation on April 1, 2007 and it has been finalized on September 21, 2007.



(2) The various employee benefits for the major directors for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Short-term Short-termemployee Stock employee Stock

benefits (*) option Total benefits (*) option TotalRegistered officers

(Standing) ￦ 4,291 ￦ (50) ￦ 4,241 ￦ 3,968 ￦ 6,220 ￦ 10,188Registered officers

(Non-Standing) 624 24 648 575 533 1,108￦ 4,915 ￦ (26) ￦ 4,889 ￦ 4,543 ￦ 6,753 ￦ 11,296

(*) Short-term employee benefits are based on the actual payment.

(**) The key management includes Registered officers who have authorities and responsibilities for decision-making of the business plan, operations and control over the Bank.

(3) Significant balances with related parties as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007Assets Allowance Liabilities

Subsidiaries:Trust accounts (trust accounts guaranteed a fixed rate

of return and/or the repayment of principal) (*) ￦ 71,996 ￦ - ￦ 288,305KB Investment Co., Ltd. 1,410 12 163KB Futures Co., Ltd. 153 - 9,388KB Data System Co., Ltd. 61 - 28,892KB Asset Management Co., Ltd. 108 - 87,839KB Real Estate Trust Co., Ltd. 3,774 31 10,638KB Credit Information Co., Ltd. 95 - 32,349KB Life Insurance Co., Ltd. 3,461 - 8,369Kookmin Bank International Ltd. (London) 341,461 - 85,754Kookmin Bank Hong Kong Ltd. 166,149 - 3,634

588,668 43 555,331Investee under the equity method:

Jooeun Industrial Co., Ltd. ￦ 37,181 ￦ 18,590 ￦ -37,181 18,590 -

￦ 625,849 ￦ 18,633 ￦ 555,331


(Unit: In millions)


Subsidiaries:Trust accounts (trust accounts guaranteeda fixed rate

of return and/or the repayment of principal) (*) ￦ 68,949 ￦ - ￦ 157,695KB Investment Co., Ltd. - - 12,608KB Futures Co., Ltd. 926 - 8,095KB Data System Co., Ltd. 42 - 22,918KB Asset Management Co., Ltd. 99 - 58,289KB Real Estate Trust Co., Ltd. 862 6 549KB Credit Information Co., Ltd. 120 - 29,462KB Life Insurance Co., Ltd. 3,167 - 6,113Kookmin Bank International Ltd. (London) 231,563 - 49,536Kookmin Bank Hong Kong Ltd. 178,590 - 12,285


Pacific IT Investment Partnership - - 51Jooeun Industrial Co., Ltd. 60,858 31,677 -NPC 02-4 Kookmin Venture Fund - - 13,189

60,858 31,677 13,240￦ 545,176 ￦ 31,683 ￦ 370,790

(*) Trust accounts guaranteeing the repayment of principal or a fixed rate of return.

(4) Significant transactions with related parties for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007Revenue Bad debt expenses Expenses (*2)


of return and/or the repayment of principal) (*1) ￦ 36,813 ￦ - ￦ 6,260KB Investment Co., Ltd. 18 12 412KB Futures Co., Ltd. 57 - 2,207KB Data System Co., Ltd. 139 - 34,677KB Asset Management Co., Ltd. 832 - 3,497KB Real Estate Trust Co., Ltd. 278 25 1,999KB Credit Information Co., Ltd. ￦ 169 ￦ - ￦ 59,418

(Continued)



(Unit: In millions)

2007Revenue Bad debt expenses Expenses(*2)

KB Life Insurance Co., Ltd. ￦ 43,773 ￦ - ￦ 5Kookmin Bank International Ltd. (London) 12,439 - 3,852Kookmin Bank Hong Kong Ltd. 11,631 - 1,322


Jooeun Industrial Co., Ltd. - (13,086) - NPC 02-4 Kookmin Venture Fund - - 279

- (13,086) 279￦ 106,149 ￦ (13,049) ￦ 113,928

(Unit: In millions)

2006Revenue Bad debt expenses Expenses(*2)


of return and/or the repayment of principal) (*1) ￦ 42,528 ￦ - ￦ 4,255KB Investment Co., Ltd. 1 - 341KB Futures Co., Ltd. 92 - 1,756KB Data System Co., Ltd. 39 - 27,356KB Asset Management Co., Ltd. 783 - 1,961KB Real Estate Trust Co., Ltd. 1,424 (87) -KB Credit Information Co., Ltd. 234 - 69,368KB Life Insurance Co., Ltd. 36,679 - 2Kookmin Bank International Ltd. (London) 11,072 - 4,394Kookmin Bank Hong Kong Ltd. 9,702 (46) 2,136

102,554 (133) 111,569Investee under the equity method:

Pacific IT Investment Partnership - - 11Jooeun Industrial Co., Ltd. - 16,514 -NPC 02-4 Kookmin Venture Fund 6 - 504

6 16,514 515￦ 102,560 ￦ 16,381 ￦ 112,084

(*1) Trust accounts guaranteeing the repayment of principal or a fixed rate of return.

(*2) Bad debt expenses excluded.

In addition, the Bank purchased fixed assets from KB Data System Co., Ltd. amounting to ￦ 24,896 million and ￦ 27,387 million for theyears ended December 31, 2007 and 2006, respectively.


30. EMPLOYEE BENEFITS:The Bank has employee benefits programs, such as support for rent of houses, scholarship, medical insurance, accident compensation,compensated leave, gym facilities and other benefits.

31. CASH FLOWS:(1) Cash flows from operating activities are presented by the indirect method.

(2) The cash and due from banks in the statements of cash flows for the years ended December 31, 2007 and 2006 were as follows:

(Unit: In millions)


6,544,754 6,568,306Restricted due from banks (4,010,991) (3,280,487)

￦ 2,533,763 ￦ 3,287,819

(3) Significant transactions not involving cash inflows and outflows for the years ended December 31, 2007 and 2006 were as follows :

(Unit : In millions)

2007 2006Changes in accumulated other comprehensive income from valuation of

available-for-sale securities ￦ (543,130) ￦ 386,800Increase in available-for-sale securities from debt-equity swap 12,691 -Reclassification of tangible assets to intangible assets - 30,035Decrease in allowance for bad debt by disposal and repurchase of nonperforming loan 69,435 109,325Write-offs of loans and decrease of loans from principal exemption ￦ 827,485 ￦ 1,698,050



32. FINANCIAL INFORMATION OF THE FOURTH QUARTER:The major operating results of 4th quarter in 2007 and 2006 (unaudited) are as follows :

(Unit: In millions)

4th quarter 2007 2006

Operating revenue ￦ 5,928,305 ￦ 5,087,434Operating expenses 5,152,205 4,827,401Operating income 776,100 260,033Non-operating income 101,795 117,862Non-operating expenses 71,967 77,260Income before income tax 805,928 300,635Income tax expense 225,864 86,625Net income ￦ 580,064 ￦ 214,010Net income per share ￦ 1,724 ￦ 636Diluted net income per share ￦ 1,721 ￦ 636

33. APPROVAL DATE OF FINANCIAL STATEMENTS:Financial statements to be presented at the annual shareholders’ meeting were approved by the board of directors on February 29, 2008.



Tel:+82 2 6676 1000, 1114Fax: +82 2 6674 2114www.deloitteanjin.co.krTo the Representative Director of

Kookmin Bank

We have reviewed the accompanying Report on the Management’s Assessment of IACS (the “Management’s Report”) of Kookmin Bank (the“Bank”) as of December 31, 2007. The Management’s Report, and the design and operation of IACS are the responsibility of the Bank’smanagement. Our responsibility is to review the Management’s Report and issue a review report based on our procedures. The Bank’smanagement stated in the accompanying Management’s Report that “based on the assessment of the IACS as of December 31, 2007, the Bank’sIACS has been appropriately designed and is operating effectively as of December 31, 2007, in all material respects, in accordance with the IACSFramework established by the Korea Listed Companies Association.”

We conducted our review in accordance with the IACS Review Standards established by the Korean Institute of Certified Public Accountants.Those standards require that we plan and perform a review, objective of which is to obtain a lower level of assurance than an audit, of theManagement’s Report in all material respects. A review includes obtaining an understanding of the Bank’s IACS and making inquiries regardingthe Management’s Report and, when deemed necessary, performing a limited inspection of underlying documents and other limited procedures.

The Bank’s IACS represents internal accounting policies and a system to manage and operate such policies to provide reasonable assuranceregarding the reliability of financial statements prepared, in accordance with accounting principles generally accepted in the Republic of Korea,for the purpose of preparing and disclosing reliable accounting information. Because of its inherent limitations, IACS may not prevent or detecta material misstatement of the financial statements. Also, projections of any evaluation of effectiveness of IACS to future periods are subject tothe risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

Based on our review, nothing has come to our attention that causes us to believe that the Management’s Report referred to above is not fairlystated, in all material respects, in accordance with the IACS Framework established by the Korea Listed Companies Association.

Our review is based on the Bank’s IACS as of December 31, 2007, and we did not review its IACS subsequent to December 31, 2007. Thisreport has been prepared pursuant to the Acts on External Audit for Stock Companies in the Republic of Korea and may not be appropriate forother purposes or for other users.

March 3, 2008

Independent Accountant’s Review Report on Internal Accounting Control System (“IACS”)






Notice to ReadersThis report is effective as of March 3, 2008, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date andthe time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modifications to theauditors’ report.


Tel:+82 2 6676 1000, 1114Fax: +82 2 6674 2114www.deloitteanjin.co.krTo the Shareholders and Board of Directors of Kookmin Bank:

We have audited the accompanying consolidated balance sheets of Kookmin Bank (the “Bank”) and its subsidiaries as of December 31, 2007and 2006, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years then ended, allexpressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the consolidated 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 includesassessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. 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 Bank and it’ssubsidiaries as of December 31, 2007 and 2006, and the results of its operations, the changes in shareholders’ equity, and their cash flows for theyears then ended in conformity with accounting principles generally accepted in the Republic of Korea.

Accounting principles and audit standards and their application in practice vary among countries. The accompanying financial statements arenot intended to present the financial position, results of operations and changes in shareholders’ equity and cash flows in accordance withaccounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practicesutilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.Accordingly, this report and the accompanying financial statements are for use by those knowledgeable about Korean accounting procedures andaudit standards and their application in practice.

March 3, 2008

Korean Won2007 2006

(In millions)ASSETS

Cash and due from banks (Notes 4 and 21) ￦ 6,727,411 ￦ 6,688,977Securities (Notes 5 and 21) 34,239,723 32,588,135Loans (Notes 6 and 21) 171,730,131 150,017,861Tangible assets (Note 9) 2,301,464 2,139,486Other assets (Note 10) 8,045,715 7,478,977

￦ 223,044,444 ￦ 198,913,436LIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES:

Deposits (Notes 11 and 21) ￦ 142,100,520 ￦ 133,296,975Borrowings (Notes 12 and 21) 50,170,776 38,786,899Other liabilities (Notes 13, 14, 15, 16, 17 and 20) 14,666,041 11,701,501

206,937,337 183,785,375SHAREHOLDERS’ EQUITY (Note 18):

Common stock 1,681,896 1,681,896Capital surplus 6,274,535 6,274,831Accumulated other comprehensive income 331,159 885,141Retained earnings 7,775,285 6,241,912Minority interests 44,232 44,281

16,107,107 15,128,061￦ 223,044,444 ￦ 198,913,436

See accompanying notes to consolidated financial statements.

Consolidated Balance Sheets



Korean Won2007 2006

(In millions except per share amounts)OPERATING REVENUE:

Interest income:Interest on due from banks ￦ 21,178 ￦ 34,036Interest on securities 1,623,163 1,505,053Interest on loans 12,176,822 10,678,249 Other interest income 55,993 50,065

13,877,156 12,267,403Gain on valuation and disposal of securities:

Gain on valuation of trading securities 11,151 21,074 Gain on disposal of trading securities 109,239 60,242 Gain on disposal of available-for-sale securities 818,824 201,319 Reversal of impairment loss on available-for-sale securities (Note 5) 31,784 84,443

970,998 367,078Gain on disposal of loans 27,620 37,311Foreign exchange trading income 537,397 245,217Commission income 1,582,332 1,379,420Fees and commissions from trust accounts 137,416 125,786Dividends income 11,925 7,924Other operating income:

Gain on derivatives trading 2,925,826 4,422,217Gain on valuation of derivatives (Note 20) 1,261,125 935,246Gain on valuation of fair value hedged items (Notes 11,12 and 20) 212,295 35,828Other operating income 75,708 109,404

4,474,954 5,502,695Insurance revenue 534,537 386,944Total operating revenues 22,154,335 20,319,778

OPERATING EXPENSES:Interest expenses:

Interest on deposits 4,273,681 3,543,984 Interest on borrowings 2,448,866 1,797,305 Other interest expenses 75,075 50,757

￦ 6,797,622 ￦ 5,392,046(Continued)

Consolidated Statements of Income



Korean Won2007 2006

(In millions except per share amounts)Loss on valuation and disposal of securities:

Loss on valuation of trading securities ￦ 62,479 ￦ 11,998 Loss on disposal of trading securities 93,433 51,350 Loss on disposal of available-for-sale securities 25,517 15,416 Impairment loss on available-for-sale securities (Note 5) 76,756 127,571

258,185 206,335Loss on valuation and disposal of Loans:

Provision for possible loan losses (Note 8) 547,467 1,028,465Loss on disposal of loans 8,558 17,222

556,025 1,045,687Foreign exchange trading losses 310,178 296,771Commission expenses 608,464 484,030General and administrative expenses (Note 22) 3,790,362 3,317,859Other operating expenses:

Provision for acceptances and guarantees losses 18,174 8,932Loss on derivatives trading 2,787,409 4,082,692Loss on valuation of derivatives (Note 20) 1,550,017 1,015,782Loss on valuation of fair value hedged items (Note 20) 4,061 31,517Other operating expenses 650,943 802,196

5,010,604 5,941,119Insurance expense 542,241 385,897 Total operating expenses 17,873,681 17,069,744

OPERATING INCOME 4,280,654 3,250,034NON-OPERATING REVENUE (Note 23) 372,386 297,440NON-OPERATING EXPENSES (Note 23) 108,294 122,912INCOME BEFORE INCOME TAX 4,544,746 3,424,562INCOME TAX EXPENSE (Note 24) 1,782,548 957,556NET INCOME ￦ 2,762,198 ￦ 2,467,006

Controlling company interests, gain ￦ 2,757,316 ￦ 2,458,260Minority interests, gain 4,882 8,746

￦ 2,762,198 ￦ 2,467,006BASIC NET INCOME PER SHARE (In currency units) (Note 25) ￦ 8,197 ￦ 7,308DILUTED NET INCOME PER SHARE (In currency units) (Note 25) ￦ 8,179 ￦ 7,308


Consolidated Statements of Income(Continued)



Accumulated other

Capital Capital Capital comprehensive Retained Minority stock surplus adjustments income earnings interests Total

(In millions)January 1, 2006 ￦ 1,681,896 ￦ 6,269,599 ￦ (5,772) ￦ 498,361 ￦ 3,967,535 ￦ 38,613 ￦ 12,450,232Dividend - - - - (184,889) (4,729) (189,618)Retained earnings after

appropriations 3,782,646 33,884 12,260,614 Net income - - - - 2,458,260 8,746 2,467,006Valuation of available-

for-sale securities - - - 373,255 - 1,434 374,689Valuation of held-to-

maturity securities - - - (328) - - (328)Valuation of securities

using the equity method - - - 13,853 - - 13,853Exercise of stock options - - (3,888) - - - (3,888)Disposal of treasury stock - 3,511 9,660 - - - 13,171Change in retained earnings

of the trust account - - - - 2,794 - 2,794Return of capital - - - - - (4,500) (4,500)Others - 1,721 - - (1,788) 4,717 4,650December 31, 2006 ￦ 1,681,896 ￦ 6,274,831 ￦ - ￦ 885,141 ￦ 6,241,912 ￦ 44,281 ￦ 15,128,061January 1, 2007 ￦ 1,681,896 ￦ 6,274,831 ￦ - ￦ 885,141 ￦ 6,241,912 ￦ 44,281 ￦ 15,128,061Dividend - - - - (1,227,784) (1,534) (1,229,318)Retained earnings after

appropriations 5,014,128 42,747 13,898,743Net income - - - - 2,757,316 4,882 2,762,198Paid in capital increase - (296) - - - 19,315 19,019Valuation of available-

for-sale securities - - - (530,468) - (10,348) (540,816)Valuation of held-to-

maturity securities - - - (56) - - (56)Valuation of derivatives - - - (60) - (58) (118)Valuation of securities using

the equity method - - - (23,398) - - (23,398)Change in retained earnings

of the trust account - - - - 3,948 - 3,948Change in the scope of

consolidation - - - - - (12,306) (12,306)Others - - - - (107) - (107)December 31, 2007 ￦ 1,681,896 ￦ 6,274,535 ￦ - ￦ 331,159 ￦ 7,775,285 ￦ 44,232 ￦ 16,107,107


Consolidated Statements of Change in Shareholder’ Equity



Korean Won2007 2006

(In millions)CASH FLOWS FROM OPERATING ACTIVITIES:

Net income ￦ 2,762,198 ￦ 2,467,006Adjustments to reconcile net income to net cash used in operating activities:Loss on valuation of trading securities 62,479 11,998Impairment loss on available-for-sale securities 76,756 127,571Loss on valuation of securities accounted for using the equity method 725 4,236Provision for possible loan losses 547,467 1,028,465Depreciation and amortization 425,574 326,423Loss on disposal of tangible assets 1,684 2,737Loss on valuation of derivatives 1,550,017 1,015,782Loss on valuation of fair value hedged items 4,061 31,517Provision for severance benefits 194,674 169,288Gain on valuation of trading securities (11,151) (21,074)Reversal of impairment loss on available-for-sale securities (31,784) (84,443)Gain on valuation of securities accounted for using the equity method (26,518) (33,975)Gain on disposal of tangible assets (10,517) (10,931)Gain on valuation of derivatives (1,261,125) (935,246)Gain on valuation of fair value hedged items (212,295) (35,828)Others, net 600,202 545,000

1,910,249 2,141,520Changes in assets and liabilities resulting from operations:

Net decrease (increase) in trading securities (2,278,865) 923,296Net decrease in available-for-sale securities 291,715 1,242,661Net increase in held-to-maturity securities (342,213) (713,092)Net increase in loans (22,300,256) (15,479,978)Net decrease (increase) in accounts receivable 82,496 (1,710,289)Net increase in accrued income (102,155) (160,775)Net increase in prepaid expenses (10,963) (39,307)Net decrease in deferred income tax assets 87,322 337,051Net increase in accounts payable 249,186 1,509,988Net increase (decrease) in accrued expenses 549,205 (770,768)Net increase in unearned revenues 27,440 14,930Payment of severance benefits (27,730) (18,209)Net increase in severance insurance deposits (137,771) (99,557)Others, net 463,861 (430,027)

(23,448,728) (15,394,076)Net cash used in operating activities ￦ (18,776,281) ￦ (10,785,550)

(Continued)

Consolidated Statements of Cash Flows



Korean Won2007 2006

(In millions)CASH FLOWS FROM INVESTING ACTIVITIES:

Net increase in restricted due from banks ￦ (785,415) ￦ (1,060,524)Net decrease (increase) in securities accounted for using the equity method 103,277 (54,106)Disposal of tangible assets 20,086 24,286Purchase of tangible assets (491,971) (364,870)Disposal of intangible assets 5,880 -Purchase of intangible assets (88,046) (45,095)Net increase in guarantee deposits paid (147,084) (4,515)Net decrease (increase) in domestic exchange settlement debits 208,727 (241,817)Others, net (17,604) (38,329)Net cash used by investing activities (1,192,150) (1,784,970)

CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits 8,791,819 3,677,600Net increase in borrowings 11,251,579 8,963,090Net increase (decrease) in other liabilities 388,351 (201,210)Exercise of stock options - 10,615Dividend (1,229,318) (189,618)Others, net 19,019 (4,500)Net cash provided by financing activities 19,221,450 12,255,977

NET DECREASE IN CASH AND DUE FROM BANKS (746,981) (314,543)CASH AND DUE FROM BANKS, BEGINNING OF YEAR 3,369,272 3,683,815CASH AND DUE FROM BANKS, END OF YEAR (Note 29) ￦ 2,622,291 ￦ 3,369,272






The Bank is engaged in the banking, trust, credit card and otherrelevant businesses according to the provisions of the General BankingAct, Trust Business Act, and Specialized Credit Financial BusinessAct, respectively. The Bank operates through 1,205 domestic branchesand offices (excluding 260 automated teller machine stations) and fouroverseas branches (excluding two subsidiaries and three offices) as ofDecember 31, 2007.

2. SCOPE OF CONSOLIDATION AND EQUITY METHOD ACCOUNTING:The consolidated financial statements include the Bank and trust accounts whose principal or fixed of return is guaranteed by the Bank and itswholly or partially owned subsidiaries.

Subsidiaries included in the consolidation and accounted for using the equity method as of December 31, 2007 were as follows:

Percentage of Subsidiaries Closing date No. of shares ownership (%) BusinessConsolidated:

KB Investment Co., Ltd. December 31 8,951,293 99.99 Investing and financing to small and medium-sized enterprises

KB Futures Co., Ltd. March 31 3,999,200 99.98 Deals with and brokerage services for futures transactions

KB Data System Co., Ltd. December 31 799,960 99.99 Software services for the Bank and other companies

KB Real Estate Trust Co., Ltd. December 31 15,999,930 99.99 Development, management and brokerage services with regards to real estate and trust

KB Asset Management Co., Ltd. March 31 6,134,040 80.00 Providing security investment trust services and investment consulting services

(Continued)

Notes to Consolidated Financial Statements



Percentage of Subsidiaries Closing date No. of shares ownership (%) Business

KB Credit Information Co., Ltd. December 31 1,249,040 99.73 Delinquent loan collection service and credit checking services

KB Life Insurance Co., Ltd. March 31 7,140,000 51.00 Insurance serviceKookmin Bank Int'l Ltd. (London) December 31 20,000,000 100.00 Commercial banking business and

foreign exchange operationKookmin Bank Hong Kong Ltd. December 31 2,000,000 100.00 Commercial banking business and

foreign exchange operation

Accounted for using the equity method:ING Life Insurance Korea Co., Ltd. (*2) March 31 1,162,200 14.90 Insurance serviceBalhae Infrastructure Fund (*2) June 30 & 8,425,031 12.61 Investment in social overhead capital

December 31Korea Credit Bureau Co., Ltd. (*3) December 31 180,000 9.00 Credit reporting and collection agency services KLB Securities Co., Ltd. (*1) December 31 4,854,713 36.41 Securities related businessJooeun Industrial Co., Ltd. (*1) December 31 1,999,910 99.99 House constructionKookmin Bank Singapore Ltd. (*1) December 31 30,000,000 100.00 Commercial banking business and

foreign exchange operationKookmin Finance Asia Ltd. (HK) (*1) December 31 700,000 100.00 Commercial banking business and

foreign exchange operationSorak Financial Holdings PTE Ltd. December 31 1,422,216 25.00 Investment

(Singapore)KB 06-1 Venture Investment Fund (*4) December 31 300 75.00 Investment in venture businessKookmin China Fund No.1 (*4 & *6) December 31 69 50.00 Investment in venture business KTTC Kookmin Venture Fund (*6) December 31 200 20.00 Investment in venture business Kookmin Investment Partnership July 31 184 20.00 Investment in venture business

No.16 (*6)

KB 03-1 Venture Investment Fund (*6) December 31 225 16.67 Investment in venture business KB 03-1 Corporate Restructuring December 31 116 29.00 Investment in venture business

Fund (*6)

NPC 05-6 Kookmin Venture Fund (*6) December 31 500 20.00 Investment in venture business NPC 07-5 Kookmin Venture Fund (*6) December 31 300 20.00 Investment in venture business KB 06-1 Corporate Restructuring Fund December 31 12 5.38 Investment in venture business

(*6 & *7)

NPS 06-5 KB Corporate Restructuring December 31 4,750,000,000 13.57 Investment in venture businessFund (*6)

NPC 02-4 Kookmin Venture Fund is excluded from consolidation because its liquidation has been finalized on September 21, 2007.


Subsidiaries included in the consolidation and accounted for using the equity method as of December 31, 2006 were as follows:

Percentage of Subsidiaries Closing date No. of shares ownership (%) BusinessConsolidated:

KB Investment Co., Ltd. December 31 8,951,293 99.99 Investing and financing to small and medium-sized enterprises

KB Futures Co., Ltd. March 31 3,999,200 99.98 Deals with and brokerage services for futures transactions

KB Data System Co., Ltd. December 31 799,960 99.99 Software services for the Bank and other companies

KB Real Estate Trust Co., Ltd. December 31 15,999,930 99.99 Development, management and brokerageservices with regards to real estate and trust

KB Asset Management Co., Ltd. March 31 6,134,040 80.00 Providing security investment trust services andinvestment consulting services

KB Credit Information Co., Ltd. December 31 1,249,040 99.73 Delinquent loan collection service and credit checking services

KB Life Insurance Co., Ltd. March 31 3,060,000 51.00 Insurance serviceKookmin Bank Int'l Ltd. (London) December 31 20,000,000 100.00 Commercial banking business and

foreign exchange operationKookmin Bank Hong Kong Ltd. December 31 2,000,000 100.00 Commercial banking business and

foreign exchange operationNPC 02-4 Kookmin Venture Fund December 31 105 50.00 Investing and financing to small and

medium-sized enterprises

Accounted for using the equity method:ING Life Insurance Korea Co., Ltd. March 31 1,400,000 20.00 Insurance serviceBalhae Infrastructure Fund (*2) June 30 & 4,486,305 12.61 Investment in social overhead capital

December 31Korea Credit Bureau Co., Ltd. (*3) December 31 180,000 9.00 Credit reporting and collection agency services KLB Securities Co., Ltd. (*1) December 31 4,854,713 36.41 Securities related businessJooeun Industrial Co., Ltd. (*1) December 31 1,999,910 99.99 House constructionJeio Co., Ltd. (*5) December 31 88,572 20.33 Inspection of materials & manufacturing of

measuring instrumentsKookmin Bank Singapore Ltd. (*1) December 31 30,000,000 100.00 Commercial banking business and

foreign exchange operationKookmin Finance Asia Ltd. (HK) (*1) December 31 700,000 100.00 Commercial banking business and

foreign exchange operationSorak Financial Holdings PTE Ltd.

(Singapore) December 31 1,422,216 25.00 Investment(Continued)



Percentage of Subsidiaries Closing date No. of shares ownership (%) Business

Pacific IT Investment Partnership (*1) December 31 840 60.00 Investing and financing to small and medium-sized enterprises

KB 06-1 Venture Investment Fund (*4) December 31 75 75.00 Investment in venture business Kookmin China Fund No.1 (*4 & *6) December 31 300 50.00 Investment in venture business KTTC Kookmin Venture Fund (*6) December 31 200 20.00 Investment in venture business Kookmin Investment Partnership No.15 June 30 17 34.00 Investment in venture business

(*4 & *6)

Kookmin Investment Partnership No.16 July 31 184 20.00 Investment in venture business(*6)

KB 03-1 Venture Investment Fund (*6) December 31 250 16.67 Investment in venture business KB 03-1 Corporate Restructuring December 31 116 29.00 Investment in venture business

Fund (*6)

NPC 05-6 Kookmin Venture Fund (*6) December 31 500 20.00 Investment in venture business KB 06-1 Corporate Restructuring Fund December 31 12 5.38 Investment in venture business

(*6 & *7)

NPS 06-5 KB Corporate RestructuringFund (*6) December 31 4,037,500,000 13.57 Investment in venture business

(*1) Excluded from consolidation since it is in the process of liquidation.

(*2) The Bank may exercise its voting right at the board meeting or at an equivalent decision making body of the investee.

(*3) The Bank has significant influence in electing the board member who may participate in the decision making process relating to the financial and business policy of the investee.

(*4) Excluded from consolidation because total assets were less than ￦ 7 billion as of prior year’s end date.

(*5) Investment held by KB Investment Co., Ltd., a subsidiary of the Bank

(*6) Investment funds held by KB Investment Co., Ltd., a subsidiary of the Bank

(*7) KB Investment Co., Ltd. has a significant influence in the decision making process relating to the financial and business policy of the investee as a general partner.

Certain trust accounts whose principal or fixed rate of return is guaranteed by the Bank are included in the consolidated financial statements inaccordance with the accounting guidelines of the Financial Supervisory Commission in the Republic of Korea. The trust accounts as ofDecember 31, 2007 and 2006 are as follows :

(Unit: In millions)

2007 2006Total assets Operating revenue Total assets Operating revenue

Consolidated ￦ 3,459,741 ￦ 187,944 ￦ 3,485,991 ￦ 172,174Not consolidated 10,719,138 642,682 13,167,897 573,099

￦ 14,178,879 ￦ 830,626 ￦ 16,653,888 ￦ 745,273


A summary of significant financial data of the Bank’s subsidiaries, included in the balance sheets as of December 31, 2007 and 2006, andstatements of income for the year ended December 31, 2007 and 2006 are as follows :

(Unit: In millions)

2007Total assets Capital stock Shareholders’ equity Operating revenue Net income

Trust accounts ￦ 3,459,741 ￦ - ￦ 62,571 ￦ 187,944 ￦ -KB Investment Co., Ltd. 107,867 44,759 104,741 22,217 13,204KB Futures Co., Ltd. 126,143 20,000 30,123 15,184 3,241KB Data System Co., Ltd. 49,116 8,000 21,060 79,125 4,257KB Real Estate Trust Co., Ltd. 259,057 80,000 116,360 69,980 28,830KB Asset Management Co., Ltd. 104,926 38,338 96,251 53,527 22,235KB Credit Information Co., Ltd. 47,620 6,262 40,525 59,820 5,304KB Life Insurance Co., Ltd. 1,166,081 70,000 50,938 577,273 892Kookmin Bank Int'l Ltd. (London) 415,878 37,482 60,966 27,048 3,002Kookmin Bank Hong Kong Ltd. 397,041 18,764 76,562 33,146 5,601

2006Total assets Capital stock Shareholders’ equity Operating revenue Net income

Trust accounts ￦ 3,485,991 ￦ - ￦ 58,623 ￦ 172,174 ￦ -KB Investment Co., Ltd. 96,296 44,759 94,448 20,030 10,974KB Futures Co., Ltd. 67,145 20,000 28,083 11,487 1,824KB Data System Co., Ltd. 33,471 8,000 17,603 67,588 2,277KB Real Estate Trust Co., Ltd. 206,392 80,000 99,539 66,122 18,424KB Asset Management Co., Ltd. 92,220 38,338 81,589 44,826 23,636KB Credit Information Co., Ltd. 43,938 6,262 35,409 71,532 7,329KB Life Insurance Co., Ltd. 700,438 30,000 31,903 409,302 4,187Kookmin Bank Int'l Ltd. (London) 315,938 36,482 56,496 20,634 3,736Kookmin Bank Hong Kong Ltd. 395,935 18,592 72,130 27,568 7,963NPC 02-4 Kookmin Venture Fund 24,852 21,000 24,612 5,459 3,790



3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:Basis of Consolidated Financial Statement PresentationThe Bank and its subsidiaries maintain their official accounting recordsin Korean Won (only domestic subsidiaries) and prepare statutoryconsolidated financial statements in the Korean language (Hangul) inconformity with the accounting principles and banking accountingstandards generally accepted in the Republic of Korea. Certainaccounting principles and banking accounting standards applied by theBank and its subsidiaries that conform with financial accountingstandards and accounting principles in the Republic of Korea may notconform with generally accepted accounting principles and bankingaccounting practices in other countries. Accordingly, these consolidatedfinancial statements are intended for use by those who are informedabout Korean accounting principles and practices. The accompanyingconsolidated financial statements have been condensed, restructured andtranslated into English (with certain expanded descriptions) from theKorean language consolidated financial statements. Certain informationincluded in the Korean language consolidated financial statements, butnot required for a fair presentation of the Bank and its subsidiaries'financial position, results of operations or cash flows, is not presented inthe accompanying consolidated financial statements.

The significant accounting policies followed by the Bank and itssubsidiaries in preparing the accompanying consolidated financialstatements are summarized below.

Basis of Consolidated Financial Statements Preparation(1) Offset of Investments and Equity Accounts of SubsidiariesInvestments in subsidiaries and equity accounts of subsidiaries wereeliminated at the date when the Bank obtained control over thesubsidiaries. The differences between the amounts of investment andthe equity accounts are recorded as goodwill or negative goodwill,which is amortized or reversed using the straight-line method over fiveyears. If additional shares are purchased after acquiring control, thedifference between the additional acquisition cost and the portion ofnet assets acquired is credited or charged to capital surplus. If theacquisition date does not agree with the year-end balance sheet date ofthe subsidiary, the closest closing date to the acquisition date isregarded as the acquisition date.

(2) Inter-company Transactions and BalancesAll inter-company transactions are eliminated in the consolidatedfinancial statements.

(3) Disposition of Subsidiaries’ SharesIf a subsidiary of the Bank is still subject to the scope of consolidationeven after certain portions of shares are disposed to minority interests,gain/loss on disposal of investment securities is recognized as capitalsurplus. If a subsidiary of the Bank is subject to the equity method dueto the disposition of securities, the investment account is recorded atnet assets of subsidiaries at the time of disposition, net of unamortizedgoodwill or negative goodwill in the consolidated financial statements.

(4) Equity MethodFor investments in affiliates accounted for using the equity method,the difference between acquisition cost and net assets acquired at theacquisition date is added to or deducted from the carrying amount ofinvestments and is amortized in equal annual amounts for five yearsfrom the year incurred. Changes in the Bank’s portion of net assets ofaffiliates accounted for using the equity method are added to ordeducted from the carrying amount of investments.

(5) Balance Sheet Date for the Consolidated Financial StatementsBalance sheet date for the consolidated financial statements is the closingdate of the Bank, the parent company. The accounts of consolidatedsubsidiaries whose fiscal years are different from that of the Bank havebeen adjusted to reflect balances as of the closing date of the Bank.

(6) Special Reserve in Trust AccountsA special reserve provided for possible future losses on certain trustaccounts under the arrangement of guaranteed fixed rate of returnand/or repayment of the principal each year is included in retainedearnings in the consolidated financial statements.

(7) Minority InterestsNon-controlling, outside ownership interests in a subsidiary’sshareholders’ equity are presented as minority interests. Gain (loss)attributable to minority interests is disclosed on the face of the incomestatement.


Accounting Policies of Consolidated EntitiesThe relevant laws and regulations applied to the consolidated entities are as follows:

Relevant laws and regulationsThe Bank Accounting standards of the banking industry & the general banking act Trust accounts Trust business actKB Investment Co., Ltd. Act on support for foundation of small and medium-sized companies & loan specialization

financial business actKB Futures Co., Ltd. Supervisory guidelines on futures tradingKB Real Estate Trust Co., Ltd. Trust business actKB Asset Management Co., Ltd. Act on business of operating indirect investments and assetsKB Credit Information Co., Ltd. Act on the use and protection of credit informationKB Life Insurance Co., Ltd. Accounting standards of the insurance business & general insurance business actKookmin Bank Int'l Ltd. (London) Financial accounting standards in UKKookmin Bank Hong Kong Ltd. Financial accounting standards in Hong Kong

Interest Income Recognition The Bank and its subsidiaries apply the accrual basis in recognizinginterest income related to deposits, loans and securities, except fornon-secured uncollectible receivables. Interest on loans, whoseprincipal or interest is past due at the balance sheet date, is generallynot accrued, with the exception of interest on certain loans secured byguarantee of governments or government agencies, or collateralized bybank deposits. When a loan is placed on non-accrual status, previouslyaccrued interest is generally reversed and deducted from currentinterest income; and future interest income is recognized on cash basisin accordance with the banking industry accounting standards. As ofDecember 31, 2007 and 2006, the principal amount of loans andsecurities of which the accrued interest income was not recorded in theaccompanying consolidated financial statements based on the abovecriteria amounted to ￦4,977,723 million and ￦6,118,071 million,respectively, and the related accrued interest income not recognizedamounted to ￦610,247 million and ￦533,546 million, respectively.

Classification of SecuritiesAt acquisition, the Bank and its subsidiaries classify securities into oneof the following categories: trading, available-for-sale, held-to-maturityand securities accounted for using the equity method, depending onmarketability, purpose of acquisition and ability to hold. Debt andequity securities that are bought and held for the purpose of selling

them in the near term and actively traded are classified as tradingsecurities. Debt securities with fixed and determinable payments andfixed maturity that the Bank and its subsidiaries have the positiveintent and ability to hold to maturity are classified as held-to-maturitysecurities. Securities that should be accounted for under the equitymethod are classified as securities accounted for using the equitymethod. Debt and equity securities not classified as the above arecategorized as available-for-sale securities.

If the objective and ability to hold securities of the Bank and itssubsidiaries change, available-for-sale securities can be reclassified toheld-to-maturity securities and held-to-maturity securities can bereclassified to available-for-sale securities. Whereas, if the Bank and itssubsidiaries sell held-to-maturity securities or exercise earlyredemption right of securities to issuer in the current year or thepreceding two years, and if it reclassifies held-to-maturity securities toavailable-for-sale securities, all debt securities that are owned orpurchased cannot be classified as held-to-maturity securities. On theother hand, trading securities cannot be recategorized to available-for-sale securities or held-to-maturity securities and vice versa.Nevertheless, trading securities are reclassified to available-for-salesecurities only when the trading securities lose their marketability.



Valuation of Securities(1) Valuation of Trading SecuritiesTrading equity and debt securities are initially recognized atacquisition cost plus incidental expenses determined by the individualmoving average method (the specified identification method for debtsecurities). When the face value of trading debt securities differs fromtheir acquisition cost, the effective interest method is applied toamortize the difference over the remaining term of the securities. Afterinitial recognition, if the fair value of trading securities differs from thebook value, trading securities are stated at fair value and the resultingvaluation gain or loss is included in current operations.

(2) Valuation of Available-for-sale SecuritiesAvailable-for-sale securities are initially recognized at acquisition costplus incidental expenses, determined by the individual moving averagemethod (the specified identification method for debt securities). Theeffective interest method is applied to amortize the difference betweenthe face value and the acquisition cost over the remaining term of thedebt security. After initial recognition, available-for-sale securities arestated at fair value, with the net unrealized gain or loss presented as gainor loss on valuation of available-for-sale securities in accumulated othercomprehensive income (loss), which is charged to current operations ina lump sum at the time of disposal or impairment recognition. Non-marketable equity securities are stated at acquisition cost on the financialstatements if the fair value of the securities is not reliably determinable.

If the fair value of equity securities (net asset fair value in case of non-marketable equity securities stated at acquisition cost) is below theacquisition cost and the pervasive evidence of impairment exists, thecarrying value is adjusted to fair value and the resulting valuation loss ischarged to current operations. If the collectible value of debt securities isbelow the amortized cost and the pervasive evidence of impairmentexists, the carrying value is adjusted to collectible value and the resultingvaluation loss is charged to current operations. With respect to impairedsecurities, any unrealized valuation gain or loss of securities previouslyincluded in the accumulated other comprehensive income is reversed.

(3) Valuation of Held-to-maturity SecuritiesHeld-to-maturity securities are stated at acquisition cost plusincidental expenses, determined by the specific identification method.

When the face value of held-to-maturity securities differs from itsacquisition cost, the effective interest method is applied to amortizethe difference over the remaining term of the securities. If collectiblevalue is below the amortized cost and the pervasive evidence ofimpairment exists, the carrying value is adjusted to collectible valueand the resulting valuation loss is charged to current operations.

(4) Valuation of Securities Accounted for Using the Equity MethodEquity securities held for investment in companies in which the Bankand its subsidiaries are able to exercise significant influence over theinvestees (in accordance with the Banking Act, if the Bank holds morethan 15 percent of the total issued shares, the Bank and its subsidiariesare considered being able to exercise significant influence) areaccounted for using the equity method. The Bank and its subsidiaries’share in net income or net loss of investees are included in currentoperations. Changes in the retained earnings of investee are reflectedin the retained earnings. Changes in the capital surplus, capitaladjustments or accumulated other comprehensive income of investeeare reflected as gain or loss on valuation of securities accounted forusing the equity method in accumulated other comprehensive income.

When the book value of equity securities accounted for using theequity method is less than zero due to the cumulative losses of theinvestees, the Bank and its subsidiaries discontinue applying the equitymethod and do not provide for additional losses. If the investeesubsequently reports net income, the Bank and its subsidiaries resumeapplying the equity method only after its share of that net incomeequals the share of net losses not recognized during the period that theequity method was suspended.

(5) Reversal of Impairment Loss on Available-for-sale Securities andHeld-to-maturity Securities.If the reasons for impairment losses of available-for-sale securities nolonger exist, the recovery is recorded in current operations under non-operating income up to the amount of the previously recognizedimpairment loss as reversal of impairment loss on available-for-salesecurities and any excess is included in accumulated othercomprehensive income as gain on valuation of available-for-salesecurities. However, if the increases in the fair value of the impairedsecurities are not regarded as the recovery of the impairment, the


increases in the fair value are recorded as gain on valuation of available-for-sale securities in accumulated other comprehensive income. Fornon-marketable equity securities, which were impaired based on thenet asset fair value, the recovery is recorded up to their acquisition cost.

For held-to-maturity securities, the recovery is recorded in currentoperations under non-operating income within the amount ofamortized cost that would have been recorded according to theoriginal schedule if the impairment losses had not been recognized asreversal of impairment loss on held-to-maturity securities.

(6) Reclassification of SecuritiesWhen held-to-maturity securities are reclassified to available-for-salesecurities, those securities are accounted for at fair value on thereclassification date and the difference between the fair value and bookvalue is reported in accumulated other comprehensive income (loss) asgain or loss on valuation of available-for-sale securities. When available-for-sale securities are reclassified to held-to-maturity securities, gain orloss on valuation of available-for-sale securities, which had beenrecorded until the reclassification date, continue to be included inaccumulated other comprehensive income (loss) and be amortizedusing the effective interest rate method and the amortized amount ischarged to interest income or expense until maturity. The differencebetween the fair value at the reclassification date and face value of thereclassified securities to held-to-maturity securities is amortized usingeffective interest rate method and the amortized amount is charged tointerest income. In addition, when certain trading securities lose theirmarketability, such securities are reclassified as available-for-salesecurities at fair market value as of reclassification date.

Transfer of SecuritiesWhen the realization, expiration or sale of the right to obtain theeconomic benefits arises and the control of securities is lost from thesale of the securities, the unrealized valuation gain or loss of securitiesincluded in the accumulated other comprehensive income (loss) isadded to or deducted from the gain or loss on disposal of securities.The gain or loss is the difference between the net proceeds receivableor received and its carrying value. When securities are transferredwithout losing the control of the securities, the transaction is recordedas a secured borrowing transaction.

Allowance for Possible Losses on CreditsThe Supervisory Regulation of Banking Business (the “SupervisoryRegulation”) legislated by the Financial Supervisory Commission(FSC) requires the Bank to classify all credits into five categories asnormal, precautionary, substandard, doubtful, or estimated loss basedon borrowers’ repayment capability and historical financial transactionrecords. The Supervisory Regulation also requires the Bank to providethe minimum rate of loss provision for each category balance using theprescribed minimum percentages as described below.

As required by the Supervisory Regulation, the Bank classifiescorporate credits (loans, confirmed acceptances and guarantees) basedon borrowers’ capability to repay in consideration of borrowers’business operation, financial position and future cash flows (ForwardLooking Criteria) as well as past due period and status of anybankruptcy proceedings (Historical Repayment Criteria). However,credits to small companies and to households are classified not byevaluating the debt repayment capability of a borrower or customerbut by past due period and status of bankruptcy proceedings. TheBank generally classifies all credits to a single borrower in the samecategory of classification but credits guaranteed or collateralized bybank deposits, real estate or other assets may be classified differentlybased on the guarantor’s capability to service such guarantee or basedon the value of collateral securing such credits.

Based on the Bank’s corporate credit evaluation model, credits to aborrower are classified into 17 grades from AAA to D (AAA, AA+, AA,A, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC, CC, C and D).Credits of grades of AAA to B are classified as normal, credits of gradeBB- to CCC as precautionary, credits of grade CC as substandard,credits of grade C as doubtful and credits of grade D as estimated loss.Credits are finally classified reflecting past due period and bankruptcyconsiderations. An allowance is then calculated on the category balancesusing the prescribed percentages of 0.85(0.9 percent for loans toeconomy-sensitive industries) ~ 6.9 percent for normal, 7 ~ 19.9 percentfor precautionary, 20 ~ 49.9 percent for substandard, 50 ~ 99.9 percentfor doubtful and 100 percent for estimated loss. However, the Bankdoes not provide allowances for call loans, bonds bought under resaleagreements and inter-bank loans that are classified as normal, as it is notrequired by the Accounting Standards for the Banking Industry.



In addition, as required by the Supervisory Regulation, based on theclassification of household loans and credit card receivables by pastdue period and status of bankruptcy proceedings, allowance forhousehold loans and credit card receivables are calculated on thecategory balances using the prescribed percentages of 1 ~ 9.9 percentand 1.5 ~ 14.9 percent for normal, 10 ~19.9 percent and 15 ~ 19.9percent for precautionary, 20 ~ 54.9 and 20 ~ 59.9 percent forsubstandard, 55 ~ 99.9 percent and 60 ~ 99.9 percent for doubtful,and 100 percent for estimated loss.

Pursuant to the Supervisory Regulation of Banking Business, the Bankprovides allowance for possible losses on confirmed acceptances andguarantees, unconfirmed acceptances and guarantees, and notesendorsed based on the credit classification, minimum rate of lossprovision prescribed by the Financial Supervisory Service and the cashconversion factor. In addition, the Bank provides other allowances forthe unused credit limit of credit card and unused credit line ofconsumer and corporate loans based on the cash conversion factor andminimum rate of loss provision prescribed by the FinancialSupervisory Service.

Pursuant to the amended Supervisory Regulation, the Bank increased theminimum rate of loss provision for corporate credits in 2007. Due to thischange, provision for possible loan losses, allowance for acceptances andguarantees, and other allowance for unused credit limit increased by￦125.0 billion, ￦6.7 billion and ￦25.2 billion, respectively, and netincome for the year then ended decreased by ￦ 113.8 billion.

In addition, when an allowance for possible loan losses required by theSupervisory Regulation is less than the amount calculated based on thehistorical loss rate, which is estimated through objective andreasonable method in accordance with the accounting principle in theRepublic of Korea, historical loss rate is reflected in the provision forpossible loan losses.

The method and data used for determining the allowances for loanlosses based on historical loss rate by the Bank’s lending portfolios aredetermined as follows:

Period of Period ofhistorical recovery

Lending portfolios Methodology loss rate ratioImpaired corporate loans DCF & Migration N/A N/ANon-impaired

corporate loans Migration analysis 1 year 5 yearsConsumer loans Migration analysis 1 year 5 yearsCredit card loans Roll-rate analysis 1 year 5 years

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

Restructuring of LoansThe equity interest in the debtors, net of real estates and/or otherassets received as full or partial satisfaction of the Bank’s loans,collected through reorganization proceedings, court mediation or debtrestructuring agreements of parties concerned, is recorded at fair valueat the time of the restructuring. In cases where the fair value of theassets received are less than the book value of the loan (book valuebefore allowances), the Bank offsets first the book value againstallowances for loan losses and then recognizes provisions for loanlosses. Impairment losses for loans that were restructured in a troubleddebt restructuring involving a modification of terms are computed bythe difference between the present value of future cash flows underdebt restructuring agreements discounted at effective interest rates atthe time when loans are originated and the book value beforeallowances for loan losses. If the amount of allowances alreadyestablished is less than the impairment losses, the Bank establishesadditional allowances for the difference. Otherwise, the Bank reversesthe allowances for loan losses.

Deferred Loan Origination Fees and Costs The Bank defers loan origination fees associated with originating loansand loan origination costs that have future economic benefits. Loanbalances are reported net of these loan origination fees and costs. Thedeferred loan origination fees and costs are amortized using theeffective interest method with the amortization recognized asadjustments to other interest income.


Valuation of Receivables and Payables at Present ValueReceivables and payables incurred through long-term installmenttransactions, long-term borrowing and lending transactions, and othersimilar transactions are stated at the present value of expected futurecash flows, and the gain or loss on valuation of related receivables andpayables is reflected in current operations, unless the differencebetween nominal value and present value is immaterial. Present valuediscount or premium is amortized using the effective interest ratemethod and credited or charged to interest income or interest expense.

Bonds under Resale or Repurchase AgreementsBonds purchased under resale agreements are recorded as loans andbonds sold under repurchase agreements are recorded as borrowingswhen the Bank purchases or sells securities under such agreements.

Tangible Assets and Related DepreciationTangible assets are recorded at cost or production cost includingincidental expenses. Routine maintenance and repairs are expensed asincurred. Expenditures that result in the enhancement of the value orthe extension of the useful lives of the facilities involved are capitalizedas additions to tangible assets.

Depreciation is computed by using the declining-balance method(Straight-line method for building and structures) based on theestimated useful lives of the assets as follows:

Depreciation Estimated Tangible assets method useful life

Buildings and structures Straight-line 34~40 yearsLeasehold improvements Declining balance 4-5 yearsEquipment and vehicles Declining balance 3-20 years

Intangible Assets and Related AmortizationIntangible assets included in other assets are recorded at theproduction costs or purchase costs plus incidental expenses lessaccumulated amortization. Intangible assets are amortized using thestraight-line method over the estimated economic useful lives of therelated assets or the activity method as follows:

Depreciation Estimated Intangible assets method useful life

Goodwill Straight-line 9 yearsNegative goodwill Straight-line 5 yearsTrademarks Straight-line 5-20 yearsOthers Straight-line, 3-30 years

Declining balance

The Bank recorded goodwill as a result of the merger with H&CB, asthe cost of the merger exceeded the fair value of the net assetsacquired. Expenditures incurred in conjunction with the developmentof new products or technology and others, in which the elements ofcosts can be individually identified and future economic benefits areprobably exerted, are capitalized as development costs. The Bankestimates the useful lives of endowment assets that are beneficial uponusage based on the term of the contract and are classified under otherintangible assets.

Valuation Allowance for Non-Business Use PropertyNon-business use property included in fixed assets is recorded whenthe Bank acquires collateral by foreclosure on the mortgage for loans.If the latest auction price is lower than book value, the difference isprovided as a valuation allowance and the valuation loss is charged tocurrent operations. In addition, the difference between the sellingprice and book value is recorded as a disposition gain or loss.

Recognition of Impairment of AssetsWhen the book value of assets (other than securities and assets valuedat present value) exceeds the collective value of the assets due toobsolescence, physical damage or a sharp decrease in market value andthe difference is material, the book value are adjusted to collectivevalue in the balance sheet and the resulting impairment loss is chargedto current operations. If the collective value of the assets increases insubsequent years, the increase in value is credited to operations as gainuntil the collective value equals the book value of assets that wouldhave been determined had no impairment loss been recognized. TheBank and its subsidiaries assess the collective value based on expectedselling price or appraisal value.



Amortization of Discounts (Premiums) on DebenturesDiscounts or premiums on debentures issued are amortized over theperiod from issuance to maturity using the effective interest ratemethod. Amortization of discounts or premiums is recognized asinterest expense on the debentures.

Contingent LiabilitiesA possible obligation that arises from past events and whose existencewill be confirmed only by the occurrence or non-occurrence of one ormore uncertain future events not wholly within the control of theBank and its subsidiaries is recognized as contingent liabilities when itis probable that an outflow of resources embodying economic benefitsrequired and the amount of the obligation can be measured withsufficient reliability. Where the effect of the time value of money ismaterial, the amount of the liabilities is the present value of theexpenditures expected to be required to settle the obligation. Inaddition, as some or all expenditures required to settle a provision isexpected to be reimbursed by another party, the reimbursement isrecognized as separate assets in the balance sheet and related incomemay be offset against expense in the income statement.

Accrued Severance BenefitsEmployees and directors and temporary employees with at least oneyear of service as of December 31, 2007 are entitled to receive alump-sum payment upon termination of their employment with theBank and its subsidiaries, based on their length of service and rate ofpay at the time of termination. The accrued severance benefits thatwould be payable assuming all eligible employees and directors were toresign are included in other liabilities.

The Bank and its domestic subsidiaries have purchased severancebenefits insurance, which meets the funding requirement for taxpurposes, and made deposits with Kyobo Life Insurance Co., Ltd andothers. Withdrawal of these deposits is restricted to the payment ofseverance benefits. These are presented as a deduction from theaccrued severance benefits.

Accounting for Derivative InstrumentsThe Bank and its subsidiaries account for derivative instruments

pursuant to the Interpretations on Financial Accounting Standards53-70 on accounting for derivative instruments. Derivativeinstruments are classified as used for trading activities or for hedgingactivities according to their transaction purpose. All derivativeinstruments are accounted for at fair value with the valuation gain orloss recorded as an asset or liability. If the derivative instrument is notpart of a transaction qualifying as a hedge, the adjustment to fair valueis reflected in current operations.

The accounting for derivative transactions that are part of a qualifiedhedge based both on the purpose of the transaction and on meetingthe specified criteria for hedge accounting differs depending onwhether the transaction is a fair value hedge or a cash flow hedge. Fairvalue hedge accounting is applied to a derivative instrumentdesignated as hedging the exposure to changes in the fair value of anasset or a liability or a firm commitment (hedged item) that isattributable to a particular risk. The gain or loss both on the hedgingderivative instruments and on the hedged item attributable to thehedged risk is reflected in current operations. Cash flow hedgeaccounting is applied to a derivative instrument designated as hedgingthe exposure to variability in expected future cash flows of an asset or aliability or a forecasted transaction that is attributable to a particularrisk. The effective portion of gain or loss on a derivative instrumentdesignated as a cash flow hedge is recorded as accumulated othercomprehensive income (loss) and the ineffective portion is recorded incurrent operations. The effective portion of gain or loss recorded asaccumulated other comprehensive income (loss) is reclassified tocurrent earnings in the same period during which the hedgedforecasted transaction affects earnings. If the hedged transaction resultsin the acquisition of an asset or the incurrence of a liability, the gain orloss in accumulated other comprehensive income (loss) is added to ordeducted from the asset or the liability.

Accounting for Share-based PaymentThe terms of the arrangement for share-based payment transactionsprovide the Bank with a choice of whether the transaction is settled incash or by issuing equity instruments. In accordance with theresolution of the Board of Directors on August 23, 2005 to settle thetransaction in cash, the compensation cost is recorded in other


liabilities (accrued expense). The compensation cost of stock optionsgranted before and after the effective date of the Statements of KoreaAccounting Standards No. 22 (Share-based Payment) was measuredusing the intrinsic value method in accordance with the Interpretationson Financial Accounting Standards 39-35 “Accounting for StockOptions,” and the fair value method, respectively.

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

Income Tax ExpenseIncome tax expense is the amount currently payable for the periodadded to or deducted from the changes in deferred income taxes.However, deferred income tax assets are recognized only if the future taxbenefits from accumulated temporary differences and any tax losscarryforwards are realizable. The difference between the amountcurrently payable for the period and income tax expense is accounted foras deferred income tax assets or liabilities, which will be charged orcredited to income tax expense in the period the related temporarydifference reverses in the future. Deferred income tax assets or liabilitiesare calculated based on the expected tax rate to be applied at the reversalperiod of the related assets or liabilities. Tax payable and deferredincome tax assets or liabilities regarding to certain items are charged orcredited directly to related components of shareholders' equity.

Accounting for Foreign Currency Transactions and TranslationThe Bank and its domestic subsidiaries maintain their accounts inKorean Won. Transactions in foreign currencies are recorded in KoreanWon based on the basic rate of exchange on the transaction date. TheKorean Won equivalent of assets and liabilities denominated in foreigncurrencies are translated in these consolidated financial statements basedon the basic rate (￦938.20 and ￦929.60 to US$ 1.00 at December31, 2007 and 2006, respectively) announced by Seoul Money BrokerageService, Ltd. or cross rates for other currencies other than U.S. Dollars atthe balance sheet dates. Translation gains and losses are credited or

charged to operations. Financial statements of overseas branches aretranslated based on the basic rate at balance sheet dates.

Discontinued OperationA discontinued operation refers to a component of the Bank that iscapable of being distinguished operationally for financial reportingpurposes and is capable of being identified as a major line of business orgeographical area of operations, and that the Bank, pursuant to a singleplan of discontinuance, substantially disposes in its entirety, such as byselling it in a single transaction; sells off its assets and settles its liabilitiesindividually or in small groups; or terminates it through abandonment.The income (loss) from continuing operation and discontinuedoperation was not distinguished and separately presented as there wasno discontinued operation in the prior year and current period.

Summary of Accounting Policies for the Bank’s Trust Accounts(1) Valuation of Debt SecuritiesDebt securities included in performance-based trust accounts aregenerally recorded at acquisition costs, which include additional costs anddeduct accrued interest income for the period before acquisition, and areclassified into five categories to provide allowance for possible credit lossesin accordance with the credit rates of bonds issued by each company.Debt securities included in base price-based trust accounts are estimatedby applying the average of base prices per bond closing on recent tradingday announced by Korea Bond Pricing Co., Ltd. and KIS Pricing, Inc.

(2) Allowance for Possible Credit LossesAn allowance for possible credit losses is provided for the assets, whichwere not marked to market, pursuant to the asset classification criteriapromulgated by the FSC. Loans are classified as of the balance sheetdate into normal, precautionary, substandard, doubtful or estimatedloss. Allowance rate is as follows:

Household loans (%) Corporate loans (%)Normal 1.00 0.85(*)

Precautionary 10.00 7.00 Substandard 20.00 20.00 Doubtful 55.00 50.00 Loss 100.00 100.00

(*) 0.90 percent for loans to economy-sensitive industries



(3) Special ReserveSpecial reserve refers to the reserve accumulated upon acquisition oftrust fee at 25 percent or more until the balance of special reservereaches 5 percent of the trust accounts for the purpose of reservingunspecific trust accounts whose principle or income should beguaranteed. In cases where the principle of trust accounts needs torecover or the special reserve exceeds the limit, reversal of specialreserve is recognized as income. When the purpose of special reserveno longer exists, it is recorded as trust fee.

Insurance Reserve of KB Life Insurance KB Life Insurance provides various insurance reserves for payments,refunds, participating policyholders’ dividends and related cost in thefuture as follows:

(1) Premium reserve is a net level premium reserve using interest andmortality assumptions used in computing cash surrender values.(2) Reserve for outstanding claims represents refunds, dividends andclaims reported and unpaid as of the balance sheet date.(3) Unearned premium reserve represents the unearned portion ofquarterly, semi-annual and annual premiums as of the balance sheet date.(4) Dividends held on deposit for policyholders represent amounts

payable to policyholders due to interest rate difference guarantee,mortality gains, excess interest, expense gains and long-term contractsin accordance with the regulations or agreements.

Application of the Statements of Korea Accounting Standards The Korea Accounting Standard Board (KASB) under the KoreaAccounting Institute (KAI) issued the Statements of Korea AccountingStandards (SKAS) for achieving a set of Korean accounting standardsthat should be internationally acceptable and comparable based onSKAS Act 92. The Bank and its subsidiaries adopted SKAS No.1(Accounting Changes and Error Corrections) through SKAS No. 20(Related Party Disclosures) (excluding SKAS No. 11 and No. 14) as ofor before December 31, 2006, and SKAS No. 11 (DiscontinuedOperation) and SKAS No. 21 (Preparation and Presentation ofFinancial Statements) through SKAS No. 25 (Consolidated FinancialStatements) have been adopted since January 1, 2007.

With the adoption of SKAS No. 21 (Preparation and Presentation ofFinancial Statements) and SKAS No. 24 (Preparation and Presentationof Financial Statements [Financial Industry]), the Bank and itssubsidiaries reclassified the components of the balance sheets as follows:

Classification Before AfterAssets - Cash and due from banks - Cash and due from banks

- Securities - Securities- Loans - Loans- Fixed assets - Tangible assets- Other assets - Other assets

Liabilities - Deposits - Deposits- Borrowings - Borrowings- Debentures - Other liabilities- Other liabilities

Shareholders’ Equity - Common stock - Common stock- Capital surplus - Capital surplus- Retained earnings - Capital adjustments- Capital adjustments - Accumulated other comprehensive income- Minority interests - Retained earnings

- Minority interests


In addition, a discontinued operation is separately presented in the income statements and extraordinary items are no longer reported separately.The Bank and its subsidiaries have reclassified the components of the income statements; such as, gains or losses relating to available-for-salesecurities and sale of loans that were presented under non-operating revenue (expenses) are currently presented under operating revenue(expenses). According to the amended SKAS No.16 (Tax accounting), refund of prior year’s income tax and additional income tax for prior yearthat were presented under non-operating revenue (expense) are currently included in income tax expense. The effect of the changes in theclassification of the income statement for the years ended December 31, 2007 is as follows :

(Unit: In millions)

Classification Before After EffectOperating Revenue ￦ 21,264,437 ￦ 22,154,335 ￦ 889,898Operating Expenses 17,741,663 17,873,681 132,018Operating Income 3,522,774 4,280,654 757,880Non-operating Revenue 1,250,833 372,386 (878,447)Non-operating Expenses 714,956 108,294 (606,662)Income before Income Tax 4,058,651 4,544,746 486,095Income Tax Expense 1,296,453 1,782,548 486,095Net Income ￦ 2,762,198 ￦ 2,762,198 ￦ -Basic Net Income per Share (In currency units) ￦ 8,197 ￦ 8,197 ￦ -Diluted Net Income per Share (In currency units) ￦ 8,179 ￦ 8,179 ￦ -


The consolidated financial statements for the prior year were restated for comparative purposes due to the application of SKAS No. 16(revision),No. 21 and No. 24. The restatement did not affect the previously reported prior year’s net income or shareholders’ equity. The net income forthe year ended December 31, 2006 consisted of the controlling company interest, but by applying SKAS No. 25, the net income for the yearended December 31, 2006 is broken down among the controlling company interest and minority interests. The effect of the restatement on theincome statement for the year ended December 31, 2006 is as follows :

(Unit: In millions)

Classification Before After EffectOperating Revenue ￦ 19,984,706 ￦ 20,319,778 ￦ 335,072Operating Expenses 16,884,151 17,069,744 185,593Operating Income 3,100,555 3,250,034 149,479Non-operating Revenue 640,225 297,440 (342,785)Non-operating Expenses 299,727 122,912 (176,815)Income before Income Tax 3,441,053 3,424,562 (16,491)Income Tax Expense 974,047 957,556 (16,491)Net Income ￦ 2,467,006 ￦ 2,467,006 ￦ -Basic Net Income per Share (In currency units) ￦ 7,308 ￦ 7,308 ￦ -Diluted Net Income per Share (In currency units) ￦ 7,308 ￦ 7,308 ￦ -




In addition, the Bank and its subsidiaries have reclassified the components of the cash flows; such as, changes in available-for-sale securities, held-to-maturity securities and loans that were presented under cash flows from investing activities are currently presented under cash flows fromoperating activities. The accompanying consolidated statement of cash flows for the year ended December 31, 2006, which is presented forcomparative purposes, was restated due to the application of SKAS No. 21 and No. 24.

The prior year consolidated financial statements were neither restated nor the earnings per share adjusted to reflect the effect of the application ofSKAS No. 22 (Share-based Payment) and No. 23 (Earnings per Share), which is in accordance with the transition provision.

4. CASH AND DUE FROM BANKS:(1) Cash and due from banks as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)


￦ 6,727,411 ￦ 6,688,977

(2) Due from banks as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Financial institution Interest (%) 2007 2006Due from banks in Won:

Bank of Korea - ￦ 3,897,542 ￦ 3,195,224Shinhan Bank and others 0.00~5.45 55,057 29,982JP Morgan Chase & Co. and others 0.00~2.00 101,858 47,969


Bank of Korea - 88,361 75,026Wachovia Bank, NA. and others 0.00~6.15 107,519 145,338Qingdao International Bank and others - - 318,388

195,880 538,752￦ 4,250,337 ￦ 3,811,927


(3) Restricted due from banks as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Financial institution 2007 2006 Reason for restrictionDue from banks in Won:

Bank of Korea ￦ 3,897,542 ￦ 3,195,224 BOK ActWoori Bank and others 523 4,902 Escrow account/othersThe Korea Securities Finance corp. and others 93,677 42,600 Futures margin accounts/othersKorea Exchange 250 250 Market entry due

Due from banks in foreign currencies:Bank of Korea 88,361 75,026 BOK Act J.P. Morgan Futures Inc. and others 17,448 1,703 Futures margin accounts/othersICBC NANFANG SUB-BR and others 7,319 - China’s New Foreign Bank Regulations

￦ 4,105,120 ￦ 3,319,705

(4) Due from banks by financial institution as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Financial institution 2007 2006Due from banks in Won:

Bank of Korea ￦ 3,897,542 ￦ 3,195,224Other Banks 55,057 29,982Other financial institution 101,858 47,969


Bank of Korea 88,361 75,026Other Banks 102,724 462,018Other financial institution 4,795 1,708

195,880 538,752￦ 4,250,337 ￦ 3,811,927



(5) Term structure of due from banks as of December 31, 2007 was as follows :

(Unit: In millions)



Due from banks in Won ￦ 4,008,776 ￦ 200 ￦15,193 ￦ 148 ￦ 30,140 ￦ 4,054,457Due from banks in foreign currencies 195,880 - - - - 195,880

￦ 4,204,656 ￦ 200 ￦15,193 ￦ 148 ￦ 30,140 ￦ 4,250,337

Term structure of due from banks as of December 31, 2006 was as follows :

(Unit: In millions)



Due from banks in Won ￦ 3,247,984 ￦ 9,098 ￦ 5,677 ￦ 101 ￦ 10,315 ￦ 3,273,175Due from banks in foreign currencies 457,494 68,795 12,463 - - 538,752

￦ 3,705,478 ￦ 77,893 ￦18,140 ￦ 101 ￦ 10,315 ￦ 3,811,927

5. SECURITIES:(1) Securities as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Trading securities ￦ 7,785,875 ￦ 5,552,542Available-for-sale securities 14,768,753 15,781,733Held-to-maturity securities 11,319,261 10,957,769Securities accounted for using the equity method 365,834 296,091

￦ 34,239,723 ￦ 32,588,135


(2) The valuation of securities excluding securities accounted for using the equity method as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Classification 2007 2006Trading securities:

Equity securities ￦ 108,663 ￦ 95,700Beneficiary certificates 211,363 132,626Government and public bonds 1,496,280 1,024,154Finance debentures 4,782,387 2,904,756Corporate bonds 1,103,884 1,288,437Asset-backed securities 41,075 68,232Other debt securities 42,223 38,637

￦ 7,785,875 ￦ 5,552,542Available-for-sale securities:

Equity securities ￦ 1,241,017 ￦ 2,026,551Equity investments 24,557 4,544Beneficiary certificates 102,673 608,242Government and public bonds 3,913,967 3,243,747Finance debentures 7,321,118 7,841,264Corporate bonds 1,721,542 1,359,793Asset-backed securities 367,121 680,782Other debt securities 76,758 16,810

￦ 14,768,753 ￦ 15,781,733Held-to-maturity securities:

Government and public bonds ￦ 6,673,390 ￦ 6,645,027Finance debentures 1,794,490 2,221,855Corporate bonds 2,580,395 1,885,918Asset-backed securities 270,986 204,969

￦ 11,319,261 ￦ 10,957,769

The fair values of trading and available-for sale debt securities in Won were assessed by applying the average of base prices as of December 31,2007, provided by the bond pricing service institutions.

The fair value of the available-for-sale non-marketable equity securities, such as Korea Housing Guarantee Co., Ltd. and 21 others, and therestricted available-for-sale marketable equity securities, such as Hyundai Engineering and Construction Co. and 3 others, were reliably measuredby an independent appraisal institute using reasonable judgment. The fair value was determined based on more than one valuation models, suchas Discounted Cash Flow (DCF) Model, Imputed Market Value (IMV) Model, Discounted Free Cash Flow to Equity (FCFE) Model, DividendDiscount Model (DDM) and Risk Adjusted Discounted Cash Flow Model depending on the equity securities.



(3) Available-for-sale securities, which were not valuated at fair value as of December 31, 2007 and 2006, were as follows :

(Unit: In millions)

Company 2007 2006Bad Bank Harmony (preferred stock) ￦ 33,896 ￦ 58,848Non-performing Asset Management Fund 23,650 -Korea Asset Management Corp. 15,667 15,667Haitai confectionery & foods Co., Ltd 9,300 -Samsung Life Insurance Co., Ltd. 7,479 7,479Korea Highway Corp. 6,248 6,248Korea Exchange(KRX) 3,000 3,000Casamia Co., Ltd 2,700 2,700Adaptive Plasma Technology Corp. 2,271 2,271CLS 871 5,128Others 44,314 58,360

￦ 149,396 ￦ 159,701

The impairment loss and the reversal of impairment loss on available-for-sale securities for the years ended December 31, 2007 and 2006 were asfollows :

(Unit: In millions)

2007 2006Impairment Reversal Impairment Reversal

Equity securities ￦ 8,383 ￦ - ￦ 20,258 ￦ 83,485Equity investments 2 23,650 1 - Corporate bonds 4 - - 958Asset-backed securities 68,367 8,134 107,312 -

￦ 76,756 ￦ 31,784 ￦ 127,571 ￦ 84,443


(4) Structured notes relating to stock, interest rate and credit risk and bonds with call option as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Structured notes relating to stock:

Convertible bonds ￦ 468 ￦ 24,771Structured notes relating to interest rate:

Long-term government bond FRN 145,015 399,430Dual indexed FRN 15,525 29,931Inverse FRN 20,000 40,115Others 110,035 110,236

290,575 579,712Structured notes relating to Credit:

Synthetic CDO 23,193 9,290Bonds with call option 16,000 34,631

￦ 330,236 ￦ 648,404

(5) Private beneficiary certificates included in beneficiary certificates of available-for-sale securities as of December 31, 2007 and 2006 werecomposed of :

(Unit: In millions)

2007 2006Stocks ￦ 43,474 ￦ 90,874Government and public bonds 1,955 115,929Finance bonds 77,085 359,282Corporate bonds 1,065 27,943Asset-backed securities - 10,000Call loans 6,076 48,091Others: 22,629 59,878

Assets 152,284 711,997Liabilities 138 2,504

￦ 152,146 ￦ 709,493



(6) The portfolio of securities excluding securities accounted for using the equity method, by industry, as of December 31, 2007 and 2006 was asfollows :

(Unit: In millions)

2007 2006By industry Amount Percentage(%) Amount Percentage(%)Trading securities:





Financial institutions 8,675,537 58.74 10,562,300 66.93Others 1,546,427 10.47 1,195,426 7.57




￦ 11,319,261 100.00 ￦ 10,957,769 100.00

(7) The portfolio of securities excluding securities accounted for using the equity method, by security type, as of December 31, 2007 and 2006was as follows :

(Unit: In millions)

2007 2006By type Amount Percentage(%) Amount Percentage(%)Trading securities:

Stocks ￦ 108,663 1.40 ￦ 95,700 1.72Fixed rate bonds 7,353,059 94.44 5,134,908 92.48Floating rate bonds 70,567 0.91 150,671 2.71Beneficiary certificates 211,363 2.71 132,626 2.39Others 42,223 0.54 38,637 0.70

￦ 7,785,875 100.00 ￦ 5,552,542 100.00(Continued)


(Unit: In millions)

2007 2006By type Amount Percentage(%) Amount Percentage(%)Available-for-sale securities:

Stocks ￦ 1,241,017 8.40 ￦ 2,026,551 12.84Fixed rate bonds 12,051,928 81.60 11,783,898 74.67Floating rate bonds 808,221 5.47 626,595 3.97Subordinated bonds 463,131 3.14 690,028 4.37Convertible bonds 468 0.00 24,771 0.16Beneficiary certificates 102,673 0.70 608,242 3.85Others 101,315 0.69 21,648 0.14


Fixed rate bonds ￦ 11,226,489 99.18 ￦ 10,893,121 99.41Floating rate bonds 92,772 0.82 64,648 0.59

￦ 11,319,261 100.00 ￦ 10,957,769 100.00

(8) The portfolio of securities excluding securities accounted for using the equity method, by country, as of December 31, 2007 and 2006 was asfollows :

(Unit: In millions)

2007 2006Amount Percentage(%) Amount Percentage(%)

Trading securities:Korea ￦ 7,785,875 100.00 ￦ 5,552,542 100.00

Available-for-sale securities:Korea ￦ 14,556,395 98.56 ￦ 15,681,746 99.37USA 97,768 0.66 28,024 0.18India 26,841 0.18 9,685 0.06UK 22,022 0.15 4,605 0.03Kazakhstan 17,631 0.12 - -Russia 17,004 0.12 33,573 0.21Japan 8,802 0.06 - -Ireland 8,030 0.05 9,290 0.06Others 14,260 0.10 14,810 0.09


Korea ￦ 11,291,180 99.75 ￦ 10,957,769 100.00USA 28,081 0.25 - -

￦ 11,319,261 100.00 ￦ 10,957,769 100.00



(9) Term structure of securities (except for stocks and equity investments) in available-for-sale and held-to-maturity securities as of December 31,2007 was as follows :

(Unit: In millions)

Due after 1 Due after 5 Due in 1 year through years through More than

year or less 5 years 10 years 10 years TotalAvailable-for-sale securities:


Book value 1,688,171 6,761,503 2,830,753 38,834 11,319,261Fair value 1,680,733 6,561,423 2,668,966 35,721 10,946,843

Term structure of securities (except for stocks and equity investments) in available-for-sale and held-to-maturity securities as of December 31,2006 was as follows :

(Unit: In millions)

Due after 1 Due after 5 Due in 1 year through years through More than

year or less 5 years 10 years 10 years TotalAvailable-for-sale securities:


Book value 3,225,573 5,276,946 2,450,602 4,648 10,957,769Fair value 3,221,234 5,229,023 2,440,235 4,648 10,895,140

(10) Acquisition of common stocks of Visa IncBefore October 2007, Visa enterprise consisted of the regional incorporated Visa organizations (i.e. Visa USA, Visa Canada, Visa Europe) andunincorporated Visa International Service Association (i.e. Visa AP, Visa LAC and Visa CEMEA). In October 2007, Visa Inc. was establishedwith the restructuring of the Visa enterprise and is planning to go public through an initial public offering (IPO) in 2008. As a part of Visarestructuring, members of the regional Visa organizations exchanged their respective membership interests for common stock of Visa Inc.

In relation to Visa restructuring, as a member of Visa International Service Association, the Bank received 1,995,930 common shares of Visa Inc.In accordance with the stock exchange agreements, a part of the common shares will be reimbursed in cash at the time of the IPO, and the sale ofthe remaining shares will be restricted for a period of three years.

The Bank considered the acquisition of the common shares of Visa Inc. as an exchange for the existing membership interest. The Bank estimatedthe acquisition cost of the newly acquired common shares based on the financial statements of Visa Inc. since the market value of independentappraisal institutes was not available. Thus, with respect to the transaction, the Bank recorded ￦39,343 million of available-for-sale securities asof December 31, 2007.


(11) The valuation of securities accounted for using the equity method as of December 31, 2007 was as follows :

(Unit: In millions)

Book Foreign Other Book value currency Equity gain compre- value before Increase translation (loss) on hensive after

valuation (Decrease) Dividend gain (loss) investment income (loss) valuationDomestic stocks:

ING Life Insurance Korea Co., Ltd. ￦ 123,587 27,914￦ - ￦ - ￦ 9,132 ￦ (19,719)￦ 140,914KLB Securities Co., Ltd. (*1)(*2) - - - - - - -Jooeun Industrial Co., Ltd. (*1)(*2) - - - - - - -Jeio Co., Ltd. 881 ￦ (900) - - 169 (150) -Balhae Infrastructure Fund 45,589 40,588 (1,603) - 2,561 - 87,135Korea Credit Bureau Co., Ltd. 3,297 - - - (190) (271) 2,836

173,354 67,602 (1,603) - 11,672 (20,140) 230,885Foreign stocks:

Kookmin Bank Singapore Ltd. (*1) 1,614 - - 15 - - 1,629Kookmin Finance Asia Ltd. (HK) (*1) 226 - - 2 - - 228Sorak Financial Holdings PTE Ltd. 87,299 - (3,251) 6,057 6,540 (11,411) 85,234

89,139 - (3,251) 6,074 6,540 (11,411) 87,091Equity Investments:

NPC 02-4 Kookmin Venture Fund (*1) 12,306 (10,583) (5,100) - 3,289 88 -Pacific IT Investment Partnership 1,958 (1,958) - - - - -KB06-1 Venture Investment Partnership 3,679 11,250 - - (261) - 14,668 Kookmin China Fund No.1(*1) 2,919 (2,311) - - 246 - 854 KTTC Kookmin Venture Fund No.1(*1) 921 - - - 50 - 971 Kookmin Investment Partnership No.16 (*1) 40 - - - 6 - 46KB03-1 Venture Investment Fund 2,919 (250) (276) - 1,152 (153) 3,392KB03-1 Corporate Restructuring Fund 11,673 - - - 3,186 - 14,859NPC05-6 KB Venture Fund 4,254 - - - 179 (45) 4,388KB06-1 Corporate Restructuring Fund 1,191 - - - (21) - 1,170NPS 06-5 Corporate Restructuring Fund 4,044 711 - - 8 - 4,763NPC07-5 Venture Fund - 3,000 - - (253) - 2,747

45,904 (141) (5,376) - 7,581 (110) 47,858￦308,397 ￦67,461 ￦(10,230) ￦ 6,074 ￦ 25,793 ￦(31,661) ￦365,834

Unaudited financial statements as of December 31, 2007 were used for the equity method valuation. However, in case of ING Life Insurance KoreaCo., Ltd. and Sorak Financial Holdings PTE Ltd. of which unaudited financial statements as of November 30, 2007 were used for the equity methodvaluation. The significant events from the closing dates of the investees to that of the Bank were properly reflected in applying the equity method.There was no material exception as a result of analytical review, such as analysis of major accounts to assess reliability of those financial statements.



The valuation of securities accounted for using the equity method as of December 31, 2006 was as follows :

(Unit: In millions)

Book Foreign Other Book value currency Equity gain compre- value before Increase translation (loss) on hensive after

valuation (Decrease) Dividend gain (loss) investment income (loss) valuationDomestic stocks:

ING Life Insurance Korea Co., Ltd. ￦ 77,529 ￦ - ￦ - ￦ - ￦ 31,308 ￦ 14,750 ￦123,587KLB Securities Co., Ltd. (*1)(*2) - - - - - - -Jooeun Industrial Co., Ltd. (*1)(*2) - - - - - - -Jeio Co., Ltd. 761 70 - - 50 - 881Balhae Infrastructure Fund - 45,126 (11) - 474 - 45,589Korea Credit Bureau Co., Ltd. - 4,500 - - (1,203) - 3,297

78,290 49,696 (11) - 30,629 14,750 173,354Foreign stocks:

Kookmin Bank Singapore Ltd. (*1) 1,759 - - (145) - - 1,614Kookmin Finance Asia Ltd. (HK) (*1) 246 - - (20) - - 226Sorak Financial Holdings PTE Ltd. 82,401 - (6,009) (438) 7,065 4,280 87,299

84,406 - (6,009) (603) 7,065 4,280 89,139Equity Investments:

KICO No. 2 Venture Investment Partnership 190 (153) - - (37) - - KICO No. 3 Venture Investment Partnership 147 (117) - - (30) - -Pacific IT Investment Partnership (*1) 4,950 (1,496) - - (1,496) - 1,958KB06-1 Venture Investment Partnership - 3,750 - - (71) - 3,679Kookmin China Fund No.1 2,074 - - - 845 - 2,919KTTC Kookmin Venture Fund No.1 1,248 - - - (327) - 921Kookmin Investment Partnership No.15 363 - - - (363) - -Kookmin Investment Partnership No.16 49 - - - (9) - 40KB03-1 Venture Investment Fund 2,618 - - - 247 54 2,919KB03-1 Corporate Restructuring Fund 11,681 58 - - (66) - 11,673NPC05-6 KB Venture Fund 1,129 3,750 - - (625) - 4,254KB06-1 Corporate Restructuring Fund - 1,200 - - (9) - 1,191NPS 06-5 Corporate Restructuring Fund - 4,038 - - 6 - 4,044

24,449 11,030 - - (1,935) 54 33,598￦187,145 ￦60,726 ￦(6,020) ￦(603) ￦35,759 ￦19,084 ￦296,091

Unaudited financial statements as of December 31, 2006 were used for the equity method valuation. However, in case of ING Life InsuranceKorea Co., Ltd. and Sorak Financial Holdings PTE Ltd. of which the unaudited financial statements as of November 30, 2006 and Jeio Co.,Ltd. of which unaudited financial statements as of June 30, 2006 were used for the equity method valuation. The significant events from the


closing dates of the investees to that of the Bank were properly reflected in applying the equity method. There was no material exception as aresult of analytical review, such as analysis of major accounts to assess reliability of those financial statements.

(*1) KLB Securities Co., Ltd., Jooeun Industrial Co., Ltd., Kookmin Bank Singapore Ltd., Kookmin Finance Asia, Ltd. (HK), Kookmin China Fund No.1, KTTC Kookmin Venture Fund No.1 and

Kookmin Investment Partnership No.16 are all in the process of liquidation. Also, Pacific IT Investment Partnership and NPC 02-4 Kookmin Venture Fund has finalized its Liquidation on

December 31, 2007

(*2) The equity method is no longer applied to securities of KLB Securities Co., Ltd. and Jooeun Industrial Co., Ltd. due to accumulated deficit resulting to the decrease of their book values below zero.

The accumulated deficit, which was not recorded as of December 31, 2007 and 2006, is summarized as follows :

(Unit: In millions)

2007 2006

KLB Securities Co., Ltd. ￦ 4,148 ￦ 4,148

Jooeun Industrial Co., Ltd. 64,001 72,686

￦ 68,149 ￦ 76,834

(12) Changes in the gain (loss) on valuation of available-for-sale securities, held-to-maturity securities and securities accounted for using theequity method reflected in accumulated other comprehensive income for the year ended December 31, 2007 were as follows :

(Unit: In millions)


Gain(loss) on valuation of available-for-sale securities:Equity securities ￦ 845,635 ￦ 168,304 ￦ (548,719) ￦ 465,220 Debt securities in Won 22,669 (132,840) (4,853) (115,024)Debt securities in foreign currencies 4,010 (8,280) (899) (5,169)Beneficiary certificates 5,050 775 (4,807) 1,018Others 5,704 851 - 6,555

￦ 883,068 ￦ 28,810 ￦ (559,278) ￦ 352,600Gain on valuation of held-to-maturity securities:

Debt securities in Won ￦ 98 ￦ - ￦ (56) ￦ 42Gain(loss) on valuation of securities accounted

for using the equity method ￦ 1,975 ￦ (22,019) ￦ (1,379) ￦ (21,423)



Changes in the gain (loss) on valuation of available-for-sale securities, held-to-maturity securities and securities accounted for using the equitymethod reflected in accumulated other comprehensive income for the year ended December 31, 2006 were as follows :

(Unit: In millions)


Gain (loss) on valuation of available-for-sale securities:Equity securities ￦ 458,243 ￦ 466,113 ￦ (78,721) ￦ 845,635Debt securities in Won 26,623 2,791 (6,745) 22,669Debt securities in foreign currencies 6,250 1,288 (3,528) 4,010Beneficiary certificates 16,918 4,834 (16,702) 5,050Others 1,779 3,968 (43) 5,704

￦ 509,813 ￦ 478,994 ￦ (105,739) ￦ 883,068Gain on valuation of held-to-maturity securities:

Debt securities in Won ￦ 426 ￦ - ￦ (328) ￦ 98Gain on valuation of securities accounted

for using the equity method ￦ (11,878) ￦ 13,908 ￦ (55) ￦ 1,975

(13) Securities provided as collateral as of December 31, 2007 were as follows :

(Unit: In millions)

Provided to Book value Collateral amount Provided forKorea Securities Depository & others ￦ 7,100,192 ￦ 7,150,000 Bonds sold under repurchase agreementsBOK 532,709 540,000 Borrowings from BOKBOK 319,624 332,200 Overdrafts and settlement risk Samsung Futures & others 663,007 678,006 Derivative settlement Others 444 2,167 Others

￦ 8,615,976 ￦ 8,702,373

Securities provided as collateral as of December 31, 2006 were as follows :

(Unit: In millions)

Provided to Book value Collateral amount Provided forKorea Securities Depository & others ￦ 7,070,657 ￦ 7,100,000 Bonds sold under repurchase agreementsBOK 725,902 725,700 Borrowings from BOKBOK 330,294 330,600 Overdrafts and settlement risk Samsung Futures & others 308,436 321,162 Derivative settlement Others 846 2,072 Others

￦ 8,436,135 ￦ 8,479,534


(14) Securities lent as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006 Provided toGovernment and public bonds ￦ 68,609 ￦ 119,614 Korea Securities Depository & OthersFinance bonds - 23,671 Korea Securities Depository

￦ 68,609 ￦ 143,285

6. LOANS:(1) Loans as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Call loans ￦ 1,620,531 ￦ 1,188,790Domestic import usance bill 1,710,427 1,256,747Credit card receivables 10,435,503 8,667,338Bills bought in foreign currencies 1,628,063 1,273,579Bills bought in Won 152,009 16,587Bonds purchased under repurchase agreements - 501,000Loans 152,266,229 131,782,518Factoring receivables 20,638 30,948Advances for customers 28,695 19,209Private placed bonds 6,191,942 7,505,514Loans for debt-equity swap 1,968 1,968

174,056,005 152,244,198Allowance for possible loan losses (2,504,732) (2,364,675)Deferred loan origination fees and costs 178,858 138,338

￦ 171,730,131 ￦ 150,017,861

(2) Loans in Won and loans in foreign currencies as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Loans in Won:

Commercial Working capital loansGeneral purpose loans ￦ 34,404,289 ￦ 27,163,769Notes discounted 1,287,720 697,235Overdraft accounts 371,150 285,928Trading notes ￦ 786,364 ￦ 612,305

(Continued)



(Unit: In millions)

2007 2006Others ￦ 6,656,691 ￦ 4,297,074

43,506,214 33,056,311Facilities loans

General facilities loans 11,210,650 5,107,519Others 1,191,002 995,730

12,401,652 6,103,24955,907,866 39,159,560

Households General purpose loans 47,211,829 45,947,369Housing loans 41,189,639 39,007,176Remunerations on mutual installment savings 88,781 147,672Others 406,234 416,103

88,896,483 85,518,320Public sector Public operation loans 1,430,050 894,178

Public facilities loans 24,450 3,6871,454,500 897,865

Other Property formation loans 702 1,013Others 420,964 389,174

421,666 390,187￦ 146,680,515 ￦ 125,965,932

Loans in foreign currencies:Domestic funding loans ￦ 4,719,934 ￦ 4,483,652Overseas funding loans 658,087 429,836Inter-bank loans 170,681 885,168Government funding loans 37,012 17,930

5,585,714 5,816,586￦ 152,266,229 ￦ 131,782,518

(3) Loans in Won and in foreign currencies classified by borrower type as of December 31, 2007 were as follows :

(Unit: In millions)

Loans in foreign By borrower type Loans in Won currencies Total Percentage (%)Large corporations ￦ 6,233,761 ￦ 3,715,236 ￦ 9,948,997 6.54Small and medium corporations 49,672,791 1,562,262 51,235,053 33.65Households 89,316,717 54,302 89,371,019 58.69Others 1,457,246 253,914 1,711,160 1.12

￦ 146,680,515 ￦ 5,585,714 ￦ 152,266,229 100.00


Loans in Won and in foreign currencies classified by borrower type as of December 31, 2006 were as follows :

(Unit: In millions)

Loans in foreign By borrower type Loans in Won currencies Total Percentage (%)Large corporations ￦ 2,783,921 ￦ 3,861,188 ￦ 6,645,109 5.04Small and medium corporations 36,389,373 769,765 37,159,138 28.20Households 85,892,885 46,626 85,939,511 65.21Others 899,753 1,139,007 2,038,760 1.55

￦ 125,965,932 ￦ 5,816,586 ￦ 131,782,518 100.00

(4) Loans classified by borrower’s country or region as of December 31, 2007 were as follows :

(Unit: In millions)

Loans in foreign

By country Loans in Won currencies Others Total Percentage(%)Korea ￦ 146,680,515 ￦ 5,084,206 ￦ 21,465,556 ￦ 173,230,277 99.53Southeast Asia - 25,480 - 25,480 0.01China - 36,552 - 36,552 0.02Japan - 307,026 86 307,112 0.18Central and South America - 4,750 3 4,753 0.00USA - 8,359 2,034 10,393 0.01Others - 119,341 322,097 441,438 0.25

￦ 146,680,515 ￦ 5,585,714 ￦ 21,789,776 ￦ 174,056,005 100.00

Loans classified by borrower’s country or region as of December 31, 2006 were as follows :

(Unit: In millions)

Loans in foreign

By country Loans in Won currencies Others Total Percentage(%)Korea ￦ 125,965,932 ￦ 5,538,253 ￦ 20,437,705 ￦ 151,941,890 99.81Southeast Asia - 25,525 1 25,526 0.02China - 7,019 - 7,019 0.00Japan - 172,447 78 172,525 0.11Central and SouthAmerica - 4,142 1 4,143 0.00USA - 84 2,438 2,522 0.00Others - 69,116 21,457 90,573 0.06

￦ 125,965,932 ￦ 5,816,586 ￦ 20,461,680 ￦ 152,244,198 100.00



(5) Loans classified by industry as of December 31, 2007 were as follows :

(Unit: In millions)

Loans in foreign


Finance and insurance ￦ 1,573,707 ￦ 321,519 ￦ 2,453,695 ￦ 4,348,921 2.50Manufacturing 14,628,477 2,138,795 4,672,371 21,439,643 12.32Services 24,478,283 1,892,053 1,616,084 27,986,420 16.08Others 16,474,118 1,172,652 3,797,911 21,444,681 12.32


￦ 146,680,515 ￦ 5,585,714 ￦ 21,789,776 ￦ 174,056,005 100.00

Loans classified by industry as of December 31, 2006 were as follows :

(Unit: In millions)

Loans in foreign


Finance and insurance ￦ 622,133 ￦ 933,000 ￦ 2,655,132 ￦ 4,210,265 2.76Manufacturing 11,149,215 1,626,014 4,376,922 17,152,151 11.27Services 16,351,996 955,641 1,799,834 19,107,471 12.55Others 11,782,755 2,248,555 3,747,058 17,778,368 11.68


￦ 125,965,932 ￦ 5,816,586 ￦ 20,461,680 ￦ 152,244,198 100.00

(6) Loans to financial institutions as of December 31, 2007 were as follows :

(Unit: In millions)


Loans in Won ￦ - ￦ 1,573,707 ￦ 1,573,707Loans in foreign currencies 170,681 150,838 321,519Others 1,693,474 760,221 2,453,695

￦ 1,864,155 ￦ 2,484,766 ￦ 4,348,921


Loans to financial institutions as of December 31, 2006 were as follows :

(Unit: In millions)


Loans in Won ￦ - ￦ 622,133 ￦ 622,133Loans in foreign currencies 885,168 47,832 933,000Others 1,707,815 947,317 2,655,132

￦ 2,592,983 ￦ 1,617,282 ￦ 4,210,265

(7) The classification of asset quality for loans as of December 31, 2007 is summarized as follows :

(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalCall loans ￦ 1,620,531 ￦ - ￦ - ￦ - ￦ - ￦ 1,620,531Domestic import usance bill 1,682,026 17,315 10,050 407 629 1,710,427 Credit card receivables 10,193,092 152,011 734 46,861 42,805 10,435,503Bills bought (*) 1,774,171 3,073 144 1,223 1,461 1,780,072Loans 149,860,455 1,246,799 508,281 434,437 216,257 152,266,229Factoring receivables 20,638 - - - - 20,638 Advances for customers 673 1,368 20,742 562 5,350 28,695 Privately placed bonds 6,183,907 3,360 2,720 - 1,955 6,191,942Loans for debt-equity swap - - - 1,968 - 1,968

￦ 171,335,493 ￦1,423,926 ￦ 542,671 ￦ 485,458 ￦ 268,457 ￦ 174,056,005

The classification of asset quality for loans as of December 31, 2006 is summarized as follows :

(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalCall loans ￦ 1,188,790 ￦ - ￦ - ￦ - ￦ - ￦ 1,188,790Domestic import usance bill 1,210,010 16,025 26,497 3,126 1,089 1,256,747Credit card receivables 8,340,837 215,089 648 71,227 39,537 8,667,338Bills bought (*) 1,287,162 2,338 283 297 86 1,290,166Bond purchased under

repurchase agreements 501,000 - - - - 501,000Loans 128,912,558 1,484,394 667,689 474,798 243,079 131,782,518Factoring receivables ￦ 30,948 ￦ - ￦ - ￦ - ￦ - ￦ 30,948

(Continued)



(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalAdvances for customers ￦ 133 ￦ 508 ￦ 8,753 ￦ 1,833 ￦ 7,982 ￦ 19,209Privately placed bonds 7,502,997 - 650 501 1,366 7,505,514Loans for debt-equity swap - - - 1,968 - 1,968

￦ 148,974,435 ￦1,718,354 ￦ 704,520 ￦ 553,750 ￦ 293,139 ￦ 152,244,198(*) Bill bought in Won included

(8) The term structure of loans as of December 31, 2007 was as follows :

(Unit: In millions)


Due in 3 months or less ￦ 15,518,265 ￦ 321,182 ￦ 12,230,244 ￦ 28,069,691Due after 3 months through 6 months 16,554,316 1,034,815 1,657,411 19,246,542Due after 6 months through 1 year 31,943,154 767,691 2,762,552 35,473,397Due after 1 year through 2 years 14,196,946 1,326,638 3,331,225 18,854,809Due after 2 years through 3 years 17,593,001 604,309 780,289 18,977,599Due after 3 years through 4 years 2,991,270 723,408 635,934 4,350,612Due after 4 years through 5 years 2,646,794 166,622 57,991 2,871,407More than 5 years 45,236,769 641,049 334,130 46,211,948

￦ 146,680,515 ￦ 5,585,714 ￦ 21,789,776 ￦ 174,056,005

The term structure of loans as of December 31, 2006 was as follows :

(Unit: In millions)


Due in 3 months or less ￦ 15,123,093 ￦ 1,292,898 ￦ 9,956,038 ￦ 26,372,029Due after 3 months through 6 months 14,837,742 889,536 1,537,897 17,265,175Due after 6 months through 1 year 30,049,798 838,990 2,532,631 33,421,419Due after 1 year through 2 years 10,139,427 346,373 2,655,349 13,141,149Due after 2 years through 3 years 12,115,875 1,172,992 2,500,496 15,789,363Due after 3 years through 4 years 4,858,755 208,298 227,055 5,294,108Due after 4 years through 5 years 2,406,035 647,661 706,345 3,760,041More than 5 years 36,435,207 419,838 345,869 37,200,914

￦ 125,965,932 ￦ 5,816,586 ￦ 20,461,680 ￦ 152,244,198


(9) Disposal of loansThe Bank disposed loans amounting to ￦205,789 million of principal to KB 9th Securitization Specialty Co., Ltd., loans amounting to￦173,846 million of principal to KB 10th Securitization Specialty Co., Ltd. and loans amounting to ￦550,000 million of principal to KB Bond1st Securitization Specialty Co., Ltd., and recognized a gain of ￦23,112 million, a loss of ￦8,468 million and a loss of ￦87 million,respectively, for the year ended December 31, 2007. In addition, the Bank disposed written-off loans to Asia Capital, and recognized a gain of￦4,000 million for the year ended December 31, 2007. The bank’s subsidiaries disposed loans and recognized a gain of ￦508 million andrecognized a loss of ￦3 million for the year ended December 31, 2007

(10) Credit card receivables as collateralThe Bank offers the credit card receivables amounting to ￦542,603 million and ￦253,591 million (before deducting the allowance) ascollateral for the transaction of credit card receivables to SPC as of December 31, 2007 and 2006, respectively.

(11) The changes in deferred loan origination fees and costs for the year ended December 31, 2007 were as follows :

(Unit: In millions)

Beginning Increase Decrease EndingDeferred loan origination fees and costs ￦ 138,338 ￦ 84,713 ￦ 44,193 ￦ 178,858

7. RESTRUCTURED LOANS:(1)The loans that were restructured by means of principal reduction, debt-equity swap, interest reduction because of workouts for the yearended December 31, 2007 were as follows :

(Unit: In millions)


Workout plan ￦ 129,543 ￦ - ￦ 12,691 ￦ 5,094 ￦ 111,758Debt restructuring 1,071 - - - 1,071

￦ 130,614 ￦ - ￦ 12,691 ￦ 5,094 ￦ 112,829

The loans that were restructured by means of principal reduction, debt-equity swap, interest reduction because of workouts for the year endedDecember 31, 2006 were as follows :

(Unit: In millions)


Composition ￦ 6,178 ￦ - ￦ - ￦ - ￦ 6,178Workout plan 236,287 301 4,083 25,374 206,529Debt restructuring 894 - - - 894

￦ 243,359 ￦ 301 ￦ 4,083 ￦ 25,374 ￦ 213,601



(2) Changes in the present value discounts relating to the outstanding restructured loans for the year ended December 31, 2007 were as follows :

(Unit: In millions)


Amount balance Addition Deduction balanceCourt receivership ￦ 6,586 ￦ 1,034 ￦ - ￦ 570 ￦ 464Composition 9,885 1,275 558 1,083 750 Workout plan 51,161 6,867 9,117 12,825 3,159 Others 22,312 2,837 28 1,457 1,408

￦ 89,944 ￦ 12,013 ￦ 9,703 ￦ 15,935 ￦ 5,781

Changes in the present value discounts relating to the outstanding restructured loans for the year ended December 31, 2006 were as follows :

(Unit: In millions)


Amount balance Addition Deduction balanceCourt receivership ￦ 9,336 ￦ 2,035 ￦ 1,034 ￦ 2,035 ￦ 1,034Composition 13,143 2,238 1,689 2,652 1,275Workout plan 111,064 11,371 11,206 15,710 6,867Others 32,470 4,371 - 1,534 2,837

￦ 166,013 ￦ 20,015 ￦ 13,929 ￦ 21,931 ￦ 12,013

If the loans are restructured by means of reduction of interest rates, cash flows of fixed rate loans are discounted by effective interest ratesoriginally agreed upon and cash flows of floating rate loans are discounted by interest rates determined by adding a credit risk premium, which iscalculated at the restructuring date, assuming that debtors’ credit at the origination date is effective to the restructuring date, to a benchmarkinterest rate. The difference between the book value and the present value is presented as an allowance for possible loan losses.

8. ALLOWANCE FOR POSSIBLE LOAN LOSSES:(1) The allowance for possible loan losses as of December 31, 2007 is summarized as follows :

(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalDomestic import usance bill ￦ 14,470 ￦ 1,447 ￦ 4,676 ￦ 203 ￦ 629 ￦ 21,425Credit card receivables 152,904 22,802 147 28,116 42,805 246,774 Bills bought (*) 15,198 229 29 750 1,461 17,667Loans 1,417,985 128,737 106,704 274,050 216,257 2,143,733Factoring receivables ￦ 1,484 ￦ - ￦ - ￦ - ￦ - ￦ 1,484

(Continued)


(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalAdvances for customers ￦ 6 ￦ 96 ￦ 9,297 ￦ 281 ￦ 5,350 ￦ 15,030Privately placed bonds 53,910 242 544 - 1,955 56,651Loans for debt-equity swap - - - 1,968 - 1,968

￦ 1,655,957 ￦ 153,553 ￦ 121,397 ￦ 305,368 ￦ 268,457 ￦ 2,504,732


(Unit: In millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalDomestic import usance bill ￦ 8,470 ￦ 1,653 ￦ 12,677 ￦ 2,977 ￦ 1,089 ￦ 26,866Credit card receivables 129,619 32,263 130 42,736 39,537 244,285Bills bought (*) 9,020 259 57 182 86 9,604Loans 1,147,460 169,033 143,955 308,033 243,079 2,011,560Factoring receivables 2,910 - - - - 2,910Advances for customers 1 36 4,096 1,124 7,982 13,239Privately placed bonds 52,486 - 161 250 1,366 54,263Loans for debt-equity swap - - - 1,948 - 1,948

￦ 1,349,966 ￦ 203,244 ￦ 161,076 ￦ 357,250 ￦ 293,139 ￦ 2,364,675(*) Bill bought in won included

(2) The changes in allowance for possible loan losses for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Beginning balance (*1) ￦ 2,525,636 ￦ 2,544,062Provision for possible loan losses 547,467 1,028,465Reclassification from other allowances (*2) (324) 304,954Collection of previously written-off loans 531,899 476,121Repurchase of NPLs sold 763 5,897Sales of loans (70,453) (115,557)Loans written-off (857,359) (1,695,859)Exemption of loans (4,691) (4,582)Debt-equity swap (11,037) -Changes in exchange rates and others (5,498) (17,865)Ending balance (*1) ￦ 2,656,403 ￦ 2,525,636

(*1) Allowance for possible loan losses includes present value discounts amounting to ￦5,781 million and ￦12,013 million as of December 31, 2007 and 2006, respectively, and allowances for other

assets amounting to ￦151,671 million and ￦160,961 million, respectively.

(*2) Other allowances for credit lines to Kookmin Card 16th Securitization Specialty Co., Ltd. and FNSTAR 3rd Securitization Special Co., Ltd. amounting to ￦159,888 million and ￦145,066 million,

respectively, were transferred to allowances for possible loan losses for the year ended December 31, 2006.



(3) The allowance for possible losses on other assets as of December 31, 2007 and 2006 are summarized as follows :

(Unit: In millions)

2007 2006Suspense receivable ￦ 6,250 ￦ 7,425Uncollected guarantee deposits for rent 2,745 4,847Settlement costs for financial accident 94,221 87,122Derivative instruments 4,631 2,597Others 43,824 58,970

￦ 151,671 ￦ 160,961

(4) The allowance for possible loan losses compared to total loans, net of present value discount, is summarized as follows :

(Unit: In millions)

Allowance forLoans possible loan losses Percentage (%)

December 31, 2007 174,056,005 2,504,732 1.44December 31, 2006 152,244,198 2,364,675 1.55December 31, 2005 138,229,199 2,459,378 1.78

9. TANGIBLE ASSETS:(1) Tangible assets as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Tangible assets ￦ 3,961,991 ￦ 3,865,452Less: accumulated depreciation (1,644,160) (1,710,431)

accumulated impairment loss (16,367) (15,535)￦ 2,301,464 ￦ 2,139,486


(2) Tangible assets as of December 31, 2007 consisted of :

(Unit: In millions)


Land ￦ 994,591 ￦ - ￦ 6,751 ￦ 987,840Buildings 1,054,196 204,658 9,616 839,922Leasehold improvements 290,889 219,510 - 71,379Equipment and vehicles 1,616,170 1,219,992 - 396,178Construction in progress 6,145 - - 6,145

￦ 3,961,991 ￦ 1,644,160 ￦ 16,367 ￦ 2,301,464

Tangible assets as of December 31, 2006 consisted of :

(Unit: In millions)


Land ￦ 984,317 ￦ - ￦ 7,115 ￦ 977,202Buildings 986,511 181,239 8,420 796,852Leasehold improvements 234,976 179,053 - 55,923Equipment and vehicles 1,656,989 1,350,139 - 306,850Construction in progress 2,659 - - 2,659

￦ 3,865,452 ￦ 1,710,431 ￦ 15,535 ￦ 2,139,486

(3) The changes in book value of tangible assets for the year ended December 31, 2007 were as follows :

(Unit: In millions)


Beginning Acquisition ment Disposal tion ment currencies Ending Land ￦ 977,202 ￦ 16,548 ￦ 2,617 ￦ 7,399 ￦ - ￦(1,154) ￦ 26 ￦ 987,840Buildings 796,852 12,334 58,056 1,718 22,990 (1,831) (781) 839,922Leasehold improvements 55,923 358 60,796 308 45,408 - 18 71,379Equipment and vehicles 306,850 337,776 - 1,870 246,675 - 97 396,178Construction in progress 2,659 124,955 (121,469) - - - - 6,145

￦2,139,486 ￦491,971 ￦ - ￦11,295 ￦315,073 ￦(2,985) ￦ (640) ￦2,301,464



The changes in book value of tangible assets for the year ended December 31, 2006 were as follows :

(Unit: In millions)


Beginning Acquisition ment Disposal tion ment currencies Ending Land ￦ 979,460 ￦ 3,349 ￦ 2,873 ￦ 8,151 ￦ - ￦ (290) ￦ (39) ￦ 977,202Buildings 774,599 5,745 49,422 6,289 22,062 (4,449) (114) 796,852Leasehold improvements 45,096 298 45,504 172 34,782 - (21) 55,923Equipment and vehicles 241,030 255,175 - 23,058 166,232 - (65) 306,850Construction in progress 155 100,303 (97,799) - - - - 2,659

￦2,040,340 ￦364,870 ￦ - ￦ 37,670 ￦ 223,076 ￦(4,739) ￦ (239) ￦ 2,139,486

(4) The published value of the land was ￦1,402,712 million and ￦ 1,307,108 million as of December 31, 2007 and 2006, respectively, basedon the Laws on Disclosure of Land Price and Valuation of Land

(5) Tangible assets, which have been insured as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

Type of insurance Asset insured 2007 2006 Insurance companyProperty composite Buildings ￦ 895,795 ￦ 829,507 Samsung Fire & Marine Insurance

Leasehold improvements 153,470 120,243 Co., Ltd. & othersEquipment and vehicles 372,091 201,485

￦ 1,421,356 ￦ 1,151,235

10. OTHER ASSETS: (1) Other assets as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Guarantee deposits paid ￦ 1,345,720 ￦ 1,200,552Accounts receivable (Note 20) 2,077,945 2,160,437Accrued income (Note 3) 1,241,247 1,138,864Prepaid expenses 99,362 82,347Deferred income tax assets (Note 24) 161,533 34,842Derivatives assets (Note 20) 1,651,332 1,260,776Domestic exchange settlement debits ￦ 753,523 ￦ 962,250

(Continued)


(Unit: In millions)

2007 2006Intangible assets ￦ 338,682 ￦ 373,069Due from trust accounts 251,300 233,388Non-business use assets - 499Less: valuation allowance - (169)Sundry assets 276,742 193,083Less : allowances for possible losses (151,671) (160,961)

￦ 8,045,715 ￦ 7,478,977

(2) Intangible assets as of December 31, 2007 consisted of :

(Unit: In millions)


Goodwill ￦ 705,108 ￦ 483,129 ￦ 221,979Negative goodwill (346) (346) -Others 202,972 86,269 116,703

￦ 907,734 ￦ 569,052 ￦ 338,682

Intangible assets as of December 31, 2006 consisted of :

(Unit: In millions)


Goodwill ￦ 705,108 ￦ 404,784 ￦ 300,324Negative goodwill (346) (323) (23)Others 132,949 60,181 72,768

￦ 837,711 ￦ 464,642 ￦ 373,069

(3) The changes in intangible assets for the year ended December 31, 2007 were as follows :

(Unit: In millions)

Beginning Increase Decrease EndingGoodwill ￦ 300,324 ￦ - ￦ 78,345 ￦ 221,979Negative goodwill (23) - (23) -Others 72,768 82,273 38,338 116,703

￦ 373,069 ￦ 82,273 ￦ 116,660 ￦ 338,682



The changes in intangible assets for the year ended December 31, 2006 were as follows :

(Unit: In millions)

Beginning Increase Decrease EndingGoodwill ￦ 378,669 ￦ - ￦ 78,345 ￦ 300,324Negative goodwill (92) - (69) (23)Others 22,342 75,428 25,002 72,768

￦ 400,919 ￦ 75,428 ￦ 103,278 ￦ 373,069

(4) Non-business use properties as of December 31, 2006 consisted of :

(Unit: In millions)

Acquisition cost Valuation allowance Book valueNon-business use land ￦ 18 ￦ 12 ￦ 6Non-business use building 481 157 324

￦ 499 ￦ 169 ￦ 330

(5) Sundry assets as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Receivables on cash sent to other banks ￦ 100 ￦ 410Supplies 21,261 18,608 Deposit money to court (*) 24,108 21,789 Unsettled foreign currency 25,672 27,303Suspense receivable 128,807 114,630Others 76,794 10,343

￦ 276,742 ￦ 193,083(*) Securities are included in deposit money to court of which book value, face value and fair value are ￦17,919 million, ￦18,587 million and ￦20,438 million, respectively.

11. DEPOSITS:(1) Deposits as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Demand deposits ￦ 48,027,495 ￦ 50,119,814Time deposits 76,521,382 73,642,460Negotiable certificates of deposits 17,551,643 9,534,701

￦ 142,100,520 ￦ 133,296,975


(2) Details of deposits as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Demand deposits in Won:

Checking deposits ￦ 122,492 ￦ 231,186Household checking deposits 373,938 477,770Temporary deposits 3,501,038 4,066,769Passbook deposits 15,521,255 15,166,611Public fund deposits 199,358 199,948National Treasury deposits 4,437 2,641General savings deposits 17,846,651 20,826,726Corporate savings deposits 9,494,156 8,278,061Nonresident’s deposit in Won 50,569 45,344Other 91,175 40,611

47,205,069 49,335,667Demand deposits in foreign currencies:

Checking deposits 53,007 43,875 Passbook deposits 761,365 736,034 Temporary deposits 1,514 2,377Other 6,540 1,861

822,426 784,147 ￦ 48,027,495 ￦ 50,119,814

Time deposits in Won:Time deposits ￦ 61,746,049 ￦ 57,106,175Installment savings deposits 859,989 1,097,474Property formation savings 472 541 Workers’ savings for housing 2 2 Time and savings deposits of non-residents in Won 199,675 171,636 Long-term savings deposits for workers 3,294 4,334 Long-term housing savings deposits 3,505,814 3,057,236 Long-term savings for households 2,245 3,711 Workers’ preferential savings deposits 57,760 530,867 Mutual installment deposits 3,038,826 3,832,633Mutual installment for housing 2,973,114 3,842,727Other 3,258,590 3,300,772

75,645,830 72,948,108Loss(gain) on valuation of fair value hedged item (current year portion) (1,427) 3,740 Loss (gain) on valuation of fair value hedged item (prior year portion) 1,607 (2,133)

￦ 75,646,010 ￦ 72,949,715(Continued)



(Unit: In millions)

2007 2006Time deposits in foreign currencies:

Time deposits ￦ 874,792 ￦ 691,926Installment savings deposits 445 620 Others 135 199

875,372 692,74576,521,382 73,642,460

Negotiable certificates of deposits ￦ 17,551,643 ￦ 9,534,701

(3) Deposits with financial institutions as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

Financial institutions 2007 2006Demand deposits & time deposits Banks ￦ 6,804,105 ￦ 715,503

Others 6,648,175 3,117,12313,452,280 3,832,626

Negotiable certificates of deposits Banks 147,783 3,935Others 4,864,409 6,304,672

5,012,192 6,308,607￦ 18,464,472 ￦ 10,141,233

(4) Term structure of deposits as of December 31, 2007 was as follows :

(Unit: In millions)



of deposits 7,123,647 4,328,178 5,718,012 381,806 - 17,551,643￦ 80,545,285 ￦ 16,499,760 ￦ 33,349,816 ￦ 5,686,432 ￦ 6,019,227 ￦142,100,520


Term structure of deposits as of December 31, 2006 was as follows :

(Unit: In millions)



of deposits 5,996,076 2,523,968 1,014,503 154 - 9,534,701￦ 80,371,988 ￦ 11,772,268 ￦ 28,151,238 ￦ 7,229,117 ￦ 5,772,364 ￦133,296,975

12. BORROWINGS: (1) Borrowings as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Call money ￦ 794,138 ￦ 167,776Bills sold 506,378 462,479Bonds sold under repurchase agreements 5,914,230 7,044,955Borrowings 8,061,389 6,129,183Debentures 34,960,688 25,140,672Less: Discount on debentures (66,047) (158,166)

￦ 50,170,776 ￦ 38,786,899

(2) Call money as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Annual interest Account Lender rates (%) 2007 2006Call money in Won Seoul Guarantee Insurance and others 4.65~4.93 ￦ 179,700 ￦ 117,700Call money in Export-Import Bank of

foreign currencies Korea and others 0.00~8.87 614,438 50,076￦ 794,138 ￦ 167,776



(3) Bills sold and bonds sold under repurchase agreements as of December 31, 2007 and 2006 consisted of the following :

(Unit: In millions)

Annual interest Account Lender rates (%) 2007 2006Bills sold Teller’s Sales 3.72~5.84 ￦ 506,378 ￦ 462,479Bonds sold under

repurchase agreements Person, group & corporations 3.65~6.50 5,914,230 7,044,955￦ 6,420,608 ￦ 7,507,434

(4) Borrowings as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Annual interest Account Lender rates (%) 2007 2006

Borrowings in Won:Borrowings from the BOK BOK 3.25 ￦ 488,139 ￦ 681,965Borrowings from the Korean Ministry of Finance and

government Economy, and others 0.00~6.50 623,177 557,789Borrowings from banking

institutions Industrial Bank of Korea 3.75 ~ 6.91 91,187 86,956Borrowings from National

Housing Fund National Housing Fund 3.00~8.00 76,433 77,071Borrowings from non-

banking financial institutions Korea Development Bank 1.05~4.39 20,269 4,380Other borrowings Small Business Corporation and others 1.20~5.40 1,312,597 1,181,828

2,611,802 2,589,989Borrowings in foreign currency:

Due to Banks Wachovia Bank, N.A and others 0.00~5.35 103,594 42,941Borrowings from banking

institutions DBS Bank Ltd., Singapore and others 0.97~5.93 3,680,389 2,865,432Off-shore borrowings in

foreign currencies Overseas-Chinese Banking Corpand others 4.86~6.71 747,102 152,308

Other borrowings from banking institutions IBRD 5.89 4,123 6,845

Other borrowings in foreign currencies DRESDEFF and others - 914,379 471,668

5,449,587 3,539,194￦ 8,061,389 ￦ 6,129,183


(5) Debentures as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

Annual interest rate (%) 2007 2006

Debentures in Won:Hybrid debentures 6.00~7.00 ￦ 903,668 ￦ 903,668Structured debentures 4.29~9.20 3,335,635 1,587,701Subordinated fixed rate debentures in Won 4.19~15.02 6,335,762 6,670,799KCC subordinated fixed rate debentures 7.10~8.00 205,000 205,000KCC fixed rate debentures 5.54~5.87 200,000 200,000Fixed rate debentures 3.18~6.85 21,572,939 13,198,004

32,553,004 22,765,172Gain on valuation of fair value hedged items (current year portion) (206,807) (14,544)Gain on valuation of fair value hedged items (prior year portion)(*) (51,419) (40,790)

32,294,778 22,709,838Discounts on debentures (64,147) (158,575)

32,230,631 22,551,263Debentures in foreign currency:

Floating rates debentures 1.00 ~ 6.42 2,665,910 1,964,851Fixed rates debentures - - 475,099

2,665,910 2,439,950Loss on valuation of fair value hedged items (current year portion) - 6,493Gain on valuation of fair value hedged items (prior year portion) - (15,609)

2,665,910 2,430,834Premiums on debentures - 1,771Discounts on debentures (1,900) (1,362)

2,664,010 2,431,243￦ 34,894,641 ￦ 24,982,506

(*) The Bank recognized ￦13,031 million of gain on prior redemption of fair value hedged items for the years ended December 31, 2007.



(6) Hybrid debentures and subordinated debentures as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

Issued date Expiration date Annual interest rate (%) 2007 2006Subordinated fixed rate

debentures in Won Feb-98 ~ Aug-01 Feb-03~Aug-07 - ￦ 6,364 ￦ 313,401Nov-98 Nov-09 15.02 48,900 76,900Nov-00 Nov-10~Dec-10 9.57~9.65 162,051 162,051Jun-01 Mar-08~Mar-09 7.68~7.86 377,529 377,529Sep-01 Mar-08 6.69~6.73 150,000 150,000Mar-02 Jan-08 7.06~7.10 241,684 241,684Jul-02 Jan-08 6.96~7.00 302,399 302,399Sep-02 Mar-08~Mar-13 6.27~6.70 500,000 500,000Nov-02 May-08~May-13 6.07~6.55 558,775 558,775Dec-02 Jan-08 8.00 110,000 110,000Dec-02 Jun-08~Dec-14 6.20~6.65 180,370 180,370Jan-03 Feb-08 7.65 50,000 50,000Mar-03 Apr-08 7.10 45,000 45,000Oct-03 Jan-09~Jan-14 5.18~5.60 449,051 449,051Feb-04 Aug-09~Aug-14 5.65~6.16 700,000 700,000Sep-04 Dec-18 5.12 57,784 57,784Dec-04 Jun-10 4.19~4.20 700,000 700,000Mar-06 Jan-12 5.67~5.70 1,900,855 1,900,855

6,540,762 6,875,799Hybrid debentures Jun-03 Jun-33 6.00 105,145 105,145

Aug-03 Aug-33 7.00 533,355 533,355Oct-03 Oct-33 6.80 265,168 265,168

903,668 903,668￦ 7,444,430 ￦ 7,779,467

(7) Call money and borrowings with financial institutions as of December 31, 2007 were as follows :

(Unit: In millions)


￦ 488,139 ￦ 5,981,558 ￦ 421,265 ￦ 6,890,962


Call money and borrowings with financial institutions as of December 31, 2006 were as follows :

(Unit: In millions)


￦ 681,965 ￦ 3,639,316 ￦ 160,021 ￦ 4,481,302

(8) Term structure of borrowings as of December 31, 2007 was as follows :

(Unit: In millions)




repurchase agreements 3,659,801 939,352 1,315,077 - - 5,914,230Borrowings 2,801,103 1,399,033 1,330,278 1,263,851 1,267,124 8,061,389Debentures 5,202,808 4,481,367 2,137,409 14,640,752 8,498,352 34,960,688

￦ 12,591,907 ￦ 6,831,925 ￦ 5,142,912 ￦ 15,904,603 ￦ 9,765,476 ￦ 50,236,823

Term structure of borrowings as of December 31, 2006 was as follows :

(Unit: In millions)




repurchase agreements 4,589,657 1,250,944 1,204,144 210 - 7,044,955Borrowings 1,864,071 1,384,004 708,068 1,227,937 945,103 6,129,183Debentures 2,246,140 1,169,430 6,309,297 8,729,425 6,686,380 25,140,672

￦ 9,178,831 ￦ 3,867,647 ￦ 8,309,532 ￦ 9,957,572 ￦ 7,631,483 ￦ 38,945,065



13. OTHER LIABILITIES:Other liabilities as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Accounts payable ￦ 2,622,557 ￦ 2,373,371Accrued expenses 4,482,518 3,930,763Unearned revenues 128,449 101,009Deferred income tax liabilities 106 141Withholding taxes 179,527 114,776Guarantees deposits received 106,253 91,035Accounts for agency business 281,479 151,696Domestic exchange settlement credits 494,487 141,042Foreign currency bills payable 54,797 54,515Agency 363,757 171,024Derivatives liabilities (Note 20) 1,825,887 1,147,702Due to trust accounts 1,139,552 1,124,095Accrued severance benefits (Note 15) 713,544 546,597Less: Severance insurance deposits (478,366) (340,595)Transfer to National Pension (60) (82)Allowance for possible losses on acceptances and guarantees (Note 14) 36,541 18,772Other allowances (Note 16) 753,322 783,814Insurance reserve 1,047,211 651,001Sundry liabilities (Note 17) 914,480 640,825

￦ 14,666,041 ￦ 11,701,501

14. ACCEPTANCES AND GUARANTEES AND ALLOWANCES FOR POSSIBLE LOSSES:(1) Acceptances and guarantees as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

Types 2007 2006Confirmed acceptances and guarantees in Won:

Payment guarantee for issuance of debentures ￦ 1,131 ￦ 1,150Payment guarantee for loans 61,274 53,237 Others 2,140,172 905,545

￦ 2,202,777 ￦ 959,932 (Continued)


(Unit: In millions)

Types 2007 2006Confirmed acceptances and guarantees in foreign currencies:

Acceptances on letters of credit ￦ 133,786 ￦ 93,017Acceptances for letters of guarantee for importers 63,431 56,268Guarantees for performance of contracts 151,701 76,385Guarantees for bids 3,186 4,082Guarantees for borrowings 46,928 36,128Guarantees for repayment of advances 1,889,250 1,101,403Others 809,088 388,043

3,097,370 1,755,3265,300,147 2,715,258

Unconfirmed acceptances and guarantees:Letters of credit 2,657,389 1,266,858Others 1,292,869 1,037,576

3,950,258 2,304,434Bills endorsed 63 4,540

￦ 9,250,468 ￦ 5,024,232

(2) Acceptances and guarantees, by customer, as of December 31, 2007 were as follows :

(Unit: In millions)

By customer Confirmed Unconfirmed Bills endorsed Total Percentage (%)Large corporations ￦ 3,851,519 ￦ 2,420,568 ￦ - ￦ 6,272,087 67.80Small and medium corporations 1,369,778 1,494,948 63 2,864,789 30.97Public sector and others 78,850 34,742 - 113,592 1.23

￦ 5,300,147 ￦ 3,950,258 ￦ 63 ￦ 9,250,468 100.00

Acceptances and guarantees, by customer, as of December 31, 2006 were as follows :

(Unit: In millions)

By customer Confirmed Unconfirmed Bills endorsed Total Percentage (%)Large corporations ￦ 1,841,739 ￦ 1,586,005 ￦ 1,213 ￦ 3,428,957 68.25Small and medium corporations 533,771 676,432 3,247 1,213,450 24.15Public sector and others 339,748 41,997 80 381,825 7.60

￦ 2,715,258 ￦ 2,304,434 ￦ 4,540 ￦ 5,024,232 100.00



(3) Acceptances and guarantees, by industry, as of December 31, 2007 were as follows :

(Unit: In millions)

By industry Confirmed Unconfirmed Bills endorsed Total Percentage (%)Public sector ￦ 306 ￦ 155,808 ￦ - ￦ 156,114 1.69Finance 692,748 9,729 - 702,477 7.59Service 655,662 41,679 - 697,341 7.54Manufacturing 2,913,605 3,057,802 - 5,971,407 64.55Others 1,037,826 685,240 63 1,723,129 18.63

￦ 5,300,147 ￦ 3,950,258 ￦ 63 ￦ 9,250,468 100.00

Acceptances and guarantees, by industry, as of December 31, 2006 were as follows :

(Unit: In millions)

By industry Confirmed Unconfirmed Bills endorsed Total Percentage (%)Public sector ￦ 68 ￦ 78,563 ￦ - ￦ 78,631 1.56Finance 343,714 - - 343,714 6.84Service 393,552 39,330 - 432,882 8.62Manufacturing 1,593,449 1,723,450 2,623 3,319,522 66.07Others 384,475 463,091 1,917 849,483 16.91

￦ 2,715,258 ￦ 2,304,434 ￦ 4,540 ￦ 5,024,232 100.00

(4) Acceptances and guarantees, by country, as of December 31, 2007 were as follows :

(Unit: In millions)

By country Confirmed Unconfirmed Bills endorsed Total Percentage(%)Korea ￦ 4,805,158 ￦ 3,944,524 ￦ 63 ￦ 8,749,745 94.59Others 494,989 5,734 - 500,723 5.41

￦ 5,300,147 ￦ 3,950,258 ￦ 63 ￦ 9,250,468 100.00

Acceptances and guarantees, by country, as of December 31, 2006 were as follows :

(Unit: In millions)

By country Confirmed Unconfirmed Bills endorsed Total Percentage(%)Korea ￦ 2,453,216 ￦ 2,304,434 ￦ 4,540 ￦ 4,762,190 94.79Others 262,042 - - 262,042 5.21

￦ 2,715,258 ￦ 2,304,434 ￦ 4,540 ￦ 5,024,232 100.00


(5) Allowance for possible losses on acceptances and guarantees and others as of December 31, 2007 was as follows :

(Unit: In millions)



Normal ￦ 2,199,575 ￦ 3,096,520 ￦ 3,941,249 ￦ 63 ￦ 9,237,407Precautionary 2,589 820 6,536 - 9,945Substandard 198 2 2,187 - 2,387Doubtful 415 - 103 - 518Estimated loss - 28 183 - 211

￦ 2,202,777 ￦ 3,097,370 ￦ 3,950,258 ￦ 63 ￦ 9,250,468Allowance for possible losses ￦ 13,525 ￦ 12,881 ￦ 10,134 ￦ 1 ￦ 36,541Ratio (%) 0.61 0.42 0.26 0.90 0.40

Allowance for possible losses on acceptances and guarantees and others as of December 31, 2006 were as follows :

(Unit: In millions)



Normal ￦ 957,105 ￦ 1,746,539 ￦ 2,283,303 ￦ 4,295 ￦ 4,991,242Precautionary 2,446 3,186 7,490 - 13,122Substandard 30 5,586 7,244 40 12,900Doubtful 350 - 434 205 989Estimated loss 1 15 5,963 - 5,979

￦ 959,932 ￦ 1,755,326 ￦ 2,304,434 ￦ 4,540 ￦ 5,024,232Allowance for possible losses ￦ 3,650 ￦ 7,613 ￦ 7,268 ￦ 241 ￦ 18,772Ratio (%) 0.38 0.43 0.32 5.31 0.37



(6) The percentage of allowance for possible losses on acceptances and guarantees and others as of December 31, 2007, 2006 and 2005 was as follows :

(Unit: In millions)

Guarantees and acceptances and others Allowance Percentage (%)

December 31, 2007 ￦ 9,250,468 ￦ 36,541 0.40December 31, 2006 5,024,232 18,772 0.37December 31, 2005 3,781,397 10,141 0.27

15. ACCRUED SEVERANCE BENEFITS:The changes in accrued severance benefits for the year ended December 31, 2007 were as follows :

(Unit: In millions)


Accrued severance benefits ￦ 546,597 ￦ 194,674 ￦ 27,730 ￦ 3 ￦ 713,544Severance insurance deposits (340,595) (143,492) (5,721) - (478,366)Transfer to National Pension (82) - (22) (60)

￦ 205,920 ￦ 51,182 ￦ 21,987 ￦ 3 ￦ 235,118

The changes in accrued severance benefits for the year ended December 31, 2006 were as follows :

(Unit: In millions)


Accrued severance benefits ￦ 395,531 ￦ 169,288 ￦ 18,209 ￦ (13) ￦ 546,597Severance insurance deposits (241,038) (1,882) - (340,595) Transfer to National Pension (82) - - - (82)

￦ 154,411 ￦ 67,849 ￦ 16,327 ￦ (13) ￦ 205,920(*) Loss (gain) on foreign currency translation of the accrued severance benefit of the Tokyo branch office and an overseas subsidiary

As of December 31, 2007, part of severance benefits was contributed to pension funds of Kyobo Life Insurance Co., Ltd. and others in which thebeneficiary is a respective employee.


16. OTHER ALLOWANCES:Other allowances as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Mileage rewards ￦ 100,828 ￦ 89,025Credit commitments to SPC (Note 19) 2,466 3,602KAMCO loans sold (Note 19) - 252Dormant accounts 42,662 27,689Unused credit limit 539,082 566,662Preparation for damages 1,613 1,603Trust risk 1,809 1,438Others 64,862 93,543

￦ 753,322 ￦ 783,814

The unused credit limit for other allowances amounts to ￦78,215,638 million and ￦76,836,775 million as of December 31, 2007 and 2006,respectively.

17. SUNDRY LIABILITIES:Sundry liabilities as of December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Suspense payable ￦ 50,257 ￦ 191,844Borrowings for others’ business 42,644 94,769Prepaid card and debit card liabilities 22,402 20,947Subscription deposits 52,857 71,665Income tax payable 655,134 237,391Others 91,186 24,209

￦ 914,480 ￦ 640,825



18. SHAREHOLDERS’ EQUITY:(1) Capital stockAs of December 31, 2007 and 2006, the Bank has 1 billion common shares authorized with a par value per share of ￦5,000 and 336,379,116shares (￦1,681,896 million) issued. The Bank’s major shareholders were Euro-Pacific Growth Fund (18,377,910 shares, 5.46 percent) andNational Pension Service (14,951,343 shares, 4.44 percent) as of December 31, 2007.

As a result of the legal consolidation with H&CB, the registered shareholders of both the Bank and H&CB, as of October 31, 2001, received179,775,233 shares and 119,922,229 shares, respectively. The new shares were distributed based on an exchange ratio of one new Bank shareeach for 1.688346 old Bank shares and one new Bank share for one H&CB share. The new shares were listed on the Korea Stock Exchange onNovember 9, 2001. Furthermore, as a result of the merger with Kookmin Credit Co., Ltd., the Bank issued 8,120,431 shares.

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

(2) Capital surplusThe capital surplus as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2006 Increase (Decrease) 2007Paid-in capital in excess of par value ￦ 5,655,840 ￦ - ￦ 5,655,840Gain on business combination 397,669 - 397,669Revaluation increment 177,229 - 177,229Others 44,093 (296) 43,797

￦ 6,274,831 ￦ (296) ￦ 6,274,535

The gain on business combination was due to the difference between the business combination consideration and the net asset value acquiredfrom the merger with KLB on December 31, 1998.

(3) Retained earnings1) Retained earnings as of December 31, 2007 and 2006 are summarized as follows :

(Unit: In millions)

2007 2006Legal reserve ￦ 1,078,393 ￦ 830,309Voluntary reserve 3,909,225 2,914,325Retained earnings before appropriations 2,787,667 2,497,278

￦ 7,775,285 ￦ 6,241,912


2) Legal reserveThe Korean Banking Law Act 40 requires banks to appropriate at least 10 percent of net income to legal reserve until such reserve equals 100percent of its paid-in capital. This reserve is not available for cash dividends and can only be transferred to capital or can be used to reduce deficit.The Tokyo branch appropriate 10 percent of net income after income tax to legal reserve in accordance with the Japanese Banking Law.

3) Voluntary reserveIn 2002, the Finance Supervisory Service recommended banks to appropriate at least 10 percent of net income after deducting loss carriedforward to reserve for financial structure improvement until simple capital ratio equals 5.5 percent. This reserve can only be used to reduce deficitor be transferred to capital.

(4) Accumulated other comprehensive income1) Accumulated other comprehensive income as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Gain on valuation of available-for-sale securities ￦ 352,600 ￦ 883,068Gain on valuation of held-to-maturity securities 42 98Gain(Loss) on valuation of securities using the equity method (21,423) 1,975Gain(Loss) on valuation of derivatives (60) -

￦ 331,159 ￦ 885,141

2) The changes of accumulated other comprehensive income for the year ended December 31, 2007 were as follows :

(Unit: In millions)

Beginning Disposal or Ending balance Changes realization balance

Gain on valuation of available-for-sale securities ￦ 883,068 ￦ 28,810 ￦ (559,278) ￦ 352,600Gain on valuation of held-to-maturity securities 98 - (56) 42 Gain(Loss) on valuation of securities

using the equity method 1,975 (22,019) (1,379) (21,423)Gain(Loss) on valuation of derivatives - (60) - (60)

￦ 885,141 ￦ 6,731 ￦ (560,713) ￦ 331,159



The changes of accumulated other comprehensive income for the year ended December 31, 2006 were as follows :

(Unit: In millions)

Beginning Disposal or Ending balance Changes realization balance

Gain on valuation of available-for-sale securities ￦ 509,813 ￦ 478,994 ￦ (105,739) ￦ 883,068Gain on valuation of held-to-maturity securities 426 - (328) 98 Gain(Loss) on valuation of securities

using the equity method (11,878) 13,908 (55) 1,975￦ 498,361 ￦ 492,902 ￦ (106,122) ￦ 885,141

(5) DividendsThe calculation of dividends for the years ended December 31, 2007 and 2006 was as follows:

2007 2006Issued stocks (shares) 336,379,116 336,379,116Treasury stock (shares) - -Dividend stocks (shares) 336,379,116 336,379,116Dividend rate (%) 49.00 73.00The amount of dividend (Won in million) 824,129 1,227,784Dividend propensity (%) 29.71 49.67Dividend yield ratio (%) 3.55 4.87

19. SHARE-BASED PAYMENT:The Bank granted stock options to employees and executives including the president several times. When the stock options are exercised, theBank has the option to settle either through issuance of new shares or treasury stock, or through payment of cash equivalent to the differencebetween the market price and the exercise price. In accordance with the resolution of the Board of Directors on August 23, 2005, the Bank haschanged the settlement method from issuance of treasury stock to payment of cash equivalent to the difference between the market price and theexercise price only after the remaining treasury stock is issued. Accordingly, the compensation cost of stock options granted before and after theeffective date of SKAS No. 22 (Share-based Payment) was measured using the intrinsic value method in accordance with the Interpretations onFinancial Accounting Standards 39-35 “Accounting for Stock Options,” and the fair value method, respectively.


The details of the stock options as of December 31, 2007 were as follows :

(Unit: In Won)

Grant date Exercise period (years) Granted shares Grant conditionsSeries 2 01.03.15 8 214,975 Offer service: 1 yearSeries 6 01.03.24 6 111,000 Offer service: 3 yearsSeries 7 01.11.16 8 850,000 Offer service: 3 yearsSeries 8-1 (*2) 02.03.22 8 132,000 Offer service: 1 year, 3 yearsSeries 8-2 (*3) 02.03.22 8 490,000 Offer service: 1 year, 3 yearsSeries 9 (*3) 02.07.26 8 30,000 Offer service: 3 yearsSeries 10-1 (*2) 03.03.21 8 140,000 Offer service: 3 yearsSeries 10-2 (*3) 03.03.21 8 180,000 Offer service: 3 yearsSeries 11 (*3) 03.08.27 8 30,000 Offer service: 3 yearsSeries 12 (*3) 04.02.09 8 85,000 Offer service: 1 yearSeries 13-1 (*2) 04.03.23 8 20,000 Offer service: 1 yearSeries 13-2(*3) 04.03.23 8 10,000 Offer service: 1 yearSeries 14 (*2,*3) 04.11.01 8 700,000 Offer service: 3 years

Targets to achieve (*5)Series 15-1 (*2) 05.03.18 8 165,000 Offer service: 3 yearsSeries 15-2 (*3) 05.03.18 8 765,000 Offer service: 3 yearsSeries 16 (*3) 05.04.27 8 15,000 Offer service: 3 yearsSeries 17 (*3) 05.07.22 8 30,000 Offer service: 3 yearsSeries 18 (*3) 05.08.23 8 15,000 Offer service: 3 yearsSeries 19 (*1) 06.03.24 8 940,000 Offer service: 1 year, 2 years, 3 yearsSeries 20 (*1) 06.04.28 8 30,000 Offer service: 3 yearsSeries 21 (*1) 06.10.27 8 20,000 Offer service: 2 yearsSeries 22 (*1) 07.02.08 8 885,000 Offer service: 1 year, 3 yearsSeries 23 (*1) 07.03.23 8 30,000 Offer service: 3 yearsSeries Kookmin

Credit Card -1 (*4) 01.03.22 10 22,146 Offer service: 1 yearSeries Kookmin

Credit Card -2 (*2,*4) 02.03.29 9 9,990 Offer service: 2 yearsStock Grant 07.11.01 3 66,540 Offer service: 3 years


5,986,651(*1) The exercise price is adjusted by the rate of increase in the market value of the major competitors’ stock as of balance sheet dates.

(*2) The exercise price is adjusted by the rate of increase in the average stock price index of the banking industry as of balance sheet dates.

(*3) As the actual number of exercisable granted shares is determined in accordance with the management performance for the contract period of service, the number of granted shares used for the

calculation of compensation cost is computed based on the assumption that the performance result falls into the highest level in the bracket.

(*4) The Bank took over the stock options granted by Kookmin Credit Card Co., Ltd. of which the exercise price and number of shares were adjusted in proportion to the merger ratio.

(*5) 300,000 shares are vested when targeted ROE is accomplished; 200,000 shares vested when targeted BIS ratio is achieved; 200,000 shares vested when targeted return on shareholders’ equity is met.

(*6) 15,860 shares are vested when targeted assets growth rate is accomplished; 15,860 shares vested when targeted ROA is achieved; 31,730 shares vested when targeted Relative TSR is met.



(2) The changes in granted shares and the weighted average exercise price for the year ended December 31, 2007 are follows :



Beginning Granted Exercised Expired Ending price maturity (year)Series 2 88,107 - 18,384 - 69,723 ￦ 28,027 1.21Series 6 8,633 - 8,633 - - 25,100 -Series 7 150,000 - 75,000 - 75,000 51,200 1.88 Series 8-1 28,863 - 600 - 28,263 57,100 2.22 Series 8-2 263,565 - 66,734 - 196,831 57,100 2.22 Series 9 23,899 - - - 23,899 58,800 2.57 Series 10-1 43,414 - 3,351 - 40,063 47,360 3.22 Series 10-2 70,993 - - - 70,993 35,500 3.22 Series 11 5,091 - - - 5,091 40,500 3.66 Series 12 75,539 - 21,289 - 54,250 46,100 4.11 Series 13-1 20,000 - - - 20,000 48,650 4.23 Series 13-2 10,000 - 10,000 - - 47,200 -Series 14 700,000 - - 90,000 610,000 50,600 4.84 Series 15-1 135,259 - - 9,897 125,362 59,969 5.22 Series 15-2 580,069 - - 61,875 518,194 46,800 5.22 Series 16 15,000 - - 6,173 8,827 45,700 5.33 Series 17 30,000 - - - 30,000 49,200 5.56 Series 18 15,000 - - 7,788 7,212 53,000 5.65 Series 19 940,000 - - 10,000 930,000 81,718Series 20 30,000 - - - 30,000 85,500 6.23 Series 21 20,000 - - - 20,000 79,700 6.83 Series 22 - 885,000 - - 885,000 77,100 7.11 Series 23 - 30,000 - - 30,000 84,500 7.23 Stock Grant - 66,540 - - 66,540 - 2.84 Series Kookmin

Credit Card -1 22,146 - - - 22,146 71,538 3.22 Series Kookmin

Credit Card -2 9,990 - - - 9,990 129,100 3.24 3,285,568 981,540 203,991 185,733 3,877,384 ￦ 63,663 5.41



The changes in granted shares and the weighted average exercise price for the year ended December 31, 2006 are follows :



Beginning Granted Exercised Expired Ending price maturity (year)Series 2 133,695 - 45,588 - 88,107 ￦ 28,027 2.21Series 4 60,754 - 60,754 - - 27,600 -Series 6 36,726 - 28,093 - 8,633 25,100 0.23Series 7 650,000 - 500,000 - 150,000 51,200 2.88Series 8-1 42,047 - 13,184 - 28,863 57,100 3.22Series 8-2 276,904 - 13,339 - 263,565 57,100 3.22Series 9 23,899 - - - 23,899 58,800 3.57Series 10-1 63,443 - 20,029 - 43,414 46,962 4.22Series 10-2 89,560 - 17,910 657 70,993 35,500 4.22Series 11 5,091 - - - 5,091 40,500 4.66Series 12 75,539 - - - 75,539 46,100 5.11Series 13-1 20,000 - - - 20,000 48,650 5.23Series 13-2 10,000 - - - 10,000 47,200 5.23Series 14 700,000 - - - 700,000 51,000 5.84Series 15-1 165,000 - - 29,741 135,259 59,288 6.22Series 15-2 765,000 - - 184,931 580,069 46,800 6.22Series 16 15,000 - - - 15,000 45,700 6.33Series 17 30,000 - - - 30,000 49,200 6.56Series 18 15,000 - - - 15,000 53,000 6.65Series 19 - 940,000 - - 940,000 80,900 7.23Series 20 - 30,000 - - 30,000 84,600 7.33Series 21 - 20,000 - - 20,000 79,000 7.83Series Kookmin

Credit Card -1 22,146 - - - 22,146 71,538 4.22Series Kookmin

Credit Card -2 9,990 - - - 9,990 129,100 4.243,209,794 990,000 698,897 215,329 3,285,568 ￦ 65,986 5.77




(3) Series 22 and Series 23 are measured at fair value based on the Black-Scholes Model, and the factors used in determining the fair value are asfollows :

(Unit: In Won)

Expected Stock Exercise stock price Maturity Expected Risk free

Series price price volatility (%) (years) dividend rate (%) Fair valueSeries 22-1

(Director) ￦ 68,600 ￦ 77,100 25.54 4.00 ￦ 5,797 4.31 ￦ 11,844Series 22-2

(Employee) 68,600 77,100 26.07 4.86 6,919 4.32 13,636Series 23 68,600 84,500 25.12 4.11 5,953 4.31 9,730

The expected weighted average exercise period was separately estimated for directors and employees in order to reflect the possibility of an earlyexercise. The historical stock price volatility during the respective expected exercise period was applied to the calculation of the expected stockprice volatility and estimated based on the cross volatility of the stock price between the Bank and its competitors in order to adjust the exerciseprice in proportion to the change of the market value of the competitors.

(4) As of December 31, 2007 and 2006, the accrued expenses under the share-based payment amount to ￦38,482 million and ￦42,754million, respectively, and the intrinsic value of the vested share option amount to ￦22,900 million and ￦21,694 million, respectively. Thecompensation cost recorded as selling and administration expense amounts to ￦2,516 million and ￦13,232 million for the years endedDecember 31, 2007 and 2006, respectively.

20. CONTINGENCIES AND COMMITMENTS:(1) The Bank holds written-off loans, of which the claim for borrowers and guarantors have not been terminated , amounting to ￦11,548,886million and ￦12,009,693 million as of December 31, 2007 and 2006, respectively.

(2) As of December 31, 2007, the Bank has reversed allowances of ￦87 million, for losses in relation to the possible future repurchase of loans,which the Bank sold to Korea Asset Management Corporation (“KAMCO”). As of December 31, 2006, the Bank has provided allowances of￦252 million, for losses in relation to the possible future repurchase of loans, which the Bank sold to KAMCO for ￦666 million.

(3) As of December 31, 2007 and 2006, the Bank recorded receivables amounting to ￦1,828,928 million and ￦1,900,684 million,respectively, and payables amounting to ￦1,828,435 million and ￦1,900,506 million, respectively, for unsettled foreign currency spottransactions, respectively.

(4) As of December 31, 2007 and 2006, the Bank has entered into commitments to provide credit line of ￦480,882 million and ￦1,158,800million, respectively, and to purchase commercial papers amounting to ￦1,235,400 million and ￦1,224,200 million, respectively, with severalspecial purpose companies. As of December 31, 2007 and 2006, under these commitments, the Bank extended loans of ￦5,617 million and￦12,497 million, respectively, to the companies and recognized ￦2,466 million and ￦3,602 million, respectively, of expected loss as other


allowance. The Bank has purchased commercial papers of ￦136,700 million as of December 31, 2007, and the Bank has no balance ofcommitment to purchase commercial papers as of December 31, 2006.

Its subsidiaries have also entered into commitments to provide credit lines for general purpose loan with Hana Bank amounting to ￦40,000million and commercial papers discount contract with Korea Exchange Bank, Woori Bank, and Tong Yang Investment Bank amounting to￦15,000 million, ￦20,000 million and ￦30,000 million, respectively, as of December 31, 2007. Its subsidiaries have no balance of generalpurpose loan and commercial papers discount as of December 31, 2007.

(5) As of December 31, 2007, the Bank and its subsidiaries have provided eleven promissory notes with face value of ￦683,320 million for saleof housings to Korea Housing Guarantee Corporation as guarantee for land trust business.

(6) The Bank entered into the business cooperation agreements with Citibank and Nonghyup regarding the credit card business. Accordingly,the Bank shares the related revenue from such business operation.

(7) The Bank and its subsidiaries have filed 119 lawsuits involving aggregate claims of ￦252,142 million and face 252 lawsuits involvingaggregate damages of ￦1,047,397 million, which arose in the normal course of the business and are still pending as of December 31, 2007. TheKorea Lottery Service Inc.(“KLS”) filed a suit against the Bank in relation to the commitment fee (2 cases with aggregate claims of ￦465,434million). However, the government (lottery fund) will be substantially liable for the damages if the court rules in favor of the plaintiff; thus, it isexpected that the suit would not affect the Bank’s financial position. The government also filed a civil lawsuit against KLS, the accounting firm,the Bank and their responsible persons with aggregate claims amounting to ￦320,800 million for the overpayment of lottery service commissionfees to KLS. This litigation is pending at the first trial as of December 31, 2007. In 2007, at the first trial of the criminal lawsuit, filed by theKorea Prosecutory Authorities against the Bank’s employee, the court convicted the Bank’s employee of malpractice. However, it is uncertainthat the Bank will be ultimately liable for the aforementioned aggregate claims in the civil lawsuit, and a reliable estimate can not be made of theamount of the potential liabilities as of December 31, 2007.

(8) Hannuri Investment & Securities Co., Ltd. Stock Purchase AgreementThe Bank entered into the stock purchase agreement with J.D.K Investment Co., Inc in order to acquire the shares of Hannuri Investment &Securities Co., Ltd. on November 14, 2007. With the approval of the authorities concerned, the Bank will acquire 9,580,000 shares(shareholding ratio of 95.8 percent) of Hannuri Investment & Securities Co., Ltd. at ￦266,324 million (￦27,800 per share) in March 2008.

(9) The face value of the consumer investment securities amounts to ￦316,429 million and ￦217,754 million as of December 31, 2007 andDecember 31, 2006, respectively.

(10) The Bank and its subsidiaries received performance bonds of ￦3,879 million from Seoul Guarantee Insurance Company in relation toservice contracts with third parties, which provide performance guarantee and subsequent service warranty for one year.

(11) The Bank has been assessed on income tax and others of ￦438,975 million as a consequence of the regular tax audit performed by theSeoul Regional Tax Office from February 7, 2007 to April 19, 2007. The Bank has filed an appeal against the above assessment through properlegal procedures.



(12) The notional amounts outstanding for derivative contracts as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Type Trading Hedge Total Trading Hedge TotalInterest rate:

Interest rate forwards ￦ - ￦ - ￦ - ￦ 92,960 ￦ - ￦ 92,960Interest rate futures 3,505,978 - 3,505,978 1,470,054 - 1,470,054Interest rate swaps 54,351,434 4,805,938 59,157,372 42,555,952 3,718,967 46,274,919Interest rate options

purchased 160,000 - 160,000 110,000 - 110,000Interest rate options

sold 100,000 - 100,000 300,000 - 300,00058,117,412 4,805,938 62,923,350 44,528,966 3,718,967 48,247,933

Currency:Currency forwards 87,443,884 - 87,443,884 80,948,658 - 80,948,658Currency futures 4,230,709 - 4,230,709 3,237,813 - 3,237,813Currency swaps 13,132,398 - 13,132,398 7,888,681 - 7,888,681Currency options

purchased 3,694,060 - 3,694,060 518,421 - 518,421Currency options sold 2,410,698 - 2,410,698 348,143 - 348,143

110,911,749 - 110,911,749 92,941,716 - 92,941,716Stock:

Stock index futures 49,237 - 49,237 187,454 - 187,454Stock options purchased 503,022 - 503,022 723,790 - 723,790

Stock options sold 744,651 - 744,651 987,929 - 987,929Stock swaps 100,000 - 100,000 8,008 - 8,008

1,396,910 - 1,396,910 1,907,181 - 1,907,181Others:

Gold index options purchased 22,961 - 22,961 - - -

Gold index options sold 22,961 - 22,961 - - -

Merchandise forwards 109,626 - 109,626 - - - Merchandise swaps 468 468Other derivatives 200,000 - 200,000 - - -

356,016 - 356,016 - - - ￦ 170,782,087 ￦ 4,805,938 ￦ 175,588,025 ￦ 139,377,863 ￦ 3,718,967 ￦ 143,096,830


For transaction between Won and foreign currencies, unsettled amount of transaction is presented using the basic foreign exchange rate based onthe contract amount in foreign currencies. For transaction between foreign currencies and foreign currencies, unsettled amount is presented usingthe basic foreign exchange rate based on foreign currencies purchased. Also, the notional amounts outstanding for cash flow hedge accounting arenot included.

(Unit: In millions)


Interest rate:Interest rate swaps ￦ 306,786 ￦4,061 ￦ 310,847 ￦ 377,240 ￦212,740 ￦ 589,980 ￦ 388,364 ￦ 638,541Interest rate

options purchased 330 - 330 566 - 566 2,608 -Interest rate

options sold 79 - 79 693 - 693 - 983307,195 4,061 311,256 378,499 212,740 591,239 390,972 639,524

Currency:Currency forwards 773,310 - 773,310 758,470 - 758,470 786,481 808,537Currency swaps 68,094 - 68,094 108,919 - 108,919 289,617 181,702Currency options

purchased 61,037 - 61,037 2,223 - 2,223 51,344 14,103Currency options sold 2,474 - 2,474 21,065 - 21,065 1,915 42,570

904,915 - 904,915 890,677 - 890,677 1,129,357 1,046,912Stock:

Stock options purchased 25,266 - 25,266 36,078 - 36,078 125,116 -

Stock options sold 14,405 - 14,405 27,179 - 27,179 - 133,659Stock swaps 527 - 527 453 - 453 501 501

40,198 - 40,198 63,710 - 63,710 125,617 134,160Others:

Gold index options purchased 184 - 184 128 - 128 1,028 -

Gold index options sold 215 - 215 118 - 118 - 1,028Merchandise forwards 2,059 - 2,059 1,966 - 1,966 2,059 1,966Merchandise swaps 193 - 193 191 - 191 193 191Other derivatives 2,105 - 2,105 1,974 - 1,974 2,106 1,974

4,756 - 4,756 4,377 - 4,377 5,386 5,159￦1,257,064 ￦4,061 ￦1,261,125 ￦1,337,263 ￦212,740 ￦1,550,003 ￦1,651,332 ￦ 1,825,755

The valuation of cash flow hedge accounting is not included.



The details of derivatives as of December 31, 2006 and the valuation of derivatives for the year ended December 31, 2006 were as follows :

(Unit: In millions)


Interest rate:Interest rate forwards ￦ 9 ￦ - ￦ 9 ￦ 424 ￦ - ￦ 424 ￦ 9 ￦ -Interest rate swaps 117,897 31,517 149,414 178,167 35,828 213,995 174,542 217,520Interest rate options

purchased 856 - 856 604 - 604 2,261 - Interest rate options sold 1,086 - 1,086 30 - 30 - 675

119,848 31,517 151,365 179,225 35,828 215,053 176,812 218,195Currency:

Currency forwards 529,586 - 529,586 651,898 - 651,898 537,474 667,386Currency swaps 233,340 - 233,340 128,390 - 128,390 427,425 210,502Currency options

purchased 1,756 - 1,756 1,717 - 1,717 1,912 3,882Currency options sold 1,189 - 1,189 1,005 - 1,005 357 1,806

765,871 - 765,871 783,010 - 783,010 967,168 883,576Stock:

Stock options purchased 10,004 - 10,004 3,983 - 3,983 116,784 - Stock options sold 7,915 - 7,915 13,657 - 13,657 - 45,919Stock swaps 91 - 91 79 - 79 12 12

18,010 - 18,010 17,719 - 17,719 116,796 45,931￦ 903,729 ￦31,517 ￦935,246 ￦979,954 ￦ 35,828 ￦1,015,782 ￦1,260,776 ￦1,147,7020

The Bank and its subsidiaries use various derivative instruments for its trading activities, including interest rate and foreign exchange swaps,futures, forwards and options, to manage the interest rate characteristics of certain assets or liabilities and to economically hedge against theeffects of fluctuations in interest rates or foreign exchange rates.

The Bank holds derivative instruments accounted for as fair value hedges applied to subordinated bonds, structured bonds and structureddeposits. The Bank recognized ￦212,295 million and ￦35,828 million of gains and ￦4,061 million and ￦31,517 million of losses onvaluation of fair value hedged items for the years ended December 31, 2007 and 2006, respectively. In addition, the interest rate swap covers thefair value changes of the hedged items resulted from the fluctuation in interest rate. The difference of the valuation between the interest rate swapdesignated as the fair value hedging instrument and the structured bond, the hedged item, is ￦445 million for the year ended December 31,2007.


Also, the subsidiary applied the cash flow hedge accounting in order to hedge the foreign exchange risk of the Synthetic CDO (CollateralizedDebt Obligations). The effective portion of the valuation gain or loss on the currency swap amounting to ￦118 million was recorded as othercomprehensive income (loss) after deducting the minority interest, and the ineffective portion amounting to ￦14 million was recorded incurrent operations. :

(Unit: In millions)

Notional Gain(loss) Other Gain(loss)amounts on valuation comprehensive on valuation

outstanding (P/L) income (B/S)Currency swap 9,382 (14) (118) (132)

(13) The Bank and its subsidiaries purchased synthetic Collateralized Default Obligation (CDO) with embedded Credit Default Swap (CDS)for the purpose of earning income such as commission income as of December 31, 2007. The details of synthetic CDO as of December 31,2007 are as follows :


Counterparty Date of contract Date of maturity Amount Reference EntityBNP Paribas 2006.08.24 2013.12.20 10,000 143 Global BondsUBS 2007.07.23 2017.06.20 10,000 109 Global BondsUBS 2007.10.29 2012.12.20 10,000 109 Global Bonds

The Bank and its subsidiaries could receive less than par and incur loss in relation to the purchase of the synthetic CDO in case of credit eventssuch as the default of the reference entity.

The details of the credit default swap as of December 31, 2007 were as follows :


Counterparty Date of contract Date of maturity Amount Reference EntityKorea Development Bank 2007.11.23 2009.09.20 3,000 Korea large corporations

Loss can be incurred in relation to the sale of the credit default swap in case of the credit events such as the default of the reference entity.



21. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES:Significant assets and liabilities denominated in foreign currencies as of December 31, 2007 and 2006 were as follows:

2007 2006USD KRW USD KRW

equivalent equivalent equivalent equivalent(In thousands) (In millions) (In thousands) (In millions)

Assets:Foreign currencies US$ 201,943 ￦ 189,463 US$ 162,872 ￦ 151,406Due from banks in foreign currencies 208,783 195,880 579,552 538,752Securities-foreign currencies 1,359,142 1,275,147 810,253 753,211Loans in foreign currencies(*) 7,776,744 7,296,141 7,609,008 7,073,333Bills bought in foreign currencies 1,735,305 1,628,063 1,370,029 1,273,579Call loans in foreign currencies 362,962 340,531 132,950 123,590

US$ 11,644,879 ￦ 10,925,225 US$ 10,664,664 ￦ 9,913,871 Liabilities:

Deposits in foreign currencies US$ 1,809,632 ￦ 1,697,798 US$ 1,588,740 ￦ 1,476,892Borrowings in foreign currencies 5,808,555 5,449,587 3,807,222 3,539,194Call money in foreign currencies 654,912 614,438 53,869 50,076Debentures in foreign currencies 2,841,516 2,665,910 2,614,924 2,430,834Foreign currency bills payable 58,407 54,797 58,643 54,515

US$ 11,173,022 ￦ 10,482,530 US$ 8,123,398 ￦ 7,551,511(*) Domestic import usance bill included.

Foreign currencies other than U.S. dollars were translated into U.S. dollars at the appropriate exchange rates at balance sheet dates.

22. GENERAL AND ADMINISTRATIVE EXPENSES:(1) General and administrative expenses for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Salaries ￦ 1,671,645 ￦ 1,476,967Provision for severance benefits (Note 15) 194,674 169,288Severance benefits for voluntary resignation 9,517 13,385Other employee benefits 524,919 478,901Rent 128,401 94,407Depreciation & amortization (Note 9, 10) 425,574 326,423Tax and dues 147,589 132,966Advertising 117,885 119,595Development expenses 126,755 111,672Other 443,403 394,255

￦ 3,790,362 ￦ 3,317,859


(2) Other general and administrative expenses for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Communication ￦ 54,556 ￦ 48,571Electricity and utilities 18,426 17,535Publication 24,424 22,169Repairs maintenance 18,972 17,713Vehicle 29,755 28,493Travel 6,390 5,004Training 35,278 26,525Commission expenses 127,221 122,569Other 128,381 105,676

￦ 443,403 ￦ 394,255

23. NON-OPERATING REVENUE AND EXPENSES:Non-operating income and expenses for the years ended December 31, 2007 and 2006 consisted of :

(Unit: In millions)

2007 2006Non-operating income:

Gain on disposal of tangible assets ￦ 10,517 ￦ 10,931Reversal of impairment loss on tangible assets 109 841Rental income 3,051 3,105Gain on valuation of securities accounted for using the equity method (Note 5) 26,518 39,995Gain on disposal of securities accounted for using the equity method 161,292 2,120Others 170,899 240,448

￦ 372,386 ￦ 297,440Non-operating expenses:

Loss on disposal of tangible assets ￦ 1,684 ￦ 2,737Impairment loss on tangible assets (Note 9) 3,094 5,580Loss on valuation of securities accounted for using the equity method (Note 5) 725 4,236Loss on disposal of securities accounted for using the equity method 783 -Others 102,008 110,359

￦ 108,294 ￦ 122,912



24. INCOME TAX EXPENSE:(1) Income tax expense for the years ended December 31, 2007 and 2006 was summarized as follows :

(Unit: In millions)

2007 2006Bank:Income tax currently payable ￦ 1,660,237 ￦ 829,396Changes in deferred income tax assets (113,341) 268,735Retained earnings and other capital surplus adjustments 204,253 (167,399)Income tax expense of overseas branch 4,878 4,752

1,756,027 935,484Subsidiaries:Income tax currently payable 21,711 13,410Changes in deferred income tax assets (3,246) 7,761Retained earnings and other capital surplus adjustments 8,056 901

26,521 22,072￦ 1,782,548 ￦ 957,556

(2) Deferred income tax assets and liabilities in the consolidated financial statements as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Assets Liabilities Assets Liabilities

Bank ￦ 148,207 ￦ - ￦ 24,946 ￦ -KB Investment Co., Ltd. 2,224 - 1,789 -KB Futures Co., Ltd. 57 - - 19KB Data System Co., Ltd. - 24 - 63KB Real Estate Trust Co., Ltd. 1,658 - 5,377 -KB Asset Management Co., Ltd. - 82 - 50KB Credit Information Co., Ltd. 338 - 403 -KB Life Insurance Co., Ltd. 7,683 - - 9Kookmin Bank Int'l Ltd. (London) 67 - 45 -Kookmin Bank Hong Kong Ltd. 1,299 - 2,282 -

￦ 161,533 ￦ 106 ￦ 34,842 ￦ 141

(3) The statutory income tax rate applicable to the Bank and its subsidiaries, including resident tax surcharges, is 27.5 percent for the years endedDecember 31, 2007 and 2006, respectively. However, due to tax adjustments, the effective tax rates for the years ended December 31, 2007 and2006 are 39.32 percent and 27.96 percent, respectively.


25. EARNINGS PER SHARE:(1) Basic net income per shareBasic net income per share were calculated for common stock by dividing net income available to common shareholders by the weighted averagenumber of outstanding common stock.

Net income per share for common stock for the years ended December 31, 2007 and 2006 was computed as follows:

1) Outstanding capital stock for the year ended December 31, 2007 was as follows:

Number of shares xNumber of shares number of days

Number of common shares outstanding-beginning balance 336,379,116 122,778,377,340Number of treasury stock outstanding-beginning balance - -Sale of treasury stock - -

336,379,116 122,778,377,340

Weighted average number of common shares outstanding: 122,778,377,340 ÷ 365 days = 336,379,116 shares

Outstanding capital stock for the year ended December 31, 2006 was as follows:

Number of shares xNumber of shares number of days

Number of common shares outstanding-beginning balance 336,379,116 122,778,377,340 Number of treasury stock outstanding-beginning balance (217,935) (79,546,275) Sale of treasury stock 217,935 77,348,731

336,379,116 122,776,179,796

Weighted average number of common shares outstanding: 122,776,179,796 ÷ 365 days = 336,373,095 shares

2) The basic net income per share for the years December 31, 2007 and 2006 was as follows :

(Unit: In Won)

2007 2006Net income (ordinary income) ￦ 2,757,316,252,062 ￦ 2,458,259,483,392Weighted average number of common shares outstanding 336,379,116 336,373,095Net income per share ￦ 8,197 ￦ 7,308

The ordinary income for the year ended December 31, 2007 and 2006 equals to net income because there is no extraordinary item.



(2) Diluted net income per share Diluted net income for the years ended December 31, 2007 and 2006 represent diluted net income divided by the number of common sharesand diluted securities.

Diluted net income per share for the years ended December 31, 2007 and 2006 was computed as follows :

(Unit: In Won)

2007 2006Diluted net income ￦ 2,757,316,252,062 ￦ 2,458,259,483,392Weighted average number of common shares

outstanding and diluted securities (*1) 337,132,891 336,375,518Diluted net income per share ￦ 8,179 ￦ 7,308

(*1) For the years ended December 31, 2007 and 2006, the 753,775 shares and 2,423 shares of treasury stock combined with stock options rendered, respectively, are included in diluted shares.

26. COMPREHENSIVE INCOME:Comprehensive income for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Net income ￦ 2,762,198 ￦ 2,467,006Other comprehensive income:

Gain (loss) on valuation of available-for-sale securities (540,816) 374,689Loss on valuation of held-to-maturity securities (56) (328) Gain (loss) on valuation of securities using the equity method (23,398) 13,853Loss on valuation of derivatives (118) -

Comprehensive income: ￦ 2,197,810 ￦ 2,855,220Controlling company’s comprehensive income 2,203,334 2,845,040Minority’s comprehensive income (5,524) 10,180


27. SEGMENT INFORMATION:(1) Balance sheets per business segment as of December 31, 2007 were as follows :

(Unit: In millions)

Financial & Non-financial Consolidation insurance business business adjustment Total

Cash and due from banks ￦ 6,932,920 ￦ 10,447 ￦ (215,956) ￦ 6,727,411Securities 34,762,280 - (522,557) 34,239,723Loans 172,476,250 2,245 (748,364) 171,730,131Tangible assets 2,302,613 378 (1,527) 2,301,464Other assets 8,476,330 36,046 (466,661) 8,045,715

￦ 224,950,393 ￦ 49,116 ￦ (1,955,065) ￦ 223,044,444Deposits ￦ 142,587,851 ￦ - ￦ (487,331) ￦ 142,100,520Borrowings 50,651,556 - (480,780) 50,170,776Other liabilities 15,034,186 28,056 (396,201) 14,666,041

208,273,593 28,056 (1,364,312) 206,937,337Common stock ￦ 1,997,501 ￦ 8,000 ￦ (323,605) ￦ 1,681,896Capital surplus 6,278,606 - (4,071) 6,274,535Capital adjustments (581) - 581 -Accumulated other

comprehensive income 330,151 - 1,008 331,159Retained earnings 8,071,123 13,060 (308,898) 7,775,285Minority interests - - 44,232 44,232

16,676,800 21,060 (590,753) 16,107,107￦ 224,950,393 ￦ 49,116 ￦ (1,955,065) ￦ 223,044,444



Balance sheets per business segment as of December 31, 2006 were as follows (Unit: In millions):

(Unit: In millions)


Cash and due from banks ￦ 6,850,926 ￦ 6,595 ￦ (168,544) ￦ 6,688,977Securities 33,065,746 - (477,611) 32,588,135Loans 150,807,347 4,292 (793,778) 150,017,861Tangible assets 2,141,929 356 (2,799) 2,139,486Other assets 7,768,199 22,228 (311,450) 7,478,977

￦ 200,634,147 ￦ 33,471 ￦ (1,754,182) ￦ 198,913,436Deposits ￦ 133,649,208 ￦ - ￦ (352,233) ￦ 133,296,975Borrowings 39,415,278 - (628,379) 38,786,899Other liabilities 11,931,872 15,868 (246,239) 11,701,501

184,996,358 15,868 (1,226,851) 183,785,375Common stock 1,977,329 8,000 (303,433) 1,681,896Capital surplus 6,278,606 - (3,775) 6,274,831Accumulated other

comprehensive income 896,337 9,603 (11,196) 885,141Retained earnings 6,485,517 - (253,208) 6,241,912Minority interests - - 44,281 44,281

15,637,789 17,603 (527,331) 15,128,061￦ 200,634,147 ￦ 33,471 ￦ (1,754,182) ￦ 198,913,436

(2) Statements of income per business segment for the year ended December 31, 2007 were as follows :

(Unit: In millions)


Operating revenue ￦ 22,322,044 ￦ 79,840 ￦ (247,549) ￦ 22,154,335Operating expenses 17,989,064 73,862 (189,245) 17,873,681Operating income 4,332,980 5,978 (58,304) 4,280,654Non-operating income 454,083 8 (81,705) 372,386Non-operating expenses 149,589 1 (41,296) 108,294Income before income tax 4,637,474 5,985 (98,713) 4,544,746Income tax expense 1,781,323 1,728 (503) 1,782,548Net income 2,856,151 4,257 (98,210) 2,762,198

Controlling company interests 2,856,151 4,257 (103,092) 2,757,316 Minority interests - - 4,882 4,882


Statements of income per business segment for the year ended December 31, 2006 were as follows :

(Unit: In millions)


Operating revenue ￦ 20,465,897 ￦ 68,200 ￦ (214,319) ￦ 20,319,778Operating expenses 17,159,809 65,129 (155,194) 17,069,744Operating income 3,306,088 3,071 (59,125) 3,250,034Non-operating income 390,567 14 (93,141) 297,440Non-operating expenses 169,099 5 (46,192) 122,912Income before income Tax 3,527,556 3,080 (106,074) 3,424,562Income tax expense 973,556 803 (16,803) 957,556Net income ￦ 2,554,000 ￦ 2,277 ￦ (89,271) ￦ 2,467,006

Controlling company interests 2,554,000 2,277 (98,017) 2,458,260Minority interests - - 8,746 8,746

(3) Financial information per industry segment as of and for year ended December 31, 2007 was as follows :

(Unit: In millions)

ConsolidationBanking Trust account Others adjustment Total

Operating revenue ￦ 21,341,664 ￦ 186,946 ￦ 873,274 ￦ (247,549) ￦ 22,154,335Less: inter-company transaction (115,164) (6,260) (126,125) 247,549 -Net operating revenue 21,226,500 180,686 747,149 - 22,154,335Operating income (loss) ￦ 4,244,053 ￦ (217) ￦ 95,122 ￦ (58,304) ￦ 4,280,654

Cash and due from banks ￦ 6,644,660 ￦ - ￦ 298,707 ￦ (215,956) ￦ 6,727,411Securities 30,981,503 2,761,580 1,019,197 (522,557) 34,239,723Loans 172,048,191 381,722 48,582 (748,364) 171,730,131Tangible assets 2,299,017 - 3,974 (1,527) 2,301,464Other assets 7,705,586 316,439 490,351 (466,661) 8,045,715

￦ 219,678,957 ￦ 3,459,741 ￦ 1,860,811 ￦ (1,955,065) ￦ 223,044,444



Financial information per industry segment as of and for year ended December 31, 2006 was as follows :

(Unit: In millions)

ConsolidationBanking Trust account Others adjustment Total

Operating revenue ￦ 19,677,779 ￦ 172,174 ￦ 684,144 ￦ (214,319) ￦ 20,319,778Less: inter-company transaction (119,732) (12,664) (81,923) 214,319 - Net operating revenue 19,558,047 159,510 602,221 - 20,319,778Operating income (loss) 3,217,593 (638) 92,203 (59,124) 3,250,034

Cash and due from banks ￦ 6,679,566 ￦ - ￦ 177,955 ￦ (168,544) ￦ 6,688,977Securities 29,434,060 2,933,686 698,000 (477,611) 32,588,135Loans 150,406,828 365,879 38,932 (793,778) 150,017,861Tangible assets 2,138,009 - 4,276 (2,799) 2,139,486Other assets 7,258,411 186,426 345,590 (311,450) 7,478,977

￦ 195,916,874 ￦ 3,485,991 ￦ 1,264,753 ￦ (1,754,182) ￦ 198,913,436

(4) Financial information per geographical segments as of and for the year ended December 31, 2007 was as follows :

(Unit: In millions)

ConsolidationDomestic Overseas adjustment Total

Operating revenue ￦ 22,342,047 ￦ 59,837 ￦ (247,549) ￦ 22,154,335Less: inter-company transaction (238,332) (9,217) 247,549 - Net operating revenue 22,103,715 50,620 - 22,154,335Operating income ￦ 4,328,291 ￦ 10,667 ￦ (58,304) ￦ 4,280,654

Cash and due from banks ￦ 6,843,461 ￦ 99,906 ￦ (215,956) ￦ 6,727,411Securities 34,558,137 204,143 (522,557) 34,239,723Loans 171,980,297 498,198 (748,364) 171,730,131Tangible assets 2,302,718 273 (1,527) 2,301,464Other assets 8,501,977 10,399 (466,661) 8,045,715

￦ 224,186,590 ￦ 812,919 ￦ (1,955,065) ￦ 223,044,444


Financial information per geographical segments as of and for the year ended December 31, 2006 was as follows :

(Unit: In millions)

ConsolidationDomestic Overseas adjustment Total

Operating revenue ￦ 20,485,737 ￦ 48,360 ￦ (214,319) ￦ 20,319,778Less: inter-company transaction (206,728) (7,591) 214,319 -Net operating revenue 20,279,009 40,769 - 20,319,778Operating income 3,296,548 12,610 (59,124) 3,250,034

Cash and due from banks ￦ 6,746,262 ￦ 111,259 ￦ (168,544) ￦ 6,688,977Securities 33,014,166 51,580 (477,611) 32,588,135Loans 150,271,993 539,646 (793,778) 150,017,861Tangible assets 2,142,007 278 (2,799) 2,139,486Other assets 7,781,355 9,072 (311,450) 7,478,977

￦ 199,955,783 ￦ 711,835 ￦ (1,754,182) ￦ 198,913,436

28. RELATED PARTY TRANSACTIONS:(1) Significant balances between the bank and its subsidiaries as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)


Subsidiaries:Trust accounts (trust accounts guaranteed a fixed

rate of return and/or the repayment of principal) ￦ 71,996 ￦ - ￦ 288,305KB Investment Co., Ltd. 1,410 12 163KB Futures Co., Ltd. 153 - 9,388KB Data System Co., Ltd. 61 - 28,892KB Asset Management Co., Ltd. 108 - 87,839KB Real Estate Trust Co., Ltd. 3,774 31 10,638KB Credit Information Co., Ltd. 95 - 32,349KB Life Insurance Co., Ltd. 3,461 - 8,369Kookmin Bank International Ltd. (London) 341,461 - 85,754Kookmin Bank Hong Kong Ltd. 166,149 - 3,634

￦ 588,668 ￦ 43 ￦ 555,331



(Unit: In millions)



rate of return and/or the repayment of principal) ￦ 68,949 ￦ - ￦ 157,695KB Investment Co., Ltd. - - 12,608KB Futures Co., Ltd. 926 - 8,095KB Data System Co., Ltd. 42 - 22,918KB Asset Management Co., Ltd. 99 - 58,289KB Real Estate Trust Co., Ltd. 862 6 549KB Credit Information Co., Ltd. 120 - 29,462KB Life Insurance Co., Ltd. 3,167 - 6,113NPC 02-4 Kookmin Venture Fund - - 13,189Kookmin Bank International Ltd. (London) 231,563 - 49,536Kookmin Bank Hong Kong Ltd. 178,590 - 12,285

￦ 484,318 ￦ 6 ￦ 370,739

(2) Significant transactions between the bank and its subsidiaries for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007Revenue Bad debt expenses Expenses


rate of return and/or the repayment of principal) ￦ 36,813 ￦ - ￦ 6,260KB Investment Co., Ltd. 18 12 412KB Futures Co., Ltd. 57 - 2,207KB Data System Co., Ltd. 139 - 34,677KB Asset Management Co., Ltd. 832 - 3,497KB Real Estate Trust Co., Ltd. 278 25 1,999KB Credit Information Co., Ltd. 169 - 59,418KB Life Insurance Co., Ltd. 43,773 - 5Kookmin Bank International Ltd. (London) 12,439 - 3,852Kookmin Bank Hong Kong Ltd. 11,631 - 1,322

￦ 106,149 ￦ 37 ￦ 113,649


(Unit: In millions)

2006Revenue Bad debt expenses Expenses


rate of return and/or the repayment of principal) ￦ 42,528 ￦ - ￦ 4,255KB Investment Co., Ltd. 1 - 341KB Futures Co., Ltd. 92 - 1,756KB Data System Co., Ltd. 39 - 27,356KB Asset Management Co., Ltd. 783 - 1,961KB Real Estate Trust Co., Ltd. 1,424 (87) - KB Credit Information Co., Ltd. 234 - 69,368KB Life Insurance Co., Ltd. 36,679 - 2NPC 02-4 Kookmin Venture Fund 6 - 504Kookmin Bank International Ltd. (London) 11,072 - 4,394Kookmin Bank Hong Kong Ltd. 9,702 (46) 2,136

￦ 102,560 ￦ (133) ￦ 112,073

In addition, the Bank purchased fixed assets from KB Data System Co., Ltd. amounting to ￦24,896 million and ￦27,387 million for the yearsended December 31, 2007 and 2006, respectively.

29. CONSOLIDATED STATEMENTS OF CASH FLOWS:(1) Cash flows from operating activities are presented by the indirect method.

(2) The cash and due from banks in the statements of cash flows for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)


6,727,411 6,688,977Restricted due from banks (4,105,120) (3,319,705)

￦ 2,622,291 ￦ 3,369,272



(3) Significant transactions not involving cash inflows and outflows for the years ended December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Changes in accumulated other comprehensive income from valuation of

available-for-sale securities ￦ (564,270) ￦ 386,750Increase in available-for-sale securities from debt-equity swap 12,691 - Decrease in allowance for bad debt by disposal and repurchase of nonperforming loan 69,690 (109,660)Write-offs of loans and decrease of loans from principal exemption ￦ 862,050 ￦ 1,700,441





Notice to ReadersThis report is effective as of January 25, 2008, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date andthe time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modifications to theauditors’ report.

14Fl., Hanwha Securities Bldg., 23-5 Yoido-dong,Youngdeungpo-gu , Seoul150-717, Korea

Tel:+82 2 6676 1000, 1114Fax: +82 2 6674 2114www.deloitteanjin.co.kr

To the Beneficiary of Trust Accounts and Board of Directors of Kookmin Bank:

We have audited the accompanying balance sheet of Kookmin Bank trust accounts(the “Trust Accounts”) as of December 31, 2007, and therelated statements of income for the years then ended, all expressed in Korean Won. These financial statements are the responsibility of theBank’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements as ofDecember 31, 2006, which are presented for comparative purposes, were audited by other accountants, and in their report dated February 22,2007, they expressed an unqualified opinion on those financial statements.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessingthe 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 Trust Accounts as ofDecember 31, 2007, and the results of its operations for the years then ended in conformity with Trust Accounting Principle for the BankManaging Trust Business of the Republic of Korea.

Accounting principles and audit standards and their application in practice vary among countries. The accompanying financial statements arenot intended to present the financial position and results of operations in accordance with accounting principles and practices generally acceptedin countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financialstatements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financialstatements are for use by those knowledgeable about Korean accounting procedures and audit standards and their application in practice.

January 25, 2008

Korean Won2007 2006

(In millions)ASSETS

Cash and due from banks (Notes 11) ￦ 353,821 ￦ 149,205Securities (Notes 4) 6,520,160 8,231,292 Loans (Notes 5) 415,786 403,552 Call loans 360,000 588,000 Securities Sold under Repurchase Agreements 490,000 - Trusted money receivables 4,688,891 6,134,145 Trusted estates 336,440 88,203 Accrued income (Note 11) 74,269 71,956 Other assets 34,099 39,994 Due from banking accounts (Note 11) 919,308 962,558 Allowances for possible credit losses (Note 6) (13,895) (15,017)

￦ 14,178,879 ￦ 16,653,888LIABILITIES

Money trusts ￦ 8,363,610 ￦ 9,627,037Property trusts 5,365,233 6,631,376Accrued gain in trusts 271,913 229,595Other liabilities 114,074 105,433Special reserve 64,049 60,447

￦ 14,178,879 ￦ 16,653,888See accompanying notes to financial statements.

Trust Accounts Balance Sheets



Korean Won2007 2006

(In millions except per share amounts)REVENUE:

Interest and dividend income:Interest on due from banks (Note 11) ￦ 9,711 ￦ 1,462Interest on securities Interest and dividends on securities 351,547 357,619Interest on loans 22,704 18,935Interest on call loans 19,514 15,043Interest on Securities Sold under Repurchase Agreements 5,412 - Interest on trusted money receivables 159,950 216,130Interest on due from banking accounts (Note 11) 52,773 32,547

621,611 641,736Gains on derivatives 84 345Gains on securities 187,571 80,700Commissions income 1,163 665Other revenues 8,441 10,869Reversal of allowances for possible credit losses (Note 6) 10,103 6,793Reversal of special reserve (Note 2) 2,582 5,581

￦ 831,555 ￦ 746,689

OPERATING EXPENSES:Gain in trusts ￦ 703,373 ￦ 616,065Other interest - 28Fees and commission 2,572 2,352Losses on derivatives 326 131Losses on real & personal property - -Losses on securities 38,950 31,870Contribution to fund 6,441 6,288Taxes 2,574 2,178Trust fees to the bank (Note 11) 70,291 78,485Other expenses 839 1,305Provision for special reserve (Note 2) 6,184 7,969Provision for allowances for possible credit losses (Note 6) 5 18

￦ 831,555 ￦ 746,689See accompanying notes to financial statements.

Trust Accounts Statements of Income






The Bank launched the business of Trust Accounts on March 2, 1989with the establishment of Household Monetary Trust, and now isoperating 20 money trusts and 3 property trusts as of December 31, 2007.

Money TrustMoney trust is entrusted with money and the details of the moneytrust as of December 31, 2007 are as follows:

Trusts Guarantee Operation type(*4) Valuation methodFixed yield trust

Unspecified Monetary Trust(*1) Principal & interest Joint Book valueDevelopment Trust(*1) Principal & interest Joint Book value

Performance yield trustInstallment Savings Trust(Performance) (*2) Joint Book valueHousehold Monetary Trust (*3) Joint Book valueCorporation Monetary Trust (*1) (*3) Joint Book valueOld-Age Pension Trust (*1) Principal Joint Book valuePersonal Pension Trust (*1) Principal Joint Book valueLong Term Household Monetary Trust(*1) - Joint Book valueNew Installment Savings Trust (*1) - Joint Book valueWorkers Preferential Trust (*1) - Joint Book valueSpecified Monetary Trust - Non-joint Book valueRetirement Pension Trust - Non-joint Book value

Standard price trustNational Stock Trust (*1) - Joint Market valueRetirement Trust(*1) Principal Joint & non-joint Market value

(Continued)

Notes to Financial Statements (Trust Accounts)



Trusts Guarantee Operation type(*4) Valuation methodUnit Type Monetary Trust(*1) - Joint Market valueOpen Type Monetary Trust(*1) - Joint Market valueNew Personal Pension Trust(*1) Principal Joint Market valueNew Old-Age Pension Trust(*1) Principal Joint Market valueNew Workers Preferential Trust(*1) - Joint Market valuePension Trust Principal Joint Market value

(*1) Trusts that prohibit new admission as of December 31, 2007.

(*2) Principal amounts are guaranteed only for principals contracted prior to April 30, 1996.

(*3) Principal amounts are guaranteed only for principals paid prior to April 30, 1996.

(*4) Joint management trusts have unspecified individuals as consignors and manage them as one fund. Additionally, dividends are paid according to the results of operation by trust money and trust

period. Individual management trusts manage funds sorted by consignor and pay dividends to consignors according to results of operation.

Property Trust Property trust entrusts properties other than money like security,monetary receivable or real estate, and distributes goods or money onthe request of consignors or beneficiaries at the termination of the trust.As of December 31, 2007 the company invests in property trusts suchas, security trusts, monetary receivables trusts and real estate trusts.

Ban on additional installment to some trustTrust companies manage trust business according to Trust RegulationArticle 3. And new release of book value trusts were prohibited due torevised the Trust Business Supervisory Stipulations which demandvaluation of bonds at market value as of June 14, 2000. Also,additional revisions of the Stipulation expands the use of market valuefor financial instruments similar to bonds. Due to establishment andenforcement of law on Regulation of Indirect Investment AssetManagement as of January 5, 2004, establishment of newlyunspecified monetary trusts are prohibited (except for pension trustsand retirement trusts) and as of July 5, 2004, new trusts establishedprior to January 5, 2004 are also prohibited. In addition, due to theenforcement of pension plans, establishment of new retirement trustsare prohibited as of December 1, 2005.

Enforcement of Law and Regulation on Indirect InvestmentAsset Management Previously applied Regulations on Securities Investment Company,Regulations on Securities Investment Trusts, Trust Regulationsregarding unspecified money trusts of banks and Insurance

Regulations regarding variable insurances of insurers are now allcombined and are under Law and Regulation on Indirect InvestmentAsset Management. According to Law and Regulation on IndirectInvestment Asset Management, investments of asset managements areextended to derivatives in the exchange market and over-the-countermarket, real estate and real asset compared to investment in securitiesin the past. Also, functions and responsibilities of trusts are clearlydescribed and supervisory functions of trust companies are establishedto protect investors by strengthening supervisory functions of funds.Compensation for damages is required if damage is caused to theinvestor by reasons such as the trust company neglecting supervisoryservice, etc. towards the management company.

For banks and insurance companies, combination of bank trusts andvariable trusts are allowed and although sales functions are sustained,trust functions are to be separated. Banks managing trust business maysell new trusts such as specified monetary trust, pension trusts andretirement trusts which are under trust regulations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:Basis of Financial Statement PresentationThe Bank’s Trust Accounts maintains its official accounting records inKorean Won and prepares financial statements in the Korean language(Hangul) in conformity with the Trust Accounting Principles for theBank Managing Trust Business of the Republic of Korea. CertainTrust Accounting Principles for the Bank Managing Trust Businessapplied by the Bank that conform with financial accounting standards



and accounting principles in the Republic of Korea may not conformwith generally accepted accounting principles in other countries.Accordingly, these financial statements are intended for use by thosewho are informed about Korean Trust Accounting Principles for theBank Managing Trust Business and practices. The accompanyingfinancial statements have been condensed, restructured and translatedinto English (with certain expanded descriptions) from the Koreanlanguage financial statements. Certain information included in theKorean language financial statements, but not required for a fairpresentation of the Trust Accounts' financial position or results ofoperations, is not presented in the accompanying financial statements.

Under the Trust Business Act, the Trust Accounts are managedseparately from the banking accounts. The financial statements of theBank’s Trust Accounts are prepared in accordance with the TrustBusiness Act and Trust Accounting Principles for the Bank ManagingTrust Business of the Republic of Korea. Therefore, there may bematerial differences from what would have been prepared under financialaccounting principles generally accepted in the Republic of Korea.

The significant accounting policies applied in the preparation of theaccompanying financial statements of the Trust Accounts aresummarized below.

Revenues and Expenses of Trust Accounts The Trust Accounts record the amount of the trust revenue less allexpenses and trust fees as the gain in trusts. The trust fees are recordedin the Bank’s banking accounts as a part of other operating income.Gain whose principal or minimum dividend is guaranteed iscalculated by contractual dividend rate. Gain whose principal is notguaranteed or only principal is guaranteed is calculated byperformance yield rate. However, when sum of principal guaranteedtrust asset to be transferred to beneficiary is less than principal attermination of the trust period, principal should be guaranteed and notrust profit should be recognized.

Interest Income Recognition Interest income on loans and securities from the Trust Accounts’ fundoperations is recognized on an accrual basis, while interest income on

overdue or dishonored loans and securities, except for those securedwith deposits or guaranteed by financial institutions, is recognized ona cash basis. As of December 31, 2007 and 2006, the related accruedinterest income not recognized based on the above criteria amountedto ￦10,317 million and ￦9,010 million, respectively.

Valuation of SecuritiesEquity and debt securities are initially recognized at acquisition costplus incidental expenses determined by the moving average method(the specific identification method for debt securities). The valuationmethods used for securities are as follows:

Valuation MethodsMarketable stocks Market value

and beneficial certificatesNon-marketable stocks Carried at fair value only if the fair

value is reasonably measurable. Otherwise, they are carried at cost.

Debt securities Market value Other securities Market value

However, under the transition clause in the accounting and reportingguidelines prescribed by the trust regulatory authorities, the debtsecurities managed under the unspecified money trusts that wereestablished before November 15, 1998 and suspended addition of newtrust after July 1, 2000 are not recorded at market value. Instead, theloan classification criteria were applied to these securities and the relatedunrealized losses were charged to provision for possible credit losses.

When market value does not exist or does not reflect fair value,securities are valued by Market Value Appraisal Committee, which ismanaged by the trust company.

In addition, securities that are managed under specified money trustsor property trusts are recorded at cost.

Allowance for Possible Credit LossesThe Trust Accounts provide allowance for possible credit losses basedon the minimum reserve level provided by Financial Supervisory


Service Guidelines if the amounts are larger than allowances forpossible credit losses based on historical loss rate of the Trust Accounts’lending portfolios. As of December 31, 2007, the Trust Accountsprovided allowance for possible credit losses based on the minimumreserve level provided by Financial Supervisory Service Guidelines.

The Trust Accounts determines the credit risk classification ofcorporate loans using a certain scale based on the Trust Accounts’internal credit rating system, the Forward Looking Criteria (FLC),and other factors such as days in arrears, insolvency and result offinancial transactions. Allowances are determined by applying the ratesof each credit risk classification. The FLC credit rating criteria aredivided into 12 categories (AAA, AA, A, BBB, BB, BB-, B, B-, CCC,CC, C, D) and credit risk classification are as follows.

Credit Risk Classification Credit RatingsNormal BBBPrecautionary BBSub-standard BDoubtful C~CCCEstimated loss D

However, the Trust Accounts classifies corporate loans and consumerloans by considering the recoverable amounts of loans includingdelinquencies, bankruptcies. The rates used for determining theallowances for losses from corporate loans and consumer loans are asfollows:

Credit Risk Classification Consumer CorporateNormal 1.00% 0.85%(*)

Precautionary 10.00% 7.00%Sub-standard 20.00% 20.00%Doubtful 55.00% 50.00%Estimated loss 100.00% 100.00%

“Normal” is applied only to trusts which guarantee a fixed rate of return

(*) 0.9% for loans economy-sensitive industries

Also, the Trust Accounts provide additional allowance for relativelyhigh-risk borrows based on estimated recovery amount, liquidationamount, within the maximum allowance rate for each classification.

Restructuring of LoansThe equity interest in the debtors, net of real estates and/or otherassets received as full or partial satisfaction of the Trust accounts’loans, collected through reorganization proceedings, court mediation,or debt restructuring agreements of parties concerned, are recorded attheir fair value at the time of the restructuring. In cases where the fairvalue of the assets received are less than the book value of the loan(book value before allowances), the Trust accounts offsets the bookvalue against allowances for loans first and then recognizes provisionsfor loans. Impairment losses for loans, that were restructured in atroubled debt restructuring involving a modification of terms, arecomputed by getting the difference between the present value offuture cash flows under debt restructuring agreements discounted ateffective interest rates at the time when loans are originated, and thebook value before allowances for loans. If the amount of allowancesalready established is less than the impairment losses under theworkout plans, the Trust Accounts establishes additional allowancesfor the difference. Otherwise, the Trust Accounts reverses theallowances for possible credit losses.

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

Due from Banking Accounts The surplus funds that result from the Trust Accounts’ fundoperations are loaned to the Bank’s banking accounts and are recordedas due from banking accounts. Interest on loans to banking account isdetermined by applying call rate, announced by The Bank of Korea,to outstanding daily balance.

Special Reserve and Subsidies from Banking Accounts Under the Trust Business Act, the Trust Accounts provide more than25% of the trust fees as special reserve up to 5% of invested capital foreach type of money trusts with guarantees of principal or a minimumrate of return. When reserve for special reserve are used to compensateprincipal or minimum rate of return, reversal of special reserve arerecorded and when there is excessive special reserve, excessive reservesare transferred to trust fees. Provision for special reserves for the yearended December 31, 2007 and 2006, was ￦6,184 million and



￦7,969 million, respectively. Reversal of special reserves for the yearended December 31, 2007 and 2006 was ￦2,582 million and￦5,581million, respectively.

In cases where unspecified money trusts experience losses in excess ofthe guaranteed principal or a minimum rate of return, the losses areappropriated from special reserve and trust fees. If losses are incurred inexcess of the sum of special reserve and trust fees, the Trust Accountsare provided the deficient amounts from the banking accounts. Thebanking accounts for this as loss on operating the Trust Accounts inother operating expenses and Trust Accounts account for this assubsidies from the banking accounts. There were no subsidies fromBanking Accounts for the year ended December 31, 2007 and 2006.

Derivatives Instrument The Trust Accounts trade KOSPI200 index futures and governmentbond futures for trading purposes. The Trust Accounts record grossgain/loss arising from each futures transaction.

Trust FeesThe Bank’s banking accounts receive trust management fees from theTrust Accounts which consist of basic fees of 0.5% to 2.0% ofinvested capital, contingent fees and special fees. This amount isprovided from the trust assets on day of trust closing or terminationand expensed as trust fees.

Performance Yield and Standard PricePerformance yield and standard price calculated by Trust Business Actare as follows:

(1) Performance yieldPerformance yield is standard compound yield rate less the provisionrate for provision for possible credit losses and the trust managementfee rate. Performance yield is the average of yields during the period ofcalculation of trust gain.

Standard compound yield rate is the sum of fund trust assetmultiplied by its weighted average earnings rate divided by total trustassets. The gains and losses on disposal of securities and other fees arereflected in the calculation of standard compound yield rate.

Daily gains and losses on disposal of securities and other fees arerecognized over a one-month period from the date of occurrence.However, weekly gains and losses on redemption or valuation ofbeneficial certificates are reflected in the following one-week’scalculation of standard compound yield rate.

(2) Standard PriceThe standard price (per 1,000 units) is calculated by dividing the netassets by the total number of beneficial certificate units. Net asset isdefined as total assets less total liabilities, where total liabilities excludesmoney trusts and accrued gain in trusts.

Contribution to Korea Credit Guarantee FundThe Trust pays 0.225%, 0.135% and 0.02% of monthly averagebalance of corporate loans to Korea Credit Guarantee Fund, KoreaTechnology Credit Guarantee Fund and Korea District CreditGuarantee Fund every month and contribution to Korea CreditGuarantee Fund for the years ended December 31, 2007 and 2006amount to ￦80 million won and ￦52 million won, respectively.

Trust PremiumUnder the Depositor Protection Law which came into effect in 1998,the Trust pays 2.5/10,000 of the quarterly average balance of trustproperties which have guarantees of principal amount within onemonth at the end of each quarter and the trust premium for the yearsended December 31, 2007 and 2006 amount to ￦3,181 million wonand ￦3,125 million won, respectively.

Also, under the Depositor Protection Law, the Trust must pay forspecial contribution redemption on deposit insurance fund from 2003and special contribution for the years ended December 31, 2007 and2006 amount to ￦3,180 million won and ￦3,111 million won,respectively.

Income Tax Etc.There is no need to pay taxes for income generated from operation oftrust assets which are reverted to trust assets but there is theresponsibility to withhold income taxes when addition to principal ofgain on trust of the beneficiary, payment of and termination ofprincipal.


3. SUMMARY OF TRUST ACCOUNTS:(1) As of December 31, 2007, assets and liabilities of the trust accounts by guarantee of a fixed rate of return on, and/or the repayment of,principal consisted of :

<Balance Sheet>(Unit: In millions)

MixedPrincipal And Principal (Principal

Dividends Guaranteed Guaranteed, PerformanceGuaranteed(*1) (*2) Performance)(*3) (*4) Total

Cash and due from banks ￦ - ￦ - ￦ - ￦ 353,821 ￦ 353,821Securities 65,545 2,704,349 101,188 3,649,078 6,520,160Loans 881 380,946 14,600 19,359 415,786Call loan - - - 360,000 360,000Securities Sold under Repurchase Agreements - - - 490,000 490,000Monetary receivables - - - 4,688,891 4,688,891Trusted estates - - - 336,440 336,440Due from banking account 15,358 272,244 8,771 622,935 919,308Allowance for possible credit losses (8,379) (44) (1,065) (4,407) (13,895)Other assets 173 28,668 1,169 78,358 108,368

Total assets ￦ 73,578 ￦ 3,386,163 ￦ 124,663 ￦ 10,594,475 ￦ 14,178,879Money trust ￦ 280 ￦ 3,258,310 ￦ 99,262 ￦ 5,005,758 ￦ 8,363,610Property trust - - - 5,365,233 5,365,233Reserves for special reserve 14 62,557 1,478 - 64,049Other liabilities 73,284 65,296 23,923 223,484 385,987

Total liabilities ￦ 73,578 ￦ 3,386,163 ￦ 124,663 ￦ 10,594,475 ￦ 14,178,879

<Income Statement>(Unit: In millions)



Interest incomeInterest on due from banks ￦ - ￦ - ￦ - ￦ 9,711 ￦ 9,711Interest and dividends on securities 1,673 134,981 6,099 208,794 351,547Interest on loans 226 19,187 1,845 1,446 22,704Interest on call loans - 57 - 19,457 19,514Gain on derivatives - 45 14 25 84Gain on securities 4,902 9,812 181 172,676 187,571Interest on due from banking account 886 5,374 471 46,042 52,773Reversal of special reserve ￦ 2 ￦ 2,234 ￦ 346 ￦ - ￦ 2,582

(Continued)



(Unit: In millions)



Reversal of allowance for possible credit losses ￦ 6,582 ￦ 455 ￦ 1,866 ￦ 1,200 ￦ 10,103

Other income 980 933 421 172,632 174,966Total revenues 15,251 173,078 11,243 631,983 831,555

Gain in Trusts 6 121,590 7,468 574,309 703,373Loss on derivatives - 295 16 15 326Loss on securities 241 16,076 48 22,585 38,950Trust fees 14,928 21,886 3,398 30,079 70,291Provision for special reserve - 6,184 - - 6,184Provision for possible credit losses - 3 - 2 5Other expenses 76 7,044 313 4,993 12,426

Total expenses ￦ 15,251 ￦ 173,078 ￦ 11,243 ￦ 631,983 ￦ 831,555

(2) As of December 31, 2006, assets and liabilities of the trust accounts by guarantee of a fixed rate of return on, and/or the repayment of,principal consisted of :

<Balance Sheet>(Unit: In millions)



Cash and due from banks ￦ - ￦ - ￦ - ￦ 149,205 ￦ 149,205Securities 63,284 2,878,722 153,204 5,136,082 8,231,292Loans 1,366 364,751 20,412 17,023 403,552Call loan - - - 588,000 588,000Monetary receivables - - - 6,134,145 6,134,145Trusted estates - - - 88,203 88,203Due from banking account 14,313 142,777 5,433 800,035 962,558Allowance for possible credit losses (8,475) (84) (1,688) (4,770) (15,017)Other assets 129 29,208 2,071 80,542 111,950

Total assets ￦ 70,617 ￦ 3,415,374 ￦ 179,432 ￦ 12,988,465 ￦ 16,653,888Money trust ￦ 321 ￦ 3,300,451 ￦ 144,123 ￦ 6,182,142 ￦ 9,627,037Property trust - - - 6,631,376 6,631,376Reserves for special reserve 16 58,607 1,824 - 60,447Other liabilities 70,280 56,316 33,485 174,947 335,028

Total liabilities ￦ 70,617 ￦ 3,415,374 ￦ 179,432 ￦ 12,988,465 ￦ 16,653,888


<Income Statement>(Unit: In millions)



Interest incomeInterest on due from banks ￦ - ￦ - ￦ - ￦ 1,462 ￦ 1,462Interest and dividends on securities 1,651 128,540 8,048 219,380 357,619Interest on loans 416 13,943 2,546 2,030 18,935Interest on call loans - 104 - 14,939 15,043Gain on derivatives - 258 56 31 345Gain on securities 6,034 8,207 498 65,961 80,700Interest on due from banking account 461 3,795 447 27,844 32,547Reversal of special reserve - 5,175 406 - 5,581Reversal of allowance for

possible credit losses 3,057 275 2,141 1,320 6,793Other income 509 387 719 226,049 227,664

Total revenues ￦ 12,128 ￦ 160,684 ￦ 14,861 ￦ 559,016 ￦ 746,689Gain in Trusts ￦ 6 ￦ 106,645 ￦ 10,324 ￦ 499,090 ￦ 616,065Loss on derivatives - 116 3 12 131Loss on securities 357 7,985 40 23,488 31,870Trust fees 11,295 31,233 4,048 31,909 78,485Provision for special reserve - 7,969 - - 7,969Provision for possible credit losses - 1 - 17 18Other expenses 470 6,735 446 4,500 12,151

Total expenses ￦ 12,128 ￦ 160,684 ￦ 14,861 ￦ 559,016 ￦ 746,689(*1) Unspecified Monetary Trust and Development Trust

(*2) Old-Age Pension Trust, Personal Pension Trust, Retirement Trust, New Personal Pension Trust, New Old-Age Pension Trust and Pension Trust

(*3) Installment Savings Trust (Performance), Household Monetary Trust, Corporation Monetary Trust

(*4) Long Term Household Trust, New Installment Saving Trust, National Stock Trust, Specified monetary Trust, Unit Type Monetary Trust, Open Type Monetary Trust, Worker Preferential Trust,

Retirement Pension Trust, Security Trust, Monetary Receivables Trusts and Real Estate Trust.



(3) As of December 31, 2007 and 2006, trust accounts for which the Bank provided the guarantees for a fixed rate of return and/or therepayment of principal consisted of following :

(Unit: In millions)

Charge toClassification Book value Fair market value The Bank accountTrust accounts guaranteeing the repayment of principal

Personal Pension Trust ￦ 2,244,478 ￦ 2,185,306 ￦ -Old-Age Pension Trust 10,231 10,164 - New Personal Pension Trust 68,092 68,092 - New Old-Age Pension Trust 50,569 50,569 - Pension Trust 556,333 556,333 - Retirement Trust 456,460 456,460 -

3,386,163 3,326,924 - Trust accounts guaranteeing a fixed rate of return on

and the repayment of principalUnspecified money trust 151 151 -Development Trust 73,427 73,440 -

73,578 73,591 - ￦ 3,459,741 ￦ 3,400,515 ￦ -

4. SECURITIES:Securities as of December 31, 2007 consisted of :

(Unit: In millions)

Balance SheetPar Value Amount Ratio(%)

Equity securities ￦ - ￦ 490,118 7.52Government bonds 1,155,175 1,107,255 16.98Finance debentures

Monetary stabilization bond 990,000 980,810 15.04Other finance debentures 608,022 601,259 9.22

1,598,022 1,582,069 24.26Municipal bonds 17,152 16,564 0.25Corporate bonds 1,381,393 1,374,010 21.07Securities denominated in foreign currencies 12,449 12,449 0.19Bills bought in won

Commercial papers 1,221,997 1,221,997 18.74Notes payable 390,369 390,369 5.99

￦ 1,612,366 ￦ 1,612,366 24.73(Continued)


(Unit: In millions)


Other securitiesBeneficiary certificates(bonds) ￦ 55,347 ￦ 55,637 0.85Beneficiary certificates(stocks) 54,158 57,152 0.87Others 209,317 212,540 3.28

318,822 325,329 5.00￦ 6,095,379 ￦ 6,520,160 100.00

Securities as of December 31, 2006 consisted of :

(Unit: In millions)


Equity securities ￦ - ￦ 769,212 9.34Government bonds 1,245,970 1,199,650 14.57Finance debentures

Monetary stabilization bond 1,531,431 1,524,512 18.52Other finance debentures 790,593 786,323 9.55

2,322,024 2,310,835 28.07Municipal bonds 17,775 16,963 0.21Corporate bonds 1,822,717 1,815,093 22.05Securities denominated in foreign currencies 32,661 32,661 0.4Bills bought in won

Commercial papers 1,838,714 1,838,714 22.34Notes payable 636 636 0.01

1,839,350 1,839,350 22.35Other securities

Beneficiary certificates(bonds) 84,307 84,260 1.03Beneficiary certificates(stocks) 6,648 6,681 0.08Others 153,610 156,587 1.90

244,565 247,528 3.01￦ 7,525,062 ￦ 8,231,292 100.00

Securities in won subject to market value valuation are recorded at fair value using the average value provided by KIS Pricing, Inc. and KoreaBond Pricing & KR Co.



The portfolio of securities, by country, security type and industry, as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006Amount Ratio(%) Amount Ratio(%)

By countryKorea ￦ 6,520,160 100.00 ￦ 8,231,292 100.00

￦ 6,520,160 100.00 ￦ 8,231,292 100.00By Type

Equity securities ￦ 490,118 7.52 ￦ 769,212 9.34Fixed rate bonds 5,664,678 86.88 7,134,421 86.68Floating rate bonds 40,035 0.61 80,131 0.97Stock price linked securities ￦ 207,588 3.18 ￦ 151,880 1.85Beneficiary certificates 109,505 1.68 90,942 1.10Others 8,236 0.13 4,706 0.06

￦ 6,520,160 100.00 ￦ 8,231,292 100.00By Industry


Financial institutions 4,068,968 62.41 3,300,398 40.10Manufacturing 473,166 7.26 738,444 8.97Others 642,397 9.85 2,963,387 36.00

￦ 6,520,160 100.00 ￦ 8,231,292 100.00

5. LOANS:Loans, classified by borrower type, as of December 31, 2007 and 2006 were as follows :

(Unit: In millions)

2007 2006By borrower type Amount Ratio(%) Amount Ratio(%)Large enterprises ￦ 16 - ￦ 14,633 3.63Small and medium enterprises 1,733 0.42 1,226 0.30Consumer loans 414,037 99.58 387,693 96.07

￦ 415,786 100.00 ￦ 403,552 100.00


Loans, classified industry, as of December 31, 2007 and 2006 were as follows (Unit: In millions):

(Unit: In millions)

2007 2006By industry Amount Ratio(%) Amount Ratio(%)Corporate loans

Financial institutions ￦ 16 - ￦ 69 0.02Manufacturing 623 0.15 323 0.08Services 717 0.18 14,937 3.70Others 393 0.09 530 0.13

1,749 0.42 15,859 3.93Consumer loans 414,037 99.58 387,693 96.07

￦ 415,786 100.00 ￦ 403,552 100.00

Term structure of loans as of December 31, 2007 is as follows :

(Unit: in millions)

Secured Secured Mortgage loan on loan on loan on Loan on

Remaining period beneficiary right bond real estate deeds Others TotalWithin 6 months ￦ 160,962 ￦ 11,715 ￦ 260 ￦ 183 ￦ - ￦ 173,120Within 1 year 75,229 4,009 11 - - 79,249Within 2 years 17,504 200 10 - - 17,714Within 3 years 17,196 - - - - 17,196Within 4 years 7,320 - 243 - - 7,563Within 5 years 7,769 - 50 - - 7,819Over 5 years 96,355 - 16,741 29 - 113,125

￦ 382,335 ￦ 15,924 ￦ 17,315 ￦ 212 ￦ - ￦ 415,786



Term structure of loans as of December 31, 2006 is as follows :

(Unit: in millions)

Secured Secured Mortgage loan on loan on loan on Loan on

Remaining period beneficiary right bond real estate deeds Others TotalWithin 6 months ￦ 132,094 ￦ 31,158 ￦ 747 ￦ 302 ￦ 3 ￦ 164,304Within 1 year 72,347 4,722 128 14 - 77,211Within 2 years 11,493 - 46 - - 11,539Within 3 years 13,648 20 15 - - 13,683Within 4 years 9,650 - - 14,418 - 24,068Within 5 years 7,499 - 369 - - 7,868Over 5 years 81,375 - 23,467 31 6 104,879

￦ 328,106 ￦ 35,900 ￦ 24,772 ￦ 14,765 ￦ 9 ￦ 403,552

6. ASSET CLASSIFICATION AND ALLOWANCES FOR POSSIBLE LOAN LOSSES:The allowance for possible loan losses as of December 31, 2007 is summarized as follows :

(Unit: in millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalSecurities

Balance ￦ 24,756 ￦ - ￦ 14,625 ￦ 369 ￦ 4,894 ￦ 44,644Allowances 210 - 7,487 366 4,894 12,957

LoansBalance 413,073 1,104 1,211 217 181 415,786Allowances 7 114 243 129 181 674

TotalBalance 437,829 1,104 15,836 586 5,075 460,430Allowances(*) ￦ 217 ￦ 114 ￦ 7,730 ￦ 495 ￦ 5,075 ￦ 13,631

(*) Allowances provided for Suspense receivables and interest receivables amounting to 139 million and 125 million respectively, are excluded



(Unit: in millions)

Normal Precautionary Substandard Doubtful Estimated loss TotalSecurities

Balance ￦ 27,006 ￦ - ￦ 14,777 ￦ 636 ￦ 5,641 ￦ 48,060Allowances 189 - 7,241 477 5,641 13,548

LoansBalance 398,513 2,015 2,100 577 347 403,552Allowances 9 202 420 333 347 1,311

TotalBalance 425,519 2,015 16,887 1,213 5,988 451,612Allowances(*) ￦ 198 ￦ 202 ￦ 7,661 ￦ 810 ￦ 5,988 ￦ 14,859

(*) Allowances provided for Suspense receivables and interest receivables amounting to 15million and 143million respectively, are excluded.

7. RESTRUCTED LOANS:Outstanding restructured loans due to workout as of December 31, 2007 were as follows :

(Unit: in millions)

Present value discountsDiscount Beginning Endingrate (%) Loans balance Increase Decrease Balance

Commercial papers 7.00 ￦ 13,241 ￦ 170 ￦ 152 ￦ - ￦ 322

8. CONTINGENCIES AND COMMITMENTS:Among securities that the trust has written off as of December 31, 2007, 116,545 million won (face value) is for persons related to the liabilitythat have not been discharged from claims due to imperfection of statute of limitation of related laws or receivables not collected after writing off.



9. TERM STRUCTURE OF SIGNIFICANT ASSETS AND LIABILITIES:Term structure of significant assets and liabilities for the year ended December 31, 2007 are as follows :

(Unit: In millions)


AssetsSecuritiesGovernment bonds ￦ 136,214 ￦ 43,742 ￦ 216,660 ￦ 386,343 ￦ 324,296 ￦ 1,107,255Finance debentures 99,363 78,208 176,273 1,080,071 148,154 1,582,069Municipal bonds - - 1,256 15,308 - 16,564Corporate bonds 175,981 138,915 322,139 462,893 274,082 1,374,010Securities denominated

in foreign currencies - - 12,449 - - 12,449Bills bought in won 942,664 634,386 20,000 - 15,316 1,612,366Other securities 60,290 - - 189,971 75,068 325,329Loans 139,487 33,632 79,249 34,910 128,508 415,786Monetary receivables 354,230 4,785 730,744 1,328,451 2,270,681 4,688,891

LiabilitiesMonetary trust 1,986,118 895,887 544,222 1,243,814 3,693,569 8,363,610Property trust ￦ 404,090 ￦ 205,567 ￦ 865,532 ￦ 1,483,389 ￦ 2,406,655 ￦ 5,365,233

10. TRANSACTIONS BETWEEN TRUSTS:In general, Trust Business Supervisory Stipulations prohibit transfers between trusts and it is only allowed when certain requirements are met. TheTrust transfers assets to solve temporary liquidity disproportion or to settle assets with difficulty in immediate disposal due to market conditions.

Significant transactions with bank accounts for the years ended December 31, 2007 and 2006 are as follows :

(Unit : in millions)

Balance Sheet TransactionsAssets Trust(transfer from) Trust(transfer to) Amount Amount ReasonSecurities Long Term Household Monetary Trust Household Monetary Trust ￦ 10,455 ￦10,536 Securing fluidity

Long Term Household Monetary Trust Personal Pension Trust 12,938 13,090 Securing fluidityLong Term Household Monetary Trust Corporation Monetary Trust 500 500 Securing fluidityLong Term Household Monetary Trust Old-Age Pension Trust 6,280 6,332 Securing fluidityLong Term Household Monetary Trust New Installment Savings Trust 3,996 4,035 Securing fluidityLong Term Household Monetary Trust Installment Savings Trust (Performance) ￦ 11,478 ￦11,553 Securing fluidity

(Continued)



Balance Sheet TransactionsAssets Trust(transfer from) Trust(transfer to) Amount Amount Reason

Personal Pension Trust Personal Pension rust(*1) ￦ 499 ￦ 503 Securing fluidityPersonal Pension Trust Corporation Monetary Trust 200 200 Securing fluidityWorkers Preferential Trust Long Term Household Monetary Trust 1,992 1,990 Securing fluidityWorkers Preferential Trust Installment Savings Trust (Performance) 2,013 2,014 Securing fluidityCorporation Monetary Trust Long Term Household Monetary Trust 992 999 Securing fluidityCorporation Monetary Trust Personal Pension Trust 499 500 Securing fluidityCorporation Monetary Trust Old-Age Pension Trust 400 404 Securing fluidityOld-Age Pension Trust Personal Pension Trust 1,000 1,010 Securing fluidityUnit Type Monetary Trust Unit Type Monetary Trust(*1) 1,501 1,514 Securing fluidityUnit Type Monetary Trust Open Type Monetary Trust 4,673 4,702 Securing fluidityUnit Type Monetary Trust Retirement Trust 1,493 1,505 Securing fluidityNew Personal Pension Trust Pension Trust 3,002 3,016 Securing fluidityNew Workers Preferential Trust New Personal Pension Trust 995 998 Securing fluidityNew Workers Preferential Trust New Workers Preferential Trust(*1) 994 993 Securing fluidityNew Workers Preferential Trust Pension Trust 1,995 2,003 Securing fluidityNew Workers Preferential Trust Open Type Monetary Trust 994 1,000 Securing fluidityNew Old-Age Pension Trust Pension Trust 1,992 1,988 Securing fluidityNew Old-Age Pension Trust Open Type Monetary Trust 3,984 3,977 Securing fluidityNew Old-Age Pension Trust Retirement Trust 598 596 Securing fluidityNew Installment Savings Trust Household Monetary Trust 5,494 5,514 Securing fluidityNew Installment Savings Trust Long Term Household Monetary Trust 4,953 4,999 Securing fluidityNew Installment Savings Trust Personal Pension Trust 11,958 12,069 Securing fluidityNew Installment Savings Trust Workers Preferential Trust 2,793 2,810 Securing fluidityNew Installment Savings Trust Corporation Monetary Trust 1,694 1,709 Securing fluidityNew Installment Savings Trust Old-Age Pension Trust 1,499 1,510 Securing fluidityNew Installment Savings Trust New Installment Savings Trust(*1) 4,483 4,514 Securing fluidityNew Installment Savings Trust Installment Savings Trust (Performance) 15,510 15,846 Securing fluidityPension Trust Pension Trust(*1) 5,980 6,006 Securing fluidityPension Trust Open Type Monetary Trust 992 1,002 Securing fluidityPension Trust Retirement Trust 990 992 Securing fluidityInstallment Savings Trust (Performance) Household Monetary Trust 952 993 Securing fluidityInstallment Savings Trust (Performance) Long Term Household Monetary Trust 497 500 Securing fluidityInstallment Savings Trust (Performance) Personal Pension Trust 5,978 6,010 Securing fluidityInstallment Savings Trust (Performance) Workers Preferential Trust 497 500 Securing fluidityOpen Type Monetary Trust Unit Type Monetary Trust 250 251 Securing fluidityOpen Type Monetary Trust Pension Trust ￦ 1,014 ￦ 1,022 Securing fluidity

(Continued)




Balance Sheet TransactionsAssets Trust(transfer from) Trust(transfer to) Amount Amount Reason

Open Type Monetary Trust Open Type Monetary Trust(*1) ￦ 6,165 ￦ 6,161 Securing fluidityOpen Type Monetary Trust Retirement Trust 4,856 4,942 Securing fluidityRetirement Trust Unit Type Monetary Trust 1,602 1,610 Securing fluidityRetirement Trust New Workers Preferential Trust 5,494 5,516 Securing fluidityRetirement Trust New Old-Age Pension Trust 6,004 6,020 Securing fluidityRetirement Trust Pension Trust 17,972 18,145 Securing fluidityRetirement Trust Open Type Monetary Trust 9,922 9,993 Securing fluidityRetirement Trust Retirement Trust(*1) 6,807 6,893 Securing fluidityUnit Type Monetary Trust Unit Type Monetary Trust(*1) 30,530 30,396 Securing fluidity

￦ 230,349 ￦ 231,881(*1) Transfers between different funds in same Joint management trusts.

11. TRANSACTIONS WITH THE BANK.Significant assets and liabilities with the bank for the years ended December 31, 2007 and 2006 are as follows :

(Unit: In millions)

2007 2006Assets

Cash and due from banks ￦ 290,341 ￦ 139,205Due from banking account 919,308 962,558Accrued income 6,139 4,075

LiabilitiesTrust fee payable 81,847 78,916Prepaid expenses ￦ 1,176 ￦ -

Significant assets and transactions with the bank for the years ended December 31, 2007 and 2006 are as follows (Unit: in millions):

(Unit: In millions)

2007 2006Revenues

Interest on due from banks ￦ 6,650 ￦ 1,430Interest on due from banking account 52,773 32,547

ExpenseTrust fees to the bank 70,291 78,485Commission on termination of commodity ￦ 21 ￦ 19



Affiliated Companies

As of the end of December 2007, KB had nine domestic affiliates, whichinclude KB Real Estate Trust Co., Ltd., KB Investment Co., Ltd., KBCredit Information Co., Ltd., KB Data Systems Corporation, KB LifeInsurance Co., Ltd., KB Asset Management Co., Ltd., KB Futures Co.,Ltd., Joo Eun Industries, and Jang Eun Securities. Globally, KB had 4 localaffiliates, comprising of Kookmin Bank International Limited(London),Kookmin Bank Hong Kong Limited, Kookmin Finance Asia Limited(HongKong), Kookmin Singapore Limited. The Bank also has a 25% ownership of

Sorak Holdings Pte. Among subsidiaries in Korea, Joo Eun Industries hasbeen in a liquidation process since 2002 and Jang Eun Securities is in abankruptcy process. Among overseas subsidiaries, Kookmin SingaporeLimited received a closure permission from the Ministry of Finance andEconomy of Korea and local supervising authorities. Kookmin Finance AsiaLimited is in a liquidation process as well.

KB bolstered the competitiveness of its subsidiaries, which totaled 18 when

Affiliate Changes in 2007

KB REAL ESTATE TRUST CO., LTD.

Tel: (822) 2190-9800~1Fax: (822) 2190-9803http://www.kbret.co.krMajor Business: Real estate, property rightof lease trust and real estate developmentguidance, advisory and consultationOwnership: 99.99%

KB INVESTMENT CO., LTD.

Tel: (822) 545-5091 Fax: (822) 545-5092http://www.kbic.co.krMajor Business: Investment, consultation andresearch services for new business and small andmedium business investment cooperative fundmanagement Ownership: 99.99%

KB CREDIT INFORMATIONCO., LTD.

Tel: (822) 2070-1100Fax: (822) 2070-1090http://www.kbci.co.krMajor Business: Credit information, creditsurvey, complaint services Ownership: 99.73%

KB DATA SYSTEMS CO., LTD.

Tel: (822) 3215-6000Fax: (822) 3215-6100http://www.kds.co.krMajor Business: Development, sales andmaintenance of financial institutionselectronics systemOwnership: 99.99%


KB was born out of the merger between Kookmin Bank and H&CB in2001, and their business sectors by merging or selling off subsidiaries whosebusiness sectors were overlapped, for example, venture capital, assetmanagement and credit information. KB also completed its restructuring ofnon-financial subsidiary and insolvent subsidiaries. That is to say, two leasefirms were sold off, a credit card issuer was absorbed by KB and aconstruction subsidiary is in the process of liquidation after its constructionlicense was returned to the government. Companies which could not help

being a temporary KB subsidiary because of the merger were excludedfrom the list of KB subsidiaries by selling off their equities. To diversifyincome channels through its participation in the insurance business, KBestablished KB Life Insurance in June of 2004 and included it as asubsidiary beginning in fiscal 2004. Besides, on January 25 of 2005, KBsold off a 49% equity of KB Life Insurance to ING Insurance InternationalB.V. and possessed a 51% equity of the life insurer as of the end of 2005. * KB Investment Securities Co., Ltd. was registered as a subsidiary of KB in March, 2008.

KB LIFE INSURANCE CO., LTD.

Tel: (822) 398-6800Fax: (822) 398-6843Major Business: Life InsuranceOwnership: 51%

KB FUTURES CO., LTD.

Tel: (822) 3786-0800Fax: (822) 3786-0890Major Business: Domestic and overseasfutures and trust, mediation, arranging, proxy,and investment advisory Ownership: 99.98%

KB INVESTMENT SECURITIES CO., LTD

Tel: (822) 3777-8000Fax: (822) 3777-8282http://www.kbsec.co.krMajor Business: SecuritiesOwnership: 95.8%

KB ASSET MANAGEMENT CO., LTD

Tel: (822) 2167-8200 Fax: (822) 761-4114http://www.kbam.co.krMajor Business: Securities investment trustmanagement, investment advisory, investment,investment proxy management, and futuresinvestment fund management, draft purchase,and call transactions Ownership: 80.00%

SORAK FINANCIAL HOLDINGSPTE. LTD

Tel: (65) 6828-6828Fax: (65) 6821-1170Major Business: Special purpose vehicle tosubscribe to indonesia’s BII BankOwnership: 25.00%


Overseas Network

Head Office9-1, 2-ga, Namdaemun-ro,Jung-gu Seoul 100-703, KoreaTel: (822) 2073-7114Swift Code: CZNBKRSETelex: K23481, K26109Http://www.kbstar.comCall Center: (82) 1588-9999

IR(Investor Relations)36-3, Yoido-dong, Youngdeungpo-gu,Seoul 150-758, KoreaTel: (822) 2073-8350Fax: (822) 2073-8360E-mail: [email protected]

Global Business36-3, Yoido-dong,Youngdeungpo-gu,Seoul 150-758, KoreaTel: (822) 2073-5480Fax: (822) 2073-8140

Company Directory

Guangzhou, ChinaGuangzho Room 4602~3, Office building,CITIC PLAZA 233 Tianhe N. RoadGuangzhou, ChinaTel: (86-20) 3877-0566Fax: (86-20) 3877-0569Swift Code: CZHBCN22

Hong Kong, China19/F., Gloucester Tower 11 Pedder StreetCentral, Hong Kong, ChinaTel: (852) 2530-3633Fax: (852) 2869-6650Swift Code: KHBAHKHHE-mail: [email protected]

London, United Kingdom6th floor, Princes Court, 7 Princes Street,London EC2R 8AQ, U.K.Tel: (44-207) 710-8300Fax: (44-207) 726-2808Swift Code: CZNBGB2LE-mail: [email protected]

Tokyo, JapanYurakucho Denki Bldg. -N, 14F, 1-7-1Yurakucho, Chiyoda-ku Tokyo 100 JapanTel: (813) 3201-3411Fax: (813) 3201-3410Swift Code: CZNBJPJTE-mail: [email protected]

Auckland, New ZealandLevel 19, 135 Albert Street PO BOX 7506Wellesley, Auckland, New ZealandTel: (64-9) 366-1000Fax: (64-9) 366-6608 Swift Code: CZNBNZ2AE-mail: [email protected]

New York, U.S.A.565 Fifth Ave. 46th street, 24th Floor, New York, NY 10017 USATel: (1-212) 697-6100Fax: (1-212) 697-1456Swift Code: CZNBUS33E-mail: [email protected]

Almaty, Kazakhstan19 Al-Farabi Ave., Almaty Business Center NurlyTau 2B,office No.901Tel: (7-727) 311-0347Fax: (7-727) 311-0351

Ho Chi Minh City, Vietnam1709A,17th Floor Saigon Trade Center, TonDuc Thang 37, Ben Nghe Ward, Ho Chi Minh,VietnamTel: (84-8) 910-7058Fax: (84-8) 910-7059

Kiev, Ukraine20, Velyka Zhytomyrska Street Office 47, Kiev, UkraineTel: (38-044) 201-4755Fax: (38-044) 201-4764

Overseas Network

Common ShareKorea Exchange: 060000, Kookmin Bank (KB)Kookmin Bank Securities Agency Business Dept.34, Yoido-dong, Youngdeungpo-gu,Seoul 150-758, KoreaTel: (822) 2073-8120Fax: (822) 2073-8111

American Depository Receipts(ADRs)New York Stock Exchange: Kookmin BankCitibank, N.A. Depositary ReceiptsDepartment388 Greenwich Street, New York, NewYork 10013Tel: (1-212) 816-6859Fax: (1-212) 816-6865

Transfer Agent and Register


Forward Looking Statements

Forward Looking Statements

This document contains forward-looking statements. Words and phrases such as "will," "aim," "will likely result," "will continue,""contemplate," "seek to," "future." "objective," "goal," "should," "will pursue," "anticipate," "estimate," "expect," "project," "intend," "plan,""believe" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identifywith forward-looking statements. All forward-looking statements are management's present expectations of future events and are subject to anumber of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

The factors that could cause actual results to differ include, but are not limited to, the following:

•KB's ability to successfully implement its strategy;

•future levels of non-performing loans;

•KB's growth and expansion;

•adequacy of allowance for credit and investment losses;

•technological changes;

•investment income;

•availability of funding and liquidity;

•cash flow projections;

•KB's exposure to market risks; and

•adverse market and regulatory conditions.

By their nature, certain disclosures relating to these and other risks are only estimates and could be materially different from what actuallyoccurs in the future. As a result, actual future gains, losses or impact on KB's income or results of operations could materially differ from thosethat have been estimated.

In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements containedin this document could include, but are not limited to.

•general economic and political conditions in Korea or other countries that have an impact on KB's business activities or investments;

•Korea's monetary and interest rate policies;

•inflation or deflation;

•foreign exchange rates;

•prices and yields of equity and debt securities;

•performance of the financial markets in Korea and internationally;

•changes in domestic and foreign laws, regulations and taxes;

•changes in competition and the pricing environments in Korea; and

•regional or general changes in asset valuations.

KB cautions the reader not to place undue reliance on the forward-looking statements, which speak only as of the date of this document.Except as required by law, we are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-lookingstatements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to KB orany person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this document.

9-1, 2-ga, Namdaemun-ro, Jung-gu, Seoul 100-703, KoreaTel: (822) 2073-7114 \ Fax: (822) 2073-8360Swift Code: CZNBKRSE \ Telex: K23481, K26109www.kbstar.com

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